SEC Info - JPMorgan Chase & Co - ‘10-K’ for 12/31/18

JPMorgan Chase & Co – ‘10-K’ for 12/31/18

JPMorgan Chase & Co – ‘10-K’ for 12/31/18

On: Tuesday, 2/26/19, at 4:57pm ET · For: 12/31/18 · Accession #: 19617-19-54 · File #: 1-05805

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Annual Report — Form 10-K — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

‘10-K’ — Annual Report
Document Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

51 Subsequent Filings that Reference this Filing

On: Tuesday, 2/26/19, at 4:57pm ET · For: 12/31/18 · Accession #: 19617-19-54 · File #: 1-05805

Annual Report — Form 10-K — Sect. 13 / 15(d) – SEA’34Filing Table of Contents

‘10-K’ — Annual ReportDocument Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

51 Subsequent Filings that Reference this Filing

Annual Report — Form 10-K — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

‘10-K’ — Annual Report
Document Table of Contents

Page	(sequential)		(alphabetic)	↑Top
		Alternative Formats (Word, et al.) Accounting and Reporting Developments Business Business Segment Results Business segments Certain Relationships and Related Transactions, and Director Independence Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Competition Consolidated Balance Sheets and Cash Flows Analysis Consolidated Financial Statements Consolidated Results of Operations Controls and Procedures Country Risk Management Credit and Investment Risk Management Critical Accounting Estimates Used by the Firm Deposits Directors, Executive Officers and Corporate Governance Distribution of assets, liabilities and stockholders' equity; interest rates and interest differentials Enterprise-wide Risk Management Executive Compensation Executive Overview Exhibits, Financial Statement Schedules Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Performance Measures Financial Statements and Supplementary Data Five-Year Stock Performance Five-Year Summary of Consolidated Financial Highlights Forward-Looking Statements Glossary of Terms and Acronyms Introduction Investment securities portfolio Item 1 Item 10 Item 11 Item 12 Item 13 Item 14 Item 15 Item 1A Item 1B Item 2 Item 3 Item 4 Item 5 Item 6 Item 7 Item 7A Item 8 Item 9 Item 9A Item 9B Legal Proceedings Loan portfolio Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Report on Internal Control Over Financial Reporting Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Risk Management Mine Safety Disclosures Notes to Consolidated Financial Statements Off-Balance Sheet Arrangements and Contractual Cash Obligations Operational Risk Management Other Information Overview Part I Part II Part III Part IV Principal Accounting Fees and Services Properties Quantitative and Qualitative Disclosures About Market Risk Report of Independent Registered Public Accounting Firm Return on equity and assets Risk Factors Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Selected Financial Data Selected quarterly financial data (unaudited) Short-term and other borrowed funds Strategic Risk Management Summary of loan and lending-related commitments loss experience Supervision and regulation Unresolved Staff Comments
1	1st Page – Filing Submission
"	Part I
"	Item 1
"	Business
"	Overview
"	Business segments
"	Competition
"	Supervision and regulation
"	Item 1A
"	Risk Factors
"	Item 1B
"	Unresolved Staff Comments
"	Item 2
"	Properties
"	Item 3
"	Legal Proceedings
"	Item 4
"	Mine Safety Disclosures
"	Part II
"	Item 5
"	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
"	Item 6
"	Selected Financial Data
"	Item 7
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 7A
"	Quantitative and Qualitative Disclosures About Market Risk
"	Item 8
"	Financial Statements and Supplementary Data
"	Item 9
"	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
"	Item 9A
"	Controls and Procedures
"	Item 9B
"	Other Information
"	Part III
"	Item 10
"	Directors, Executive Officers and Corporate Governance
"	Item 11
"	Executive Compensation
"	Item 12
"	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
"	Item 13
"	Certain Relationships and Related Transactions, and Director Independence
"	Item 14
"	Principal Accounting Fees and Services
"	Part IV
"	Item 15
"	Exhibits, Financial Statement Schedules
"	Return on equity and assets
"	Five-Year Summary of Consolidated Financial Highlights
"	Five-Year Stock Performance
"	Introduction
"	Executive Overview
"	Consolidated Results of Operations
"	Consolidated Balance Sheets and Cash Flows Analysis
"	Off-Balance Sheet Arrangements and Contractual Cash Obligations
"	Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Performance Measures
"	Business Segment Results
"	Enterprise-wide Risk Management
"	Strategic Risk Management
"	Credit and Investment Risk Management
"	Market Risk Management
"	Country Risk Management
"	Operational Risk Management
"	Critical Accounting Estimates Used by the Firm
"	Accounting and Reporting Developments
"	Forward-Looking Statements
"	Management's Report on Internal Control Over Financial Reporting
"	Report of Independent Registered Public Accounting Firm
"	Consolidated Financial Statements
"	Notes to Consolidated Financial Statements
"	Selected quarterly financial data (unaudited)
"	Distribution of assets, liabilities and stockholders' equity; interest rates and interest differentials
"	Glossary of Terms and Acronyms
"	Investment securities portfolio
"	Loan portfolio
"	Summary of loan and lending-related commitments loss experience
"	Deposits
"	Short-term and other borrowed funds

Overview

JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”, NYSE: JPM), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; JPMorgan Chase had $2.6 trillion in assets and $256.5 billion in stockholders’ equity as of December 31, 2018. 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 subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with U.S. branches in 27 states and the District of Columbia as of December 31, 2018, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national banking association that is the Firm’s principal credit card-issuing bank. In January 2019, the OCC approved an application of merger which was filed by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. in December 2018 and which contemplates that Chase Bank USA, N.A. will merge with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A. as the surviving bank. For additional information refer to Supervision and Regulation on pages 1-6 in the 2018 Form 10-K. 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 in the U.K. is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.

The Firm’s website is www.jpmorganchase.com. JPMorgan Chase makes available on its website, free of charge, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files or furnishes such material to the U.S. Securities and Exchange Commission (the “SEC”) at www.sec.gov. The Firm has adopted, and posted on its website, a Code of Conduct for all employees of the Firm and a Code of Ethics for its Chairman and Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and all other professionals of the Firm worldwide serving in a finance, accounting, tax or investor relations role.

Business segments

JPMorgan Chase’s activities are organized, for management reporting purposes, 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”).

A description of the Firm’s business segments and the products and services they provide to their respective client bases is provided in the “Business segment results” section of Management’s discussion and analysis of financial condition and results of operations (“Management’s discussion and analysis” or “MD&A”), beginning on page 42 and in Note 31.

Competition

JPMorgan Chase and its subsidiaries and affiliates operate in highly competitive environments. Competitors include other banks, brokerage firms, investment banking companies, merchant banks, hedge funds, commodity trading companies, private equity firms, insurance companies, mutual fund companies, investment managers, credit card companies, mortgage banking companies, trust companies, securities processing companies, automobile financing companies, leasing companies, e-commerce and other Internet-based companies, financial technology companies, and other companies engaged in providing similar products and services. The Firm’s businesses generally compete on the basis of the quality and variety of the Firm’s products and services, transaction execution, innovation, reputation and price. Competition also varies based on the types of clients, customers, industries and geographies served. With respect to some of its geographies and products, JPMorgan Chase competes globally; with respect to others, the Firm competes on a national or regional basis. The Firm’s ability to compete also depends upon its ability to attract and retain professional and other personnel, and on its reputation.

Competition in the financial services industry continues to be intense. In some cases, the Firm’s businesses compete with other financial institutions that may have a stronger local presence in certain geographies or that operate under different rules and regulatory regimes than the Firm, and with companies that provide new or innovative products or services, including those that the Firm does not provide.

Supervision and regulation

The Firm is subject to extensive and comprehensive regulation under U.S. federal and state laws, as well as the applicable laws of the jurisdictions outside the U.S. in which the Firm does business. The Firm has experienced an extended period of significant change in regulation which has had and could continue to have significant consequences for how the Firm conducts business in the U.S. and other countries.

Financial holding company:

Consolidated supervision. JPMorgan Chase & Co. is a bank holding company (“BHC”) and a financial holding company (“FHC”) under U.S. federal law, and is subject to comprehensive consolidated supervision, regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Federal Reserve acts as an “umbrella regulator,” and certain of JPMorgan Chase’s subsidiaries are regulated directly by additional authorities based on the activities of those subsidiaries.

JPMorgan Chase’s national bank subsidiaries, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., are supervised and regulated by the Office of the Comptroller of the Currency (“OCC”) and, with respect to certain matters, by the Federal Deposit Insurance Corporation (the “FDIC”). In January 2019, the OCC approved an application of merger which was filed by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. in December 2018 and which contemplates that Chase Bank USA, N.A. will merge with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A. as the surviving bank. Completion of the merger, which is expected to occur in the second quarter of 2019, will be subject to customary closing conditions which will be set forth in an agreement and plan of merger to be entered into between the banks. The merger may be abandoned by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. at any time before completion.

JPMorgan Chase’s U.S. broker-dealers are supervised and regulated by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”), and subsidiaries of the Firm that engage in certain futures-related and swaps-related activities are supervised and regulated by the Commodity Futures Trading Commission (“CFTC”). J.P. Morgan Securities plc is a U.K. bank licensed within the European Economic Area (the “EEA”), and is regulated by the U.K. Prudential Regulation Authority (the “PRA”) and the U.K. Financial Conduct Authority (“FCA”).

The Firm’s other non-U.S. subsidiaries are regulated by the banking and securities regulatory authorities in the countries in which they operate.

Permissible business activities. The Bank Holding Company Act generally restricts BHCs from engaging in business activities other than the business of banking and certain closely-related activities. FHCs can engage in a broader range of financial activities, including underwriting, dealing and making markets in securities, and making merchant banking investments in non-financial companies. The Federal Reserve has the authority to limit an FHC’s ability to conduct otherwise permissible activities if the FHC or any of its depository institution subsidiaries ceases to meet applicable eligibility requirements. The Federal Reserve may also impose corrective capital and/or managerial requirements on the FHC, and if deficiencies are persistent, may require divestiture of the FHC’s depository institutions.

If any depository institution controlled by an FHC fails to maintain a satisfactory rating under the Community Reinvestment Act, the Federal Reserve must prohibit the FHC and its subsidiaries from engaging in any activities other than those permissible for BHCs.

Capital and liquidity requirements. The Federal Reserve establishes capital, liquidity and leverage requirements for JPMorgan Chase and evaluates the Firm’s compliance with those requirements. The OCC establishes similar requirements for the Firm’s national banking subsidiaries. Banking supervisors globally continue to refine and enhance the Basel III capital framework for financial institutions, including the finalization of post-crisis reforms.

In January 2019, the Basel Committee issued “Minimum capital requirements for market risk,” which supersedes a previous release from January 2016. The Basel Committee expects national regulators to implement these revised market risk requirements for banking organizations in their jurisdictions by January 1, 2022, in line with the other elements of the Basel III Reforms.

U.S. banking regulators have announced their support for the issuance of the Basel III Reforms and are considering how to appropriately apply such reforms in the U.S. Any changes to U.S. capital rules based on the Basel III Reforms would first be proposed for public comment. In October 2018, the U.S. banking regulators issued a notice of proposed rulemaking “Standardized Approach for Calculating the Exposure Amount of Derivatives” (“SA-CCR”), with an implementation date of July 1, 2020. This proposal reflects the U.S implementation of the Basel Committee’s equivalent standard, which was finalized in 2014 as part of the post-crisis reform package.

Under Basel III, bank holding companies and banks are required to measure their liquidity against two specific liquidity tests: the liquidity coverage ratio (“LCR”) and the net stable funding ratio (“NSFR”). In April 2016, the U.S. banking regulators issued a proposed rule for NSFR, but no final rule has been issued.

For more information concerning capital and liquidity requirements, refer to Capital Risk Management on pages 85-94 and Liquidity Risk Management on pages 95–100.

Stress tests. As a large BHC, JPMorgan Chase is subject to supervisory stress testing administered by the Federal Reserve as part of the Federal Reserve’s annual Comprehensive Capital Analysis and Review (“CCAR”) framework. The Firm must conduct semi-annual company-run stress tests and must also submit an annual capital plan to the Federal Reserve, taking into account the results of separate stress tests designed by the Firm and the Federal Reserve. The Federal Reserve’s review of the Firm’s capital plan considers both quantitative and qualitative factors. The Firm is required to receive a notice of non-objection from the Federal Reserve each year before taking capital actions, such as paying dividends, implementing common equity repurchase programs or redeeming or repurchasing capital

instruments. The OCC requires JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. to perform separate, similar stress tests annually. The Firm publishes each year the results of its mid-cycle stress tests under the Firm’s internally-developed “severely adverse” scenario and the results of the annual stress tests for the Firm and its principal banking subsidiaries under the supervisory “severely adverse” scenarios provided by the Federal Reserve and the OCC. The Firm is required to file its 2019 annual CCAR submission on April 5, 2019. Results will be published by the Federal Reserve by June 30, 2019, with disclosures of results by BHCs, including the Firm, to follow within 15 days. The mid-cycle capital stress test submissions are due on October 5, 2019 and BHCs, including the Firm, will publish results by November 4, 2019. For more information concerning the Firm’s CCAR, refer to Capital Risk Management on pages 85-94.

Enhanced prudential standards. As part of its mandate to identify and monitor risks to the financial stability of the U.S. posed by large banking organizations, the Financial Stability Oversight Council (“FSOC”) recommends prudential standards and reporting requirements to the Federal Reserve for systemically important financial institutions (“SIFIs”), such as JPMorgan Chase. The Federal Reserve has adopted several rules to implement those heightened prudential standards, including rules relating to risk management and corporate governance of subject BHCs. Large BHCs such as JPMorgan Chase are required to comply with enhanced liquidity and overall risk management standards, including oversight by the board of directors of risk management activities.

Orderly liquidation authority and resolution and recovery. The Firm is required to submit periodically to the Federal Reserve and the FDIC a plan for resolution under Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) in the event of material distress or failure (a “resolution plan”). The Firm’s next resolution plan is due to be filed on or before July 1, 2019. The Firm also has a comprehensive recovery plan detailing the actions it would take to avoid failure by remaining well-capitalized and well-funded in the case of an adverse event.

Certain financial companies, including JPMorgan Chase and certain of its subsidiaries, can also be subjected to resolution under an “orderly liquidation authority.” The U.S. Treasury Secretary, in consultation with the President of the United States, must first make certain determinations concerning extraordinary financial distress and systemic risk, and action must be recommended by the FDIC and the Federal Reserve. Absent such actions, the Firm, as a BHC, would remain subject to resolution under the Bankruptcy Code. The FDIC has issued a draft policy statement describing its “single point of entry” strategy for resolution of SIFIs under the orderly liquidation authority, which seeks to keep operating subsidiaries of a BHC open and impose losses on shareholders and creditors of the BHC in receivership according to their statutory order of priority.

The FDIC has not formally adopted its proposed single point of entry strategy.

JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. are both required to provide resolution plans to the FDIC. The FDIC is expected to propose changes to its rules relating to the resolution plans of insured depository institutions (“IDIs”) in an advanced notice of proposed rulemaking. The OCC has published guidelines establishing standards for recovery planning by insured national banks, and JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. have submitted their recovery plans to the OCC.

Certain of the Firm’s non-U.S. subsidiaries are also subject to resolution and recovery planning requirements in the jurisdictions in which they operate.

Holding company as source of strength. JPMorgan Chase & Co. is required to serve as a source of financial strength for its depository institution subsidiaries and to commit resources to support those subsidiaries, including when directed to do so by the Federal Reserve.

Regulation of acquisitions. Acquisitions by BHCs and their banks are subject to multiple requirements established by the Federal Reserve and the OCC. For example, FHCs and BHCs are required to obtain the approval of the Federal Reserve before they may acquire more than 5% of the voting shares of an unaffiliated bank. In addition, acquisitions by financial companies are prohibited if, as a result of the acquisition, the total liabilities of the financial company would exceed 10% of the total liabilities of all financial companies. Furthermore, for certain acquisitions, the Firm must provide written notice to the Federal Reserve prior to acquiring direct or indirect ownership or control of any voting shares of any company with over $10 billion in assets that is engaged in activities that are “financial in nature.”

Volcker Rule. The Volcker Rule prohibits banking entities, including the Firm, from engaging in certain “proprietary trading” activities, subject to exceptions for underwriting, market-making, risk-mitigating hedging and certain other activities. The Volcker Rule also limits the sponsorship of, and investment in, “covered funds,” and imposes limits on certain transactions between the Firm and covered funds for which a JPMorgan Chase entity serves as the investment manager, investment advisor, commodity trading advisor or sponsor, as well as certain covered funds controlled by such funds. The Volcker Rule requires banking entities to establish comprehensive compliance programs reasonably designed to help ensure and monitor compliance with the restrictions under the Volcker Rule.

Consent orders. The Firm remains subject to consent orders entered into with its banking regulators between 2013 and 2016 concerning anti-money laundering, the CIO investigation, foreign exchange trading and referral hiring practices.

JPMorgan Chase’s subsidiary banks:

The activities of the Firm’s principal subsidiary banks, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., are limited to those specifically authorized under the National Bank Act and related interpretations of the OCC.

FDIC deposit insurance. The FDIC deposit insurance fund provides insurance coverage for certain deposits and is funded through assessments on banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.

FDIC powers upon a bank insolvency. Upon the insolvency of an IDI, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., the FDIC could be appointed as the conservator or receiver under the Federal Deposit Insurance Act (“FDIA”). The FDIC has broad powers to transfer any assets and liabilities without the approval of the institution’s creditors.

Cross-guarantee. An FDIC-insured depository institution can be held liable for any loss incurred or expected to be incurred by the FDIC if another FDIC-insured institution that is under common control with such institution is in default or is deemed to be “in danger of default” (commonly referred to as “cross-guarantee” liability). An FDIC cross-guarantee claim against a depository institution is generally superior in right of payment to claims of the holding company and its affiliates against such depository institution.

Prompt corrective action. The Federal Deposit Insurance Corporation Improvement Act of 1991 requires the relevant federal banking regulator to take “prompt corrective action” with respect to a depository institution if that institution does not meet certain capital adequacy standards. Although these regulations apply only to banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., the Federal Reserve is authorized to take appropriate action against the parent BHC, such as JPMorgan Chase & Co., based on the undercapitalized status of any bank subsidiary. In certain instances, the BHC would be required to guarantee the performance of the capital restoration plan for its undercapitalized subsidiary.

OCC Heightened Standards. The OCC has established guidelines setting forth heightened standards for large banks, including minimum standards for the design and implementation of a risk governance framework for banks. Under these standards, a bank’s risk governance framework must ensure that the bank’s risk profile is easily distinguished and separate from that of its parent BHC for risk management purposes. The bank’s board or risk committee is responsible for approving the bank’s risk governance framework, providing active oversight of the bank’s risk-taking activities, and holding management accountable for adhering to the risk governance framework.

Restrictions on transactions with affiliates. The bank subsidiaries of JPMorgan Chase (including subsidiaries of those banks) are subject to restrictions imposed by federal law on extensions of credit to, investments in stock or

securities of, and derivatives, securities lending and certain other transactions with, JPMorgan Chase & Co. and certain other affiliates. These restrictions prevent JPMorgan Chase & Co. and other affiliates from borrowing from such subsidiaries unless the loans are secured in specified amounts and comply with certain other requirements.

Dividend restrictions. Federal law imposes limitations on the payment of dividends by national banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. Refer to Note 25 for the amount of dividends that the Firm’s principal bank subsidiaries could pay, at January 1, 2019, to their respective BHCs without the approval of their banking regulators. The OCC and the Federal Reserve also have authority to prohibit or limit the payment of dividends of the bank subsidiaries that they supervise 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 bank.

Depositor preference. Under federal law, the claims of a receiver of an IDI for administrative expense and the claims of holders of U.S. deposit liabilities (including the FDIC and deposits in non-U.S. branches that are dually payable in the U.S. and in a non-U.S. branch) have priority over the claims of other unsecured creditors of the institution, including depositors in non-U.S. branches and public noteholders.

Consumer supervision and regulation. JPMorgan Chase and its national bank subsidiaries are subject to supervision and regulation by the Consumer Financial Protection Bureau (“CFPB”) with respect to federal consumer protection laws, including laws relating to fair lending and the prohibition of unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products and services. These laws include the Truth-in-Lending, Equal Credit Opportunity Act (“ECOA”), Fair Credit Reporting, Fair Debt Collection Practice, Electronic Funds Transfer, Credit Card Accountability, Responsibility and Disclosure (“CARD”) and Home Mortgage Disclosure Acts. The CFPB also has jurisdiction over small business lending activities with respect to fair lending and ECOA. As part of its regulatory oversight, the CFPB has authority to take enforcement actions against firms that offer certain products and services to consumers using practices that are deemed to be unfair, deceptive or abusive. The Firm’s consumer activities are also subject to regulation under state statutes which are enforced by the Attorney General of each state.

Securities and broker-dealer regulation:

The Firm conducts securities underwriting, dealing and brokerage activities in the U.S. through J.P. Morgan Securities LLC and other non-bank broker-dealer subsidiaries, all of which are subject to regulations of the SEC, FINRA and the New York Stock Exchange, among others. The Firm conducts similar securities activities outside the U.S. subject to local regulatory requirements. In the U.K., those activities are conducted by J.P. Morgan Securities plc. Broker-dealers are subject to laws and

regulations covering all aspects of the securities business, including sales and trading practices, securities offerings, publication of research reports, use of customer funds, the financing of client purchases, capital structure, record-keeping and retention, and the conduct of their directors, officers and employees. For information concerning the capital of J.P. Morgan Securities LLC and J.P. Morgan Securities plc, refer to Broker-dealer regulatory capital on page 94.

Investment management regulation:

The Firm’s asset and wealth management businesses are subject to significant regulation in jurisdictions around the world relating to, among other things, the safeguarding and management of client assets, offerings of funds and marketing activities. Certain of the Firm’s subsidiaries are registered with, and subject to oversight by, the SEC as investment advisers. The Firm’s registered investment advisers are subject to the fiduciary and other obligations imposed under the Investment Advisers Act of 1940, as well as various state securities laws. The Firm’s fiduciary activities are also subject to supervision by the OCC.

The Firm’s asset and wealth management businesses continue to be affected by ongoing rule-making and implementation of new regulations, including the SEC’s proposed Regulation Best Interest and rules proposed or adopted by certain U.S. states relating to enhanced standards of conduct for broker-dealers and certain other market participants. In June 2018, the Department of Labor’s fiduciary rule, which would have significantly expanded the universe of persons viewed as investment advice fiduciaries to retirement plans and individual retirement accounts under the Employee Retirement Income Security Act of 1974, as amended, was vacated by the United States Court of Appeals for the Fifth Circuit.

In the European Union (“EU”), substantial revisions to the Markets in Financial Instruments Directive (“MiFID II”) became effective in EU member states beginning in January 2018. These revisions introduced expanded requirements for a broad range of investment management activities, including product governance, transparency on costs and charges, independent investment advice, inducements, record-keeping and client reporting. In addition, the Regulation on Money Market Funds has instituted new requirements to enhance the liquidity and stability of money market funds in the EU.

Derivatives regulation:

The Firm is subject to comprehensive regulation of its derivatives businesses, including regulations that impose capital and margin requirements, require central clearing of standardized over-the-counter (“OTC”) derivatives, mandate that certain standardized over-the-counter swaps be traded on regulated trading venues, and provide for reporting of certain mandated information. In accordance with requirements under the Dodd-Frank Act, JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and J.P. Morgan Securities plc have registered with the CFTC as “swap dealers” and may be required to register with the SEC as

“security-based swap dealers.” As a result, these entities are or will be subject to a comprehensive regulatory framework applicable to their swap or security-based swap activities, including capital requirements, rules requiring the collateralization of uncleared swaps and security-based swaps, rules regarding segregation of counterparty collateral, business conduct and documentation standards, record-keeping and reporting obligations, and anti-fraud and anti-manipulation requirements. In the EU, the implementation of the European Market Infrastructure Regulation (“EMIR”) and MiFID II has resulted in comparable, but not identical, changes to the European regulatory regime for derivatives.

The Firm and other derivatives market participants have agreed to adhere to the 2015 Universal Resolution Stay Protocol (the “2015 Protocol”), the 2018 U.S. Resolution Stay Protocol (the “2018 Protocol”) and the Resolution Stay Jurisdictional Modular Protocol, each developed by the International Swaps and Derivatives Association (“ISDA”) in response to regulator concerns that the close-out of derivatives and other financial transactions during the resolution of a large cross-border financial institution could impede resolution efforts and potentially destabilize markets. These protocols provide for the contractual recognition of cross-border stays under various statutory resolution regimes and, in the case of the 2015 Protocol and 2018 Protocol, a contractual stay on certain cross-default rights.

J.P. Morgan Securities LLC is registered with the CFTC as a futures commission merchant, and is a member of the National Futures Association.

Data and cyber regulation:

The Firm and its subsidiaries are subject to numerous U.S. federal and state as well as international laws and regulations concerning the collection, use, confidentiality, disclosure, transfer, protection and handling of information, including personal information of individuals and confidential information (including the EU General Data Protection Regulation), as well as the management of internal and external threats and vulnerabilities to protect information assets and the supporting infrastructure from cyberattacks. These laws and regulations are evolving at a rapid pace, remain a focus of regulators globally and will continue to have a significant impact on all of the Firm’s businesses.

The Bank Secrecy Act and Economic Sanctions:

The Bank Secrecy Act (“BSA”) requires all financial institutions, including banks and securities broker-dealers, to establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. The BSA includes a variety of record-keeping and reporting requirements, as well as due diligence/know-your-customer documentation requirements. The Firm is also subject to the regulations and economic sanctions programs administered by the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”). In addition, the EU has adopted various economic sanctions

programs targeted at countries that are involved in terrorism, hostilities, embezzlement or human rights violations.

Anti-Corruption:

The Firm is subject to laws and regulations relating to corrupt and illegal payments to government officials and others in the jurisdictions in which it operates, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act.

Compensation practices:

The Firm’s compensation practices are subject to oversight by the Federal Reserve, as well as other agencies. The Federal Reserve has issued guidance jointly with the FDIC and the OCC that is designed to ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety and soundness. The Financial Stability Board (“FSB”) has also established standards covering compensation principles for banks. The Firm’s compensation practices are also subject to regulation and oversight by regulators in other jurisdictions. In Europe, the EU Fourth Capital Requirements Directive (“CRD IV”) includes compensation-related provisions, and the European Banking Authority has instituted guidelines on compensation policies which in certain countries, such as the U.K., are implemented or supplemented by local regulations or guidelines. The Firm expects that the implementation of regulatory guidelines regarding compensation in the U.S. and other countries will continue to evolve, and may affect the manner in which the Firm structures its compensation programs and practices.

Significant international regulatory initiatives:

The EU continues to implement an extensive and complex program of regulatory enhancement to address risks associated with global financial institutions. The EU operates a European Systemic Risk Board that monitors financial stability and encourages supervisory convergence across the EU’s member states, and European Supervisory Authorities (“ESAs”) are responsible for adopting and implementing related rules. The EU is currently reviewing the ESA framework and the European Commission (the “EC”) has proposed legislation to change the roles and responsibilities of the ESAs. The EU has also created a Single Supervisory Mechanism for the euro-zone, under which the regulation of all banks in the zone are under the auspices of the European Central Bank, together with a Single Resolution Mechanism and Single Resolution Board, which has jurisdiction over the resolution of banks in the zone.

Significant regulatory initiatives affecting the Firm’s businesses in the EU include EMIR and MiFID II. EMIR requires the central clearing of certain standardized derivatives and risk mitigation for uncleared OTC derivatives. EMIR is currently in the process of being amended as part of a legislative proposal known as “EMIR REFIT,” which will introduce targeted changes to EMIR to make the rules more streamlined and proportionate. There is also a separate EMIR legislative proposal which includes provisions for third-country supervision of CCPs. MiFID II

requires that the trading of standardized OTC derivatives be effected on exchanges or electronic trading platforms, and also significantly enhanced requirements for pre- and post-trade transparency, transaction reporting and investor protection, and introduced position limits and a reporting regime for commodities. MiFID II became effective across EU member states in January 2018 and will be subject to a review by the EC by March 2020.

The EU has also proposed or implemented significant revisions to laws covering securities settlement; mutual funds and pensions; payments; anti-money laundering controls; data security and privacy; transparency and disclosure of securities financing transactions; benchmarks; resolution of banks, investment firms and market infrastructures; and capital and liquidity requirements for banks and investment firms. The EU capital and liquidity legislation for banks and investment firms is implementing many of the finalized Basel III capital and liquidity standards, including in relation to the leverage ratio, market risk capital, and a net stable funding ratio. EU legislation also contemplates a requirement for certain non-EU banks operating in the EU to establish an intermediate parent undertaking (“IPU”) located in the EU. The full impact of the IPU proposal on JPMorgan Chase’s operations and legal entities in the EU will be heavily influenced by the outcome of the EU legislative process, including whether any flexibility is introduced to the requirement. The “trilogue” negotiations to determine the final legislation have concluded and the agreement is subject to a final vote by the European Council and European Parliament before becoming EU law.

The FSB’s standard relating to total loss-absorbing capacity (“TLAC”), which was issued in November 2015, specified minimum TLAC requirements for global systemically important banks, including at the level of their material sub-groups. These requirements are being implemented in the EU in the form of a minimum requirement for own funds and eligible liabilities (“MREL”). The Bank of England published its updated Statement of Policy on its approach to setting MREL in June 2018. This included new requirements on the MREL resources to be held by U.K. material subsidiaries of overseas groups. These rules came into effect, on a transitional basis, from January 1, 2019.

U.K. regulators have adopted a range of policy measures that have significantly changed the markets and prudential regulatory environment in the U.K., and have also introduced measures to enhance accountability of individuals and promote forward-looking conduct risk identification and mitigation. There is significant uncertainty concerning future U.K. policy initiatives in light of the expected departure of the U.K. from the EU, as these initiatives will depend on the future relationship between the EU and U.K. For information concerning the expected departure of the U.K. from the EU, refer to Risk factors on pages 7–28 and Business developments on page 46.

Item 1A. Risk Factors.

The following discussion sets forth the material risk factors that could affect JPMorgan Chase’s financial condition and operations. Readers should not consider any descriptions of these factors to be a complete set of all potential risks that could affect the Firm. Any of the risk factors discussed below could by itself, or combined with other factors, materially and adversely affect JPMorgan Chase’s business, results of operations, financial condition, capital position, liquidity, competitive position or reputation, including by materially increasing expenses or decreasing revenues, which could result in material losses or a decrease in earnings.

Regulatory

JPMorgan Chase’s businesses are highly regulated, and the laws and regulations that apply to JPMorgan Chase have a significant impact on its business and operations.

JPMorgan Chase is a financial services firm with operations worldwide. JPMorgan Chase must comply with the laws and regulations that apply to its operations in all of the jurisdictions around the world in which it does business. The regulation of financial services is extensive and comprehensive.

JPMorgan Chase has experienced an extended period of significant change in laws and regulations affecting the financial services industry, both within and outside the U.S. The supervision of financial services firms also expanded significantly during this period. The wave of increased regulation and supervision of JPMorgan Chase has affected the way that it conducts its business and structures its operations. Existing and new laws and regulations and expanded supervision could require JPMorgan Chase to make further changes to its business and operations. These changes could result in JPMorgan Chase incurring additional costs for complying with laws and regulations and could reduce JPMorgan Chase’s profitability. More specifically, existing and new laws and regulations could require JPMorgan Chase to:


•	limit the products and services that it offers


•	reduce the liquidity that it can provide through its market-making activities


•	stop or discourage it from engaging in business opportunities that it might otherwise pursue


•	recognize losses in the value of assets that it holds


•	pay higher assessments, levies or other governmental charges


•	dispose of certain assets, and do so at times or prices that are disadvantageous


•	impose restrictions on certain business activities, or


•	increase the prices that it charges for products and services, which could reduce the demand for them.

Differences in financial services regulation can be disadvantageous for JPMorgan Chase’s business.

The content and application of laws and regulations affecting financial services firms sometimes vary according to factors such as the size of the firm, the jurisdiction in which it is organized or operates, and other criteria. For example:


•	larger firms are often subject to more stringent supervision and regulation


•	financial technology companies and other non-traditional competitors may not be subject to banking regulation, or may be supervised by a national or state regulatory agency that does not have the same resources or regulatory priorities as the regulatory agencies which supervise more diversified financial services firms, or


•	the financial services regulatory framework in a particular jurisdiction may favor financial institutions that are based in that jurisdiction.

These types of differences in the regulatory framework can result in a firm such as JPMorgan Chase losing market share to competitors that are less regulated or not subject to regulation, especially with respect to unregulated financial products.

There can also be significant differences in the ways that similar regulatory initiatives affecting the financial services industry are implemented in the U.S. and in other countries and regions in which JPMorgan Chase does business. For example, when adopting rules that are intended to implement a global regulatory initiative or standard, a national regulator may introduce additional or more restrictive requirements, which can create competitive disadvantages for financial services firms, such as JPMorgan Chase, that may be subject to those enhanced regulations.

Legislative and regulatory initiatives outside the U.S. could require JPMorgan Chase to make significant modifications to its operations and legal entity structure in the relevant countries or regions in order to comply with those requirements. These include laws and regulations that have been adopted or proposed relating to:


•	the resolution of financial institutions


•	the establishment of locally-based intermediate holding companies


•	the separation (or “ring fencing”) of core banking products and services from markets activities


•	requirements for executing or settling transactions on exchanges or through central counterparties (“CCPs”)


•	position limits and reporting rules for derivatives


•	governance and accountability regimes


•	conduct of business requirements, and


•	restrictions on compensation.

These types of differences in financial services regulation, or inconsistencies or conflicts between laws and regulations between different jurisdictions, could require JPMorgan Chase to:


•	divest assets or restructure its operations


•	absorb increased operational, capital and liquidity costs


•	change the prices that it charges for its products and services


•	curtail the products and services that it offers to its customers and clients, or


•	incur higher costs for complying with different legal and regulatory frameworks.

Any or all of these factors could harm JPMorgan Chase’s ability to compete against other firms that are not subject to the same laws and regulations or supervisory oversight, or harm JPMorgan Chase’s businesses, results of operations and profitability.

Governments in some countries or regions in which JPMorgan Chase does business have adopted laws or regulations which require JPMorgan Chase subsidiaries that operate in those jurisdictions to maintain minimum amounts of capital or liquidity on a stand-alone basis. Some regulators outside the U.S. have also proposed that large banks which conduct certain businesses in their jurisdictions operate through separate subsidiaries located in those jurisdictions. These requirements, and any future laws or regulations that impose restrictions on the way JPMorgan Chase organizes its businesses or increase the capital or liquidity requirements that would apply to JPMorgan Chase subsidiaries, could hinder JPMorgan Chase’s ability to efficiently manage its operations, increase its funding and liquidity costs, and result in lower profitability.

Heightened regulatory scrutiny of JPMorgan Chase’s businesses has increased its compliance costs and could result in restrictions on its operations.

JPMorgan Chase’s operations are subject to heightened oversight and scrutiny from regulatory authorities in many jurisdictions where JPMorgan Chase does business. JPMorgan Chase has paid significant fines, provided other monetary relief, incurred other penalties and experienced other repercussions in connection with resolving several investigations and enforcement actions by governmental agencies. JPMorgan Chase could become subject to similar regulatory resolutions or other actions in the future, and addressing the requirements of any such resolutions or actions could result in JPMorgan Chase incurring higher operational and compliance costs or needing to comply with other restrictions.

In connection with resolving specific regulatory investigations or enforcement actions, certain regulators have required JPMorgan Chase and other financial institutions to admit wrongdoing with respect to the

activities that gave rise to the resolution. These types of admissions can lead to:


•	greater exposure in civil litigation


•	damage to reputation


•	disqualification from doing business with certain clients or customers, or in specific jurisdictions, or


•	other direct and indirect adverse effects.

Furthermore, U.S. government officials have demonstrated a willingness to bring criminal actions against financial institutions and have demanded that institutions plead guilty to criminal offenses or admit other wrongdoing in connection with resolving regulatory investigations or enforcement actions. Resolutions of this type can have significant collateral consequences for the subject financial institution, including:


•	loss of clients, customers and business


•	restrictions on offering certain products or services, and


•	losing permission to operate certain businesses, either temporarily or permanently.

JPMorgan Chase expects that it and other financial services firms will continue to be subject to heightened regulatory scrutiny and governmental investigations and enforcement actions. JPMorgan Chase also expects that regulators will continue to insist that financial institutions be penalized for actual or deemed violations of law with formal and punitive enforcement actions, including the imposition of significant monetary and other sanctions, rather than resolving these matters through informal supervisory actions. Furthermore, if JPMorgan Chase fails to meet the requirements of any resolution of a governmental investigation or enforcement action, or to maintain risk and control processes that meet the heightened standards established by its regulators, it could be required to:


•	enter into further resolutions


•	pay additional regulatory fines, penalties or judgments, or


•	accept material regulatory restrictions on, or changes in the management of, its businesses.

In these circumstances, JPMorgan Chase could also become subject to other sanctions, or to prosecution or civil litigation with respect to the conduct that gave rise to an investigation or enforcement action.

The long-term impact of U.S. tax reform legislation is uncertain, and may be affected by regulatory implementation.

The long-term impact of the Tax Cuts & Jobs Acts (“TCJA”) on JPMorgan Chase and the U.S. economy remains uncertain. While the enactment of the TCJA has had, and should continue to have, a positive impact on JPMorgan Chase’s net income, the competitive environment and other

factors will influence the extent to which these benefits are retained by JPMorgan Chase over the longer term, and the specific impact on JPMorgan Chase’s businesses, products and geographies may vary. In addition, the Treasury Regulations governing certain TCJA provisions have not been finalized and their ultimate impact on JPMorgan Chase is uncertain.

Complying with economic sanctions and anti-corruption and anti-money laundering laws and regulations can increase JPMorgan Chase’s operational and compliance costs and risks.

JPMorgan Chase must comply with economic sanctions and embargo programs administered by the Office of Foreign Assets Control (“OFAC”) and similar national and multi-national bodies and governmental agencies outside the U.S., as well as anti-corruption and anti-money laundering laws and regulations throughout the world. JPMorgan Chase can incur higher costs and face greater compliance risks in structuring and operating its businesses to comply with these requirements. Furthermore, a violation of a sanction or embargo program or anti-corruption or anti-money laundering laws and regulations could subject JPMorgan Chase, and individual employees, to regulatory enforcement actions as well as significant civil and criminal penalties.

JPMorgan Chase’s operations can be constrained in countries with less predictable legal and regulatory frameworks.

If the legal and regulatory system in a particular country is less established or predictable, this can create a more difficult environment in which to conduct business. For example, any of the following could hamper JPMorgan Chase’s operations and reduce its earnings in countries with less established or predictable legal and regulatory regimes:


•	the absence of a statutory or regulatory basis or guidance for engaging in specific types of business or transactions


•	the adoption of conflicting or ambiguous laws and regulations, or the inconsistent application or interpretation of existing laws and regulations


•	uncertainty concerning the enforceability of contractual obligations


•	difficulty in competing in economies in which the government controls or protects all or a portion of the local economy or specific businesses, or where graft or corruption may be pervasive, and


•	the threat of arbitrary regulatory investigations, civil litigations or criminal prosecutions, the termination of licenses required to operate in the local market or the suspension of business relationships with governmental bodies.

Conducting business in countries with less-developed legal and regulatory regimes often requires JPMorgan Chase to

devote significant additional resources to understanding, and monitoring changes in, local laws and regulations, as well as structuring its operations to comply with local laws and regulations and implementing and administering related internal policies and procedures. There can be no assurance that JPMorgan Chase will always be successful in its efforts to conduct its business in compliance with laws and regulations in countries with less predictable legal and regulatory systems or that JPMorgan Chase will be able to develop effective working relationships with local regulators.

Requirements for the orderly resolution of JPMorgan Chase could result in JPMorgan Chase having to restructure or reorganize its businesses.

JPMorgan Chase is required under Federal Reserve and FDIC rules to prepare and submit periodically to those agencies a detailed plan for rapid and orderly resolution in bankruptcy, without extraordinary government support, in the event of material financial distress or failure. The agencies’ evaluation of the Firm’s resolution plan may change, and the requirements for resolution plans may be modified from time to time. Any such determinations or modifications could result in JPMorgan Chase needing to make changes to its legal entity structure or to certain internal or external activities, which could increase its funding or operational costs.

If the Federal Reserve and the FDIC were to determine that a resolution plan submitted by JPMorgan Chase has deficiencies, they could jointly impose more stringent capital, leverage or liquidity requirements or restrictions on JPMorgan Chase’s growth, activities or operations. After two years, if the deficiencies are not cured, the agencies could also require that JPMorgan Chase restructure, reorganize or divest assets or businesses in ways that could materially and adversely affect JPMorgan Chase’s operations and strategy.

Holders of JPMorgan Chase & Co.’s debt and equity securities will absorb losses if it were to enter into a resolution.

Federal Reserve rules require that JPMorgan Chase & Co. (the “Parent Company”) maintain minimum levels of unsecured external long-term debt and other loss-absorbing capacity with specific terms (“eligible LTD”) for purposes of recapitalizing JPMorgan Chase’s operating subsidiaries if the Parent Company were to enter into a resolution either:


•	in a bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code, or


•	in a receivership administered by the FDIC under Title II of the Dodd-Frank Act (“Title II”).

If the Parent Company were to enter into a resolution, holders of eligible LTD and other debt and equity securities of the Parent Company will absorb the losses of the Parent Company and its subsidiaries.

The preferred “single point of entry” strategy under JPMorgan Chase’s resolution plan contemplates that only the Parent Company would enter bankruptcy proceedings. JPMorgan Chase’s subsidiaries would be recapitalized, as needed, so that they could continue normal operations or subsequently be divested or wound down in an orderly manner. As a result, the Parent Company’s losses and any losses incurred by its subsidiaries would be imposed first on holders of the Parent Company’s equity securities and thereafter on its unsecured creditors, including holders of eligible LTD and other debt securities. Claims of holders of those securities would have a junior position to the claims of creditors of JPMorgan Chase’s subsidiaries and to the claims of priority (as determined by statute) and secured creditors of the Parent Company.

Accordingly, in a resolution of the Parent Company in bankruptcy, holders of eligible LTD and other debt securities of the Parent Company would realize value only to the extent available to the Parent Company as a shareholder of JPMorgan Chase Bank, N.A. and its other subsidiaries, and only after any claims of priority and secured creditors of the Parent Company have been fully repaid.

The FDIC has similarly indicated that a single point of entry recapitalization model could be a desirable strategy to resolve a systemically important financial institution, such as the Parent Company, under Title II. However, the FDIC has not formally adopted a single point of entry resolution strategy.

If the Parent Company were to approach, or enter into, a resolution, none of the Parent Company, the Federal Reserve or the FDIC is obligated to follow JPMorgan Chase’s preferred strategy, and losses to holders of eligible LTD and other debt and equity securities of the Parent Company, under whatever strategy is ultimately followed, could be greater than they might have been under JPMorgan Chase’s preferred strategy.

Political

The expected departure of the U.K. from the EU could negatively affect JPMorgan Chase’s business, results of operations and operating model.

It remains highly uncertain how the expected departure of the U.K. from the EU, which is commonly referred to as “Brexit,” will affect financial services firms such as JPMorgan Chase that conduct substantial operations in the EU from legal entities that are organized in or operating from the U.K. It is possible that the U.K. will depart from the EU in March 2019 without any agreement having been reached between the U.K. and the EU concerning whether or to what extent U.K.-based firms may conduct financial services activities within the EU. It is also possible that any agreement reached between the U.K. and the EU may, depending on the final outcome of the ongoing negotiations and related legislative developments:


•	impede the ability of U.K.-based financial services firms to conduct business in the EU


•	fail to address significant unresolved issues relating to the cross-border conduct of financial services activities, or


•	apply only temporarily.

JPMorgan Chase has been making the necessary modifications to its legal entity structure and operations in the EU, the locations in which it operates and the staffing in those locations to address the expected departure of the U.K. from the EU, including the possibility that the U.K. may depart from the EU in March 2019 without a withdrawal agreement in place. If the U.K. departs from the EU with no withdrawal agreement having been reached, the types of structural and operational changes that JPMorgan Chase is in the process of making to its European operations will result in JPMorgan Chase having to sustain a more fragmented operating model across its U.K., EU and other operating entities. Due to considerations such as operating expenses, liquidity, leverage and capital, the modified European operating framework will be more complex, less efficient and more costly than would otherwise have been the case. JPMorgan Chase may experience these types of inefficiencies in its business and operations even if a withdrawal agreement is reached, for example in the event that during the transition period contemplated by such an agreement, the U.K. and the EU fail to reach further agreement on future trade relationships between the U.K. and the EU, or if any other outcome persists that does not assure ongoing access for U.K.-based financial services firms to the EU market.

A disorderly departure of the U.K. from the EU, or the unexpected consequences of any departure, could have significant and immediate destabilizing effects on cross-border financial services activities, depending on circumstances that may exist following such a withdrawal, including:


•	the possibility that clients and counterparties of financial institutions are not positioned to continue to do business through EU-based legal entities


•	reduction or fragmentation of market liquidity that may be caused if trading venues or CCPs currently based in the U.K. have not completed arrangements to conduct operations from the EU either immediately or, if authorized to continue to operate from the U.K. on a transitional basis, after any transitional relief has expired


•	uncertainties concerning the application and interpretation of laws and regulations relating to cross-border financial services activities


•	inability to engage in certain capital markets activities through EU-based legal entities to the extent that licenses or temporary permission to engage in such activities have not been granted timely by local regulators, and


•	lack of legal certainty concerning the treatment of existing transactions.

Any or all of the above factors could have an adverse effect on the overall operation of the European financial services market as well as JPMorgan Chase’s business, operations and earnings in the U.K., the EU and globally.

Economic uncertainty or instability caused by political developments can hurt JPMorgan Chase’s businesses.

The economic environment and market conditions in which JPMorgan Chase operates continue to be uncertain due to political developments in the U.S. and other countries. Certain policy initiatives and proposals could cause a contraction in U.S. and global economic growth and higher volatility in the financial markets, including:


•	inability to reach political consensus to keep the U.S. government open and funded


•	isolationist foreign policies


•	the introduction of tariffs and other protectionist trade policies, or


•	the possible withdrawal or reduction of government support for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (together, the “GSEs”).

These types of political developments, and uncertainty about the possible outcomes of these developments, could:


•	erode investor confidence in the U.S. economy and financial markets, which could potentially undermine the status of the U.S. dollar as a safe haven currency


•	provoke retaliatory countermeasures by other countries and otherwise heighten tensions in diplomatic relations


•	increase concerns about whether the U.S. government will be funded, and its outstanding debt serviced, at any particular time, and


•	result in periodic shutdowns of the U.S. government or governments in other countries.

These factors could lead to:


•	greater market volatility


•	large-scale sales of government debt and other debt and equity securities in the U.S. and other countries


•	the widening of credit spreads


•	inflationary pressures


•	lower investment growth, and


•	other market dislocations.

Any of these potential outcomes could cause JPMorgan Chase to suffer losses on its market-making positions or in its investment securities portfolio, reduce its liquidity and capital levels, hamper its ability to deliver products and

services to its clients and customers, and weaken its results of operations and financial condition.

Market

JPMorgan Chase’s businesses are materially affected by economic and market events and conditions.

JPMorgan Chase’s results of operations can be negatively affected by adverse changes in any of the following:


•	investor, consumer and business sentiment


•	events that reduce confidence in the financial markets


•	inflation or deflation


•	high unemployment or, conversely, a tightening labor market


•	the availability and cost of capital and credit


•	monetary and fiscal policies and actions taken by the Federal Reserve and other central banks or governmental authorities, including any suspension or reversal of large-scale asset purchases


•	trade policies implemented by governmental authorities


•	the economic effects of natural disasters, severe weather conditions, health emergencies or pandemics, cyberattacks, outbreaks of hostilities, terrorism or other geopolitical instabilities, and


•	the health of the U.S. and global economies.

JPMorgan Chase’s consumer businesses can be negatively affected by adverse economic conditions.

JPMorgan Chase’s consumer businesses are particularly affected by U.S. and global economic conditions, including:


•	interest rates


•	the rates of inflation and unemployment


•	housing prices


•	the level of consumer and small business confidence


•	changes in consumer spending or in the level of consumer debt, and


•	the number of personal bankruptcies.

A rapid increase in interest rates could negatively affect consumer credit performance to the extent that consumers are less able to service their debts. Sustained low growth, inflationary pressures or recessionary conditions could diminish customer demand for the products and services offered by JPMorgan Chase’s consumer businesses. These conditions could also increase the cost to provide those products and services. Adverse economic conditions could also lead to an increase in delinquencies and higher net charge-offs, which can reduce JPMorgan Chase’s earnings. These consequences could be significantly worse in certain geographies where high levels of unemployment have resulted from declining industrial or manufacturing activity,

or where high levels of consumer debt, such as outstanding student loans, impair the ability of customers to pay their other consumer loan obligations.

JPMorgan Chase’s earnings from its consumer businesses could also be adversely affected by governmental policies and actions that affect consumers, including:


•	policies and initiatives relating to medical insurance, education, immigration and employment status


•	the inability to reach political consensus to keep the U.S. government open and funded, and


•	policies aimed at the economy more broadly, such as infrastructure spending and global trade, which could result in higher inflation or reductions in consumer disposable income.

In addition, governmental proposals to permit student loan obligations to be discharged in bankruptcy proceedings could, if enacted into law, encourage certain of JPMorgan Chase’s customers to declare personal bankruptcy and thereby trigger defaults and charge-offs of credit card and other consumer loans extended to those customers.

Unfavorable market and economic conditions can have an adverse effect on JPMorgan Chase’s wholesale businesses.

In JPMorgan Chase’s wholesale businesses, market and economic factors can affect the volume of transactions that JPMorgan Chase executes for its clients or for which it advises clients, and, therefore, the revenue that JPMorgan Chase receives from those transactions. These factors can also influence the willingness of other financial institutions and investors to participate in capital markets transactions that JPMorgan Chase manages, such as loan syndications or securities underwritings. Furthermore, if a significant and sustained deterioration in market conditions were to occur, the profitability of JPMorgan Chase’s capital markets businesses could be reduced to the extent that those businesses:


•	earn less fee revenue due to lower transaction volumes, including when clients are unwilling or unable to refinance their outstanding debt obligations in unfavorable market conditions


•	dispose of portions of credit commitments, such as loan syndications or securities underwritings, at a loss, or


•	hold larger residual positions in credit commitments that cannot be sold at favorable prices.

An adverse change in market conditions in particular segments of the economy, such as a sudden and severe downturn in oil and gas prices or an increase in commodity prices, could have a material adverse effect on clients of JPMorgan Chase whose operations or financial condition are directly or indirectly dependent on the health or stability of those market segments, as well as clients that are engaged in related businesses. JPMorgan Chase could incur losses on its loans and other credit commitments to clients that operate in, or are dependent on, any sector of the economy that is under stress.

The fees that JPMorgan Chase earns from managing client assets or holding assets under custody for clients could be diminished by declining asset values or other adverse macroeconomic conditions. For example, higher interest rates or a downturn in financial markets could affect the valuations of client assets that JPMorgan Chase manages or holds under custody, which, in turn, could affect JPMorgan Chase’s revenue from fees that are based on the amount of assets under management or custody. Similarly, adverse macroeconomic or market conditions could prompt outflows from JPMorgan Chase funds or accounts, or cause clients to invest in products that generate lower revenue. Substantial and unexpected withdrawals from a JPMorgan Chase fund can also hamper the investment performance of the fund, particularly if the outflows create the need for the fund to dispose of fund assets at disadvantageous times or prices, and could lead to further withdrawals based on the weaker investment performance.

An economic downturn that results in lower consumer and business spending could also have a negative impact on certain of JPMorgan Chase’s wholesale clients, and thereby diminish JPMorgan Chase’s earnings from its wholesale operations. For example, the businesses of certain of JPMorgan Chase’s wholesale clients are dependent on consistent streams of rental income from commercial real estate properties which are owned or being built by those clients. Severe and sustained adverse economic conditions could reduce the rental cash flows that owners or developers receive from those properties which, in turn, could depress the values of the properties and impair the ability of borrowers to service or refinance their commercial real estate loans. These consequences could result in JPMorgan Chase experiencing higher delinquencies, defaults and write-offs within its commercial real estate loan portfolio and incurring higher costs for servicing a larger volume of delinquent loans in that portfolio, thereby reducing JPMorgan Chase’s earnings from its wholesale businesses.

JPMorgan Chase’s investment securities portfolio and market-making positions can suffer losses due to adverse economic, market and political events and conditions.

JPMorgan Chase generally maintains positions in various fixed income instruments in its investment securities portfolio, and positions in various fixed income, currency, commodity, credit and equity instruments as part of its market-making activities. Market-making positions are intended to facilitate demand from JPMorgan Chase’s clients for these instruments and to provide liquidity for clients. The value of the positions that JPMorgan Chase holds can be significantly affected by factors such as:


•	JPMorgan Chase’s ability to effectively hedge market and other risks on its positions


•	changes in the levels and volatility of interest rates, credit spreads, and market prices for currencies, equities and commodities, and the duration of any changes in levels or volatility, and


•	the availability of liquidity in the capital markets.

All of these are affected by global economic, market and political events and conditions, as well as regulatory restrictions on market-making activities.

JPMorgan Chase’s investment securities portfolio and market-making businesses can also suffer losses due to unanticipated market events, including:


•	severe declines in asset values


•	unexpected credit events


•	unforeseen events or conditions that may cause previously uncorrelated factors to become correlated (and vice versa), or


•	other market risks that may not have been appropriately taken into account in the development, structuring or pricing of a financial instrument.

If JPMorgan Chase experiences significant losses in its investment securities portfolio or from market-making activities, this could reduce JPMorgan Chase’s profitability and its liquidity and capital levels, and thereby constrain the growth of its businesses.

Changes in interest rates and credit spreads can adversely affect certain of JPMorgan Chase’s revenue and income streams.

JPMorgan Chase can generally be expected to earn higher net interest income when interest rates are increasing. However, higher interest rates can also lead to:


•	fewer originations of commercial and residential real estate loans


•	losses on underwriting exposures


•	lower returns on JPMorgan Chase’s investment securities portfolio


•	the loss of deposits to the extent that JPMorgan Chase makes incorrect assumptions about depositor behavior


•	lower net interest income if central banks introduce interest rate increases more quickly than anticipated and this results in a misalignment in the pricing of short-term and long-term borrowings, and


•	less liquidity in the financial markets and higher funding costs.

All of these outcomes could adversely affect JPMorgan Chase’s revenues and its liquidity and capital levels. Higher interest rates can also negatively affect the payment performance on loans within JPMorgan Chase’s consumer and wholesale loan portfolios that are linked to variable interest rates. If borrowers of variable rate loans are unable to afford higher interest payments, those borrowers may reduce or stop making payments, thereby causing JPMorgan Chase to incur losses and increased operational costs related to servicing a higher volume of delinquent loans.

On the other hand, a low interest rate environment may cause:


•	net interest margins to be compressed, which could reduce the amounts that JPMorgan Chase earns on its investment securities portfolio to the extent that it is unable to reinvest contemporaneously in higher-yielding instruments, and


•	a reduction in the value of JPMorgan Chase’s mortgage servicing rights (“MSRs”) asset, thereby decreasing revenues.

When credit spreads widen, it becomes more expensive for JPMorgan Chase to borrow. JPMorgan Chase’s credit spreads may widen or narrow not only in response to events and circumstances that are specific to JPMorgan Chase but also as a result of general economic and geopolitical events and conditions. Changes in JPMorgan Chase’s credit spreads will affect, positively or negatively, JPMorgan Chase’s earnings on certain liabilities, such as derivatives, that are recorded at fair value.

JPMorgan Chase’s results may be materially affected by market fluctuations and significant changes in the value of financial instruments.

The value of securities, derivatives and other financial instruments which JPMorgan Chase owns or in which it makes markets can be materially affected by market fluctuations. Market volatility, illiquid market conditions and other disruptions in the financial markets may make it extremely difficult to value certain financial instruments, particularly during periods of market displacement. Subsequent valuations of financial instruments in future periods, in light of factors then prevailing, may result in significant changes in the value of these instruments. In addition, at the time of any disposition of these financial instruments, the price that JPMorgan Chase ultimately realizes will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value. Any of these factors could cause a decline in the value of financial instruments which JPMorgan Chase owns or in which it makes markets, which may have an adverse effect on JPMorgan Chase’s results of operations.

Under extreme market conditions, hedging and other risk management strategies may not be as effective at mitigating losses as they would be under more normal market conditions. Furthermore, under these conditions, market participants are particularly exposed to trading strategies employed by many market participants simultaneously and on a large scale. JPMorgan Chase’s risk management and monitoring processes seek to quantify and mitigate risk to more extreme market moves. However, severe market events have historically been difficult to predict and JPMorgan Chase could realize significant losses if extreme market events were to occur.

Credit

JPMorgan Chase can be adversely affected by the financial condition of clients, counterparties, custodians and CCPs.

JPMorgan Chase routinely executes transactions with brokers and dealers, commercial and investment banks, mutual and hedge funds, investment managers and other types of financial institutions. Many of these transactions expose JPMorgan Chase to the credit risk of its clients and counterparties, and can involve JPMorgan Chase in disputes and litigation in the event that a client or counterparty defaults. JPMorgan Chase can also be subject to losses or liability where a financial institution that it has appointed to provide custodial services for client assets or funds becomes insolvent as a result of fraud or the failure to abide by existing laws and obligations, including under the EU Alternative Investment Fund Managers Directive.

A default by a CCP through which JPMorgan Chase executes contracts would require JPMorgan Chase to replace those contracts, thereby increasing its operational costs and potentially resulting in losses. JPMorgan Chase can also be exposed to losses if a member of a CCP in which JPMorgan Chase is also a member defaults on its obligations to the CCP because of requirements that each member of the CCP absorb a portion of those losses.

Disputes may arise with counterparties to derivatives contracts with regard to the terms, the settlement procedures or the value of underlying collateral. The disposition of those disputes could cause JPMorgan Chase to incur unexpected transaction, operational and legal costs, or result in credit losses. These consequences can also impair JPMorgan Chase’s ability to effectively manage its credit risk exposure from its market activities, or cause harm to JPMorgan Chase’s reputation.

JPMorgan Chase’s businesses can be harmed by the insolvency of a significant market participant.

The failure of a significant market participant, such as a major financial institution or a CCP, or concerns about the creditworthiness of such a market participant, can have a cascading effect within the financial markets. JPMorgan Chase’s businesses could be significantly disrupted by such an event, particularly if it leads to other market participants incurring significant losses, experiencing liquidity issues or defaulting. These risks could be magnified in the event of the default, insolvency or resolution of a major global financial counterparty, as JPMorgan Chase is likely to have significant interrelationships with, and credit exposure to, such a counterparty, and would seek to unwind or hedge positions in securities, derivatives and other obligations in multiple jurisdictions during a period of heightened market volatility.

JPMorgan Chase’s clearing services business is exposed to the risk of client or counterparty default.

As part of its clearing services activities, JPMorgan Chase is a member of several CCPs. In the event that another member of such an organization defaults on its obligations to the CCP, JPMorgan Chase may be required to pay a portion of any losses incurred by the CCP as a result of that default. As a clearing member, JPMorgan Chase is also exposed to the risk of nonperformance by its clients, which it seeks to mitigate by requiring clients to provide adequate collateral. JPMorgan Chase is exposed to intra-day credit risk of its clients in connection with providing cash management, clearing, custodial and other transaction services to those clients. If a client for which JPMorgan Chase provides these services becomes bankrupt or insolvent, JPMorgan Chase may incur losses, become involved in disputes and litigation with one or more CCPs, the client’s bankruptcy estate and other creditors, or be subject to regulatory investigations. All of the foregoing events can increase JPMorgan Chase’s operational and litigation costs, and JPMorgan Chase may suffer losses to the extent that any collateral that it has received is insufficient to cover those losses. JPMorgan Chase can also be subject to bearing its share of nondefault losses incurred by a CCP due to a business or operational failure affecting the CCP, including due to a cyberattack, litigation, fraud or a systems failure.

JPMorgan Chase may suffer losses if the value of collateral declines in stressed market conditions.

During periods of market stress or illiquidity, JPMorgan Chase’s credit risk may be further increased when JPMorgan Chase cannot realize the fair value of the collateral held by it or when collateral is liquidated at prices that are not sufficient to recover the full amount of the loan, derivative or other exposure due to it. Furthermore, disputes with counterparties concerning the valuation of collateral may increase in times of significant market stress, volatility or illiquidity, and JPMorgan Chase could suffer losses during these periods if it is unable to realize the fair value of collateral or to manage declines in the value of collateral.

JPMorgan Chase could incur significant losses arising from concentrations of credit and market risk.

JPMorgan Chase is exposed to greater credit and market risk to the extent that groupings of its clients or counterparties:


•	engage in similar or related businesses, or in businesses in related industries


•	do business in the same geographic region, or


•	have business profiles, models or strategies that could cause their ability to meet their obligations to be similarly affected by changes in economic conditions.

For example, a significant deterioration in the credit quality of one of JPMorgan Chase’s borrowers or counterparties could lead to concerns about the creditworthiness of other

borrowers or counterparties in similar, related or dependent industries. This type of interrelationship could exacerbate JPMorgan Chase’s credit, liquidity and market risk exposure and potentially cause it to incur losses, including fair value losses in its market-making businesses.

Similarly, challenging economic conditions that affect a particular industry or geographic area could lead to concerns about the credit quality of JPMorgan Chase’s borrowers or counterparties not only in that particular industry or geography but in related or dependent industries, wherever located. These conditions could also heighten concerns about the ability of customers of JPMorgan Chase’s consumer businesses who live in those areas or work in those affected industries or related or dependent industries to meet their obligations to JPMorgan Chase. JPMorgan Chase regularly monitors various segments of its credit and market risk exposures to assess the potential risks of concentration or contagion, but its efforts to diversify or hedge its exposures against those risks may not be successful.

JPMorgan Chase’s consumer businesses can also be harmed by an excessive expansion of consumer credit by bank or non-bank competitors. Heightened competition for certain types of consumer loans could prompt industry-wide reactions such as significant reductions in the pricing or margins of those loans or the making of loans to less-creditworthy borrowers. If large numbers of consumers subsequently default on their loans, whether due to weak credit profiles, an economic downturn or other factors, this could impair their ability to repay obligations owed to JPMorgan Chase and result in higher charge-offs and other credit-related losses. More broadly, widespread defaults on consumer debt could lead to recessionary conditions in the U.S. economy, and JPMorgan Chase’s consumer businesses may earn lower revenues in such an environment.

Disruptions in the liquidity or transparency of the financial markets could cause JPMorgan Chase to be unable to sell, syndicate or realize the value of its positions in various debt instruments, loans, derivatives and other obligations, and thereby lead to increased risk concentrations. If JPMorgan Chase is unable to reduce positions effectively during a market dislocation, this can increase both the market and credit risks associated with those positions and the level of risk-weighted assets (“RWA”) that JPMorgan Chase holds on its balance sheet. These factors could increase JPMorgan Chase’s capital requirements and funding costs and adversely affect the profitability of JPMorgan Chase’s businesses.

Liquidity

Liquidity is critical to JPMorgan Chase’s ability to fund and operate its businesses.

JPMorgan Chase’s liquidity could be impaired at any given time by factors such as:


•	market-wide illiquidity or disruption


•	unforeseen cash or capital requirements


•	inability to sell assets, or to sell assets at favorable times or prices


•	default by a CCP or other significant market participant


•	unanticipated outflows of cash or collateral


•	unexpected loss of consumer deposits caused by changes in consumer behavior, and


•	lack of market or customer confidence in JPMorgan Chase or financial institutions in general.

A diminution of JPMorgan Chase’s liquidity may be caused by events over which it has little or no control. For example, during the 2008-2009 financial crisis, periods of low investor confidence and significant market illiquidity resulted in higher funding costs for JPMorgan Chase and limited its access to some of its traditional sources of liquidity, including securitized debt issuances. There is no assurance that severe conditions of this type will not occur in the future.

JPMorgan Chase may need to raise funding from alternative sources if its access to stable and lower-cost sources of funding, such as deposits and borrowings from Federal Home Loan Banks, is reduced. Alternative sources of funding could be more expensive or limited in availability. JPMorgan Chase’s funding costs could also be negatively affected by actions that JPMorgan Chase may take in order to:


•	satisfy applicable liquidity coverage ratio and net stable funding ratio requirements


•	address obligations under its resolution plan, or


•	satisfy regulatory requirements in jurisdictions outside the U.S. relating to the pre-positioning of liquidity in subsidiaries that are material legal entities.

More generally, if JPMorgan Chase fails to effectively manage its liquidity, this could constrain its ability to fund or invest in its businesses, and thereby adversely affect its results of operations.

JPMorgan Chase & Co. is a holding company and depends on the cash flows of its subsidiaries to make payments on its outstanding securities.

JPMorgan Chase & Co. is a holding company that holds the stock of JPMorgan Chase Bank, N.A. and an intermediate holding company, JPMorgan Chase Holdings LLC (the “IHC”). The IHC in turn holds the stock of substantially all of JPMorgan Chase’s subsidiaries other than JPMorgan Chase Bank, N.A. and its subsidiaries. The IHC also owns other assets and intercompany indebtedness owing to the holding company.

The holding 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 ability of JPMorgan Chase Bank, N.A. and the IHC to make payments to the holding company is also

limited. JPMorgan Chase Bank, N.A. is subject to restrictions on its dividend distributions, as well as capital adequacy and liquidity requirements and other regulatory restrictions on its ability to make payments to the holding company. The IHC is prohibited from paying dividends or extending credit to the holding company if certain capital or liquidity “thresholds” are breached or if limits are otherwise imposed by JPMorgan Chase’s management or Board of Directors.

As a result of these arrangements, the ability of the holding company to make various payments is dependent on its receiving dividends from JPMorgan Chase Bank, N.A. and dividends and extensions of credit from the IHC. These limitations could affect the holding company’s ability to:


•	pay interest on its debt securities


•	pay dividends on its equity securities


•	redeem or repurchase outstanding securities, and


•	fulfill its other payment obligations.

These regulatory restrictions and limitations could also result in the holding company seeking protection under bankruptcy laws at a time earlier than would have been the case absent the existence of the capital and liquidity thresholds to which the IHC is subject.

Reductions in JPMorgan Chase’s credit ratings may adversely affect its liquidity and cost of funding.

JPMorgan Chase & Co. and certain of its principal subsidiaries are rated by credit rating agencies. Rating agencies evaluate both general and firm-specific and industry-specific factors when determining credit ratings for a particular financial institution, including:


•	expected future profitability


•	risk management practices


•	legal expenses


•	ratings differentials between bank holding companies and their bank and non-bank subsidiaries


•	regulatory developments


•	assumptions about government support, and


•	economic and geopolitical trends

JPMorgan Chase closely monitors and manages, to the extent that it is able, factors that could influence its credit ratings. However, there is no assurance that JPMorgan Chase’s credit ratings will not be lowered in the future. Furthermore, any such downgrade could occur at times of broader market instability when JPMorgan Chase’s options for responding to events may be more limited and general investor confidence is low.

A reduction in JPMorgan Chase’s credit ratings could curtail JPMorgan Chase’s business activities and reduce its profitability in a number of ways, including:


•	reducing its access to capital markets


•	materially increasing its cost of issuing and servicing securities


•	triggering additional collateral or funding requirements, and


•	decreasing the number of investors and counterparties that are willing or permitted to do business with or lend to JPMorgan Chase.

Any rating reduction could also increase the credit spreads charged by the market for taking credit risk on JPMorgan Chase & Co. and its subsidiaries. This could, in turn, adversely affect the value of debt and other obligations of JPMorgan Chase & Co. and its subsidiaries.

The regulation, reform and replacement of benchmark rates could have adverse consequences on JPMorgan Chase’s securities issuances and its capital markets and investment activities.

Interest rate, equity, foreign exchange rate and other types of indices which are deemed to be “benchmarks,” including those in widespread and long-standing use, have been the subject of ongoing international, national and other regulatory scrutiny and initiatives and proposals for reform. Some of these reforms are already effective while others are still to be implemented or are under consideration. These reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be fully anticipated.

Any of the benchmark reforms which have been proposed or implemented, or the general increased regulatory scrutiny of benchmarks, could also increase the costs and risks of administering or otherwise participating in the setting of benchmarks and complying with regulations or requirements relating to benchmarks. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the disappearance of certain benchmarks.

Any of these developments, and any future initiatives to regulate, reform or change the administration of benchmarks, could result in adverse consequences to the return on, value of and market for loans, mortgages, securities, derivatives and other financial instruments whose returns are linked to any such benchmark, including those issued, funded or held by JPMorgan Chase.

Various regulators, industry bodies and other market participants in the U.S. and other countries are engaged in initiatives to develop, introduce and encourage the use of alternative rates to replace certain benchmarks. There is no assurance that these new rates will be accepted or widely used by market participants, or that the characteristics of any of these new rates will be similar to, or produce the economic equivalent of, the benchmarks that they seek to replace. If a particular benchmark were to be discontinued and an alternative rate has not been successfully introduced to replace that benchmark, this could result in widespread

dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities, all of which could have adverse effects on JPMorgan Chase’s results of operations. In addition, the transition of a particular benchmark to a replacement rate could affect hedge accounting relationships between financial instruments linked to that benchmark and any related derivatives, which could adversely affect JPMorgan Chase’s results.

On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot be guaranteed after 2021, and there is a substantial risk that LIBOR will be discontinued or modified by 2021. Vast amounts of loans, mortgages, securities, derivatives and other financial instruments are linked to the LIBOR benchmark, and any failure by market participants and regulators to successfully introduce benchmark rates to replace LIBOR and implement effective transitional arrangements to address the discontinuation of LIBOR could, as noted above, result in disruption in the financial markets, suppress capital markets activities and give rise to litigation claims, all of which could have a negative impact on JPMorgan Chase’s results of operations and on LIBOR-linked securities or other instruments which are issued, funded or held by JPMorgan Chase.

Operational

JPMorgan Chase’s businesses are highly dependent on the effectiveness of its operational systems and those of other market participants.

JPMorgan Chase’s businesses rely comprehensively on the ability of JPMorgan Chase’s financial, accounting, transaction execution, data processing and other operational systems to process, record, monitor and report a large number of transactions on a continuous basis, and to do so accurately, quickly and securely. In addition to proper design, installation, maintenance and training, the effective functioning of JPMorgan Chase’s operational systems depends on:


•	the quality of the information contained in those systems, as inaccurate, outdated or corrupted data can significantly compromise the functionality or reliability of a particular system and other systems to which it transmits or from which it receives information, and


•	JPMorgan Chase’s ability to appropriately maintain and upgrade its systems on a regular basis, and to ensure that any changes introduced to its systems are managed carefully to ensure security and operational continuity and adhere to all applicable legal and regulatory requirements.

JPMorgan Chase also depends on its ability to access and use the operational systems of its vendors, custodians and

other market participants, including clearing and payment systems, CCPs, securities exchanges and data processing, security and technology companies.

The ineffectiveness, failure or other disruption of operational systems upon which JPMorgan Chase depends, including due to a systems malfunction, cyberbreach or other systems failure, could result in unfavorable ripple effects in the financial markets and for JPMorgan Chase and its clients and customers, including:


•	delays or other disruptions in providing information, services and liquidity to clients and customers


•	the inability to settle transactions or obtain access to funds and other assets


•	the possibility that funds transfers, capital markets trades or other transactions are executed erroneously, illegally or with unintended consequences


•	financial losses, including due to loss-sharing requirements of CCPs, payment systems or other market infrastructures, or as possible restitution to clients and customers


•	higher operational costs associated with replacing services provided by a system that is unavailable


•	client or customer dissatisfaction with JPMorgan Chase’s products and services


•	loss of confidence in the ability of JPMorgan Chase, or financial institutions generally, to protect against and withstand operational disruptions, or


•	harm to JPMorgan Chase’s reputation.

As the speed, frequency, volume, interconnectivity and complexity of transactions continues to increase, it becomes more challenging to effectively maintain and upgrade JPMorgan Chase’s operational systems and infrastructure, especially due to the heightened risks that:


•	errors made by JPMorgan Chase or another market participant, whether inadvertent or malicious, cause widespread system disruption


•	isolated or seemingly insignificant errors in operational systems compound, or migrate to other systems over time, to become larger issues


•	failures in synchronization or encryption software, or degraded performance of microprocessors due to design flaws, could cause disruptions in operational systems, or the inability of systems to communicate with each other, and


•	third parties attempt to block the use of key technology solutions by claiming that the use infringes on their intellectual property rights.

If JPMorgan Chase’s operational systems, or those of external parties on which JPMorgan Chase’s businesses depend, are unable to meet the demanding standards of JPMorgan Chase’s businesses and operations, or if they fail

or have other significant shortcomings, JPMorgan Chase could be materially and adversely affected.

JPMorgan Chase can be negatively affected if it fails to identify and address operational risks associated with the introduction of or changes to products, services and delivery platforms.

When JPMorgan Chase launches a new product or service, introduces a new platform for the delivery or distribution of products or services (including mobile connectivity, electronic trading and cloud computing), or makes changes to an existing product, service or delivery platform, it may not fully appreciate or identify new operational risks that may arise from those changes, or may fail to implement adequate controls to mitigate the risks associated with those changes. For example, ineffective controls over newly-developed electronic trading platforms could inadvertently permit the rapid build-up of unexpected, abnormal or unusually large positions in securities or other financial instruments, or fail to anticipate or address a downturn in market liquidity which leads to sudden or severe changes in asset prices. Any significant failure to identify and mitigate operational risks associated with new products or services or new platforms for delivering or distributing products or services, or changes to existing products, services or delivery platforms, could diminish JPMorgan Chase’s ability to operate one or more of its businesses or result in:


•	potential liability to clients, counterparties and customers


•	increased operating expenses


•	higher litigation costs, including regulatory fines, penalties and other sanctions


•	damage to JPMorgan Chase’s reputation


•	impairment of JPMorgan Chase’s liquidity


•	regulatory intervention, or


•	weaker competitive standing.

Any of the foregoing consequences could materially and adversely affect JPMorgan Chase’s businesses and results of operations.

JPMorgan Chase’s connections to external operational systems expose it to greater operational risks.

External operational systems with which JPMorgan is connected, whether directly or indirectly, can be sources of operational risk to JPMorgan Chase. JPMorgan Chase may be exposed not only to a systems failure that may be experienced by a vendor or market infrastructure with which JPMorgan Chase is directly connected, but also to a systems breakdown of another party to which such a vendor or infrastructure is connected. Similarly, retailers, data aggregators and other external parties with which JPMorgan Chase’s customers do business can increase JPMorgan Chase’s operational risk. This is particularly the case where activities of customers or those parties are beyond JPMorgan Chase’s security and control systems,

including through the use of the internet, personal smart phones and other mobile devices or services.

If an external party obtains access to customer account data on JPMorgan Chase’s systems, and that party experiences a cyberbreach of its own systems or misappropriates that data, this could result in a variety of negative outcomes for JPMorgan Chase and its clients and customers, including:


•	heightened risk that external parties will be able to execute fraudulent transactions using JPMorgan Chase’s systems


•	losses from fraudulent transactions, as well as potential liability for losses that exceed thresholds established in consumer protection laws and regulations


•	increased operational costs to remediate the consequences of the external party’s security breach, and


•	harm to reputation arising from the perception that JPMorgan Chase’s systems may not be secure.

As JPMorgan Chase’s interconnectivity with clients, customers and other external parties expands, JPMorgan Chase increasingly faces the risk of operational failure with respect to the systems of those parties. Security breaches affecting JPMorgan Chase’s clients or customers, or systems breakdowns or failures, security breaches or human error or misconduct affecting other external parties, may require JPMorgan Chase to take steps to protect the integrity of its own operational systems or to safeguard confidential information, including restricting the access of customers to their accounts. These actions can increase JPMorgan Chase’s operational costs and potentially diminish customer satisfaction.

Furthermore, the widespread and expanding interconnectivity among financial institutions, central agents, CCPs, payment processors, securities exchanges, clearing houses and other financial market infrastructures increases the risk that an operational failure at one institution or entity may cause an industry-wide operational failure that could materially affect JPMorgan Chase’s ability to conduct business.

JPMorgan Chase’s operations depend on the competence and integrity of its employees and those of external parties.

JPMorgan Chase’s ability to operate its businesses efficiently and profitably, and to offer products and services that meet the expectations of its clients and customers, is highly dependent on the competence and trustworthiness of its employees, as well as employees of other parties on which JPMorgan Chase’s operations rely, including vendors, custodians and financial markets infrastructures. JPMorgan Chase’s businesses could be materially and adversely affected by a significant operational breakdown or failure, theft, fraud or other unlawful conduct, or other negative outcomes caused by human error or misconduct by an

employee of JPMorgan Chase or of another party on which JPMorgan Chase’s operations depend.

JPMorgan Chase faces substantial legal and operational risks in safeguarding personal information.

JPMorgan Chase’s businesses are subject to complex and evolving laws and regulations, both within and outside the U.S., governing the privacy and protection of personal information of individuals. The protected parties can include:


•	JPMorgan Chase’s clients and customers, and prospective clients and customers


•	clients and customers of JPMorgan Chase’s clients and customers


•	employees and prospective employees, and


•	employees of JPMorgan Chase’s vendors, counterparties and other external parties.

Ensuring that JPMorgan Chase’s collection, use, transfer and storage of personal information comply with all applicable laws and regulations in all relevant jurisdictions, including where the laws of different jurisdictions are in conflict, can:


•	increase JPMorgan Chase’s compliance and operating costs


•	hinder the development of new products or services, curtail the offering of existing products or services, or affect how products and services are offered to clients and customers


•	demand significant oversight by JPMorgan Chase’s management, and


•	require JPMorgan Chase to structure its businesses, operations and systems in less efficient ways.

Furthermore, JPMorgan Chase cannot ensure that all of its clients and customers, vendors, counterparties and other external parties have appropriate controls in place to protect the confidentiality of the information exchanged between them and JPMorgan Chase, particularly where information is transmitted by electronic means. JPMorgan Chase could be exposed to litigation or regulatory fines, penalties or other sanctions if personal, confidential or proprietary information of clients, customers, employees or others were to be mishandled or misused, such as situations where such information is:


•	erroneously provided to parties who are not permitted to have the information, or


•	intercepted or otherwise compromised by third parties.

Concerns regarding the effectiveness of JPMorgan Chase’s measures to safeguard personal information, or even the perception that those measures are inadequate, could cause JPMorgan Chase to lose existing or potential clients and customers, and thereby reduce JPMorgan Chase’s revenues. Furthermore, any failure or perceived failure by JPMorgan Chase to comply with applicable privacy or data protection

laws and regulations may subject it to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices, significant liabilities or regulatory fines, penalties or other sanctions. Any of these could damage JPMorgan Chase’s reputation and otherwise adversely affect its businesses.

Recent, well-publicized allegations involving the misuse or inappropriate sharing of personal information have led to expanded governmental scrutiny of practices relating to the safeguarding of personal information and the use or sharing of personal data by companies in the U.S. and other countries. That scrutiny has in some cases resulted in, and could in the future lead to, the adoption of stricter laws and regulations relating to the use and sharing of personal information. These types of laws and regulations could prohibit or significantly restrict financial services firms such as JPMorgan Chase from sharing information among affiliates or with third parties such as vendors, and thereby increase compliance costs, or could restrict JPMorgan Chase’s use of personal data when developing or offering products or services to customers. These restrictions could inhibit JPMorgan Chase’s development or marketing of certain products or services, or increase the costs of offering them to customers.

A successful cyberattack against JPMorgan Chase could cause significant harm to JPMorgan Chase or its clients and customers.

JPMorgan Chase experiences numerous cyberattacks on its computer systems, software, networks and other technology assets on a daily basis. These cyberattacks can take many forms, but a common objective of many of these attacks is to introduce computer viruses or malware into JPMorgan Chase’s systems. These viruses or malicious code are typically designed to:


•	obtain unauthorized access to confidential information belonging to JPMorgan Chase or its clients, customers, counterparties or employees


•	manipulate or destroy data


•	disrupt, sabotage or degrade service on JPMorgan Chase’s systems, or


•	steal money.

JPMorgan Chase has also experienced significant distributed denial-of-service attacks which are intended to disrupt online banking services.

JPMorgan Chase devotes significant resources to maintain and regularly upgrade its systems to protect them against cyberattacks. However, JPMorgan Chase has experienced security breaches due to cyberattacks in the past, and it is inevitable that additional breaches will occur in the future. Any such breach could result in serious and harmful consequences for JPMorgan Chase or its clients and customers.

A principal reason that JPMorgan Chase cannot provide absolute security against cyberattacks is that it may not always be possible to anticipate, detect or recognize threats to JPMorgan Chase’s systems, or to implement effective preventive measures against all breaches. This is because:


•	the techniques used in cyberattacks change frequently and may not be recognized until launched


•	cyberattacks can originate from a wide variety of sources, including third parties who are or may be involved in organized crime or linked to terrorist organizations or hostile countries, or whose objective is to disrupt the operations of financial institutions more generally, and


•	third parties may seek to gain access to JPMorgan Chase’s systems either directly or using equipment or security passwords belonging to employees, customers, third-party service providers or other users of JPMorgan Chase’s systems.

The risk of a security breach due to a cyberattack could increase in the future as JPMorgan Chase continues to expand its mobile-payments and other internet-based product offerings and its internal use of web-based products and applications.

A successful penetration or circumvention of the security of JPMorgan Chase’s systems or the systems of a vendor, governmental body or another market participant could cause serious negative consequences, including:


•	significant disruption of JPMorgan Chase’s operations and those of its clients, customers and counterparties, including losing access to operational systems


•	misappropriation of confidential information of JPMorgan Chase or that of its clients, customers, counterparties, employees or regulators


•	damage to computers or systems of JPMorgan Chase and those of its clients, customers and counterparties


•	inability to fully recover and restore data that has been stolen, manipulated or destroyed, or to prevent systems from processing fraudulent transactions


•	violations by JPMorgan Chase of applicable privacy and other laws


•	financial loss to JPMorgan Chase or to its clients, customers, counterparties or employees


•	loss of confidence in JPMorgan Chase’s cybersecurity measures


•	dissatisfaction among JPMorgan Chase’s clients, customers or counterparties


•	significant exposure to litigation and regulatory fines, penalties or other sanctions, and


•	harm to JPMorgan Chase’s reputation.

JPMorgan Chase could also suffer some of the above consequences if a third party were to misappropriate

confidential information obtained by intercepting signals or communications from mobile devices used by JPMorgan Chase’s employees.

JPMorgan Chase may not be able to immediately address the consequences of a security breach due to a cyberattack.

A successful breach of JPMorgan Chase’s computer systems, software, networks or other technology assets due to a cyberattack could occur and persist for an extended period of time before being detected due to:


•	the breadth of JPMorgan Chase’s operations and the high volume of transactions that it processes


•	the large number of customers, counterparties and third-party service providers with which JPMorgan Chase does business


•	the proliferation and increasing sophistication of cyberattacks, and


•	the possibility that a third party, after establishing a foothold on an internal network without being detected, might obtain access to other networks and systems.

The extent of a particular cyberattack and the steps that JPMorgan Chase may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed and full and reliable information about the attack is known. While such an investigation is ongoing, JPMorgan Chase may not necessarily know the full extent of the harm caused by the cyberattack, and that damage may continue to spread. Furthermore, it may not be clear how best to contain and remediate the harm caused by the cyberattack, and certain errors or actions could be repeated or compounded before they are discovered and remediated. Any or all of these factors could further increase the costs and consequences of a cyberattack.

JPMorgan Chase’s operations, results and reputation could be harmed by catastrophes or other events.

JPMorgan Chase’s business and operational systems could be seriously disrupted, and its reputation could be harmed, by events that are wholly or partially beyond its control, including:


•	cyberbreaches or breaches of physical premises, including data centers


•	power, telecommunications or internet outages


•	failures of, or loss of access to, operational systems, including computer systems, servers, networks and other technology assets


•	damage to or loss of property or assets of JPMorgan Chase or third parties, and any consequent injuries, including in connection with any construction projects undertaken by JPMorgan Chase


•	natural disasters or severe weather conditions


•	health emergencies or pandemics, or


•	events arising from local or larger-scale political events, including outbreaks of hostilities or terrorist acts.

JPMorgan Chase maintains a firm-wide resiliency and crisis management program that is intended to ensure the ability to recover critical business functions and supporting assets, including staff, technology and facilities, in the event of a business interruption. There can be no assurance that JPMorgan Chase’s resiliency plans will fully mitigate all potential business continuity risks to JPMorgan Chase or its clients and customers. Furthermore, should emergency or catastrophic events such as severe or abnormal weather conditions become more chronic, the disruptive effects of those events on JPMorgan Chase’s business and operations, and on its clients, customers, counterparties and employees, could become more significant and long-lasting.

Any significant failure or disruption of JPMorgan Chase’s operations or operational systems, or any catastrophic event, could:


•	hinder JPMorgan Chase’s ability to provide services to its clients and customers or to transact with its counterparties


•	require it to expend significant resources to correct the failure or disruption


•	cause it to incur losses or liabilities, including from loss of revenue, damage to or loss of property, or injuries


•	expose it to litigation or regulatory fines, penalties or other sanctions, and


•	harm its reputation.

JPMorgan Chase’s risk management framework and procedures may not be effective in identifying and mitigating every risk to JPMorgan Chase.

JPMorgan Chase’s risk management framework is intended to mitigate risk and loss. The framework includes both the “first line of defense,” consisting of each line of business and Treasury and the Chief Investment Office, including their aligned Operations, Technology and Control Management groups, and the “second line of defense,” consisting of Independent Risk Management. JPMorgan Chase has established processes and procedures to identify, measure, monitor, report and analyze the types of risk to which it is subject. However, there are inherent limitations to risk management strategies because there may be existing or future risks that JPMorgan Chase has not appropriately anticipated or identified.

Any inadequacy or lapse in JPMorgan Chase’s risk management framework, governance structure, procedures and practices, models or reporting systems could expose it to unexpected losses, and its financial condition or results of operations could be materially and adversely affected. In addition, any such inadequacy or lapse could:


•	require significant resources to remediate


•	attract heightened regulatory scrutiny


•	expose JPMorgan Chase to regulatory investigations or legal proceedings


•	subject it to litigation or regulatory fines, penalties or other sanctions


•	harm its reputation, or


•	diminish confidence in JPMorgan Chase.

JPMorgan Chase relies on data to assess its various risk exposures. Any deficiencies in the quality or effectiveness of JPMorgan Chase’s data gathering and validation processes could result in ineffective risk management practices. These deficiencies could also result in inaccurate risk reporting.

JPMorgan Chase establishes allowances for probable credit losses that are inherent in its credit exposures. It then employs stress testing and other techniques to determine the capital and liquidity necessary in the event of adverse economic or market events. These processes are critical to JPMorgan Chase’s results of operations and financial condition. They require difficult, subjective and complex judgments, including forecasts of how economic conditions might impair the ability of JPMorgan Chase’s borrowers and counterparties to repay their loans or other obligations. It is possible that JPMorgan Chase will fail to identify the proper factors or that it will fail to accurately estimate the impact of factors that it identifies.

Many of JPMorgan Chase’s risk management strategies and techniques consider historical market behavior. These strategies and techniques are based to some degree on management’s subjective judgment. For example, many models used by JPMorgan Chase are based on assumptions regarding historical correlations among prices of various asset classes or other market indicators. In times of market stress, including difficult or less liquid market environments, or in the event of other unforeseen circumstances, previously uncorrelated indicators may become correlated. Conversely, previously-correlated indicators may make unrelated movements at those times. Sudden market movements and unanticipated or unidentified market or economic movements could, in some circumstances, limit the effectiveness of JPMorgan Chase’s risk management strategies, causing it to incur losses.

JPMorgan Chase could incur significant losses, its capital levels could be reduced and it could face greater regulatory scrutiny if its models or estimations prove to be inadequate.

JPMorgan Chase has developed and uses a variety of models and other analytical and judgment-based estimations to assess and implement mitigating controls over its market, credit, liquidity, operational and other risks. These models and estimations are based on a variety of assumptions and historical trends, and are periodically reviewed and modified as necessary. The models and estimations that JPMorgan Chase uses may not be effective in all cases to

identify, observe and mitigate risk due to a variety of factors, such as:


•	reliance on historical trends that may not accurately predict future events, including assumptions underlying the models and estimations which predict correlation among certain market indicators or asset prices


•	inherent limitations associated with forecasting uncertain economic and financial outcomes


•	historical trend information may be incomplete, or may not anticipate severely negative market conditions such as extreme volatility, dislocation or lack of liquidity


•	technology that is introduced to run models or estimations may not perform as expected, or may not be well understood by the personnel using the technology


•	models and estimations may contain erroneous data, valuations, formulas or algorithms, and


•	review processes may fail to detect flaws in models and estimations.

Some of the models and other analytical and judgment-based estimations used by JPMorgan Chase in managing risks are subject to review by, and require the approval of, JPMorgan Chase’s regulators. These reviews are required before JPMorgan Chase may use those models and estimations in connection with calculating market risk RWA, credit risk RWA and operational risk RWA under Basel III. If JPMorgan Chase’s models or estimations are not approved by its regulators, it may be subject to higher capital charges, which could adversely affect its financial results or limit the ability to expand its businesses. JPMorgan Chase’s capital actions could also be constrained if a CCAR submission is not approved by its banking regulators due to the perceived inadequacy of its models or estimations.

Enhanced standards for vendor risk management can result in higher costs and other potential exposures.

JPMorgan Chase must comply with enhanced standards for the assessment and management of risks associated with doing business with vendors and other third-party service providers. These requirements are contained both in bank regulatory regulations and guidance and in certain consent orders to which JPMorgan Chase has been subject. JPMorgan Chase incurs significant costs and expenses in connection with its initiatives to address the risks associated with oversight of its third party relationships. JPMorgan Chase’s failure to appropriately assess and manage third-party relationships, especially those involving significant banking functions, shared services or other critical activities, could materially adversely affect JPMorgan Chase. Specifically, any such failure could result in:


•	potential liability to clients and customers


•	regulatory fines, penalties or other sanctions


•	increased operational costs, or


•	harm to JPMorgan Chase’s reputation.

Requirements for physical settlement and delivery in trading agreements could expose JPMorgan Chase to operational and other risks.

Certain of JPMorgan Chase’s markets transactions require the physical settlement by delivery of securities or other obligations that JPMorgan Chase does not own. If JPMorgan Chase is unable to obtain the obligations within the required timeframe, JPMorgan Chase could forfeit payments otherwise due. Failures could also result in settlement delays, which could damage JPMorgan Chase’s reputation and ability to transact business. Failure to timely settle and confirm transactions could also subject JPMorgan Chase to heightened credit and operational risk, and losses in the event of a default.

JPMorgan Chase could incur unexpected losses if estimates and judgments underlying its financial statements are incorrect.

Under U.S. generally accepted accounting principles (“U.S. GAAP”), JPMorgan Chase is required to use estimates and apply judgments in preparing its financial statements, including in determining allowances for credit losses and reserves related to litigation. Certain financial instruments require a determination of their fair value in order to prepare JPMorgan Chase’s financial statements, including:


•	trading assets and liabilities


•	instruments in the investment securities portfolio


•	certain loans


•	MSRs


•	structured notes, and


•	certain repurchase and resale agreements.

Where quoted market prices are not available for these types of financial instruments, JPMorgan Chase may make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management estimates and judgment. Sudden illiquidity in markets or declines in prices of certain loans and securities may make it more difficult to value certain financial instruments, which could lead to valuations being subsequently changed or adjusted. If estimates or judgments underlying JPMorgan Chase’s financial statements prove to have been incorrect, JPMorgan Chase may experience material losses.

Lapses in controls over disclosure or financial reporting could materially affect JPMorgan Chase’s profitability or reputation.

There can be no assurance that JPMorgan Chase’s disclosure controls and procedures will be effective in every circumstance, or that a material weakness or significant deficiency in internal control over financial reporting will not occur. Any such lapses or deficiencies could:


•	materially and adversely affect JPMorgan Chase’s business and results of operations or financial condition


•	restrict its ability to access the capital markets


•	require it to expend significant resources to correct the lapses or deficiencies


•	expose it to litigation or regulatory fines, penalties or other sanctions


•	harm its reputation, or


•	otherwise diminish investor confidence in JPMorgan Chase.

JPMorgan Chase could be adversely affected by changes in accounting standards or policies.

The preparation of JPMorgan Chase’s financial statements is based on accounting standards established by the Financial Accounting Standards Board and the Securities and Exchange Commission, as well as more detailed accounting policies established by JPMorgan Chase’s management. From time to time these accounting standards or accounting policies may change, and in some cases these changes could have a material effect on JPMorgan Chase’s financial statements and may adversely affect its financial results or investor perceptions of those results.

For example, on January 1, 2020, JPMorgan Chase and other U.S. companies will be required to implement a new accounting standard, commonly referred to as the Current Expected Credit Losses (“CECL”) framework, which will require earlier recognition of expected credit losses on loans and certain other instruments, replacing the incurred loss model that is currently in use. JPMorgan Chase expects that under CECL, it will need to, among other things, increase the allowance for credit losses related to its loans and other lending-related commitments, which may have a negative impact on its capital levels.

This new accounting standard may result in greater volatility of JPMorgan Chase’s earnings and capital levels over economic cycles and could potentially affect JPMorgan Chase’s capital distribution plans, depending upon final guidance from the regulators. In addition, JPMorgan Chase could be adversely impacted by associated changes in the competitive environment in which it operates, including changes in the availability or pricing of loan products, particularly during periods of economic stress, as well as changes related to non-U.S. financial institutions or other competitors that are not subject to this new accounting standard.

Strategic

If JPMorgan Chase’s management fails to develop and execute effective business strategies, and to anticipate changes affecting those strategies, JPMorgan Chase’s competitive standing and results could suffer.

JPMorgan Chase’s business strategies significantly affect its competitive standing and results of operations. These strategies relate to:


•	the products and services that JPMorgan Chase offers


•	the geographies in which it operates


•	the types of clients and customers that it serves


•	the counterparties with which it does business, and


•	the methods and distribution channels by which it offers products and services.

If management makes choices about these strategies and goals that prove to be incorrect, do not accurately assess the competitive landscape and industry trends, or fail to address changing regulatory and market environments, then the franchise values and growth prospects of JPMorgan Chase’s businesses may suffer and its earnings could decline.

JPMorgan Chase’s growth and prospects also depend on management’s ability to develop and execute effective business plans to address these strategic priorities, both in the near term and over longer time horizons. Management’s effectiveness in this regard will affect JPMorgan Chase’s ability to develop and enhance its resources, control expenses and return capital to shareholders. Each of these objectives could be adversely affected by any failure on the part of management to:


•	devise effective business plans and strategies


•	effectively implement business decisions, including minimizing bureaucratic processes


•	institute controls that appropriately address the risks associated with business activities and any changes in those activities


•	offer products and services that are appropriately priced, meet the changing expectations of clients and customers and are delivered in ways that enhance client and customer satisfaction


•	allocate capital in a manner that promotes long-term stability to enable JPMorgan Chase to build and invest in market-leading businesses, even in a highly stressed environment


•	allocate capital appropriately due to imprecise modeling or subjective judgments made in connection with those allocations


•	adequately respond to regulatory requirements


•	appropriately address shareholder concerns


•	react quickly to changes in market conditions or market structures, or


•	develop and enhance the operational, technology, risk, financial and managerial resources necessary to grow and manage JPMorgan Chase’s businesses.

Additionally, JPMorgan Chase’s Board of Directors plays an important role in exercising appropriate oversight of management’s strategic decisions, and a failure by the Board to perform this function could also impair JPMorgan Chase’s results of operations.

Conduct

Conduct failure by JPMorgan Chase employees can harm clients and customers, impact market integrity, damage JPMorgan Chase’s reputation and trigger litigation and regulatory action.

JPMorgan Chase’s employees interact with clients, customers and counterparties, and with each other, every day. All employees are expected to demonstrate values and exhibit the behaviors that are an integral part of JPMorgan Chase’s How We Do Business Principles, including JPMorgan Chase’s commitment to “do first class business in a first class way.” JPMorgan Chase endeavors to embed conduct risk management throughout an employee’s life cycle, including recruiting, onboarding, training and development, and performance management. Conduct risk management is also an integral component of JPMorgan Chase’s promotion and compensation processes.

Notwithstanding these expectations, policies and practices, certain employees have in the past engaged in improper or illegal conduct, and these instances of misconduct have resulted in litigation as well as resolutions of governmental investigations or enforcement actions involving consent orders, deferred prosecution agreements, non-prosecution agreements and other civil or criminal sanctions. There is no assurance that further inappropriate or unlawful actions by employees will not occur or that any such actions will always be detected, deterred or prevented.

JPMorgan Chase’s reputation could be harmed, and collateral consequences could result, from a failure by one or more employees to act consistently with JPMorgan Chase’s expectations, policies and practices, including by acting in ways that harm clients, customers, other market participants or other employees. Some examples of this include:


•	improperly selling and marketing JPMorgan Chase’s products or services


•	engaging in insider trading, market manipulation or unauthorized trading


•	facilitating illegal or aggressive tax-motivated transactions, or transactions designed to circumvent economic sanction programs


•	failing to fulfill fiduciary obligations or other duties owed to clients or customers


•	violating anti-trust or anti-competition laws by colluding with other market participants to manipulate markets, prices or indices


•	engaging in discriminatory behavior or harassment


•	making risk decisions in ways that subordinate JPMorgan Chase’s risk appetite to employee compensation objectives, and


•	misappropriating property, confidential or proprietary information, or technology assets belonging to JPMorgan Chase, its clients and customers or third parties.

The consequences of any failure by employees to act consistently with JPMorgan Chase’s expectations, policies or practices could include litigation, or regulatory or other governmental investigations or enforcement actions. Any of these proceedings or actions could result in judgments, settlements, fines, penalties or other sanctions, or lead to:


•	financial losses


•	increased operational and compliance costs


•	greater regulatory scrutiny


•	regulatory actions that require JPMorgan Chase to restructure, curtail or cease certain of its activities


•	the need for significant oversight by JPMorgan Chase’s management

loss of clients or customers, and


•	harm to JPMorgan Chase’s reputation.

Reputation

Damage to JPMorgan Chase’s reputation could harm its businesses.

Maintaining trust in JPMorgan Chase is critical to its ability to attract and retain clients, customers, investors and employees. Damage to JPMorgan Chase’s reputation can therefore cause significant harm to JPMorgan Chase’s business and prospects. Harm to JPMorgan Chase’s reputation can arise from numerous sources, including:


•	employee misconduct, including discriminatory behavior or harassment


•	security breaches, including cyberattacks


•	failure to safeguard client or customer information


•	not appropriately managing social and environmental risk issues associated with its business activities or those of its clients


•	compliance or operational failures


•	litigation or regulatory fines, penalties or other sanctions, and


•	regulatory investigations or enforcement actions, or resolutions of these matters.

JPMorgan Chase’s reputation could also be harmed by the failure or perceived failure of certain third parties to comply with laws or regulations, including companies in which JPMorgan Chase has made principal investments, parties to joint ventures with JPMorgan Chase, and vendors and other third parties with which JPMorgan Chase does business.

JPMorgan Chase’s reputation or prospects may be significantly damaged by adverse publicity or negative information regarding JPMorgan Chase, whether or not true, that may be posted on social media, non-mainstream news services or other parts of the internet, and this risk can be magnified by the speed and pervasiveness with which information is disseminated through those channels.

Social and environmental activists are increasingly targeting financial services firms such as JPMorgan Chase with public criticism for their relationships with clients that are engaged in certain sensitive industries, including businesses whose products are or are perceived to be harmful to the health of consumers, or whose activities negatively affect or are perceived to negatively affect the environment, workers’ rights or communities. Activists have also engaged in public protests at JPMorgan Chase’s headquarters and other properties. Activist criticism of JPMorgan Chase’s relationships with clients in sensitive industries could potentially engender dissatisfaction among clients, customers, investors and employees with how JPMorgan Chase addresses social and environmental concerns in its business activities. Alternatively, yielding to activism targeted at certain sensitive industries could damage JPMorgan Chase’s relationships with clients and customers, and with governmental bodies in jurisdictions in which JPMorgan Chase does business, whose views are not aligned with those of social and environmental activists. In either case, the resulting harm to JPMorgan Chase’s reputation could:


•	cause certain clients and customers to cease doing business with JPMorgan Chase


•	impair JPMorgan Chase’s ability to attract new clients and customers, or to expand its relationships with existing clients and customers


•	diminish JPMorgan Chase’s ability to hire or retain employees, or


•	prompt JPMorgan Chase to cease doing business with certain clients.

Any of the above factors could negatively affect JPMorgan Chase’s results of operations and its ability to maintain its competitive standing.

Actions by the financial services industry generally or by certain members of or individuals in the industry can also affect JPMorgan Chase’s reputation. For example, concerns that consumers have been treated unfairly by a financial institution, or that a financial institution has acted inappropriately with respect to the methods used to offer products to customers, can damage the reputation of the industry as a whole. If JPMorgan Chase is perceived to have

engaged in these types of behaviors, the measures needed to address the associated reputational issues could increase JPMorgan Chase’s operational and compliance costs and negatively affect its earnings.

Failure to effectively manage potential conflicts of interest can result in litigation and enforcement actions, as well as damage JPMorgan Chase’s reputation.

JPMorgan Chase’s ability to manage potential conflicts of interest has become increasingly complex as its business activities encompass more transactions, obligations and interests with and among JPMorgan Chase’s clients and customers. JPMorgan Chase can become subject to litigation and enforcement actions, and its reputation can be damaged, by the failure or perceived failure to:


•	adequately address or appropriately disclose conflicts of interest


•	deliver appropriate standards of service and quality


•	treat clients and customers with the appropriate standard of care


•	use client and customer data responsibly and in a manner that meets legal requirements and regulatory expectations


•	provide fiduciary products or services in accordance with the applicable legal and regulatory standards, or


•	handle or use confidential information of customers or clients appropriately or in compliance with applicable data protection and privacy laws and regulations.

In the future, a failure or perceived failure to appropriately address conflicts of interest or fiduciary obligations could result in customer dissatisfaction, litigation and regulatory fines, penalties or other sanctions, and heightened regulatory scrutiny and enforcement actions, all of which can lead to lost revenue and higher operating costs and cause serious harm to JPMorgan Chase’s reputation.

Country

Adverse economic and political developments in a country or region, or globally, can have a negative impact on JPMorgan Chase’s businesses.

JPMorgan Chase’s businesses and earnings can be affected by the monetary, fiscal and other policies adopted by regulatory authorities and agencies in the countries in which JPMorgan Chase operates. Changes in fiscal policies by central banks or regulatory authorities, and the manner in which those policies are executed, are beyond JPMorgan Chase’s control and may be difficult to predict. Consequently, unanticipated changes in these policies or the ways in which they are implemented could have a negative impact on JPMorgan Chase’s businesses and results of operations.

Some countries or regions in which JPMorgan Chase operates or invests, or in which JPMorgan Chase may do business in the future, have in the past experienced severe

economic disruptions particular to those countries or regions. Concerns regarding the fiscal condition of one or more countries, or the possibility that a particular country may decide to depart from a trade, monetary or political pact, can result in a deterioration of economic and market conditions within the affected countries or regions, including:


•	slowing growth rates, rising inflation or recessionary economic conditions


•	a contraction of available credit


•	diminished investor and consumer confidence, including loss of confidence in local banking systems


•	increased market volatility


•	reduced commercial activity among trading partners, or


•	the potential for currency redenomination or the dissolution of a political or economic alliance or treaty.

Any or all of these factors could have a negative impact on JPMorgan Chase’s business and results of operations in the affected country or region.

These developments can also lead to a contagion which causes similar conditions to arise in other countries in the same region or beyond. Furthermore, governments in particular countries or regions in which JPMorgan Chase or its clients do business may choose to adopt protectionist economic or trade policies in response to concerns about domestic economic conditions or as countermeasures to policies or actions taken by other countries or regions. Any or all of these developments could lead to diminished cross-border trade and financing activity within that country or region, all of which could negatively affect JPMorgan Chase’s business and earnings in those jurisdictions and increase its operational costs. If JPMorgan Chase takes steps to reduce its market and credit risk exposure within a particular country or region that is experiencing economic or political disruption, it may incur losses that are higher than expected because it will be disposing of assets when market conditions are likely to be highly unfavorable.

An outbreak of hostilities between countries or within a country or region could have a material adverse effect on the global economy and on JPMorgan Chase’s businesses within the affected region or globally.

Aggressive actions by hostile governments or groups, including armed conflict or intensified cyberattacks, could expand in unpredictable ways by drawing in other countries or escalating into full-scale war with potentially catastrophic consequences, particularly if one or more of the combatants possess nuclear weapons. Depending on the scope of the conflict, the hostilities could result in:


•	worldwide economic disruption


•	heightened volatility in financial markets


•	severe declines in asset values, accompanied by widespread sell-offs of investments


•	substantial depreciation of local currencies, potentially leading to defaults by borrowers and counterparties in the affected region


•	disruption of global trade, and


•	diminished consumer, business and investor confidence.

Any of the above consequences could have significant negative effects on JPMorgan Chase’s operations and earnings, both in the countries or region directly affected by the hostilities or globally. Further, if the U.S. were to become directly involved in such a conflict, this could lead to a curtailment of any operations that JPMorgan Chase may have in the affected countries or region, as well as in any nation that is aligned against the U.S. in the hostilities. JPMorgan Chase could also experience more numerous and aggressive cyberattacks launched by or under the sponsorship of one or more of the adversaries in such a conflict.

JPMorgan Chase’s business activities with governmental entities can pose an enhanced risk of loss.

Several of JPMorgan Chase’s businesses engage in transactions with, or trade in obligations of, governmental entities, including national, state, provincial, municipal and local authorities, both within and outside the U.S. These activities can expose JPMorgan Chase to enhanced sovereign, credit-related, operational and reputation risks, including the risks that a governmental entity may:


•	default on or restructure its obligations


•	claim that actions taken by government officials were beyond the legal authority of those officials, or


•	repudiate transactions authorized by a previous incumbent government.

Any or all of these actions could adversely affect JPMorgan Chase’s financial condition and results of operations and could hurt its reputation, particularly if JPMorgan Chase pursues claims against a government obligor in a jurisdiction in which it has significant business relationships with clients or customers.

JPMorgan Chase’s business and revenues in emerging markets can be hampered by local economic, political, regulatory and social factors.

Some of the countries in which JPMorgan Chase conducts business have economies or markets that are less developed and more volatile, and may have legal and regulatory regimes that are less established or predictable, than the U.S. and other developed markets in which JPMorgan Chase operates. Some of these countries have in the past experienced severe economic disruptions, including:


•	extreme currency fluctuations


•	high inflation


•	low or negative growth, and


•	defaults or potential defaults on sovereign debt.

The governments in these countries have sometimes reacted to these developments by imposing restrictive policies that adversely affect the local and regional business environment, including:


•	price, capital or exchange controls, including imposition of punitive transfer and convertibility restrictions


•	expropriation or nationalization of assets or confiscation of property, including intellectual property, and


•	changes in laws and regulations.

The impact of these actions could be accentuated in trading markets that are smaller, less liquid and more volatile than more-developed markets. These types of government actions can negatively affect JPMorgan Chase’s operations in the relevant country, either directly or by suppressing the business activities of local clients or multi-national clients that conduct business in the jurisdiction. For example, some or all of these governmental actions can result in funds belonging to JPMorgan Chase, or that it places with a local custodian on behalf of a client, being effectively trapped in a country. In addition to the ultimate risk of losing the funds entirely, JPMorgan Chase could be exposed for an extended period of time to the credit risk of a local custodian that is now operating in a deteriorating domestic economy.

In addition, emerging markets countries, as well as certain more developed countries, have been susceptible to unfavorable social developments arising from poor economic conditions and related governmental actions, including:


•	social unrest


•	general strikes and demonstrations


•	crime and corruption


•	security and personal safety issues


•	outbreaks of hostilities


•	overthrow of incumbent governments


•	terrorist attacks, and


•	other forms of internal discord.

These economic, political, regulatory and social developments have in the past resulted in, and in the future could lead to, conditions that can adversely affect JPMorgan Chase’s operations in those countries and impair the revenues, growth and profitability of those operations. In addition, any of these events or circumstances in one country can affect JPMorgan Chase’s operations and investments in another country or countries, including in the U.S.

Competition

The financial services industry is highly competitive, and JPMorgan Chase’s results of operations will suffer if it is not a strong, effective and forward-looking competitor.

JPMorgan Chase operates in a highly competitive environment and expects that competition in the U.S. and global financial services industry will continue to be intense. Competitors include:


•	other banks and financial institutions


•	trading, advisory and investment management firms


•	finance companies and technology companies, and


•	other nonbank firms that are engaged in providing similar products and services.

JPMorgan Chase cannot provide assurance that the significant competition in the financial services industry will not materially and adversely affect its future results of operations.

New competitors in the financial services industry continue to emerge. For example, technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products. These advances have also allowed financial institutions and other companies to provide electronic and internet-based financial solutions, including electronic securities trading, payments processing and online automated algorithmic-based investment advice. Furthermore, both financial institutions and their non-banking competitors face the risk that payments processing and other services could be significantly disrupted by technologies, such as cryptocurrencies, that require no intermediation. New technologies have required and could require JPMorgan Chase to spend more to modify or adapt its products to attract and retain clients and customers or to match products and services offered by its competitors, including technology companies. In addition, new technologies may be used by customers, or breached or infiltrated by third parties, in unexpected ways, which can increase JPMorgan Chase’s costs for complying with laws and regulations that apply to the offering of products and services through those technologies and reduce the income that JPMorgan Chase earns from providing products and services through those new technologies.

Ongoing or increased competition may put pressure on the pricing for JPMorgan Chase’s products and services or may cause JPMorgan Chase to lose market share, particularly with respect to traditional banking products such as deposits and bank accounts. This competition may be on the basis of quality and variety of products and services offered, transaction execution, innovation, reputation and price. The failure of any of JPMorgan Chase’s businesses to meet the expectations of clients and customers, whether due to general market conditions, under-performance, a decision not to offer a particular product or service, changes in client and customer expectations or other

factors, could affect JPMorgan Chase’s ability to attract or retain clients and customers. Any such impact could, in turn, reduce JPMorgan Chase’s revenues. Increased competition also may require JPMorgan Chase to make additional capital investments in its businesses, or to extend more of its capital on behalf of its clients in order to remain competitive.

Non-U.S. competitors of JPMorgan Chase’s wholesale businesses outside the U.S. are typically subject to different, and in some cases, less stringent, legislative and regulatory regimes. The more restrictive laws and regulations applicable to JPMorgan Chase and other U.S. financial services institutions can put JPMorgan Chase and those firms at a competitive disadvantage to non-U.S. competitors. This could reduce the revenue and profitability of JPMorgan Chase’s wholesale businesses, resulting from:


•	prohibitions on engaging in certain transactions


•	higher capital and liquidity requirements


•	making JPMorgan Chase’s pricing of certain transactions more expensive for clients, and


•	adversely affecting JPMorgan Chase’s cost structure for providing certain products.

People

JPMorgan Chase’s ability to attract and retain qualified employees is critical to its success.

JPMorgan Chase’s employees are its most important resource, and in many areas of the financial services industry, competition for qualified personnel is intense. JPMorgan Chase endeavors to attract talented and diverse new employees and retain and motivate its existing employees. If JPMorgan Chase were unable to continue to attract or retain qualified employees, including successors to the Chief Executive Officer or members of the Operating Committee, JPMorgan Chase’s performance, including its competitive position, could be materially and adversely affected.

Unfavorable changes in immigration policies could adversely affect the quality of JPMorgan Chase’s businesses and operations.

JPMorgan Chase relies on the skills, knowledge and expertise of employees located throughout the world. Changes in immigration policies in the U.S. and other countries that unduly restrict or otherwise make it more difficult for employees or their family members to work in, or transfer among, jurisdictions in which JPMorgan Chase has operations or conducts its business could inhibit JPMorgan Chase’s ability to attract and retain qualified employees, and thereby dilute the quality of its workforce, or could prompt JPMorgan Chase to make structural changes to its worldwide operating model that are less efficient or more costly.

Legal

JPMorgan Chase faces significant legal risks from private actions and formal and informal regulatory and government investigations.

JPMorgan Chase is named as a defendant or is otherwise involved in many legal proceedings, including class actions and other litigation or disputes with third parties. Actions currently pending against JPMorgan Chase may result in judgments, settlements, fines, penalties or other sanctions adverse to JPMorgan Chase. Any of these matters could materially and adversely affect JPMorgan Chase’s business, financial condition or results of operations, or cause serious reputational harm. As a participant in the financial services industry, it is likely that JPMorgan Chase will continue to experience a high level of litigation and regulatory and government investigations related to its businesses and operations.

Regulators and other government agencies conduct examinations of JPMorgan Chase and its subsidiaries both on a routine basis and in targeted exams, and JPMorgan Chase’s businesses and operations are subject to heightened regulatory oversight. This heightened regulatory scrutiny, or the results of such an investigation or examination, may lead to additional regulatory investigations or enforcement actions. There is no assurance that those actions will not result in resolutions or other enforcement actions against JPMorgan Chase. Furthermore, a single event involving a potential violation of law or regulation may give rise to numerous and overlapping investigations and proceedings, either by multiple federal, state or local agencies and officials in the U.S. or, in some instances, regulators and other governmental officials in non-U.S. jurisdictions.

If another financial institution violates a law or regulation relating to a particular business activity or practice, this will often give rise to an investigation by regulators and other governmental agencies of the same or similar activity or practice by JPMorgan Chase.

These and other initiatives by U.S. and non-U.S. governmental authorities may subject JPMorgan Chase to judgments, settlements, fines, penalties or other sanctions, and may require JPMorgan Chase to restructure its operations and activities or to cease offering certain products or services. All of these potential outcomes could harm JPMorgan Chase’s reputation or lead to higher operational costs, thereby reducing JPMorgan Chase’s profitability, or result in collateral consequences. In addition, the extent of JPMorgan Chase’s exposure to legal and regulatory matters can be unpredictable and could, in some cases, exceed the amount of reserves that JPMorgan Chase has established for those matters.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

JPMorgan Chase’s headquarters is located in New York City at 383 Madison Avenue, a 47-story office building that it owns. The Firm has commenced a project to demolish its former headquarters at 270 Park Avenue in New York City and to build a new headquarters on the same site.

The Firm owned or leased facilities in the following locations at December 31, 2018.



December 31, 2018 (in millions)	Approximate square footage

United States^(a)
New York City, New York
383 Madison Avenue, New York, New York	1.1
All other New York City locations	9.7
Total New York City, New York	10.8

Other U.S. locations
Columbus/Westerville, Ohio	3.7
Chicago, Illinois	2.8
Phoenix/Tempe, Arizona	2.5
Wilmington/Newark, Delaware	2.2
Houston, Texas	2.0
Jersey City, New Jersey	1.7
Dallas/Plano, Texas	1.4
All other U.S. locations	34.6
Total United States	61.7

Europe, the Middle East and Africa (“EMEA”)
25 Bank Street, London, U.K.	1.4
All other U.K. locations	3.1
All other EMEA locations	1.4
Total EMEA	5.9

Asia Pacific, Latin America and Canada
India	3.4
All other locations	3.9
Total Asia Pacific, Latin America and Canada	7.3
Total	74.9


(a)	At December 31, 2018, the Firm owned or leased 5,036 retail branches in 27 states and the District of Columbia.

The premises and facilities occupied by JPMorgan Chase are used across all of the Firm’s business segments and for corporate purposes. JPMorgan Chase continues to evaluate its current and projected space requirements and may determine from time to time that certain of its properties (including the premises and facilities noted above) are no longer necessary for its operations. There is no assurance that the Firm will be able to dispose of any such excess properties, premises, or facilities or that it will not incur costs in connection with such dispositions. Such disposition costs may be material to the Firm’s results of operations in a given period. For information on occupancy expense, refer to the Consolidated Results of Operations on pages 48–51.

Item 3. Legal Proceedings.

For a description of the Firm’s material legal proceedings, refer to Note 29.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for registrant’s common equity

JPMorgan Chase’s common stock is listed and traded on the New York Stock Exchange. For a comparison of the cumulative total return for JPMorgan Chase common stock with the comparable total return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index over the five-year period ended December 31, 2018, refer to “Five-year stock performance,” on page 41.

For information on the common dividend payout ratio, refer to Capital actions in the Capital Risk Management section of Management’s discussion and analysis on pages 91-92. For a discussion of restrictions on dividend payments, refer to Note 20 and Note 25. On January 31, 2019, there were 195,417 holders of record of JPMorgan Chase common stock. For information regarding securities authorized for issuance under the Firm’s employee share-based incentive plans, refer to Part III, Item 12 on page 33.

Repurchases under the common equity repurchase program

For information regarding repurchases under the Firm’s common equity repurchase program, refer to Capital actions in the Capital Risk Management section of Management’s discussion and analysis on pages 91-92.

Item 6. Selected Financial Data.

For five-year selected financial data, refer to “Five-year summary of consolidated financial highlights (unaudited)” on page 40.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s discussion and analysis of financial condition and results of operations, entitled “Management’s discussion and analysis,” appears on pages 42–147. Such information should be read in conjunction with the Consolidated Financial Statements and Notes thereto, which appear on pages 150-286.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

For a discussion of quantitative and qualitative disclosures about market risk, refer to the Market Risk Management section of Management’s discussion and analysis on pages 124–131.

Item 8. Financial Statements and Supplementary Data.

The Consolidated Financial Statements, together with the Notes thereto and the report thereon dated February 26, 2019, of PricewaterhouseCoopers LLP, the Firm’s independent registered public accounting firm, appear on pages 149-286.

Supplementary financial data for each quarter within the two years ended December 31, 2018, are included on page 287 in the table entitled “Selected quarterly financial data (unaudited).” Also included is a “Glossary of Terms and Acronyms’’ on pages 293–299.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

The internal control framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), “Internal Control — Integrated Framework” (“COSO 2013”), provides guidance for designing, implementing and conducting internal control and assessing its effectiveness. The Firm used the COSO 2013 framework to assess the effectiveness of the Firm’s internal control over financial reporting as of December 31, 2018. Refer to “Management’s report on internal control over financial reporting” on page 148.

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Firm’s management, including its Chairman and Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective. Refer to Exhibits 31.1 and 31.2 for the Certifications furnished by the Chairman and Chief Executive Officer and Chief Financial Officer, respectively.

The Firm is committed to maintaining high standards of internal control over financial reporting. Nevertheless, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, in a firm as large and complex as JPMorgan Chase, lapses or deficiencies in internal controls may occur from time to time, and there can be no assurance that any such deficiencies will not result in significant deficiencies or material weaknesses in internal control in the future and collateral consequences therefrom. For further information, refer to “Management’s report on internal control over financial reporting” on page 148. There was no change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the three months ended December 31, 2018, that has materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.

Item 9B. Other Information.

None.

Item 11. Executive Compensation.

Refer to Item 10.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Refer to Item 10.

Item 14. Principal Accounting Fees and Services.

Refer to Item 10.

Item 15. Exhibits, Financial Statement Schedules.



1		Financial statements
		The Consolidated Financial Statements, the Notes thereto and the report of the Independent Registered Public Accounting Firm thereon listed in Item 8 are set forth commencing on page 149.

2		Financial statement schedules

3		Exhibits

3.1		Restated Certificate of Incorporation of JPMorgan Chase & Co., effective April 5, 2006 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 7, 2006).

3.2		Amendment to the Restated Certificate of Incorporation of JPMorgan Chase & Co., effective June 7, 2013 (incorporated by reference to Appendix F to the Proxy Statement on Schedule 14A of JPMorgan Chase & Co. (File No. 1-5805) filed April 10, 2013).

3.3		Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series I (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 24, 2008).


3.4		Certificate of Designations for 5.45% Non-Cumulative Preferred Stock, Series P (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed February 5, 2013).

3.5		Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series Q (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 23, 2013).

3.6		Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series R (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed July 29, 2013).

3.7		Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series S (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 22, 2014).



3.8		Certificate of Designations for 6.70% Non-Cumulative Preferred Stock, Series T (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 30, 2014).

3.9		Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series U (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed on March 10, 2014).

3.10		Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series V (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed on June 9, 2014).

3.11		Certificate of Designations for 6.30% Non-Cumulative Preferred Stock, Series W (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed on June 23, 2014).

3.12		Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series X (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed on September 23, 2014).
3.13		Certificate of Designations for 6.125% Non-Cumulative Preferred Stock, Series Y (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed February 17, 2015).

3.14		Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series Z (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed April 21, 2015).

3.15		Certificate of Designations for 6.10% Non-Cumulative Preferred Stock, Series AA (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed June 4, 2015).

3.16		Certificate of Designations for 6.15% Non-Cumulative Preferred Stock, Series BB (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed July 29, 2015).

3.17		Certificate of Designations for Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series CC (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed October 20, 2017).



3.18		Certificate of Designations for 5.75% Non-Cumulative Preferred Stock, Series DD (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed September 21, 2018).
3.19		Certificate of Designations for 6.00% Non-Cumulative Preferred Stock, Series EE (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 24, 2019).
3.20		By-laws of JPMorgan Chase & Co., as amended, effective January 30, 2018 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 30, 2018).
4.1(a)		Indenture, dated as of October 21, 2010, between JPMorgan Chase & Co. and Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.1-5805) filed October 21, 2010).

4.1(b)		First Supplemental Indenture, dated as of January 13, 2017, between JPMorgan Chase & Co. and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture, dated as of October 21, 2010 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 13, 2017).

4.2(a)		Subordinated Indenture, dated as of March 14, 2014, between JPMorgan Chase & Co. and U.S. Bank Trust National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No.1-5805) filed March 14, 2014).

4.2(b)		First Supplemental Indenture, dated as of January 13, 2017, between JPMorgan Chase & Co. and U.S. Bank Trust National Association, as Trustee, to the Subordinated Indenture, dated as of March 14, 2014 (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 13, 2017).

4.3(a)		Indenture, dated as of May 25, 2001, between JPMorgan Chase & Co. and Bankers Trust Company (succeeded by Deutsche Bank Trust Company Americas), as Trustee (incorporated by reference to Exhibit 4(a)(1) to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No. 333-52826) filed June 13, 2001).



4.3(b)		Sixth Supplemental Indenture, dated as of January 13, 2017, between JPMorgan Chase & Co. and Bankers Trust Company (succeeded by Deutsche Bank Trust Company Americas), as Trustee, to the Indenture, dated as of May 25, 2001 (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed January 13, 2017).

4.4		Indenture, dated as of February 19, 2016, among JPMorgan Chase Financial Company LLC, JPMorgan Chase & Co. and Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference to Exhibit 4(a)(7) to the Registration Statement on Form S-3 of JPMorgan Chase & Co. and JPMorgan Chase Financial Company LLC (File No. 333-209682) filed February 24, 2016).

4.5		Form of Deposit Agreement (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-3 of JPMorgan Chase & Co. (File No. 333-191692) filed October 11, 2013).

Other instruments defining the rights of holders of long-term debt securities of JPMorgan Chase & Co. and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. JPMorgan Chase & Co. agrees to furnish copies of these instruments to the SEC upon request.

10.1		Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., as amended and restated July 2001 and as of December 31, 2004 (incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).(a)

10.2		2005 Deferred Compensation Plan for Non-Employee Directors of JPMorgan Chase & Co., effective as of January 1, 2005 (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2007).(a)

10.3		2005 Deferred Compensation Program of JPMorgan Chase & Co., restated effective as of December 31, 2008 (incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a)

10.4		JPMorgan Chase & Co. Amended and Restated Long-Term Incentive Plan, effective May 15, 2018 (incorporated by reference to Appendix B of the Schedule 14A of JPMorgan Chase & Co. (File No. 1-5805) filed April 5, 2018).(a)

10.5		Key Executive Performance Plan of JPMorgan Chase & Co., as amended and restated effective January 1, 2014 (incorporated by reference to Appendix G of the Schedule 14A of JPMorgan Chase & Co. (File No. 1-5805) filed April 10, 2013).(a)



10.6		Excess Retirement Plan of JPMorgan Chase & Co., restated and amended as of December 31, 2008, as amended (incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2009).(a)

10.7		Executive Retirement Plan of JPMorgan Chase & Co., as amended and restated December 31, 2008 (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a)

10.8		Bank One Corporation Supplemental Savings and Investment Plan, as amended and restated effective December 31, 2008 (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a)

10.9		Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for stock appreciation rights, dated as of January 20, 2009 (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2008).(a)

10.10		Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for Operating Committee member stock appreciation rights, dated as of February 3, 2010 (incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2009).(a)

10.11		Forms of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for stock appreciation rights and restricted stock units, dated as of January 18, 2012 (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2011).(a)

10.12		Forms of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for stock appreciation rights and restricted stock units for Operating Committee members, dated as of January 17, 2013 (incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2012).(a)

10.13		Forms of JPMorgan Chase & Co. Long-Term Incentive Plan Terms & Conditions for restricted stock units for Operating Committee members (U.S., E.U. and U.K.), dated as of January 20, 2015 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of JPMorgan Chase & Co. (File No. 1-5805) for the quarter ended March 31, 2015).(a)



10.14		Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for restricted stock units for Operating Committee members, dated as of January 19, 2016 (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2015).(a)

10.15		Form of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for performance share units for Operating Committee members, dated as of January 19, 2016 (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2015).(a)

10.16		Forms of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for performance share units and restricted stock units for Operating Committee members (U.S. and U.K.), dated as of January 17, 2017 (incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2016).(a)

10.17		Forms of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for performance share units and restricted stock units for Operating Committee members (U.S. and U.K.), dated as of January 16, 2018.(a)

10.18		Forms of JPMorgan Chase & Co. Long-Term Incentive Plan Terms and Conditions for restricted stock units for Operating Committee members (U.S. and U.K.), dated as of January 15, 2019.(a)(b)

10.19		Form of JPMorgan Chase & Co. Terms and Conditions of Fixed Allowance (UK) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of JPMorgan Chase & Co. (File No. 1-5805) for the quarter ended June 30, 2014).(a)

10.20		Form of JPMorgan Chase & Co. Performance-Based Incentive Compensation Plan, effective as of January 1, 2006, as amended (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K of JPMorgan Chase & Co. (File No. 1-5805) for the year ended December 31, 2009).(a)

10.21		Employee Stock Purchase Plan of JPMorgan Chase & Co., as amended and restated effective as of January 1, 2019.(b)

10.22		Plea Agreement dated May 20, 2015 between JPMorgan Chase & Co. and the U.S. Department of Justice (incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K of JPMorgan Chase & Co. (File No. 1-5805) filed May 20, 2015).

21		List of subsidiaries of JPMorgan Chase & Co.(b)



22		Annual Report on Form 11-K of The JPMorgan Chase 401(k) Savings Plan for the year ended December 31, 2018 (to be filed pursuant to Rule 15d-21 under the Securities Exchange Act of 1934).

23		Consent of independent registered public accounting firm.(b)

31.1		Certification.(b)

31.2		Certification.(b)

32		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(c)

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(a)	This exhibit is a management contract or compensatory plan or arrangement.


(b)	Filed herewith.


(c)	Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

(d)

Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Firm’s Form 10-K for the year ended December 31, 2018, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated statements of income for the years ended December 31, 2018, 2017 and 2016, (ii) the Consolidated statements of comprehensive income for the years ended December 31, 2018, 2017 and 2016, (iii) the Consolidated balance sheets as of December 31, 2018 and 2017, (iv) the Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2018, 2017 and 2016, (v) the Consolidated statements of cash flows for the years ended December 31, 2018, 2017 and 2016, and (vi) the Notes to Consolidated Financial Statements.

JPMorgan Chase & Co. (NYSE: JPM), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; JPMorgan Chase had $2.6 trillion in assets and $256.5 billion in stockholders’ equity as of December 31, 2018. 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 subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with U.S. branches in 27 states and the District of Columbia as of December 31, 2018, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national banking association that is the Firm’s principal credit card-issuing bank. In January 2019, the OCC approved an application of merger which was filed by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. in December 2018 and which contemplates that Chase Bank USA, N.A. will merge with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A. as the surviving bank. For additional information refer to Supervision and Regulation on pages 1-6 in the 2018 Form 10-K. 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 in the U.K. is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.

For management reporting purposes, the Firm’s activities are organized into four major reportable business segments, as well as a Corporate segment. The Firm’s consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset & Wealth Management (“AWM”). For a description of the Firm’s business segments, and the products and services they provide to their respective client bases, refer to Business Segment Results on pages 60-78, and Note 31.

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 2018 Form 10-K. For a complete description of the trends and uncertainties, as well as the risks and critical accounting estimates affecting the Firm and its various lines of business, this 2018 Form 10-K should be read in its entirety.

Effective January 1, 2018, the Firm adopted several new accounting standards, of which the most significant to the Firm was the guidance related to revenue recognition, and recognition and measurement of financial assets. The revenue recognition guidance requires gross presentation of certain costs that were previously offset against revenue. This change was adopted retrospectively and, accordingly, prior period amounts were revised, resulting in both total net revenue and total noninterest expense increasing with no impact to net income. 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. For additional information, refer to Note 1.



Financial performance of JPMorgan Chase
Year ended December 31, (in millions, except per share data and ratios)
	2018			2017			Change
Selected income statement data
Total net revenue	$	109,029		$	100,705		8	%
Total noninterest expense	63,394			59,515			7
Pre-provision profit	45,635			41,190			11
Provision for credit losses	4,871			5,290			(8	)
Net income	32,474			24,441			33
Diluted earnings per share	9.00			6.31			43
Selected ratios and metrics
Return on common equity	13		%	10		%
Return on tangible common equity	17			12
Book value per share	$	70.35		$	67.04		5
Tangible book value per share	56.33			53.56			5
Capital ratios^(a)
CET1	12.0		%	12.2		%
Tier 1 capital	13.7			13.9
Total capital	15.5			15.9


(a)	Ratios presented are calculated under the Basel III Transitional rules. As of December 31, 2018, the Firm’s capital ratios were equivalent whether calculated on a transitional or fully phased-in basis. Refer to Capital Risk Management on pages 85-94 for additional information on Basel III.

Comparisons noted in the sections below are for the full year of 2018 versus the full year of 2017, unless otherwise specified.

Firmwide overview

JPMorgan Chase reported strong results for 2018, with record net income and EPS of $32.5 billion and $9.00 per share, respectively, on net revenue of $109.0 billion. Excluding the impact of the Tax Cuts & Jobs Acts (“TCJA”), net income and EPS were still records for a full year. The Firm reported ROE of 13% and ROTCE of 17%. For additional information related to the impact of the TCJA, refer to the Consolidated Results of Operations on pages 48–51 and Note 24.


•	Net income increased 33%, reflecting higher net revenue and the impact of the lower U.S. federal statutory income tax rate as a result of the TCJA, partially offset by an increase in noninterest expense.

•

Total net revenue increased 8%. Net interest income was $55.1 billion, up 10%, driven by the impact of higher rates, loan growth and Card margin expansion, partially offset by lower CIB Markets net interest income. Noninterest revenue was $54.0 billion, up 7%, largely driven by higher CIB Markets noninterest revenue and auto lease income, partially offset by markdowns on certain legacy private equity investments and the impact of higher funding spreads on derivatives.


•	Noninterest expense was $63.4 billion, up 7%, predominantly driven by investments in the business, including technology, marketing, higher compensation expense on increased headcount, and real estate, as well as higher revenue-related costs, including auto lease depreciation and volume-related transaction costs.

•

The provision for credit losses was $4.9 billion, down from $5.3 billion in the prior year, reflecting a decrease in the consumer provision driven by a lower addition to the credit card allowance for credit losses and lower net charge-offs. The lower net charge-offs were primarily driven by recoveries from loan sales in the residential real estate portfolio, predominantly offset by higher net charge-offs in the credit card portfolio, as anticipated. The prior year also included a net $218 million write-down recorded in connection with the sale of the student loan portfolio. The decrease in the consumer provision was partially offset by an increase in the wholesale provision, reflecting additions to the allowance for loan losses from select client downgrades.

•

The total allowance for credit losses was $14.5 billion at December 31, 2018, and the Firm had a loan loss coverage ratio, excluding the PCI portfolio, of 1.23%, compared with 1.27% in the prior year. The Firm’s nonperforming assets totaled $5.2 billion at December 31, 2018, a decrease from $6.4 billion in the prior year, reflecting improved credit performance in the consumer portfolio, and reductions in the wholesale portfolio including repayments and loan sales.


•	Firmwide average core loans and core loans excluding CIB both increased 7%.

Selected capital-related metrics


•	The Firm’s Basel III Fully Phased-In CET1 capital was $183.5 billion, and the Standardized and Advanced CET1 ratios were 12.0% and 12.9%, respectively.


•	The Firm’s Fully Phased-In supplementary leverage ratio (“SLR”) was 6.4%.


•	The Firm continued to grow tangible book value per share (“TBVPS”), ending 2018 at $56.33, up 5%.

ROTCE and TBVPS are each non-GAAP financial measures. Core loans and each of the Fully Phased-In capital and certain leverage measures are all considered key performance measures. For a further discussion of each of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and Capital Risk Management on pages 85-94.

Lines of business highlights

Selected business metrics for each of the Firm’s four lines of business are presented below for the full year of 2018.



CCB ROE 28%		• Revenue of $52.1 billion, up 12%; record net income of $14.9 billion, up 58% • Average core loans up 6%; average deposits of $670 billion, up 5% • Client investment assets of $282 billion, up 3% • Credit card sales volume up 11% and merchant processing volume up 15%
CIB ROE 16%		• Record revenue of $36.4 billion, up 5%; record net income of $11.8 billion, up 9% • Maintained #1 ranking for Global Investment Banking fees with 8.7% wallet share • Record Equity Markets revenue of $6.9 billion, up 21% • Investment Banking revenue up 2%; Treasury Services revenue up 13%; and Securities Services revenue up 8%
CB ROE 20%		• Record revenue of $9.1 billion, up 5%; record net income of $4.2 billion, up 20% • Average loan balances of $205.5 billion, up 4% • Strong credit quality with net charge-offs of 3 bps
AWM ROE 31%		• Record revenue of $14.1 billion, up 2%; record net income of $2.9 billion, up 22% • Average loan balances of $139 billion, up 12% • Assets under management (“AUM”) of $2.0 trillion, down 2%

For a detailed discussion of results by line of business, refer to the Business Segment Results on pages 60–61.

Credit provided and capital raised

JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital for wholesale and consumer clients during 2018, consisting of:



$2.5 trillion		Total credit provided and capital raised

$227 billion		Credit for consumers

$24 billion		Credit for U.S. small businesses

$937 billion		Credit for corporations

$1.3 trillion		Capital raised for corporate clients and non-U.S. government entities

$57 billion		Credit and capital raised for U.S. governments and nonprofit entities^(a)


(a)	Includes states, municipalities, hospitals and universities.

2019 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. 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, refer to Forward-Looking Statements on page 147 and the Risk Factors section on pages 7–28 . There is no assurance that actual results in 2019 will be in line with the outlook set forth below, and the Firm does not undertake to update any forward-looking statements.

JPMorgan Chase’s outlook for 2019 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client and customer activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these factors will affect the performance of the Firm and its lines of business. The Firm expects that it will continue to make appropriate adjustments to its businesses and operations in response to ongoing developments in the legal, regulatory, business and economic environments in which it operates.

Firmwide


•	Management expects full-year 2019 net interest income, on a managed basis, to be in excess of $58 billion, reflecting the annualized impact of 2018 interest rate increases, as well as expected loan and deposit growth.


•	The Firm takes a disciplined approach to managing its expenses, while investing for growth and innovation. As a result, management expects Firmwide adjusted expense for the full-year 2019 to be less than $66 billion.


•	The Firm continues to experience charge-off rates at very low levels, reflecting favorable credit trends across the consumer and wholesale portfolios. Management expects full-year 2019 net charge-offs to be less than $5.5 billion, higher than 2018, driven by growth.

First-quarter 2019


•	Management expects the first-quarter 2019 net interest income, on a managed basis, to be approximately flat compared with the fourth-quarter of 2018.


•	Firmwide adjusted expense for the first-quarter 2019 is expected to be up mid-single digits compared with the first quarter of 2018.


•	Markets revenue for the first-quarter 2019 is expected to be lower when compared with the prior-year quarter by high-teens percentage points on a reported basis, and by low double-digit percentage points excluding the impact of the recognition and measurement accounting standard in the first quarter of 2018, depending on market conditions.

Expected departure of the U.K. from the EU

In 2016, the U.K. voted to withdraw from the European Union (“EU”), and in March 2017, the U.K. invoked Article 50 of the Lisbon Treaty, which commenced withdrawal negotiations with the EU. As a result, the U.K. is scheduled to depart from the EU on March 29, 2019. Negotiations regarding the terms of the U.K.’s withdrawal continue between the U.K. and the EU, although the situation remains highly uncertain.

The Firm has a long-standing presence in the U.K., which currently serves as the regional headquarters of the Firm’s operations in over 30 countries across Europe, the Middle East, and Africa (“EMEA”). In the region, the Firm serves clients and customers across its business segments. The Firm has approximately 16,000 employees in the U.K., of which approximately two-thirds are in London, with operational and technology support centers in locations such as Bournemouth, Glasgow and Edinburgh.

The Firm has been preparing for and continues to make significant progress in its readiness for the U.K.’s expected withdrawal from the EU, which is commonly referred to as “Brexit.” JPMorgan Chase established a Firmwide Brexit Implementation program in 2017. The program covers strategic implementation across all impacted businesses and functions. The program’s objective is to deliver the Firm’s capabilities on “day one” of the U.K.’s withdrawal across all impacted legal entities. The program includes an ongoing assessment of implementation risks including political, legal and regulatory risks and plans for addressing and mitigating those risks. The Firm is also monitoring the expected macroeconomic developments associated with a no-deal scenario and has undertaken stress testing covering credit and market risk to assess potential impacts.

Significant uncertainty remains around the U.K.’s expected departure from the EU, including the possibility that the U.K. departs without any agreement being reached on how U.K. financial services firms will conduct business within the EU (i.e., “a no-deal scenario”).

The Firm is planning for a U.K. withdrawal in the event that an agreement is reached, as well as for a no-deal scenario. Significant uncertainties exist under either potential outcome. For example, in planning for the U.K. withdrawal from the EU under a no-deal scenario, the Firm is focused on the following key areas to ensure continuation of service to its EU clients: regulatory and legal entity readiness; client readiness; and business and operational readiness.

Regulatory and legal entity readiness

The Firm intends to leverage its existing EU legal entities, in Germany, Luxembourg and Ireland to conduct broader financial service activities. These legal entities are in advanced stages of readiness, including governance,

infrastructure, capital, local regulatory licenses and branch authorizations, as needed. The Firm anticipates that its EU legal entities will be ready to service its EU clients in March 2019, if required. There are some dependencies on final authorizations from the European Central Bank and jurisdictional National Competent Authorities to carry out new activity in the EU legal entities.

Client readiness

Where required, agreements with the Firm’s EU clients are being re-documented from current U.K. legal entities to existing EU legal entities to ensure continuation of service. This process involves establishing new agreements such as ISDA master agreements between clients and the relevant EU legal entity. There is a risk that not all clients will have the appropriate legal and operational arrangements in place upon the U.K.’s withdrawal from the EU. The Firm continues to actively engage with its clients to ensure preparedness and, to the extent possible, minimize operational disruption.

Business and operational readiness

The Firm is expecting to add several hundred employee positions in its various EU locations, including individuals who the Firm expects to relocate from the U.K. The Firm is preparing to be operational in the EU across all in-scope businesses and functions, including the build-out of technology, processes and controls, and the necessary resourcing in the EU locations across first, second and third line of defense functions.

The Firm and its EU legal entities’ access to market infrastructures such as trading venues, central counterparties (“CCPs”) and central settlement systems (“CSDs”) will need to be adjusted to comply with the evolving regulatory framework. Some uncertainty remains with respect to the readiness of the overall market ecosystem and connectivity between participants. The Firm continues to monitor the regulatory landscape and is preparing to take mitigating action, as needed, specifically in areas such as “contract continuity” that would allow U.K. entities to continue servicing trade lifecycle events.

In the event that the U.K.’s withdrawal from the EU is delayed through a transition deal or another mechanism, the Firm would have the required operational capabilities to conduct business from its EU legal entities, but the timing of any changes would be re-assessed to ensure that a strategic approach is taken. The Firm continues to closely monitor all negotiations and legislative developments and has developed an implementation plan that allows for flexibility given the continued uncertainty.

LIBOR transition

The Financial Stability Board (“FSB”) and the Financial Stability Oversight Council (“FSOC”) have observed that the secular decline in interbank short-term funding poses structural risks for unsecured benchmark interest rates such as Interbank Offered Rates (“IBORs”), and therefore regulators and market participants in various jurisdictions have been working to identify alternative reference rates that are compliant with the International Organization of Securities Commission’s standards for transaction-based benchmarks. In the U.S., the Alternative Reference Rates Committee (the “ARRC”), a group of market and official sector participants, identified the Secured Overnight Financing Rate (“SOFR”) as its recommended alternative benchmark rate. Other alternative reference rates have been recommended in other jurisdictions.

IBORs are referenced in approximately $370 trillion of wholesale and consumer transactions globally spanning a broad range of financial products and contracts. Without advance transition planning for alternative benchmarks, sudden cessation of those broadly referenced rates could cause significant disruptions to gross flows of floating-rate payments and receipts. An abrupt cessation could also impair the normal functioning of a variety of markets, including commercial and consumer lending.

JPMorgan Chase established a Firmwide LIBOR Transition program in early 2018. The Firmwide CFO and the CEO of the CIB oversee the program as senior sponsors. When assessing risks associated with IBOR transition, the program considers three possible scenarios: disorderly transition, measured/regulated transition, and IBOR in continuity. These risks will continue to be monitored, along with any new risks that emerge as the program progresses. Plans to mitigate the risks associated with IBOR transition have been identified, with some already in the early stages of implementation. Model risk, for example, will be mitigated by the identification and migration of swap curves based on IBORs to new alternative reference rates.

Market participants are working closely with public sector representation as part of National Working Groups (“NWGs”) towards the common goal of facilitating an orderly transition from IBORs. Current NWG efforts include the development of cash and derivative markets referencing alternative reference rates, as well as the development of industry consensus for fallback language that would determine the rates to use in various IBOR-indexed contracts when a particular IBOR ceases to be produced. The Firm is encouraging its clients to actively participate in industry consultations on fallback language in order to ensure the broadest possible industry engagement in and understanding of IBOR transition. The Firm continues to monitor the transition by clients from the current IBOR-referencing products to products referencing the new alternative reference rates.

NWGs are also working with accounting standard setters to manage the accounting implications of amending existing contracts to add fallback language and to change reference rates. Current efforts include the identification of potential accounting impacts and potential alternatives to mitigate those impacts through interpretation of existing accounting rules, or through transition relief from FASB and IASB standard setting.

The Firm continues to develop and implement plans to appropriately mitigate the risks associated with IBOR discontinuation as identified alternative reference rates develop, and liquidity in the markets referencing them increases. The Firm will continue to engage with regulators as the transition progresses.

This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three-year period ended December 31, 2018, unless otherwise specified. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, refer to pages 141-143.

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.



Revenue
Year ended December 31, (in millions)
Year ended December 31, (in millions)	2018			2017			2016
Investment banking fees	$	7,550		$	7,412		$	6,572
Principal transactions	12,059			11,347			11,566
Lending- and deposit-related fees	6,052			5,933			5,774
Asset management, administration and commissions	17,118			16,287			15,364
Investment securities gains/(losses)	(395		)	(66		)	141
Mortgage fees and related income	1,254			1,616			2,491
Card income	4,989			4,433			4,779
Other income^(a)	5,343			3,646			3,799
Noninterest revenue	53,970			50,608			50,486
Net interest income	55,059			50,097			46,083
Total net revenue	$	109,029		$	100,705		$	96,569


(a)	Included operating lease income of $4.5 billion, $3.6 billion and $2.7 billion for the years ended December 31, 2018, 2017 and 2016, respectively.

2018 compared with 2017

Investment banking fees increased from a strong prior year, with overall share gains, reflecting:


•	higher advisory fees driven by a higher number of large completed transactions, and


•	higher equity underwriting fees driven by a higher share of fees, reflecting strong performance across products

predominantly offset by


•	lower debt underwriting fees primarily driven by declines in industry-wide fee levels.

For additional information, refer to CIB segment results on pages 66-70 and Note 6.

Principal transactions revenue increased primarily reflecting higher revenue in CIB driven by:


•	Equity Markets with strength across products, primarily in derivatives and prime brokerage, reflecting strong client activity, and


•	Fixed Income Markets reflecting strong performance in Currencies & Emerging Markets, and higher revenue in Commodities compared to a challenging prior year, largely offset by lower revenue in Credit,


•	the results also reflect a loss in Credit Adjustments & Other, largely driven by higher funding spreads on derivatives.

The increase in CIB was partially offset by private equity losses reflecting markdowns on certain legacy private equity investments compared with gains in the prior year in Corporate.

For additional information, refer to CIB and Corporate segment results on pages 66-70 and pages 77–78, respectively, and Note 6.

Asset management, administration and commissions revenue increased reflecting:


•	higher asset management fees in AWM and CCB driven by higher average market levels and the cumulative impact of net inflows. For AWM, these were partially offset by fee compression and lower performance fees


•	higher brokerage commissions driven by higher volumes in CIB and AWM, and higher asset-based fees in CIB.

For additional information, refer to AWM, CCB and CIB segment results on pages 74–76, pages 62–65 and pages 66-70, respectively, and Note 6.

For information on lending- and deposit-related fees, refer to the segment results for CCB on pages 62–65, CIB on pages 66-70, and CB on pages 71-73 and Note 6; on securities gains, refer to the Corporate segment discussion on pages 77–78.

Investment securities losses increased due to sales related to repositioning the investment securities portfolio.

Mortgage fees and related income decreased driven by:


•	lower net production revenue reflecting lower production margins and volumes, as well as the impact of a loan sale,

partially offset by


•	higher net mortgage servicing revenue reflecting higher MSR risk management results, predominantly offset by lower servicing revenue on a lower level of third-party loans serviced.

For further information, refer to CCB segment results on pages 62–65, Note 6 and 15.

Card income increased driven by:


•	lower new account origination costs, and higher merchant processing fees on higher volumes,

largely offset by


•	lower net interchange income reflecting higher rewards costs and partner payments, largely offset by higher card sales volumes. The rewards costs included an adjustment to the credit card rewards liability of approximately $330 million, recorded in the second quarter of 2018, driven by an increase in redemption rate assumptions.

For further information, refer to CCB segment results on pages 62–65 and Note 6.

Other income increased reflecting:


•	higher operating lease income from growth in auto operating lease volume in CCB


•	fair value gains of $505 million recognized in the first quarter of 2018 related to the adoption of the new recognition and measurement accounting guidance for certain equity investments previously held at cost


•	the absence of the impact related to the enactment of the TCJA, which reduced the value of certain of CIB’s tax-oriented investments by $520 million in the prior year

partially offset by


•	lower investment valuations in AWM, and


•	the absence of a legal benefit of $645 million that was recorded in the prior year in Corporate related to a settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee of certain Washington Mutual trusts.

For further information, refer to Note 6.

Net interest income increased driven by the impact of higher rates, loan growth across the businesses, and Card margin expansion, partially offset by lower CIB Markets net interest income. The Firm’s average interest-earning assets were $2.2 trillion, up $49 billion from the prior year, and the net interest yield on these assets, on an FTE basis, was 2.50%, an increase of 14 basis points from the prior year. The net interest yield excluding CIB Markets was 3.25%, an increase of 40 basis points. Net interest yield excluding CIB markets is a non-GAAP financial measure. For a further discussion of this measure, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59.

2017 compared with 2016

Investment banking fees increased reflecting higher debt and equity underwriting fees in CIB. The increase in debt underwriting fees was driven by a higher share of fees and an overall increase in industry-wide fees; and the increase in equity underwriting fees was driven by growth in industry-wide issuance, including a strong initial public offering (“IPO”) market.

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


•	lower Fixed Income-related revenue driven by sustained low volatility and tighter credit spreads

partially offset by


•	higher Equity-related revenue primarily in Prime Services, and


•	higher Lending-related revenue reflecting lower fair value losses on hedges of accrual loans.

Asset management, administration and commissions revenue increased as a result of higher asset management fees in AWM and CCB, and higher asset-based fees in CIB, both driven by higher market levels

Mortgage fees and related income decreased driven by lower MSR risk management results, lower net production revenue on lower margins and volumes, and lower servicing revenue on lower average third-party loans serviced.

Card income decreased predominantly driven by higher credit card new account origination costs, largely offset

by higher card-related fees, primarily annual fees.

Other income decreased primarily due to:


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


•	the absence in the current year of gains from


–	the sale of Visa Europe interests in CCB,


–	the redemption of guaranteed capital debt securities (“trust preferred securities”), and


–	the disposal of an asset in AWM

partially offset by


•	higher operating lease income reflecting growth in auto operating lease volume in CCB, and


•	a legal benefit of $645 million recorded in the second quarter of 2017 in Corporate related to a settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee of certain Washington Mutual trusts.

Net interest income increased primarily driven by the net impact of higher rates and loan growth across the businesses, partially offset by declines in Markets net interest income in CIB. The Firm’s average interest-earning assets were $2.2 trillion, up $79 billion from the prior year, and the net interest yield on these assets, on a fully taxable equivalent (“FTE”) basis, was 2.36%, an increase of 11 basis points from the prior year. The net interest yield excluding CIB Markets was 2.85%, an increase of 26 basis points from the prior year.



Provision for credit losses
Year ended December 31,
(in millions)	2018			2017			2016
Consumer, excluding credit card	$	(63	)	$	620		$	467
Credit card	4,818			4,973			4,042
Total consumer	4,755			5,593			4,509
Wholesale	116			(303		)	852
Total provision for credit losses	$	4,871		$	5,290		$	5,361

2018 compared with 2017

The provision for credit losses decreased as a result of a decline in the consumer provision, partially offset by an increase in the wholesale provision


•	the decrease in the consumer, excluding credit card portfolio in CCB was due to


–	lower net charge-offs in the residential real estate portfolio, largely driven by recoveries from loan sales, and


–	lower net charge-offs in the auto portfolio

partially offset by


–	a $250 million reduction in the allowance for loan losses in the residential real estate portfolio — PCI, reflecting continued improvement in home prices and lower delinquencies; the reduction was $75 million lower than the prior year for the residential real estate portfolio — non credit-impaired


•	the prior year also included a net $218 million write-down recorded in connection with the sale of the student loan portfolio, and


•	the decrease in the credit card portfolio was due to


–	a $300 million addition to the allowance for loan losses, reflecting loan growth and higher loss rates, as anticipated; the addition was $550 million lower than the prior year,

largely offset by


–	higher net charge-offs due to seasoning of more recent vintages, as anticipated, and


•	in wholesale , the current period expense of $116 million reflected additions to the allowance for loan losses from select client downgrades,

largely offset by

–

other net portfolio activity, including a reduction in the allowance for loan losses related to a single name in the Oil & Gas portfolio in the first quarter of 2018, compared to a net benefit of $303 million in the prior year. The prior year benefit reflected a reduction in the allowance for loan losses on credit quality improvements in the Oil & Gas, Natural Gas Pipelines, and Metals and Mining portfolios.

For a more detailed discussion of the credit portfolio and the allowance for credit losses, refer to the segment discussions of CCB on pages 62–65, CIB on pages 66-70, CB on pages 71-73, the Allowance for Credit Losses on pages 120–122 and Note 13.

2017 compared with 2016

The provision for credit losses decreased as a result of:


•	a net $422 million reduction in the wholesale allowance for credit losses, reflecting credit quality improvements in the Oil & Gas, Natural Gas Pipelines, and Metals & Mining portfolios, compared with an addition of $511 million in the prior year driven by downgrades in the same portfolios

predominantly offset by


•	a higher consumer provision driven by


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


–	a $416 million higher addition to the allowance for credit losses related to the credit card portfolio driven by higher loss rates and loan growth, and a lower reduction in the allowance for the residential real estate portfolio predominantly driven by continued improvement in home prices and delinquencies, and


–	a net $218 million write-down recorded in connection with the sale of the student loan portfolio.



Noninterest expense
Year ended December 31,
(in millions)	2018		2017		2016
Compensation expense	$	33,117	$	31,208	$	30,203
Noncompensation expense:
Occupancy	3,952		3,723		3,638
Technology, communications and equipment	8,802		7,715		6,853
Professional and outside services	8,502		7,890		7,526
Marketing	3,290		2,900		2,897
Other^(a)(b)	5,731		6,079		5,555
Total noncompensation expense	30,277		28,307		26,469
Total noninterest expense	$	63,394	$	59,515	$	56,672


(a)	Included Firmwide legal expense/(benefit) of $72 million, $(35) million and $(317) million for the years ended December 31, 2018, 2017 and 2016, respectively.


(b)	Included FDIC-related expense of $1.2 billion, $1.5 billion and $1.3 billion for the years ended December 31, 2018, 2017 and 2016, respectively.

2018 compared with 2017

Compensation expense increased driven by investments in headcount across the businesses, including bankers and advisors, as well as technology and other support staff, and higher revenue-related compensation expense largely in CIB.

Noncompensation expense increased as a result of:


•	higher depreciation expense due to growth in auto operating lease volume in CCB


•	higher outside services expense primarily due to higher volume-related transaction costs in CIB and higher external fees on revenue growth in AWM


•	higher investments in technology in the businesses and marketing in CCB


•	a loss of $174 million on the liquidation of a legal entity, recorded in other expense in Corporate, in the second quarter of 2018, and


•	higher legal expense, with a net benefit in the prior year

partially offset by


•	lower FDIC-related expense as a result of the elimination of the surcharge at the end of the third quarter of 2018, and


•	the absence of an impairment in CB on certain leased equipment

For additional information on the liquidation of a legal entity, refer to Note 23.

2017 compared with 2016

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

Noncompensation expense increased as a result of:


•	higher depreciation expense from growth in auto operating lease volume in CCB


•	contributions to the Firm’s Foundation


•	a lower legal net benefit compared to the prior year


•	higher FDIC-related expense, and


•	an impairment in CB on certain leased equipment, the majority of which was sold subsequent to year-end

partially offset by


•	the absence in the current year of two items totaling $175 million in CCB related to liabilities from a merchant in bankruptcy and mortgage servicing reserves

For a discussion of legal expense, refer to Note 29.



Income tax expense
Year ended December 31, (in millions, except rate)
Year ended December 31, (in millions, except rate)	2018			2017			2016
Income before income tax expense	$	40,764		$	35,900		$	34,536
Income tax expense	8,290			11,459			9,803
Effective tax rate	20.3		%	31.9		%	28.4		%

2018 compared with 2017

The effective tax rate decreased in 2018 driven by


•	the impact of the TCJA, including the reduction in the U.S. federal statutory income tax rate, a $302 million net tax benefit resulting from changes in the prior year estimates related to the remeasurement of certain deferred taxes and the deemed repatriation tax on non-U.S. earnings, and the absence of the initial $1.9 billion impact from the TCJA’s enactment in December 2017

the reduction in the effective tax rate was partially offset by


•	the impact of higher pre-tax income, and the change in mix of income and expense subject to U.S. federal, state and local taxes. For further information, refer to Note 24.

2017 compared with 2016

The effective tax rate increased in 2017 driven by:

•

a $1.9 billion increase to income tax expense representing the initial impact of the enactment of the TCJA. The increase was driven by the deemed repatriation of the Firm’s unremitted non-U.S. earnings and adjustments to the value of certain tax-oriented investments, partially offset by a benefit from the revaluation of the Firm’s net deferred tax liability. The incremental expense resulted in a 5.4 percentage point increase in the Firm’s effective tax rate

partially offset by


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

Cash and due from banks and deposits with banks decreased primarily as a result of a shift in the deployment of excess cash in Treasury and Chief Investment Office (“CIO”) from deposits with Federal Reserve Banks to other short-term instruments (as noted below), based on market opportunities. 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 primarily due to a shift in the deployment of excess cash in Treasury and CIO from deposits with banks to securities purchased under resale agreements, and higher client-driven market-making activities in CIB. For additional information on the Firm’s Liquidity Risk Management, refer to pages 95–100.

Securities borrowed increased driven by higher demand for securities to cover short positions related to client-driven market-making activities in CIB.

Trading assets increased as a result of a shift in the deployment of excess cash in Treasury and CIO from deposits with banks into short-term instruments as well as client-driven market-making activities in CIB. For additional information, refer to Derivative contracts on pages 117–118, and Notes 2 and 5.

Investment securities increased primarily due to purchases of U.S. Treasury Bills, reflecting a shift in the deployment of excess cash in Treasury and CIO from deposits with banks. The increase was partially offset by net sales, paydowns and maturities largely of obligations of U.S. states and municipalities, commercial MBS and non-U.S. government debt securities. For additional information on investment

securities, refer to Corporate segment results on pages 77–78, Investment Portfolio Risk Management on page 123 and Notes 2 and 10.

Loans increased reflecting:


•	higher loans across the wholesale businesses, primarily driven by commercial and industrial and financial institution clients in CIB and Wealth Management clients globally in AWM, and


•	higher consumer loans driven by retention of originated high-quality prime mortgages in CCB and AWM, and growth in credit card loans. These were predominantly offset by mortgage paydowns and loan sales, lower home equity loans, run-off of PCI loans, and lower auto loans.

The allowance for loan losses decreased driven by:

•

a reduction in the consumer allowance due to a $250 million reduction in the CCB allowance for loan losses in the residential real estate PCI portfolio, reflecting continued improvement in home prices and lower delinquencies, as well as a $187 million reduction in the allowance for write-offs of PCI loans partially due to loan sales. These reductions were largely offset by a $300 million addition to the allowance in the credit card portfolio, due to loan growth and higher loss rates, as anticipated.

For a more detailed discussion of loans and the allowance for loan losses, refer to Credit and Investment Risk Management on pages 102-123, and Notes 2, 3, 12 and 13.

Accrued interest and accounts receivable increased primarily reflecting higher client receivables related to client-driven activities in CIB.

Other assets increased reflecting higher auto operating lease assets from growth in business volume in CCB and higher alternative energy investments in CIB.

For information on Goodwill and MSRs, refer to Note 15.

Deposits increased in CIB and CCB, largely offset by decreases in AWM and CB.


•	The increase in CIB was predominantly driven by growth in operating deposits related to client activity in CIB’s Treasury Services business, and in CCB reflecting the continuation of growth from new accounts.


•	The decrease in AWM was driven by balance migration predominantly into the Firm’s higher-yielding investment-related products. The decrease in CB was driven by a reduction in non-operating deposits.

For more information, refer to the Liquidity Risk Management discussion on pages 95–100; and Notes 2

and 17.

Federal funds purchased and securities loaned or sold under repurchase agreements increased reflecting higher client-driven market-making activities and higher secured financing of trading assets-debt and equity instruments in CIB.

Short-term borrowings increased reflecting short-term advances from Federal Home Loan Banks (“FHLBs”) and the net issuance of commercial paper in Treasury and CIO primarily for short-term liquidity management. For additional information, refer to Liquidity Risk Management on pages 95–100.

Trading liabilities increased predominantly as a result of client-driven market-making activities in CIB, which resulted in higher levels of short positions in equity instruments in Equity Markets, including prime brokerage. For additional information, refer to Derivative contracts on pages 117–118, and Notes 2 and 5.

Accounts payable and other liabilities increased partly as a result of higher client payables related to prime brokerage activities in CIB.

Beneficial interests issued by consolidated VIEs decreased due to net maturities of credit card securitizations. For further information on Firm-sponsored VIEs and loan securitization trusts, refer to Off-Balance Sheet Arrangements on pages 55–56 and Note 14 and 27.

Long-term debt decreased primarily driven by lower FHLB advances, predominantly offset by net issuance of structured notes in CIB, as well as net issuance of senior debt in Treasury and CIO. For additional information on the Firm’s long-term debt activities, refer to Liquidity Risk Management on pages 95–100 and Note 19.

For information on changes in stockholders’ equity, refer to page 153, and on the Firm’s capital actions, refer to Capital actions on pages 91-92.

Consolidated cash flows analysis

The following is a discussion of cash flow activities during the years ended December 31, 2018, 2017 and 2016.



(in millions)	Year ended December 31,
(in millions)	2018			2017			2016
Net cash provided by/(used in)
Operating activities	$	14,187		$	(10,827	)	$	21,884
Investing activities	(197,993		)	28,249			(89,202		)
Financing activities	34,158			14,642			98,271
Effect of exchange rate changes on cash	(2,863		)	8,086			(1,482		)
Net increase/(decrease) in cash and due from banks	$	(152,511	)	$	40,150		$	29,471

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 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 2018, cash provided primarily reflected net income excluding noncash adjustments, increased trading liabilities and accounts payable and other liabilities, partially offset by an increase in trading assets, net originations of loans held-for-sale, and higher securities borrowed and other assets.


•	In 2017, cash used primarily reflected a decrease in trading liabilities and accounts payable and other liabilities, and an increase in accrued interest and accounts receivable, partially offset by net income excluding noncash adjustments and a decrease in trading assets.


•	In 2016, cash provided primarily reflected net income excluding noncash adjustments, partially offset by an increase in trading assets.

Investing activities

The Firm’s investing activities predominantly include originating held-for-investment loans and investing in the securities portfolio and other short-term instruments.


•	In 2018, cash used reflected an increase in securities purchased under resale agreements, higher net originations of loans and net purchases of investment securities.


•	In 2017, cash provided reflected net proceeds from paydowns, maturities, sales and purchases of investment securities and a decrease in securities purchased under resale agreements, partially offset by net originations of loans.


•	In 2016, cash used reflected net originations of loans, and an increase in securities purchased under resale agreements.

Financing activities

The Firm’s financing activities include acquiring customer deposits and issuing long-term debt, as well as preferred and common stock.


•	In 2018, cash provided reflected higher deposits, short-term borrowings, and securities loaned or sold under repurchase agreements.


•	In 2017, cash provided reflected higher deposits and short-term borrowings, partially offset by a net decrease in long-term borrowings.


•	In 2016, cash provided reflected higher deposits, net proceeds from long-term borrowings, and an increase in securities loaned or sold under repurchase agreements.


•	For all periods, cash was used for repurchases of common stock and cash dividends on common and preferred stock.

* * *

For a further discussion of the activities affecting the Firm’s cash flows, refer to Consolidated Balance Sheets Analysis on pages 52–53 , Capital Risk Management on pages 85-94, and Liquidity Risk Management on pages 95–100.

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 off-balance sheet under accounting principles generally accepted in the U.S. (“U.S. GAAP”).

Special-purpose entities

The Firm is involved with 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 deemed 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 accompanying table summarizes, by remaining maturity, JPMorgan Chase’s significant contractual cash obligations at December 31, 2018. The contractual cash obligations included in the table below reflect the minimum contractual obligation under legally enforceable contracts with terms that are both fixed and determinable. Excluded from the below table are certain liabilities with variable cash flows and/or no obligation to return a stated amount of principal at maturity.

The carrying amount of on-balance sheet obligations on the Consolidated balance sheets may differ from the minimum contractual amount of the obligations reported below. For a discussion of mortgage repurchase liabilities and other obligations, refer to Note 27.

Non-GAAP financial measures

The Firm prepares its Consolidated Financial Statements in accordance with U.S. GAAP; these financial statements appear on pages 150-154. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year-to-year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.

In addition to analyzing the Firm’s results on a reported basis, management reviews Firmwide results, including the overhead ratio, on a “managed” basis; these Firmwide managed basis results are non-GAAP financial measures. The Firm also reviews the results of the lines of business on a managed basis. The Firm’s definition of managed basis starts, in each case, with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the reportable business segments) on 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 lines of business.

Management also uses certain non-GAAP financial measures at the Firm and business-segment level, because these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Firm or of the particular business segment, as the case may be, and, therefore, facilitate a comparison of the Firm or the business segment with the performance of its relevant competitors. For additional information on these non-GAAP measures, refer to Business Segment Results on pages 60-78. Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.

Net interest income and net yield excluding CIB’s Markets businesses

In addition to reviewing net interest income and the net interest yield on a managed basis, management also reviews these metrics excluding CIB’s Markets businesses, as shown below; these metrics, which exclude CIB’s Markets businesses, are non-GAAP financial measures. Management reviews these metrics to assess the performance of the Firm’s lending, investing (including asset-liability management) and deposit-raising activities. The resulting metrics that exclude CIB’s Markets businesses are referred to as non-markets-related net interest income and net yield. CIB’s Markets businesses are Fixed Income Markets and Equity Markets. Management believes that disclosure of non-markets-related net interest income and net yield provides investors and analysts with other measures by which to analyze the non-markets-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.



Year ended December 31, (in millions, except rates)	2018			2017			2016
Net interest income – managed basis^(a)(b)	$	55,687		$	51,410		$	47,292
Less: CIB Markets net interest income^(c)	3,087			4,630			6,334
Net interest income excluding CIB Markets^(a)	$	52,600		$	46,780		$	40,958
Average interest-earning assets	$	2,229,188		$	2,180,592		$	2,101,604
Less: Average CIB Markets interest-earning assets^(c)	609,635			540,835			520,307
Average interest-earning assets excluding CIB Markets	$	1,619,553		$	1,639,757		$	1,581,297
Net interest yield on average interest-earning assets – managed basis	2.50		%	2.36		%	2.25		%
Net interest yield on average CIB Markets interest-earning assets^(c)	0.51			0.86			1.22
Net interest yield on average interest-earning assets excluding CIB Markets	3.25		%	2.85		%	2.59		%


(a)	Interest includes the effect of related hedges. Taxable-equivalent amounts are used where applicable.


(b)	For a reconciliation of net interest income on a reported and managed basis, refer to reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 57.


(c)	For further information on CIB’s Markets businesses, refer to page 69.



Calculation of certain U.S. GAAP and non-GAAP financial measures
Certain U.S. GAAP and non-GAAP financial measures are calculated as follows:
Book value per share (“BVPS”) Common stockholders’ equity at period-end / Common shares at period-end
Overhead ratio Total noninterest expense / Total net revenue
Return on assets (“ROA”) Reported net income / Total average assets
Return on common equity (“ROE”) Net income* / Average common stockholders’ equity
Return on tangible common equity (“ROTCE”) Net income* / Average tangible common equity
Tangible book value per share (“TBVPS”) Tangible common equity at period-end / Common shares at period-end
* Represents net income applicable to common equity

The Firm also reviews adjusted expense, which is noninterest expense excluding Firmwide legal expense and is therefore a non-GAAP financial measure. Additionally, certain credit metrics and ratios disclosed by the Firm exclude PCI loans, and are therefore non-GAAP measures. Management believes these measures help investors understand the effect of these items on reported results and provide an alternate presentation of the Firm’s performance. For additional information on credit metrics and ratios excluding PCI loans, refer to Credit and Investment Risk Management on pages 102-123.

The Firm considers the following to be key regulatory capital measures:


•	Capital, risk-weighted assets (“RWA”), and capital and leverage ratios presented under Basel III Standardized and Advanced Fully Phased-In rules, and


•	SLR calculated under Basel III Advanced Fully Phased-In rules.

The Firm, as well as banking regulators, investors and analysts, use these measures to assess the Firm’s regulatory capital position and to compare the Firm’s regulatory capital to that of other financial services companies.

For additional information on these measures, refer to Capital Risk Management on pages 85-94.

Core loans is also considered a key performance measure. Core loans represents loans considered central to the Firm’s ongoing businesses, and excludes loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit. Core loans is a measure utilized by the Firm and its investors and analysts in assessing actual growth in the loan portfolio.

The Firm is managed on a line of business basis. There are four major reportable business segments – Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset & Wealth Management. In addition, there is a Corporate segment.

The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by the Firm’s Operating Committee. Segment results are presented on a managed basis. For a definition of managed basis, refer to Explanation and Reconciliation of the Firm’s use of Non-GAAP Financial Measures and Key Performance Measures, on pages 57-59.

Results of the business segments are intended to present each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results includes the allocation of certain income and expense items described in more detail below. The Firm also assesses the level of capital required for each line of business on at least an annual basis. The Firm periodically assesses the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.

Revenue sharing

When business segments join efforts to sell products and services to the Firm’s clients, the participating business segments may agree to share revenue from those transactions. Revenue is recognized in the segment responsible for the related product or service on a gross basis, with an allocation to the other segment(s) involved in the transaction. The segment results reflect these revenue-sharing agreements.

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 of a business segment as if it were operating independently. This process is overseen by senior management and reviewed by the Firm’s Treasurer Committee.

Debt expense and preferred stock dividend allocation

As part of the funds transfer pricing process, almost all of the cost of the credit spread component of outstanding unsecured long-term debt and preferred stock dividends is allocated to the reportable business segments, while the balance of the cost is retained in Corporate. The methodology to allocate the cost of unsecured long-term debt and preferred stock dividends to the business segments is aligned with the Firm’s process to allocate capital. The allocated cost of unsecured long-term debt is included in a business segment’s net interest income, and net income is reduced by preferred stock dividends to arrive at a business segment’s net income applicable to common equity.

Business segment capital allocation

The amount of capital assigned to each business is referred to as equity. On at least an annual basis, the assumptions and methodologies used in capital allocation are assessed and as a result, the capital allocated to lines of business may change. For additional information on business segment capital allocation, refer to Line of business equity on page 91.

Expense allocation

Where business segments use services provided by corporate support units, or another business segment, the costs of those services are allocated to the respective business segments. The expense is generally allocated based on the actual cost and use of services provided. In contrast, certain other costs related to corporate support units, or to certain technology and operations, are not allocated to the business segments and are retained in Corporate. Expense retained in Corporate generally includes parent company costs that would not be incurred if the segments were stand-alone businesses; adjustments to align corporate support units; and other items not aligned with a particular business segment.

Consumer & Community Banking offers services to consumers and businesses through bank branches, ATMs, digital (including online and mobile) and telephone banking. CCB is organized into Consumer & Business Banking (including Consumer Banking/Chase Wealth Management and Business Banking), Home Lending (including Home Lending Production, Home Lending Servicing and Real Estate Portfolios) and Card, Merchant Services & Auto. Consumer & Business Banking offers deposit and investment products and services to consumers, and lending, deposit, and cash management and payment solutions to small businesses. Home Lending includes mortgage origination and servicing activities, as well as portfolios consisting of residential mortgages and home equity loans. Card, Merchant Services & Auto issues credit cards to consumers and small businesses, offers payment processing services to merchants, and originates and services auto loans and leases.



Selected income statement data
Year ended December 31,
(in millions, except ratios)	2018			2017			2016
Revenue
Lending- and deposit-related fees	$	3,624		$	3,431		$	3,231
Asset management, administration and commissions	2,402			2,212			2,093
Mortgage fees and related income	1,252			1,613			2,490
Card income	4,554			4,024			4,364
All other income	4,428			3,430			3,077
Noninterest revenue	16,260			14,710			15,255
Net interest income	35,819			31,775			29,660
Total net revenue	52,079			46,485			44,915

Provision for credit losses	4,753			5,572			4,494

Noninterest expense
Compensation expense^(a)	10,534			10,133			9,697
Noncompensation expense^(a)(b)	17,301			15,929			15,208
Total noninterest expense	27,835			26,062			24,905
Income before income tax expense	19,491			14,851			15,516
Income tax expense	4,639			5,456			5,802
Net income	$	14,852		$	9,395		$	9,714

Revenue by line of business
Consumer & Business Banking	$	24,805		$	21,104		$	18,659
Home Lending	5,484			5,955			7,361
Card, Merchant Services & Auto	21,790			19,426			18,895

Mortgage fees and related income details:
Net production revenue	268			636			853
Net mortgage servicing revenue^(c)	984			977			1,637
Mortgage fees and related income	$	1,252		$	1,613		$	2,490

Financial ratios
Return on equity	28		%	17		%	18		%
Overhead ratio	53			56			55

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


(a)	Effective in the first quarter of 2018, certain operations staff were transferred from CCB to CB. The prior period amounts have been revised to conform with the current period presentation. For a further discussion of this transfer, refer to CB segment results on page 71.


(b)	Included operating lease depreciation expense of $3.4 billion, $2.7 billion and $1.9 billion for the years ended December 31, 2018, 2017 and 2016, respectively.


(c)	Included MSR risk management results of $(111) million, $(242) million and $217 million for the years ended December 31, 2018, 2017 and 2016, respectively.

2018 compared with 2017

Net income was $14.9 billion, an increase of 58%.

Net revenue was $52.1 billion, an increase of 12%.

Net interest income was $35.8 billion, up 13%, driven by:


•	higher deposit margins and growth in deposit balances in CBB, as well as margin expansion and higher loan balances in Card,

partially offset by


•	higher rates driving loan spread compression in Home Lending and Auto.

Noninterest revenue was $16.3 billion, up 11%, driven by:


•	higher auto lease volume,


•	higher card income due to


–	lower new account origination costs, and higher merchant processing fees on higher volumes,

largely offset by


–	lower net interchange income reflecting higher rewards costs and partner payments, largely offset by higher card sales volumes. The rewards costs included an adjustment to the credit card rewards liability of approximately $330 million in the second quarter of 2018, driven by an increase in redemption rate assumptions


•	higher deposit-related fees, as well as higher asset management fees reflecting an increase in client investment assets,

partially offset by


•	lower net production revenue reflecting lower mortgage production margins and volumes, as well as the impact of a loan sale.

Refer to Note 15 for further information regarding changes in value of the MSR asset and related hedges, and mortgage fees and related income.

Noninterest expense was $27.8 billion, up 7%, driven by:


•	investments in technology and marketing, and


•	higher auto lease depreciation.

The provision for credit losses was $4.8 billion, a decrease of 15%, reflecting:


•	a decrease in the consumer, excluding credit card portfolio due to


–	lower net charge-offs in the residential real estate portfolio, largely driven by recoveries from loan sales, and


–	lower net charge-offs in the auto portfolio

partially offset by


–	a $250 million reduction in the allowance for loan losses in the residential real estate portfolio — PCI, reflecting continued improvement in home prices and lower delinquencies; the reduction was $75 million lower than the prior year for the residential real estate portfolio — non credit-impaired


•	the prior year included a net $218 million write-down recorded in connection with the sale of the student loan portfolio, and


•	a decrease in the credit card portfolio due to


–	a $300 million addition to the allowance for loan losses, reflecting loan growth and higher loss rates, as anticipated; the addition was $550 million lower than the prior year,

largely offset by


–	higher net charge-offs due to seasoning of more recent vintages, as anticipated.

2017 compared with 2016

Net income was $9.4 billion, a decrease of 3%.

Net revenue was $46.5 billion, an increase of 3%.

Net interest income was $31.8 billion, up 7%, driven by:


•	growth in deposit balances and higher deposit margins in CBB, as well as higher loan balances in Card,

partially offset by


•	loan spread compression from higher rates, including the impact of higher funding costs in Home Lending and Auto, and


•	the impact of the sale of the student loan portfolio.

Noninterest revenue was $14.7 billion, down 4%, driven by:


•	higher new account origination costs in Card,


•	lower MSR risk management results,


•	the absence in the current year of a gain on the sale of Visa Europe interests,


•	lower net production revenue reflecting lower mortgage production margins and volumes, and


•	lower mortgage servicing revenue as a result of a lower level of third-party loans serviced

largely offset by


•	higher auto lease volume and


•	higher card- and deposit-related fees.

Noninterest expense was $26.1 billion, up 5%, driven by:


•	higher auto lease depreciation, and


•	continued business growth

partially offset by


•	two items totaling $175 million included in the prior year related to liabilities from a merchant bankruptcy and mortgage servicing reserves.

The provision for credit losses was $5.6 billion, an increase of 24%, reflecting:


•	$445 million of higher net charge-offs, primarily in the credit card portfolio due to growth in newer vintages which, as anticipated, have higher loss rates than the more seasoned portion of the portfolio, partially offset by a decrease in net charge-offs in the residential real estate portfolio reflecting continued improvement in home prices and delinquencies,


•	a $415 million higher addition to the allowance for credit losses related to the credit card portfolio driven by higher loss rates and loan growth, and a lower reduction in the allowance for the residential real estate portfolio predominantly driven by continued improvement in home prices and delinquencies, and


•	a net $218 million impact in connection with the sale of the student loan portfolio.

The sale of the student loan portfolio during 2017 did not have a material impact on the Firm’s Consolidated Financial Statements.



Selected metrics
As of or for the year ended December 31,
(in millions, except headcount)	2018		2017		2016
Selected balance sheet data (period-end)
Total assets	$	557,441	$	552,601	$	535,310
Loans:
Consumer & Business Banking	26,612		25,789		24,307
Home equity	36,013		42,751		50,296
Residential mortgage	203,859		197,339		181,196
Home Lending	239,872		240,090		231,492
Card	156,632		149,511		141,816
Auto	63,573		66,242		65,814
Student	—		—		7,057
Total loans	486,689		481,632		470,486
Core loans	434,466		415,167		382,608
Deposits	678,854		659,885		618,337
Equity	51,000		51,000		51,000
Selected balance sheet data (average)
Total assets	$	547,368	$	532,756	$	516,354
Loans:
Consumer & Business Banking	26,197		24,875		23,431
Home equity	39,133		46,398		54,545
Residential mortgage	202,624		190,242		177,010
Home Lending	241,757		236,640		231,555
Card	145,652		140,024		131,165
Auto	64,675		65,395		63,573
Student	—		2,880		7,623
Total loans	478,281		469,814		457,347
Core loans	419,066		393,598		361,316
Deposits	670,388		640,219		586,637
Equity	51,000		51,000		51,000

Headcount^(a)(b)	129,518		133,721		132,384


(a)	Effective in the first quarter of 2018, certain operations staff were transferred from CCB to CB. The prior period amounts have been revised to conform with the current period presentation. For a further discussion of this transfer, refer to CB segment results on page 71.


(b)	During the third quarter of 2018, approximately 1,200 employees transferred from CCB to CIB as part of the reorganization of the Commercial Card business.



Selected metrics
As of or for the year ended December 31,
(in millions, except ratio data)	2018			2017				2016
Credit data and quality statistics
Nonaccrual loans^(a)(b)	$	3,339		$	4,084			$	4,708
Net charge-offs/(recoveries)^(c)
Consumer & Business Banking	236			257				257
Home equity	(7		)	63				184
Residential mortgage	(287		)	(16		)		14
Home Lending	(294		)	47				198
Card	4,518			4,123				3,442
Auto	243			331				285
Student	—			498			^(g)	162
Total net charge-offs/(recoveries)	$	4,703		$	5,256		^(g)	$	4,344

Net charge-off/(recovery) rate^(c)
Consumer & Business Banking	0.90		%	1.03		%		1.10		%
Home equity^(d)	(0.02		)	0.18				0.45
Residential mortgage^(d)	(0.16		)	(0.01		)		0.01
Home Lending^(d)	(0.14		)	0.02				0.10
Card	3.10			2.95				2.63
Auto	0.38			0.51				0.45
Student	—			NM				2.13
Total net charge-offs/(recovery) rate^(d)	1.04			1.21			^(g)	1.04
30+ day delinquency rate
Home Lending^(e)(f)	0.77		%	1.19		%		1.23		%
Card	1.83			1.80				1.61
Auto	0.93			0.89				1.19
Student	—			—				1.60			^(h)

90+ day delinquency rate - Card	0.92			0.92				0.81

Allowance for loan losses
Consumer & Business Banking	$	796		$	796			$	753
Home Lending, excluding PCI loans	1,003			1,003				1,328
Home Lending — PCI loans^(c)	1,788			2,225				2,311
Card	5,184			4,884				4,034
Auto	464			464				474
Student	—			—				249
Total allowance for loan losses^(c)	$	9,235		$	9,372			$	9,149


(a)	Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.

(b)

At December 31, 2018, 2017 and 2016, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $2.6 billion, $4.3 billion and $5.0 billion, respectively. At December 31, 2016, nonaccrual loans also excluded student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $263 million. These amounts have been excluded based upon the government guarantee.


(c)	Net charge-offs/(recoveries) and the net charge-off/(recovery) rates for the years ended December 31, 2018, 2017 and 2016, excluded $187 million, $86 million and $156 million, respectively, of write-offs in the PCI portfolio. These write-offs decreased the allowance for loan losses for PCI loans. For further

information on PCI write-offs, refer to Summary of changes in the allowance for credit losses on page 121.

(d)

Excludes the impact of PCI loans. For the years ended December 31, 2018, 2017 and 2016, the net charge-off/(recovery) rates including the impact of PCI loans were as follows: (1) home equity of (0.02)%, 0.14% and 0.34%, respectively; (2) residential mortgage of (0.14)%, (0.01)% and 0.01%, respectively; (3) Home Lending of (0.12)%, 0.02% and 0.09%, respectively; and (4) total CCB of 0.98%, 1.12% and 0.95%, respectively.


(e)	At December 31, 2018, 2017 and 2016, excluded mortgage loans insured by U.S. government agencies of $4.1 billion, $6.2 billion and $7.0 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.


(f)	Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 9.16%, 10.13% and 9.82% at December 31, 2018, 2017 and 2016, respectively.


(g)	Excluding net charge-offs of $467 million related to the student loan portfolio transfer, the total net charge-off rates for the full year 2017 would have been 1.10%.


(h)	Excluded student loans insured by U.S. government agencies under FFELP of $468 million at December 31, 2016 that are 30 or more days past due. This amount has been excluded based upon the government guarantee.



Selected metrics
As of or for the year ended December 31,
(in billions, except ratios and where otherwise noted)	2018			2017			2016
Business Metrics
CCB households (in millions)^(a)	61.7			61.1			60.5
Number of branches	5,036			5,130			5,258
Active digital customers (in thousands)^(b)	49,254			46,694			43,836
Active mobile customers (in thousands)^(c)	33,260			30,056			26,536
Debit and credit card sales volume	$	1,016.9		$	916.9		$	821.6

Consumer & Business Banking
Average deposits	$	656.5		$	625.6		$	570.8
Deposit margin	2.38		%	1.98		%	1.81		%
Business banking origination volume	$	6.7		$	7.3		$	7.3
Client investment assets	282.5			273.3			234.5

Home Lending
Mortgage origination volume by channel
Retail	$	38.3		$	40.3		$	44.3
Correspondent	41.1			57.3			59.3
Total mortgage origination volume^(d)	$	79.4		$	97.6		$	103.6
Total loans serviced (period-end)	$	789.8		$	816.1		$	846.6
Third-party mortgage loans serviced (period-end)	519.6			553.5			591.5
MSR carrying value (period-end)	6.1			6.0			6.1
Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end)	1.17		%	1.08		%	1.03		%

MSR revenue multiple^(e)	3.34		x	3.09		x	2.94		x

Card, excluding Commercial Card
Credit card sales volume	$	692.4		$	622.2		$	545.4
New accounts opened (in millions)	7.8			8.4			10.4

Card Services
Net revenue rate	11.27		%	10.57		%	11.29		%

Merchant Services
Merchant processing volume	$	1,366.1		$	1,191.7		$	1,063.4

Auto
Loan and lease origination volume	$	31.8		$	33.3		$	35.4
Average Auto operating lease assets	18.8			15.2			11.0


(a)	The prior period amounts have been revised to conform with the current period presentation.


(b)	Users of all web and/or mobile platforms who have logged in within the past 90 days.


(c)	Users of all mobile platforms who have logged in within the past 90 days.


(d)	Firmwide mortgage origination volume was $86.9 billion, $107.6 billion and $117.4 billion for the years ended December 31, 2018, 2017 and 2016, respectively.


(e)	Represents the ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) divided by the ratio of loan servicing-related revenue to third-party mortgage loans serviced (average).

The Corporate & Investment Bank, which consists of Banking and Markets & Investor Services, offers a broad suite of investment banking, market-making, prime brokerage, and treasury and securities products and services to a global client base of corporations, investors, financial institutions, government and municipal entities. Banking offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication. Banking also includes Treasury Services, which provides transaction services, consisting of cash management and liquidity solutions. Markets & Investor Services is a global market-maker in cash securities and derivative instruments, and also offers sophisticated risk management solutions, prime brokerage, and research. Markets & Investor Services also includes Securities Services, a leading global custodian which provides custody, fund accounting and administration, and securities lending products principally for asset managers, insurance companies and public and private investment funds.

Effective January 1, 2018, the Firm adopted several new accounting standards; the guidance which had the most significant impact on the CIB segment results was revenue recognition, and recognition and measurement of financial assets. The revenue recognition guidance was applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.



Selected income statement data
Year ended December 31,
(in millions)	2018			2017			2016
Revenue
Investment banking fees	$	7,473		$	7,356		$	6,548
Principal transactions	12,271			10,873			11,089
Lending- and deposit-related fees	1,497			1,531			1,581
Asset management, administration and commissions	4,488			4,207			4,062
All other income	1,239			572			1,169
Noninterest revenue	26,968			24,539			24,449
Net interest income	9,480			10,118			10,891
Total net revenue^(a)(b)	36,448			34,657			35,340

Provision for credit losses	(60		)	(45		)	563

Noninterest expense
Compensation expense	10,215			9,531			9,540
Noncompensation expense	10,703			9,876			9,576
Total noninterest expense	20,918			19,407			19,116
Income before income tax expense	15,590			15,295			15,661
Income tax expense	3,817			4,482			4,846
Net income^(a)	$	11,773		$	10,813		$	10,815


(a)	The full year 2017 results reflect the impact of the enactment of the TCJA including a decrease to net revenue of $259 million and a benefit to net income of $141 million. For additional information related to the impact of the TCJA, refer to Note 24.


(b)	Included tax-equivalent adjustments, predominantly due to income tax credits related to alternative energy investments; income tax credits and amortization of the cost of investments in affordable housing projects; and tax-exempt income from municipal bonds of $1.7 billion, $2.4 billion and $2.0 billion for the years ended December 31, 2018, 2017 and 2016, respectively.



Selected income statement data
Year ended December 31,
(in millions, except ratios)	2018			2017			2016
Financial ratios
Return on equity	16		%	14		%	16		%
Overhead ratio	57			56			54
Compensation expense as percentage of total net revenue	28			28			27
Revenue by business
Investment Banking	$	6,987		$	6,852		$	6,074
Treasury Services	4,697			4,172			3,643
Lending	1,298			1,429			1,208
Total Banking	12,982			12,453			10,925
Fixed Income Markets	12,706			12,812			15,259
Equity Markets	6,888			5,703			5,740
Securities Services	4,245			3,917			3,591
Credit Adjustments & Other^(a)	(373		)	(228		)	(175		)
Total Markets & Investor Services	23,466			22,204			24,415
Total net revenue	$	36,448		$	34,657		$	35,340

(a)

Consists primarily of credit valuation adjustments (“CVA”) managed centrally within CIB and funding valuation adjustments (“FVA”) on derivatives. Results are primarily reported in principal transactions revenue. Results are presented net of associated hedging activities and net of CVA and FVA amounts allocated to Fixed Income Markets and Equity Markets. For additional information, refer to Notes 2, 3 and 23.

2018 compared with 2017

Net income was $11.8 billion, up 9%.

Net revenue was $36.4 billion, up 5%.

Banking revenue was $13.0 billion, up 4%. Investment Banking revenue was $7.0 billion, up 2% compared to a strong prior year, predominantly driven by higher advisory and equity underwriting fees, predominantly offset by lower debt underwriting fees. The Firm maintained its #1 ranking for Global Investment Banking fees with overall share gains, according to Dealogic. Advisory fees were $2.5 billion, up 17%, driven by a higher number of large completed transactions. Equity underwriting fees were $1.7 billion, up 15% driven by a higher share of fees reflecting strong performance across products. Debt underwriting fees were $3.3 billion, down 12%, compared to a strong prior year, primarily driven by declines in industry-wide fee levels. Treasury Services revenue was $4.7 billion, up 13%, driven by the impact of higher interest rates and growth in operating deposits as well as higher fees on increased payments volume. Lending revenue was $1.3 billion, down

9%, driven by lower net interest income primarily reflecting a change in the portfolio mix and overall spread compression, and higher gains in the prior year on securities received from restructurings.

Markets & Investor Services revenue was $23.5 billion, up 6%. The results included a reduction of approximately $620 million in tax-equivalent adjustments as a result of the TCJA, and approximately $500 million of fair value gains in the first quarter of 2018 related to the adoption of the new recognition and measurement accounting guidance for certain equity investments previously held at cost. Prior year results included a reduction of $259 million resulting from the enactment of the TCJA. Fixed Income Markets revenue was $12.7 billion, down 1%. Excluding the impact of the TCJA and fair value gains mentioned above, Fixed Income Markets revenue was down 2%. Rates and Credit revenue declined reflecting challenging market conditions in the fourth quarter of 2018 while lower revenue in Fixed Income Financing was driven by compressed margins. This decline was predominantly offset by strong performance including higher client activity in Currencies & Emerging Markets, and higher Commodities revenue compared to a challenging prior year. Equity Markets revenue was $6.9 billion, up 21%, or up 18% excluding the fair value loss of $143 million on a margin loan to a single client in the prior year, driven by strength across derivatives, prime brokerage and cash equities, reflecting strong client activity. Securities Services revenue was $4.2 billion, up 8%, driven by fee growth, higher interest rates and operating deposit growth partially offset by the impact of a business exit. Credit Adjustments & Other was a loss of $373 million, largely driven by higher funding spreads on derivatives.

The provision for credit losses was a benefit of $60 million, driven by a reduction in the allowance for credit losses in the first quarter of 2018 related to a single name in the Oil & Gas portfolio, predominantly offset by other net portfolio activity, which includes additions to the allowance for credit losses from select client downgrades. The prior year was a benefit of $45 million primarily driven by a net reduction in the allowance for credit losses in the Oil & Gas and Metals & Mining portfolios partially offset by a net increase in the allowance for credit losses for a single client.

Noninterest expense was $20.9 billion, up 8%, predominantly driven by investments in technology and bankers, higher performance-related compensation expense, volume-related transaction costs, and legal expense.

2017 compared with 2016

Net income was $10.8 billion, flat compared with the prior year, reflecting lower net revenue and higher noninterest expense, offset by a lower provision for credit losses, and a tax benefit resulting from the vesting of employee share-based awards. The current year included a $141 million benefit to net income as a result of the enactment of the TCJA.

Net revenue was $34.7 billion, down 2%.

Banking revenue was $12.5 billion, up 14% compared with the prior year. Investment banking revenue was $6.9 billion, up 13% from the prior year, driven by higher debt and equity underwriting fees. The Firm maintained its #1 ranking for Global Investment Banking fees, according to Dealogic. Debt underwriting fees were $3.7 billion, up 16% driven by a higher share of fees and an overall increase in industry-wide fees; the Firm maintained its #1 ranking globally in fees across high-grade, high-yield, and loan products. Equity underwriting fees were $1.5 billion, up 21% driven by growth in industry-wide issuance including a strong IPO market; the Firm ranked #2 in equity underwriting fees globally. Advisory fees were $2.2 billion, up 2%; the Firm maintained its #2 ranking for M&A. Treasury Services revenue was $4.2 billion, up 15%, driven by the impact of higher interest rates and growth in operating deposits. Lending revenue was $1.4 billion, up 18% from the prior year, reflecting lower fair value losses on hedges of accrual loans.

Markets & Investor Services revenue was $22.2 billion, down 9% from the prior year. Fixed Income Markets revenue was $12.8 billion, down 16%, as lower revenue across products was driven by sustained low volatility, tighter credit spreads, and the impact from the TCJA on tax-oriented investments of $259 million, against a strong prior year. Equity Markets revenue was $5.7 billion, down 1% from the prior year, and included a fair value loss of $143 million on a margin loan to a single client. Excluding the fair value loss, Equity Markets revenue was higher driven by higher revenue in Prime Services and cash equities, partially offset by lower revenue in derivatives. Securities Services revenue was $3.9 billion, up 9%, driven by the impact of higher interest rates and deposit growth, as well as higher asset-based fees driven by higher market levels. Credit Adjustments & Other was a loss of $228 million, driven by valuation adjustments.

The provision for credit losses was a benefit of $45 million, which included a net reduction in the allowance for credit losses driven by the Oil & Gas and Metals & Mining portfolios partially offset by a net increase in the allowance for credit losses for a single client. The prior year was an expense of $563 million, which included an addition to the allowance for credit losses driven by the Oil & Gas and Metals & Mining portfolios.

Noninterest expense was $19.4 billion, up 2% compared with the prior year.



Selected metrics
As of or for the year ended December 31, (in millions, except headcount)
	2018		2017		2016
Selected balance sheet data (period-end)
Assets	$	903,051	$	826,384	$	803,511
Loans:
Loans retained^(a)	129,389		108,765		111,872
Loans held-for-sale and loans at fair value	13,050		4,321		3,781
Total loans	142,439		113,086		115,653
Core loans	142,122		112,754		115,243
Equity	70,000		70,000		64,000
Selected balance sheet data (average)
Assets	$	922,758	$	857,060	$	815,321
Trading assets-debt and equity instruments	349,169		342,124		300,606
Trading assets-derivative receivables	60,552		56,466		63,387
Loans:
Loans retained^(a)	114,417		108,368		111,082
Loans held-for-sale and loans at fair value	6,412		4,995		3,812
Total loans	120,829		113,363		114,894
Core loans	120,560		113,006		114,455
Equity	70,000		70,000		64,000

Headcount^(b)	54,480		51,181		48,748


(a)	Loans retained includes credit portfolio loans, loans held by consolidated Firm-administered multi-seller conduits, trade finance loans, other held-for-investment loans and overdrafts.


(b)	During the third quarter of 2018 approximately 1,200 employees transferred from CCB to CIB as part of the reorganization of the Commercial Card business.



Selected metrics
As of or for the year ended December 31, (in millions, except ratios)
	2018			2017			2016
Credit data and quality statistics
Net charge-offs/(recoveries)	$	93		$	71		$	168
Nonperforming assets:
Nonaccrual loans:
Nonaccrual loans retained^(a)	443			812			467
Nonaccrual loansheld-for-sale and loans at fair value	220			—			109
Total nonaccrual loans	663			812			576
Derivative receivables	60			130			223
Assets acquired in loan satisfactions	57			85			79
Total nonperforming assets	780			1,027			878
Allowance for credit losses:
Allowance for loan losses	1,199			1,379			1,420
Allowance for lending-related commitments	754			727			801
Total allowance for credit losses	1,953			2,106			2,221
Net charge-off/(recovery) rate^(b)	0.08		%	0.07		%	0.15		%
Allowance for loan losses to period-end loans retained	0.93			1.27			1.27
Allowance for loan losses to period-end loans retained, excluding trade finance and conduits^(c)	1.24			1.92			1.86
Allowance for loan losses to nonaccrual loans retained^(a)	271			170			304
Nonaccrual loans to total period-end loans	0.47			0.72			0.50


(a)	Allowance for loan losses of $174 million, $316 million and $113 million were held against these nonaccrual loans at December 31, 2018, 2017 and 2016, respectively.


(b)	Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate.


(c)	Management uses allowance for loan losses to period-end loans retained, excluding trade finance and conduits, a non-GAAP financial measure, to provide a more meaningful assessment of CIB’s allowance coverage ratio.

The following table summarizes select income statement data for the Markets businesses. Markets includes both Fixed Income Markets and Equity Markets. Markets revenue comprises principal transactions, fees, commissions and other income, as well as net interest income. The Firm assesses its Markets business performance on a total revenue basis, as offsets may occur across revenue line items. For example, securities that generate net interest income may be risk-managed by derivatives that are recorded in principal transactions revenue. For a description of the composition of these income statement line items, refer to Notes 6 and 7.

Principal transactions reflects revenue on financial instruments and commodities transactions that arise from client-driven market making activity. Principal transactions revenue includes amounts recognized upon executing new transactions with market participants, as well as “inventory-related revenue”, which is revenue recognized from gains and losses on derivatives and other instruments that the

Firm has been holding in anticipation of, or in response to, client demand, and changes in the fair value of instruments used by the Firm to actively manage the risk exposure arising from such inventory. Principal transactions revenue recognized upon executing new transactions with market participants is driven by many factors including the level of client activity, the bid-offer spread (which is the difference between the price at which a market participant is willing to sell an instrument to the Firm and the price at which another market participant is willing to buy it from the Firm, and vice versa), market liquidity and volatility. These factors are interrelated and sensitive to the same factors that drive inventory-related revenue, which include general market conditions, such as interest rates, foreign exchange rates, credit spreads, and equity and commodity prices, as well as other macroeconomic conditions.

For the periods presented below, the predominant source of principal transactions revenue was the amount recognized upon executing new transactions.



International metrics
Year ended December 31,
(in millions, except where otherwise noted)	2018		2017		2016
Total net revenue^(a)
Europe/Middle East/Africa	$	12,102	$	11,328	$	10,786
Asia/Pacific	5,219		4,525		4,915
Latin America/Caribbean	1,394		1,125		1,225
Total international net revenue	18,715		16,978		16,926
North America	17,733		17,679		18,414
Total net revenue	$	36,448	$	34,657	$	35,340

Loans retained (period-end)^(a)
Europe/Middle East/Africa	$	26,524	$	25,931	$	26,696
Asia/Pacific	16,778		15,248		14,508
Latin America/Caribbean	5,060		6,546		7,607
Total international loans	48,362		47,725		48,811
North America	81,027		61,040		63,061
Total loans retained	$	129,389	$	108,765	$	111,872

Client deposits and other third-party liabilities (average)^(a)(b)
Europe/Middle East/Africa	$	162,846	$	154,582	$	135,979
Asia/Pacific	82,867		76,744		68,110
Latin America/Caribbean	26,668		25,419		22,914
Total international	$	272,381	$	256,745	$	227,003
North America	162,041		152,166		149,284
Total client deposits and other third-party liabilities	$	434,422	$	408,911	$	376,287

AUC (period-end)^(a) (in billions)
North America	$	14,359	$	13,971	$	12,290
All other regions	8,858		9,498		8,230
Total AUC	$	23,217	$	23,469	$	20,520


(a)	Total net revenue is based predominantly on the domicile of the client or location of the trading desk, as applicable. Loans outstanding (excluding loans held-for-sale and loans at fair value), client deposits and other third-party liabilities, and AUC are based predominantly on the domicile of the client.


(b)	Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.

Commercial Banking delivers extensive industry knowledge, local expertise and dedicated service to U.S. and U.S. multinational clients, including corporations, municipalities, financial institutions and nonprofit entities with annual revenue generally ranging from $20 million to $2 billion. In addition, CB provides financing to real estate investors and owners. Partnering with the Firm’s other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.



Selected income statement data
Year ended December 31, (in millions)	2018		2017			2016
Revenue
Lending- and deposit-related fees	$	870	$	919		$	917
Asset management, administration and commissions	73		68			69
All other income^(a)	1,400		1,535			1,334
Noninterest revenue	2,343		2,522			2,320
Net interest income	6,716		6,083			5,133
Total net revenue^(b)	9,059		8,605			7,453

Provision for credit losses	129		(276		)	282

Noninterest expense
Compensation expense^(c)	1,694		1,534			1,396
Noncompensation expense^(c)	1,692		1,793			1,538
Total noninterest expense	3,386		3,327			2,934

Income before income tax expense	5,544		5,554			4,237
Income tax expense	1,307		2,015			1,580
Net income	$	4,237	$	3,539		$	2,657


(a)	Includes revenue from investment banking products and commercial card transactions.

(b)

Total net revenue included tax-equivalent adjustments from income tax credits related to equity investments in designated community development entities that provide loans to qualified businesses in low-income communities, as well as tax-exempt income related to municipal financing activities of $444 million, $699 million and $505 million for the years ended December 31, 2018, 2017 and 2016, respectively. The decrease in taxable-equivalent adjustments reflects the impact of TCJA.

(c)

Effective in the first quarter of 2018, certain Operations and Compliance staff were transferred from CCB and Corporate, respectively, to CB. As a result, expense for this staff is now reflected in CB’s compensation expense with a corresponding adjustment for expense allocations reflected in noncompensation expense. CB’s, Corporate’s and CCB’s previously reported headcount, compensation expense and noncompensation expense have been revised to reflect this transfer.

2018 compared with 2017

Net income was $4.2 billion, an increase of 20%.

Net revenue was $9.1 billion, an increase of 5%. Net interest income was $6.7 billion, an increase of 10%, reflecting higher deposit margins and loan growth, partially offset by lower loan spreads. Noninterest revenue was $2.3 billion, a decrease of 7%, reflecting lower Community Development Banking revenue, which was also impacted by the absence of the TCJA benefit in the prior year, and lower deposit fees, partially offset by higher investment banking revenue.

Noninterest expense was $3.4 billion, an increase of 2%, with continued investments in banker coverage and technology in the current year predominantly offset by the absence of an impairment on certain leased equipment in the prior year.

The provision for credit losses was an expense of $129 million, driven by select client downgrades. The prior year provision for credit losses was a benefit of $276 million.

2017 compared with 2016

Net income was $3.5 billion, an increase of 33%, driven by higher net revenue and a lower provision for credit losses, partially offset by higher noninterest expense.

Net revenue was $8.6 billion, an increase of 15%. Net interest income was $6.1 billion, an increase of 19%, driven by higher deposit spreads and loan growth. Noninterest revenue was $2.5 billion, an increase of 9%, predominantly driven by higher Community Development Banking revenue, including a $115 million benefit for the impact of the TCJA on certain investments, and higher investment banking revenue.

Noninterest expense was $3.3 billion, an increase of 13% driven by hiring of bankers and business-related support staff, investments in technology, and an impairment of approximately $130 million on certain leased equipment, the majority of which was sold subsequent to year-end.

The provision for credit losses was a benefit of $276 million, driven by net reductions in the allowance for credit

losses, including in the Oil & Gas, Natural Gas Pipelines and Metals & Mining portfolios. The prior year provision for credit losses was $282 million driven by downgrades in the Oil & Gas portfolio and select client downgrades in other industries.



CB product revenue consists of the following:
Lending includes a variety of financing alternatives, which are primarily provided on a secured basis; collateral includes receivables, inventory, equipment, real estate or other assets. Products include term loans, revolving lines of credit, bridge financing, asset-based structures, leases, and standby letters of credit.
Treasury services includes revenue from a broad range of products and services that enable CB clients to manage payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of products providing CB clients with sophisticated capital-raising alternatives, as well as balance sheet and risk management tools through advisory, equity underwriting, and loan syndications. Revenue from Fixed Income and Equity Markets products used by CB clients is also included.
Other product revenue primarily includes tax-equivalent adjustments generated from Community Development Banking activities and certain income derived from principal transactions.



CB is divided into four primary client segments: Middle Market Banking, Corporate Client Banking, Commercial Term Lending, and Real Estate Banking.
Middle Market Banking covers corporate, municipal and nonprofit clients, with annual revenue generally ranging between $20 million and $500 million.
Corporate Client Banking covers clients with annual revenue generally ranging between $500 million and $2 billion and focuses on clients that have broader investment banking needs.
Commercial Term Lending primarily provides term financing to real estate investors/owners for multifamily properties as well as office, retail and industrial properties.
Real Estate Banking provides full-service banking to investors and developers of institutional-grade real estate investment properties.
Other primarily includes lending and investment-related activities within the Community Development Banking business.



Selected income statement data (continued)
Year ended December 31, (in millions, except ratios)	2018			2017			2016
Revenue by product
Lending	$	4,049		$	4,094		$	3,795
Treasury services	4,074			3,444			2,797
Investment banking^(a)	852			805			785
Other	84			262			76
Total Commercial Banking net revenue	$	9,059		$	8,605		$	7,453

Investment banking revenue, gross^(b)	$	2,491		$	2,385		$	2,331

Revenue by client segment
Middle Market Banking	$	3,708		$	3,341		$	2,848
Corporate Client Banking	2,984			2,727			2,429
Commercial Term Lending	1,366			1,454			1,408
Real Estate Banking	681			604			456
Other	320			479			312
Total Commercial Banking net revenue	$	9,059		$	8,605		$	7,453

Financial ratios
Return on equity	20		%	17		%	16		%
Overhead ratio	37			39			39


(a)	Includes total Firm revenue from investment banking products sold to CB clients, net of revenue sharing with the CIB.


(b)	Represents total Firm revenue from investment banking products sold to CB clients. As a result of the adoption of the revenue recognition guidance, prior period amounts have been revised to conform with the current period presentation. For additional information, refer to Note 1.



Selected metrics
As of or for the year ended December 31, (in millions, except headcount)	2018		2017		2016
Selected balance sheet data (period-end)
Total assets	$	220,229	$	221,228	$	214,341
Loans:
Loans retained	204,219		202,400		188,261
Loans held-for-sale and loans at fair value	1,978		1,286		734
Total loans	$	206,197	$	203,686	$	188,995
Core loans	206,039		203,469		188,673
Equity	20,000		20,000		16,000

Period-end loans by client segment
Middle Market Banking	$	56,656	$	56,965	$	53,929
Corporate Client Banking	48,343		46,963		43,027
Commercial Term Lending	76,720		74,901		71,249
Real Estate Banking	17,563		17,796		14,722
Other	6,915		7,061		6,068
Total Commercial Banking loans	$	206,197	$	203,686	$	188,995

Selected balance sheet data (average)
Total assets	$	218,259	$	217,047	$	207,532
Loans:
Loans retained	204,243		197,203		178,670
Loans held-for-sale and loans at fair value	1,258		909		723
Total loans	$	205,501	$	198,112	$	179,393
Core loans	205,320		197,846		178,875
Client deposits and other third-party liabilities	170,901		177,018		174,396
Equity	20,000		20,000		16,000

Average loans by client segment
Middle Market Banking	$	57,092	$	55,474	$	52,242
Corporate Client Banking	47,780		46,037		41,756
Commercial Term Lending	75,694		73,428		66,700
Real Estate Banking	17,808		16,525		13,063
Other	7,127		6,648		5,632
Total Commercial Banking loans	$	205,501	$	198,112	$	179,393

Headcount^(a)	11,042		10,061		9,352


(a)	Effective in the first quarter of 2018, certain Operations and Compliance staff were transferred from CCB and Corporate, respectively, to CB. The prior period amounts have been revised to conform with the current period presentation. For a further discussion of this transfer, refer to page 71, Selected income statement data, footnote (c).



Selected metrics
As of or for the year ended December 31, (in millions, except ratios)	2018			2017			2016
Credit data and quality statistics
Net charge-offs/(recoveries)	$	53		$	39		$	163
Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained^(a)	511			617			1,149
Nonaccrual loans held-for-sale and loans at fair value	—			—			—
Total nonaccrual loans	511			617			1,149

Assets acquired in loan satisfactions	2			3			1
Total nonperforming assets	513			620			1,150
Allowance for credit losses:
Allowance for loan losses	2,682			2,558			2,925
Allowance for lending-related commitments	254			300			248
Total allowance for credit losses	2,936			2,858			3,173

Net charge-off/(recovery) rate^(b)	0.03		%	0.02		%	0.09		%
Allowance for loan losses to period-end loansretained	1.31			1.26			1.55
Allowance for loan losses to nonaccrual loans retained^(a)	525			415			255
Nonaccrual loans to period-end total loans	0.25			0.30			0.61


(a)	Allowance for loan losses of $92 million, $92 million and $155 million was held against nonaccrual loans retained at December 31, 2018, 2017 and 2016, respectively.


(b)	Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate.

Asset & Wealth Management, with client assets of $2.7 trillion, is a global leader in investment and wealth management. AWM clients include institutions, high-net-worth individuals and retail investors in many major markets throughout the world. AWM offers investment management across most major asset classes including equities, fixed income, alternatives and money market funds. AWM also offers multi-asset investment management, providing solutions for a broad range of clients’ investment needs. For Wealth Management clients, AWM also provides retirement products and services, brokerage and banking services including trusts and estates, loans, mortgages and deposits. The majority of AWM’s client assets are in actively managed portfolios.

Effective January 1, 2018, the Firm adopted several new accounting standards; the guidance which had the most significant impact on the AWM segment results was revenue recognition. The revenue recognition guidance was applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.



Selected income statement data
Year ended December 31, (in millions, except ratios and headcount)	2018			2017			2016
Revenue
Asset management, administration and commissions	$	10,171		$	9,856		$	9,187
All other income	368			600			602
Noninterest revenue	10,539			10,456			9,789
Net interest income	3,537			3,379			3,033
Total net revenue	14,076			13,835			12,822

Provision for credit losses	53			39			26

Noninterest expense
Compensation expense	5,495			5,317			5,063
Noncompensation expense	4,858			4,901			4,192
Total noninterest expense	10,353			10,218			9,255

Income before income tax expense	3,670			3,578			3,541
Income tax expense	817			1,241			1,290
Net income	$	2,853		$	2,337		$	2,251

Revenue by line of business
Asset Management	$	7,163		$	7,257		$	6,747
Wealth Management	6,913			6,578			6,075
Total net revenue	$	14,076		$	13,835		$	12,822

Financial ratios
Return on common equity	31		%	25		%	24		%
Overhead ratio	74			74			72
Pre-tax margin ratio:
Asset Management	26			22			27
Wealth Management	26			30			28
Asset & Wealth Management	26			26			28

Headcount	23,920			22,975			21,082

Number of Wealth Management client advisors	2,865			2,605			2,504

2018 compared with 2017

Net income was $2.9 billion, an increase of 22%.

Net revenue was $14.1 billion, an increase of 2%. Net interest income was $3.5 billion, up 5%, driven by deposit margin expansion and loan growth. Noninterest revenue was $10.5 billion, up 1%, driven by higher management fees on higher average market levels and the cumulative impact of net inflows, predominantly offset by fee compression, lower investment valuations and lower performance fees.

Revenue from Asset Management was $7.2 billion, down 1%, driven by lower investment valuations, fee compression and lower performance fees, predominantly offset by higher management fees on higher average market levels and the cumulative impact of net inflows.

Revenue from Wealth Management was $6.9 billion, up 5%, reflecting higher management fees on the cumulative impact of net inflows and higher average market levels as well as higher net interest income from deposit margin expansion and continued loan growth, partially offset by fee compression.

Noninterest expense was $10.4 billion, an increase of 1%, driven by investments in advisors and technology and higher external fees on revenue growth, largely offset by lower legal expense.

2017 compared with 2016

Net income was $2.3 billion, an increase of 4% compared with the prior year, reflecting higher revenue and a tax benefit resulting from the vesting of employee share-based awards, offset by higher noninterest expense.

Net revenue was $13.8 billion, an increase of 8%. Net interest income was $3.4 billion, up 11%, driven by higher deposit spreads. Noninterest revenue was $10.5 billion, up 7%, driven by higher market levels, partially offset by the absence of a gain in the prior year on the disposal of an asset.

Revenue from Asset Management was $7.3 billion, up 8% from the prior year, driven by higher market levels, partially offset by the absence of a gain in prior year on the disposal of an asset.

Revenue from Wealth Management was $6.6 billion, up 8% from the prior year, reflecting higher net interest income from higher deposit spreads.

Noninterest expense was $10.2 billion, an increase of 10%, predominantly driven by higher legal expense and compensation expense on higher revenue and headcount.



AWM’s lines of business consist of the following:
Asset Management provides comprehensive global investment services, including asset management, pension analytics, asset-liability management and active risk-budgeting strategies.
Wealth Management offers investment advice and wealth management, including investment management, capital markets and risk management, tax and estate planning, banking, lending and specialty-wealth advisory services.



AWM’s client segments consist of the following:
Private Banking clients include high- and ultra-high-net-worth individuals, families, money managers, business owners and small corporations worldwide.
Institutional clients include both corporate and public institutions, endowments, foundations, nonprofit organizations and governments worldwide.
Retail clients include financial intermediaries and individual investors.



Asset Management has two high-level measures of its overall fund performance.
• Percentage of mutual fund assets under management in funds rated 4- or 5-star: Mutual fund rating services rank funds based on their risk-adjusted performance over various periods. A 5-star rating is the best rating and represents the top 10% of industry-wide ranked funds. A 4-star rating represents the next 22.5% of industry-wide ranked funds. A 3-star rating represents the next 35% of industry-wide ranked funds. A 2-star rating represents the next 22.5% of industry-wide ranked funds. A 1-star rating is the worst rating and represents the bottom 10% of industry-wide ranked funds. The “overall Morningstar rating” is derived from a weighted average of the performance associated with a fund’s three-, five- and ten-year (if applicable) Morningstar Rating metrics. For U.S. domiciled funds, separate star ratings are given at the individual share class level. The Nomura “star rating” is based on three-year risk-adjusted performance only. Funds with fewer than three years of history are not rated and hence excluded from this analysis. All ratings, the assigned peer categories and the asset values used to derive this analysis are sourced from these fund rating providers mentioned in footnote (a). The data providers re-denominate the asset values into U.S. dollars. This % of AUM is based on star ratings at the share class level for U.S. domiciled funds, and at a “primary share class” level to represent the star rating of all other funds except for Japan where Nomura provides ratings at the fund level. The “primary share class”, as defined by Morningstar, denotes the share class recommended as being the best proxy for the portfolio and in most cases will be the most retail version (based upon annual management charge, minimum investment, currency and other factors). The performance data could have been different if all funds/accounts would have been included. Past performance is not indicative of future results.
• Percentage of mutual fund assets under management in funds ranked in the 1st or 2nd quartile (one, three and five years): All quartile rankings, the assigned peer categories and the asset values used to derive this analysis are sourced from the fund ranking providers mentioned in footnote (c). Quartile rankings are done on the net-of-fee absolute return of each fund. The data providers re-denominate the asset values into U.S. dollars. This % of AUM is based on fund performance and associated peer rankings at the share class level for U.S. domiciled funds, at a “primary share class” level to represent the quartile ranking of the U.K., Luxembourg and Hong Kong funds and at the fund level for all other funds. The “primary share class”, as defined by Morningstar, denotes the share class recommended as being the best proxy for the portfolio and in most cases will be the most retail version (based upon annual management charge, minimum investment, currency and other factors). Where peer group rankings given for a fund are in more than one “primary share class” territory both rankings are included to reflect local market competitiveness (applies to “Offshore Territories” and “HK SFC Authorized” funds only). The performance data could have been different if all funds/accounts would have been included. Past performance is not indicative of future results.



Selected metrics
As of or for the year ended December 31, (in millions, except ranking data and ratios)	2018			2017			2016
% of JPM mutual fund assets rated as 4- or 5-star^(a)	58		%	60		%	63		%
% of JPM mutual fund assets ranked in 1^st or 2^nd quartile:^(b)
1 year	68			64			54
3 years	73			75			72
5 years	85			83			79

Selected balance sheet data (period-end)
Total assets	$	170,024		$	151,909		$	138,384
Loans	147,632			130,640			118,039
Core loans	147,632			130,640			118,039
Deposits	138,546			146,407			161,577
Equity	9,000			9,000			9,000

Selected balance sheet data (average)
Total assets	$	160,269		$	144,206		$	132,875
Loans	138,622			123,464			112,876
Core loans	138,622			123,464			112,876
Deposits	137,272			148,982			153,334
Equity	9,000			9,000			9,000

Credit data and quality statistics
Net charge-offs	$	10		$	14		$	16
Nonaccrual loans	263			375			390
Allowance for credit losses:
Allowance for loan losses	326			290			274
Allowance for lending-related commitments	16			10			4
Total allowance for credit losses	342			300			278
Net charge-off rate	0.01		%	0.01		%	0.01		%
Allowance for loan losses to period-end loans	0.22			0.22			0.23
Allowance for loan losses to nonaccrual loans	124			77			70
Nonaccrual loans to period-end loans	0.18			0.29			0.33


(a)	Represents the “overall star rating” derived from Morningstar for the U.S., the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura “star rating” for Japan domiciled funds. Includes only Asset Management retail open-ended mutual funds that have a rating. Excludes money market funds, Undiscovered Managers Fund, and Brazil domiciled funds.

(b)

Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled funds; Nomura for Japan domiciled funds and Fund Doctor for South Korea domiciled funds. Includes only Asset Management retail open-ended mutual funds that are ranked by the aforementioned sources. Excludes money market funds, Undiscovered Managers Fund, and Brazil domiciled funds.

Client assets

2018 compared with 2017

Client assets were $2.7 trillion, a decrease of 2%. Assets under management were $2.0 trillion, a decrease of 2% reflecting lower spot market levels, largely offset by net inflows into liquidity and long-term products.

2017 compared with 2016

Client assets were $2.8 trillion, an increase of 14% compared with the prior year. Assets under management were $2.0 trillion, an increase of 15% from the prior year reflecting higher market levels, and net inflows into long-term and liquidity products.



Client assets
December 31, (in billions)	2018		2017		2016
Assets by asset class
Liquidity	$	480	$	459	$	436
Fixed income	464		474		420
Equity	384		428		351
Multi-asset and alternatives	659		673		564
Total assets under management	1,987		2,034		1,771
Custody/brokerage/ administration/deposits	746		755		682
Total client assets	$	2,733	$	2,789	$	2,453

Memo:
Alternatives client assets^(a)	$	171	$	166	$	154

Assets by client segment
Private Banking	$	552	$	526	$	435
Institutional	926		968		869
Retail	509		540		467
Total assets under management	$	1,987	$	2,034	$	1,771

Private Banking	$	1,274	$	1,256	$	1,098
Institutional	946		990		886
Retail	513		543		469
Total client assets	$	2,733	$	2,789	$	2,453


(a)	Represents assets under management, as well as client balances in brokerage accounts.



Client assets (continued)
Year ended December 31, (in billions)	2018			2017			2016
Assets under management rollforward
Beginning balance	$	2,034		$	1,771		$	1,723
Net asset flows:
Liquidity	31			9			24
Fixed income	(1		)	36			30
Equity	2			(11		)	(29		)
Multi-asset and alternatives	24			43			22
Market/performance/other impacts	(103		)	186			1
Ending balance, December 31	$	1,987		$	2,034		$	1,771

Client assets rollforward
Beginning balance	$	2,789		$	2,453		$	2,350
Net asset flows	88			93			63
Market/performance/other impacts	(144		)	243			40
Ending balance, December 31	$	2,733		$	2,789		$	2,453



International metrics
Year ended December 31, (in billions, except where otherwise noted)	2018		2017		2016
Total net revenue (in millions)^(a)
Europe/Middle East/Africa	$	2,721	$	2,715	$	2,425
Asia/Pacific	1,518		1,385		1,278
Latin America/Caribbean	904		844		726
Total international net revenue	5,143		4,944		4,429

North America	8,933		8,891		8,393
Total net revenue	$	14,076	$	13,835	$	12,822

Assets under management
Europe/Middle East/Africa	$	355	$	384	$	309
Asia/Pacific	162		160		123
Latin America/Caribbean	63		61		45
Total international assets under management	580		605		477

North America	1,407		1,429		1,294
Total assets under management	$	1,987	$	2,034	$	1,771

Client assets
Europe/Middle East/Africa	$	414	$	441	$	359
Asia/Pacific	222		225		177
Latin America/Caribbean	155		154		114
Total international client assets	791		820		650

North America	1,942		1,969		1,803
Total client assets	$	2,733	$	2,789	$	2,453


(a)	Regional revenue is based on the domicile of the client.

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)	2018			2017			2016
Revenue
Principal transactions	$	(426	)	$	284		$	210
Securities gains/(losses)	(395		)	(66		)	140
All other income/(loss)^(a)	558			867			588
Noninterest revenue	(263		)	1,085			938
Net interest income	135			55			(1,425		)
Total net revenue^(b)	(128		)	1,140			(487		)

Provision for credit losses	(4		)	—			(4		)

Noninterest expense^(c)	902			501			462
Income/(loss) before income tax benefit	(1,026		)	639			(945		)
Income tax expense/(benefit)	215			2,282			(241		)
Net income/(loss)	$	(1,241	)	$	(1,643	)	$	(704	)
Total net revenue
Treasury and CIO	510			566			(787		)
Other Corporate	(638		)	574			300
Total net revenue	$	(128	)	$	1,140		$	(487	)
Net income/(loss)
Treasury and CIO	(69		)	60			(715		)
Other Corporate	(1,172		)	(1,703		)	11
Total net income/(loss)	$	(1,241	)	$	(1,643	)	$	(704	)

Total assets (period-end)	$	771,787		$	781,478		$	799,426
Loans (period-end)	1,597			1,653			1,592
Core loans^(d)	1,597			1,653			1,589
Headcount^(e)	37,145			34,601			31,789


(a)	Included revenue related to a legal settlement of $645 million for the year ended December 31, 2017.


(b)	Included tax-equivalent adjustments, driven by tax-exempt income from municipal bond investments, of $382 million, $905 million and $885 million for the years ended December 31, 2018, 2017 and 2016, respectively. The decrease in taxable-equivalent adjustments reflects the impact of the TCJA.


(c)	Included legal expense/(benefit) of $(241) million, $(593) million and $(385) million for the years ended December 31, 2018, 2017 and 2016, respectively.


(d)	Average core loans were $1.7 billion, $1.6 billion and $1.9 billion for the years ended December 31, 2018, 2017 and 2016, respectively.


(e)	Effective in the first quarter of 2018, certain Compliance staff were transferred from Corporate to CB. The prior period amounts have been revised to conform with the current period presentation. For a further discussion of this transfer, refer to CB segment results on page 71.

2018 compared with 2017

Net loss was $1.2 billion.

Net revenue was a loss of $128 million, compared with net revenue of $1.1 billion in the prior year. The current year includes markdowns on certain legacy private equity investments and investment securities losses related to the repositioning of the investment securities portfolio, partially offset by higher net interest income primarily driven by higher rates. The prior year included a $645 million benefit from a legal settlement.

Noninterest expense of $902 million includes a pre-tax loss of $174 million on the liquidation of a legal entity recorded in the second quarter of 2018, as well as investments in technology and real estate.

Current period income tax expense reflects a net benefit of $302 million resulting from changes in estimates under the TCJA related to the remeasurement of certain deferred taxes and the deemed repatriation tax on non-U.S. earnings. This amount was more than offset by changes to certain tax reserves and other tax adjustments. The prior year income tax expense included a $2.7 billion expense related to the impact of the TCJA.

2017 compared with 2016

Net loss was $1.6 billion, compared with a net loss of $704 million in the prior year. The current year net loss included a $2.7 billion increase to income tax expense related to the impact of the TCJA.

Net revenue was $1.1 billion, compared with a loss of $487 million in the prior year. The increase in current year net revenue was driven by a $645 million benefit from a legal settlement with the FDIC receivership for Washington Mutual and with Deutsche Bank as trustee of certain Washington Mutual trusts and by the net impact of higher interest rates.

Net interest income was $55 million, compared with a loss of $1.4 billion in the prior year. The gain in the current year was primarily driven by higher interest income on deposits with banks due to higher interest rates and balances, partially offset by higher interest expense on long-term debt primarily driven by higher interest rates.

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. For further information on derivatives, refer to Note 5. In addition, Treasury and CIO manage the Firm’s cash position primarily through depositing at central banks and investing in short-term instruments. For further information on liquidity and funding risk, refer to Liquidity Risk Management on pages 95–100. For information on interest rate, foreign exchange and other risks, refer to Market Risk Management on pages 124–131.

The investment securities portfolio primarily consists of agency and nonagency mortgage-backed securities, U.S. and non-U.S. government securities, obligations of U.S. states and municipalities, other ABS and corporate debt securities. At December 31, 2018, the investment securities portfolio was $260.1 billion, and the average credit rating of the securities comprising the portfolio was AA+ (based upon external ratings where available and, where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody’s). Refer to Note 10 for further information on the Firm’s investment securities portfolio.



Selected income statement and balance sheet data
As of or for the year ended December 31, (in millions)	2018			2017			2016
Investment securities gains/(losses)	$	(395	)	$	(78	)	$	132
Available-for-sale (“AFS”) investment securities (average)	203,449			219,345			226,892
Held-to-maturity (“HTM”) investment securities (average)	31,747			47,927			51,358
Investment securities portfolio (average)	235,197			267,272			278,250
AFS investment securities (period-end)	228,681			200,247			236,670
HTM investment securities (period-end)	31,434			47,733			50,168
Investment securities portfolio (period–end)	260,115			247,980			286,838

As permitted by the new hedge accounting guidance, the Firm elected to transfer certain investment securities from HTM to AFS in the first quarter of 2018. For additional information, refer to Notes 1 and 10.

Risk is an inherent part of JPMorgan Chase’s business activities. When the Firm extends a consumer or wholesale loan, advises customers on their investment decisions, makes markets in securities, or offers other products or services, the Firm takes on some degree of risk. The Firm’s overall objective is to manage its businesses, and the associated risks, in a manner that balances serving the interests of its clients, customers and investors and protects the safety and soundness of the Firm.

The Firm believes that effective risk management requires:


•	Acceptance of responsibility, including identification and escalation of risk issues, by all individuals within the Firm;


•	Ownership of risk identification, assessment, data and management within each of the lines of business and Corporate; and


•	Firmwide structures for risk governance.

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

Firmwide Risk Management is overseen and managed on an enterprise-wide basis. The Firm’s risk management governance and oversight framework involves understanding drivers of risks, types of risks, and impacts of risks.

Drivers of Risks

Drivers of risks include, but are not limited to, the economic environment, regulatory or government policy, competitor or market evolution, business decisions, process or judgment error, deliberate wrongdoing, dysfunctional markets, and natural disasters.

Types of Risks

The Firm’s risks are generally categorized in the following four risk types:


•	Strategic risk is the risk associated with the Firm’s current and future business plans and objectives, including capital risk, liquidity risk, and the impact to the Firm’s reputation.


•	Credit and investment risk is the risk associated with the default or change in credit profile of a client, counterparty or customer; or loss of principal or a reduction in expected returns on investments, including consumer credit risk, wholesale credit risk, and investment portfolio risk.


•	Market risk is the risk associated with the effect of changes in market factors, such as interest and foreign exchange rates, equity and commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short and long term.


•	Operational risk is the risk associated with inadequate or failed internal processes, people and systems, or from external events and includes compliance risk, conduct risk, legal risk, and estimations and model risk.

Impacts of Risks

There may be many consequences of risks manifesting, including quantitative impacts such as reduction in earnings and capital, liquidity outflows, and fines or penalties, or qualitative impacts, such as reputation damage, loss of clients, and regulatory and enforcement actions.

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 discusses the risk governance and oversight functions in place to manage the risks inherent in the Firms business activities.



Risk governance and oversight functions	Page
Strategic risk	84
Capital risk	85–94
Liquidity risk	95–100
Reputation risk	101
Consumer credit risk	106-111
Wholesale credit risk	112-119
Investment portfolio risk	123
Market risk	124-131
Country risk	132–133
Operational risk	134-136
Compliance risk	137
Conduct risk	138
Legal risk	139
Estimations and Model risk	140

The Firm’s overall appetite for risk is governed by a “Risk Appetite” framework. The framework and the Firm’s risk appetite are set and approved by the Firm’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Risk Officer (“CRO”). LOB-level risk appetite is set by the respective LOB CEO, CFO and CRO and is approved by the Firm’s CEO, CFO and CRO. Quantitative parameters and qualitative factors are used to monitor and measure the Firm’s capacity to take risk consistent with its stated risk appetite. Quantitative parameters have been established to assess select strategic risks, credit risks and market risks. Qualitative factors have been established to assess select operational risks, and impact to the Firm’s reputation. Risk Appetite results are reported quarterly to the Board of Directors’ Risk Policy Committee (“DRPC”).

The Firm has an Independent Risk Management (“IRM”) function, which consists of the Risk Management and Compliance organizations. The CEO appoints, subject to DRPC approval, the Firm’s CRO to lead the IRM organization and manage the risk governance structure of the Firm. The framework is subject to approval by the DRPC in the form of the primary risk management policies. The Firm’s CRO oversees and delegates authorities to LOB CROs, Firmwide Risk Executives (“FREs”), and the Firm’s Chief Compliance Officer (“CCO”). The CCO oversees and delegates authorities to the LOB CCOs, and is responsible for the creation and effective execution of the Global Compliance Program.

The Firm places reliance on each of its LOBs and other functional 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 and CIO, inclusive of their aligned Operations, Technology and Control Management are considered the “first line of defense” and owns the identification of risks, as well as the design and execution of controls, inclusive of IRM-specified 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.

The IRM function is independent of the businesses and is “the second line of defense”. The IRM function sets and oversees the risk management structure for firmwide risk governance, and independently assesses and challenges the first line of defense risk management practices. IRM is also responsible for its own adherence to applicable laws, rules, regulations and for the implementation of policies and standards established by IRM with respect to its own processes.

The Internal Audit function operates independently from other parts of the Firm and performs independent testing and evaluation of processes and controls across the entire enterprise as the Firm’s “third line of defense”. The Internal Audit Function is headed by the General Auditor, who reports to the Audit Committee.

In addition, there are other functions that contribute to the firmwide control environment including Finance, Human Resources, Legal, and Control Management.

The Firm’s Operating Committee, which consists of the Firm’s CEO, CRO, CFO and other senior executives, is accountable to and may refer matters to the Firm’s Board of Directors. The Operating Committee is responsible to escalate to the Board the information necessary to facilitate the Board’s exercise of its duties.

The Board of Directors provides oversight of risk. The DRPC 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 reputation risk and/or conduct risk issues within its scope of responsibility.

The Directors’ Risk Policy Committee of the Board assists the board in its oversight of the Firm’s global risk management framework and approves the primary risk management policies of the Firm. The Committee’s responsibilities include oversight of management’s exercise of its responsibility to assess and manage the Firm’s risks, and its capital and liquidity planning and analysis. Breaches in risk appetite, capital and liquidity issues that may have a material adverse impact on the Firm and other significant risk-related matters are escalated to the DRPC.

The Audit Committee of the Board assists the Board in its oversight of management’s responsibilities to assure that there is an effective system of controls reasonably designed to safeguard the assets and income of the Firm, assure the integrity of the Firm’s financial statements and maintain compliance with the Firm’s ethical standards, policies, plans and procedures, and with laws and regulations. In addition, the Audit Committee assists the Board in its oversight of the Firm’s independent registered public accounting firm’s qualifications, independence and performance, and of the performance of the Firm’s Internal Audit function.

The Compensation & Management Development Committee (“CMDC”) of the Board assists the Board in its oversight of the Firm’s compensation programs and reviews and approves the Firm’s overall compensation philosophy, incentive compensation pools, and compensation practices consistent with key business objectives and safety and soundness. The CMDC reviews Operating Committee members’ performance against their goals, and approves their compensation awards. The CMDC also periodically reviews the Firm’s diversity programs and management development and succession planning, and provides oversight of the Firm’s culture, including reviewing management updates regarding significant conduct issues and any related employee actions, including but not limited to compensation actions.

The Public Responsibility Committee of the Board 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 impact the Firm's reputation among all of its stakeholders. The Committee also provides guidance on these matters to management and the Board as appropriate.

Among the Firm’s senior management-level committees that are primarily responsible for key risk-related functions are:

The Firmwide Risk Committee (“FRC”) is the Firm’s highest management-level risk committee. It provides oversight of the risks inherent in the Firm’s businesses. The FRC is co-chaired by the Firm’s CEO and CRO. The FRC serves as an escalation point for risk topics and issues raised by its members, the Line of Business Risk Committees, Firmwide Control Committee, Firmwide Fiduciary Risk Governance Committee, Firmwide Estimations Risk Committee, Conduct Risk Steering Committee and Regional Risk Committees, as appropriate. The FRC escalates significant issues to the DRPC, as appropriate.

The Firmwide Control Committee (“FCC”) provides a forum for senior management to review and discuss firmwide operational risks, including existing and emerging issues and operational risk metrics, and to review operational risk management execution in the context of the Operational Risk Management Framework (“ORMF”). The ORMF provides the framework for the governance, risk identification and assessment, measurement, monitoring and reporting of

operational risk. The FCC is co-chaired by the Chief Control Manager and the Firmwide Risk Executive for Operational Risk Management. The FCC relies on the prompt escalation of operational risk and control issues from businesses and functions as the primary owners of the operational risk. Operational risk and control issues may be escalated by business or function control committees to the FCC, which in turn, may escalate to the FRC, as appropriate.

The Firmwide Fiduciary Risk Governance Committee (“FFRGC”) is a forum for risk matters related to the Firm’s fiduciary activities. The FFRGC oversees the governance framework for fiduciary risk inherent in each of the Firm’s LOBs. The governance framework supports the consistent identification and escalation of fiduciary risk or fiduciary related conflict of interest risk. The FFRGC approves risk or compliance policy exceptions and reviews periodic reports from the LOBs and control functions including fiduciary metrics and control trends. The FFRGC is co-chaired by the Wealth Management CEO and the Asset & Wealth Management CRO. The FFRGC escalates significant fiduciary issues to the FRC, the DRPC and the Audit Committee, as appropriate.

The Firmwide Estimations Risk Committee (“FERC”) reviews and oversees governance and execution activities related to quantitative and qualitative estimations, such as those used in risk management, budget forecasting and capital planning and analysis. The FERC is chaired by the Firmwide Risk Executive for Model Risk Governance and Review. The FERC serves as an escalation channel for relevant topics and issues raised by its members and the Line of Business Estimation Risk Committees. The FERC escalates significant issues to the FRC, as appropriate.

The Conduct Risk Steering Committee (“CRSC”) provides oversight of the Firm’s conduct initiatives to develop a more holistic view of conduct risks and to connect key programs across the Firm to identify opportunities and emerging areas of focus. The CRSC is co-chaired by the Conduct Risk Compliance Executive and the Human Resources Chief Administrative Officer. The CRSC may escalate systemic conduct risk issues to the FRC and as appropriate to the DRPC.

Line of Business and Regional Risk Committees review the ways in which the particular line of business or the business operating in a particular region could be exposed to adverse outcomes with a focus on identifying, accepting, escalating and/or requiring remediation of matters brought to these committees. These committees may escalate matters to the FRC, as appropriate. LOB risk committees are co-chaired by the LOB CEO and the LOB CRO. Each LOB risk committee may create sub-committees with requirements for escalation. The regional committees are established similarly, as appropriate, for the region.

Line of Business and Corporate Control Committees oversee the control environment of their respective business or function. As part of that mandate, they are responsible for reviewing data that indicates the quality and stability of the

processes in a business or function, addressing key operational risk issues, focusing on processes with control concerns and overseeing control remediation. These committees escalate issues to the FCC, as appropriate.

The Firmwide Asset and Liability Committee (“ALCO”), chaired by the Firm’s Treasurer and Chief Investment Officer, is responsible for overseeing the Firm’s asset and liability management (“ALM”) activities and the management of liquidity risk, balance sheet, interest rate risk, and capital risk. The ALCO is supported by the Treasurer Committee and the Capital Governance Committee. The Treasurer Committee is responsible for monitoring the Firm’s overall balance sheet, liquidity risk and interest rate risk. The Capital Governance Committee is responsible for overseeing the Firm’s strategic end-to-end capital management and governance framework, including capital planning, capital strategy, and the implementation of regulatory capital requirements.

The Firmwide Valuation Governance Forum (“VGF”) is composed of senior finance and risk executives and is responsible for overseeing the management of fair value risks arising from valuation activities conducted across the Firm. The VGF is chaired by the Firmwide head of the Valuation Control Group (“VCG”) under the direction of the Firm’s Controller, and includes sub-forums covering the Corporate & Investment Bank, Consumer & Community Banking, Commercial Banking, Asset & Wealth Management and Corporate, including Treasury and CIO.

In addition, the JPMorgan Chase Bank, N.A. Board of Directors is responsible for the oversight of management of the bank. The JPMorgan Chase Bank, N.A. Board accomplishes this function acting directly and through the principal standing committees of the Firm’s Board of Directors. Risk and control oversight on behalf of JPMorgan Chase Bank N.A. is primarily the responsibility of the DRPC and the Audit Committee of the Firm’s Board of Directors, respectively, and, with respect to compensation and other management-related matters, the Compensation & Management Development Committee of the Firm’s Board of Directors.

Risk Identification

The Firm has a Risk Identification process designed to facilitate the first line of defense’s 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 second line of defense reviews and challenges the first line’s identification of risks, maintains the central repository and provides the consolidated Firmwide results to the FRC and DRPC.

Strategic risk is the risk associated with the Firm’s current and future business plans and objectives. Strategic risk includes the risk to current or anticipated earnings, capital, liquidity, enterprise value, or the Firm’s reputation arising from adverse business decisions, poor implementation of business decisions, or lack of responsiveness to changes in the industry or external environment.

Overview

The Operating Committee and the senior leadership of each LOB and Corporate are responsible for managing the Firm’s most significant strategic risks. Strategic risks are overseen by IRM through participation in business reviews, LOB and Corporate senior management committees, ongoing management of the Firm’s risk appetite and limit framework, and other relevant governance forums. The Board of Directors oversees management’s strategic decisions, and the DRPC oversees IRM and the Firm’s risk management framework.

The Firm’s strategic planning process, which includes the development and execution of strategic priorities and initiatives by the Operating Committee and the management teams of the lines of business and Corporate, is an important process for managing the Firm’s strategic risk. Guided by the Firm’s How We Do Business Principles (the “Principles”), the strategic priorities and initiatives are updated annually and include evaluating performance against prior year initiatives, assessment of the operating environment, refinement of existing strategies and development of new strategies.

These strategic priorities and initiatives are then incorporated in the Firm’s budget, and are reviewed by the Board of Directors.

In the process of developing the strategic initiatives, line of business and Corporate leadership identify the strategic risks associated with their strategic initiatives and those risks are incorporated into the Firmwide Risk Identification process and monitored and assessed as part of the Firmwide Risk Appetite framework. For further information on Risk Identification, refer to Enterprise-Wide Risk Management on page 79. For further information on the Risk Appetite framework, refer to Enterprise-Wide Risk Management on page 80.

The Firm’s balance sheet strategy, which focuses on risk-adjusted returns, strong capital and robust liquidity, is key to management of strategic risk. For further information on capital risk, refer to Capital Risk Management on pages 85-94. For further information on liquidity risk, refer to Liquidity Risk Management on pages 95–100

For further information on reputation risk, refer to Reputation Risk Management on page 101.

Governance and oversight

On at least an annual basis, the Firm’s Operating Committee defines the most significant strategic priorities and initiatives, including those of the Firm, the LOBs and Corporate, for the coming year and evaluates performance against the prior year. As part of the strategic planning process, IRM conducts a qualitative assessment of those significant initiatives to determine the impact on the risk profile of the Firm. The Firm’s priorities, initiatives and IRM’s assessment are provided to the Board for its review.

As part of its ongoing oversight and management of risk across the Firm, IRM is regularly engaged in significant discussions and decision-making across the Firm, including decisions to pursue new business opportunities or modify or exit existing businesses.

Capital risk is the risk the Firm has an insufficient level and composition of capital to support the Firm’s business activities and associated risks during normal economic environments and under stressed conditions.

A strong capital position is essential to the Firm’s business strategy and competitive position. Maintaining a strong balance sheet to manage through economic volatility is considered a strategic imperative of the Firm’s Board of Directors, CEO and Operating Committee. The Firm’s fortress balance sheet philosophy focuses on risk-adjusted returns, strong capital and robust liquidity. The Firm’s capital risk management strategy focuses on maintaining long-term stability to enable it to build and invest in market-leading businesses, even in a highly stressed environment. Senior management considers the implications on the Firm’s capital prior to making 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

Treasury & CIO assumed responsibility for capital management in March 2018.

The primary objectives of effective capital management are to:


•	Maintain sufficient capital in order to continue to build and invest in the Firm’s businesses through the cycle and in stressed environments;


•	Retain flexibility to take advantage of future investment opportunities;


•	Promote the Firm’s ability to serve as a source of strength to its subsidiaries;


•	Ensure the Firm operates above the minimum regulatory capital ratios as well as maintain “well-capitalized” status for the Firm and its insured depository institution (“IDI”) subsidiaries at all times under applicable regulatory capital requirements;


•	Meet capital distribution objectives; and


•	Maintain sufficient capital resources to operate throughout a resolution period in accordance with the Firm’s preferred resolution strategy.

The Firm meets these objectives through the establishment of internal minimum capital requirements and a strong capital management governance framework, both in business as usual conditions and in the event of stress.

Capital risk management is intended to be flexible in order to react to a range of potential events. In its management of capital, the Firm takes into consideration economic risk and all applicable regulatory capital requirements to determine the level of capital needed.

The Firm’s minimum capital levels are based on the most binding of three pillars: an internal assessment of the Firm’s

capital needs; an estimate of required capital under the CCAR and other stress testing requirements; and Basel III Fully Phased-In regulatory minimums. Where necessary, each pillar may include a management-established buffer. The capital governance framework requires regular monitoring of the Firm’s capital positions, stress testing and defining escalation protocols, both at the Firm and material legal entity levels.

Contingency capital plan

The Firm’s contingency capital plan, which is approved by the firmwide ALCO and the DRPC, establishes the capital management framework for the Firm and specifies the principles underlying the Firm’s approach towards capital management in normal economic times 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 distributions, and sets out the capital contingency actions that must be taken or considered at various levels of capital depletion during a period of stress.

Capital planning and stress testing

Comprehensive Capital Analysis and Review

The Federal Reserve requires large bank holding companies, including the Firm, to submit on an annual basis a capital plan that has been reviewed and approved by the Board of Directors. The Federal Reserve uses the 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.

On June 28, 2018, the Federal Reserve informed the Firm that it did not object, on either a quantitative or qualitative basis, to the Firm’s 2018 capital plan. For information on actions taken by the Firm’s Board of Directors following the 2018 CCAR results, refer to Capital actions on pages 91-92.

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 Firm’s Audit Committee is responsible for reviewing and approving the capital stress testing control framework.

The CCAR and other stress testing processes assess the potential impact of alternative economic and business scenarios on the Firm’s earnings and capital. Economic scenarios, and the parameters underlying those scenarios, are defined centrally and applied uniformly across the

businesses. These scenarios are articulated in terms of macroeconomic factors, which are key drivers of business results; global market shocks, which generate short-term but severe trading losses; and idiosyncratic operational risk events. The scenarios are intended to capture and stress key vulnerabilities and idiosyncratic risks facing the Firm. However, when defining a broad range of scenarios, actual events can always be worse. Accordingly, management considers additional stresses outside these scenarios, as necessary. These results are reviewed by management and the Board of Directors.

Capital management oversight

With the reorganization of the Capital Management group into the Treasury and CIO organization, the Firm established a Capital Management oversight function within the CTC risk function. The CTC CRO, who reports to the Firm’s CRO, is responsible for Firmwide Capital Management Oversight. Capital Management’s Oversight responsibilities include:


•	Establishing, calibrating and monitoring capital risk limits and indicators, including capital risk appetite tolerances;


•	Performing independent assessment of the Firm’s capital management activities; and


•	Monitoring the Firm’s capital position and balance sheet activities

In addition, the Basel Independent Review function (“BIR”), which is now 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 DRPC’s oversight of management in executing that responsibility.

Governance

Committees responsible for overseeing the Firm’s capital management include the Capital Governance Committee, the Treasurer Committee and the ALCO. Capital management oversight is governed through the CTC risk committee. In addition, the DRPC approves the Firm’s capital management oversight policy and reviews and recommends to the Board of Directors, for formal approval, the Firm’s capital risk tolerances. For additional discussion on the DRPC and the ALCO, refer to Enterprise-wide Risk Management on pages 79-140.

Regulatory capital

The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The OCC establishes similar minimum capital requirements for the Firm’s national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. The U.S. capital requirements generally follow the Capital Accord of the Basel Committee, as amended from time to time.

Basel III Overview

Capital rules under Basel III establish minimum capital ratios and overall capital adequacy standards for large and internationally active U.S. bank holding companies (“BHC”) and banks, including the Firm and its IDI subsidiaries. Basel III sets forth two comprehensive approaches for calculating RWA: a standardized approach (“Basel III Standardized”), and an advanced approach (“Basel III Advanced”). Certain of the requirements of Basel III were subject to phase-in periods that began on January 1, 2014 and continued through the end of 2018 (“transitional period”). While the required capital remained subject to the transitional rules during 2018, the Firm’s capital ratios as of December 31, 2018 were equivalent whether calculated on a transitional or fully phased-in basis.

Basel III establishes capital requirements for calculating credit risk RWA and market risk RWA, and in the case of Basel III Advanced, operational risk RWA. Key differences in the calculation of credit risk RWA between the Standardized and Advanced approaches are that for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, credit risk RWA is generally based on supervisory risk-weightings which vary primarily by counterparty type and asset class. Market risk RWA is calculated on a generally consistent basis between Basel III Standardized and Basel III Advanced. In addition to the RWA calculated under these methodologies, the Firm may supplement such amounts to incorporate management judgment and feedback from its regulators.

Basel III also includes a requirement for Advanced Approach banking organizations, including the Firm, to calculate the SLR. For additional information on the SLR, refer to page 91.

Key Regulatory Developments

Banking supervisors globally continue to consider refinements and enhancements to the Basel III capital framework for financial institutions, and in December 2017, the Basel Committee issued Basel III: Finalizing post-crisis reforms (“Basel III Reforms”). The Basel Committee expects national regulatory authorities to implement the Basel III Reforms in the laws of their respective jurisdictions and to require banking organizations subject to such laws to meet most of the revised requirements by January 1, 2022, with certain elements being phased in through January 1, 2027.

In April 2018, the Federal Reserve proposed the introduction of a stress buffer framework that would create a single, integrated set of capital requirements by combining the supervisory stress test results of the CCAR assessment and those under the Dodd-Frank Act with current point-in-time capital requirements. The U.S. banking regulators will be proposing final requirements applicable to U.S. financial institutions.

Also in April 2018, the Federal Reserve and the OCC released a proposal to revise the enhanced supplementary leverage ratio (“eSLR”) requirements applicable to the U.S. global systemically important banks (“GSIBs”) and their IDIs and to make conforming changes to the rules which are applicable to U.S. GSIBs relating to TLAC and external long-term debt that must satisfy certain eligibility criteria.

The capital adequacy of the Firm and its IDI subsidiaries, both during the transitional period and upon full phase-in, is evaluated against the Basel III approach (Standardized or Advanced) which, for each quarter, results in the lower ratio. The Firm’s Basel III Standardized Fully Phased-In risk-based ratios are currently more binding than the Basel III Advanced Fully Phased-In risk-based ratios, and the Firm expects that this will remain the case for the foreseeable future.

Additional information regarding the Firm’s capital ratios, as well as the U.S. federal regulatory capital standards to which the Firm is subject, is presented in Note 26. For further information on the Firm’s Basel III measures, refer to the Firm’s Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website (https://jpmorganchaseco.gcs-web.com/financial-information/basel-pillar-3-us-lcr-disclosures).

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 amounts of capital to serve as a “capital conservation buffer”. The capital conservation buffer is intended to be used to absorb potential losses in times of financial or economic stress. The capital conservation buffer was subject to a phase-in period that

began January 1, 2016 and continued through the end of 2018.

As an expansion of the capital conservation buffer, the Firm is also required to hold additional levels of capital in the form of a GSIB surcharge and a countercyclical capital buffer.

Under the Federal Reserve’s final rule, the Firm is required to calculate its GSIB surcharge on an annual basis under two separately prescribed methods, and is subject to the higher of the two. The first (“Method 1”), reflects the GSIB surcharge as prescribed by the Basel Committee’s assessment methodology, and is calculated across five criteria: size, cross-jurisdictional activity, interconnectedness, complexity and substitutability. The second (“Method 2”), modifies the Method 1 requirements to include a measure of short-term wholesale funding in place of substitutability, and introduces a GSIB score “multiplication factor”. The following table represents the Firm’s GSIB surcharge.



	2018		2017
Fully Phased-In:
Method 1	2.50	%	2.50	%
Method 2	3.50	%	3.50	%

Transitional^(a)	2.625	%	1.75	%


(a)	The GSIB surcharge is subject to transition provisions (in 25% increments) through the end of 2018.

The Firm’s effective GSIB surcharge as calculated under Method 2 for 2019 is anticipated to be 3.5%.

The Federal Reserve's framework for setting the countercyclical capital buffer takes into account the macro financial environment in which large, internationally active banks function. As of December 31, 2018, 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 credit growth in the economy has become excessive and can be calibrated up to an additional 2.5% of RWA subject to a 12-month implementation period.

Failure to maintain regulatory capital equal to or in excess of the risk-based regulatory capital minimum plus the capital conservation buffer (inclusive of the GSIB surcharge) and any countercyclical buffer may result in limitations to the amount of capital that the Firm may distribute, such as through dividends and common equity repurchases.

Leverage-based Capital Regulatory Minimums

Supplementary leverage ratio

The SLR is defined as Tier 1 capital under Basel III divided by the Firm’s total leverage exposure. Total leverage exposure is calculated by taking the Firm’s total average on balance sheet assets, less amounts permitted to be deducted for Tier 1 capital, and adding certain off-balance sheet exposures, such as undrawn commitments and derivatives potential future exposure.

Failure to maintain an SLR ratio equal to or greater than the regulatory minimum may result in limitations on the amount of capital that the Firm may distribute.

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. For additional information, refer to Note 26.

Capital components

The following table presents reconciliations of total stockholders’ equity to Basel III Fully Phased-In CET1 capital, Tier 1 capital and Basel III Advanced and Standardized Fully Phased-In Total capital as of December 31, 2018 and 2017.



(in millions)	December 31, 2018			December 31, 2017
Total stockholders’ equity	$	256,515		$	255,693
Less: Preferred stock	26,068			26,068
Common stockholders’ equity	230,447			229,625
Less:
Goodwill	47,471			47,507
Other intangible assets	748			855
Other CET1 capital adjustments	1,034			223
Add:
Deferred tax liabilities^(a)	2,280			2,204
Standardized/Advanced Fully Phased-In CET1 capital	183,474			183,244
Preferred stock	26,068			26,068
Less:
Other Tier 1 adjustments	449			748
Standardized/Advanced Fully Phased-In Tier 1 capital	209,093			208,564
Long-term debt and other instruments qualifying as Tier 2 capital	13,772			14,827
Qualifying allowance for credit losses	14,500			14,672
Other	146			(103		)
Standardized Fully Phased-In Tier 2 capital	28,418			29,396
Standardized Fully Phased-in Total capital	237,511			237,960
Adjustment in qualifying allowance for credit losses for Advanced Tier 2 capital	(10,076		)	(10,462		)
Advanced Fully Phased-In Tier 2 capital	18,342			18,934
Advanced Fully Phased-In Total capital	$	227,435		$	227,498


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

Capital rollforward

The following table presents the changes in Basel III Fully Phased-In CET1 capital, Tier 1 capital and Tier 2 capital for the year ended December 31, 2018.



Year Ended December 31, (in millions)	2018
Standardized/Advanced CET1 capital at December 31, 2017	$	183,244
Net income applicable to common equity	30,923
Dividends declared on common stock	(9,214		)
Net purchase of treasury stock	(17,899		)
Changes in additional paid-in capital	(1,417		)
Changes related to AOCI	(1,203		)
Adjustment related to DVA^(a)	(1,165		)
Changes related to other CET1 capital adjustments	205
Increase in Standardized/Advanced CET1 capital	230
Standardized/Advanced CET1 capital at December 31, 2018	183,474

Standardized/Advanced Tier 1 capital at December 31, 2017	208,564
Change in CET1 capital	230
Net issuance of noncumulative perpetual preferred stock	—
Other	299
Increase in Standardized/Advanced Tier 1 capital	529
Standardized/Advanced Tier 1 capital at December 31, 2018	209,093

Standardized Tier 2 capital at December 31, 2017	29,396
Change in long-term debt and other instruments qualifying as Tier 2	(1,055		)
Change in qualifying allowance for credit losses	(172		)
Other	249
Decrease in Standardized Tier 2 capital	(978		)
Standardized Tier 2 capital at December 31, 2018	28,418
Standardized Total capital at December 31, 2018	237,511
Advanced Tier 2 capital at December 31, 2017	18,934
Change in long-term debt and other instruments qualifying as Tier 2	(1,055		)
Change in qualifying allowance for credit losses	214
Other	249
Decrease in Advanced Tier 2 capital	(592		)
Advanced Tier 2 capital at December 31, 2018	18,342
Advanced Total capital at December 31, 2018	$	227,435


(a)	Includes DVA related to structured notes recorded in AOCI.

Supplementary leverage ratio

The following table presents the components of the Firm’s Fully Phased-In SLR as of December 31, 2018 and 2017.



(in millions, except ratio)	December 31, 2018			December 31, 2017
Tier 1 capital	$	209,093		$	208,564
Total average assets	2,636,505			$	2,562,155
Less: Adjustments for deductions from Tier 1 capital	46,618			47,333
Total adjusted average assets^(a)	2,589,887			2,514,822
Off-balance sheet exposures^(b)	680,101			690,193
Total leverage exposure	$	3,269,988		$	3,205,015
SLR	6.4		%	6.5		%


(a)	Adjusted average assets, for purposes of calculating the SLR, includes total quarterly average assets adjusted for on-balance sheet assets that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.


(b)	Off-balance sheet exposures are calculated as the average of the three month-end spot balances during the reporting quarter.

For JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s SLR ratios, refer to Note 26.

Line of business equity

Each business segment is allocated capital by taking into consideration capital levels of similarly rated peers and applicable regulatory capital requirements. ROE is measured and internal targets for expected returns are established as key measures of a business segment’s performance.

The Firm’s allocation methodology incorporates Basel III Standardized RWA, Basel III Advanced RWA, leverage, the GSIB surcharge, and a simulation of capital in a severe stress environment. On at least an annual basis, the assumptions and methodologies used in capital allocation are assessed and as a result, the capital allocated to lines of business may change. As of January 1, 2019, line of business capital allocations have increased due to a combination of changes in the relative weights toward Standardized RWA and stress, a higher capitalization rate, updated stress simulations, and general business growth.

The table below presents the Firm’s assessed level of capital allocated to each line of business as of the dates indicated.



Line of business equity (Allocated capital)
			December 31,
(in billions)	January 1, 2019		2018		2017
Consumer & Community Banking	$	52.0	$	51.0	$	51.0
Corporate & Investment Bank	80.0		70.0		70.0
Commercial Banking	22.0		20.0		20.0
Asset & Wealth Management	10.5		9.0		9.0
Corporate	65.9		80.4		79.6
Total common stockholders’ equity	$	230.4	$	230.4	$	229.6

Capital actions

Preferred stock

Preferred stock dividends declared were $1.6 billion for the year ended December 31, 2018.

On January 24, 2019, the Firm issued $1.85 billion of 6.00% non-cumulative preferred stock, Series EE, and on January 30, 2019, the Firm announced that it will redeem all $925 million of its outstanding 6.70% non-cumulative preferred stock, Series T, on March 1, 2019. On September 21, 2018, the Firm issued $1.7 billion of 5.75% non-cumulative preferred stock, Series DD. On October 30, 2018, the Firm redeemed $1.7 billion of its fixed-to-floating rate non-cumulative perpetual preferred stock, Series I.

On October 20, 2017, the Firm issued $1.3 billion of fixed-to-floating rate non-cumulative preferred stock, Series CC, with an initial dividend rate of 4.625%. On December 1, 2017, the Firm redeemed all $1.3 billion of its outstanding 5.50% non-cumulative preferred stock, Series O.

For additional information on the Firm’s preferred stock, refer to Note 20.

Trust preferred securities

On September 10, 2018, the Firm’s last remaining issuer of outstanding trust preferred securities (“issuer trust”) was liquidated, resulting in $475 million of trust preferred securities and $15 million of trust common securities originally issued by the issuer trust being cancelled.

On December 18, 2017, the Delaware trusts that issued

seven series of outstanding trust preferred securities were

liquidated, and $1.6 billion of trust preferred and $56 million of trust common securities originally issued by those trusts were cancelled.

For additional information, refer to Note 19.

Common stock dividends

The Firm’s common stock dividends are planned as part of the Capital Management governance framework in line with the Firm’s capital management objectives.

On September 18, 2018, the Firm announced that its Board of Directors increased the quarterly common stock dividend from $0.56 per share to $0.80 per share, effective with the dividend paid on October 31, 2018. The Firm’s dividends are subject to the Board of Directors’ approval on a quarterly basis.

For information regarding dividend restrictions, refer to Note 20 and Note 25.

The following table shows the common dividend payout ratio based on net income applicable to common equity.



Year ended December 31,	2018		2017		2016
Common dividend payout ratio	30	%	33	%	30	%

Common equity

During the year ended December 31, 2018, warrant holders exercised their right to purchase 14.9 million shares of the Firm’s common stock. The Firm issued from treasury stock 9.4 million shares of its common stock as a result of these exercises. There were no warrants outstanding at December 31, 2018, as any warrants that were not exercised on or before October 29, 2018, have expired. At December 31, 2017, the Firm had 15.0 million warrants outstanding.

Effective June 28, 2018, the Firm’s Board of Directors authorized the repurchase of up to $20.7 billion of common equity between July 1, 2018 and June 30, 2019, as part of its annual capital plan. As of December 31, 2018, $10.4 billion of authorized repurchase capacity remained under the common equity repurchase program.

The following table sets forth the Firm’s repurchases of common equity for the years ended December 31, 2018, 2017 and 2016. There were no repurchases of warrants during the years ended December 31, 2018, 2017 and 2016.



Year ended December 31, (in millions)	2018		2017		2016
Total number of shares of common stock repurchased	181.5		166.6		140.4
Aggregate purchase price of common stock repurchases	$	19,983	$	15,410	$	9,082

The Firm from time to time enters into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading blackout periods. All purchases under Rule 10b5-1 plans must be made according to predefined schedules established when the Firm is not aware of material nonpublic information.

The authorization to repurchase common equity will be utilized at management’s discretion, and the timing of purchases and the exact amount of common equity that may be repurchased is subject to various factors, including market conditions; legal and regulatory considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account goodwill and intangibles); internal capital generation; and alternative investment opportunities. The repurchase program does not include specific price targets or timetables; may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 plans; and may be suspended by management at any time.

For additional information regarding repurchases of the Firm’s equity securities, refer to Part II, Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities on page 30.

Other capital requirements

Total Loss-Absorbing Capacity (“TLAC”)

On December 15, 2016, the Federal Reserve issued its final TLAC rule which requires the top-tier holding companies of eight U.S. GSIB holding companies, including the Firm, to maintain minimum levels of external TLAC and external long-term debt that satisfies certain eligibility criteria (“eligible LTD”), effective January 1, 2019.

The minimum external TLAC and the minimum level of eligible long-term debt requirements are shown below:

(a) RWA is the greater of Standardized and Advanced.

Failure to maintain TLAC equal to or in excess of the regulatory minimum plus applicable buffers may result in limitations to the amount of capital that the Firm may distribute, such as through dividends and common equity repurchases.

The final TLAC rule permanently grandfathered all long-term debt issued before December 31, 2016, to the extent these securities would be ineligible because they contained impermissible acceleration rights or were governed by non-U.S. law. As of December 31, 2018, the Firm exceeded the minimum requirements under the rule to which it became subject to on January 1, 2019.

The following table presents the eligible external TLAC and LTD amounts, as well as a representation of the amounts as a percentage of the Firm’s total RWA and total leverage exposure.



December 31, 2018
(in billions, except ratio)	Eligible External TLAC			Eligible LTD
Total eligible TLAC & LTD	$	380.5		$	160.5
% of RWA	24.9		%	10.5		%
Minimum requirement	23.0			9.5
Surplus/(shortfall)	$	28.9		$	15.3

% of total leverage exposure	11.6		%	4.9		%
Minimum requirement^(a)	9.5			4.5
Surplus/(shortfall)	$	69.9		$	13.4

For information on the financial consequences to holders of the Firm’s debt and equity securities in a resolution scenario, refer to Part I, Item 1A: Risk Factors on pages 7-28 of the Firm’s 2018 Form 10-K.

J.P. Morgan Securities

JPMorgan Chase’s principal U.S. broker-dealer subsidiary is J.P. Morgan Securities. J.P. Morgan Securities is subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Net Capital Rule”). J.P. Morgan Securities is also registered as a futures commission merchant and subject to Rule 1.17 of the CFTC.

J.P. Morgan Securities has elected to compute its minimum net capital requirements in accordance with the “Alternative Net Capital Requirements” of the Net Capital Rule.

Under the market and credit risk standards of Appendix E of the Net Capital Rule, J.P. Morgan Securities is eligible to use the alternative method of computing net capital if, in addition to meeting its minimum net capital requirements, it maintains tentative net capital of at least $1.0 billion. J.P. Morgan Securities is required to notify the SEC in the event that tentative net capital is less than $5.0 billion. As of December 31, 2018, J.P. Morgan Securities maintained tentative net capital in excess of the minimum and notification requirements.

The following table presents J.P.Morgan Securities’ net capital information:

Liquidity risk is the risk that the Firm will be unable to meet its contractual and contingent financial obligations as they arise or that it does not have the appropriate amount, composition and tenor of funding and liquidity to support its assets and liabilities.

Liquidity risk oversight

The Firm has a liquidity risk oversight function whose primary objective is to provide assessment, measurement, monitoring, and control of liquidity risk across the Firm. Liquidity risk oversight is managed through a dedicated firmwide Liquidity Risk Oversight group. The CTC CRO, who reports to the Firm’s CRO, is responsible for firmwide Liquidity Risk Oversight. Liquidity Risk Oversight’s responsibilities include:


•	Establishing and monitoring limits and indicators, including liquidity risk appetite tolerances;


•	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;


•	Monitoring liquidity positions, balance sheet variances and funding activities;


•	Conducting ad hoc analysis to identify potential emerging liquidity risks; and


•	Performing independent review of liquidity risk management processes.

Liquidity management

Treasury and CIO is responsible for liquidity management. The primary objectives of effective liquidity management are to:


•	Ensure that the Firm’s core businesses and material legal entities are able to operate in support of client needs and meet contractual and contingent financial obligations through normal economic cycles as well as during stress events, and


•	Manage an optimal funding mix and availability of liquidity sources.

As part of the Firm’s overall liquidity management strategy, the Firm manages liquidity and funding using a centralized, global approach in order to:


•	Optimize liquidity sources and uses;


•	Monitor exposures;


•	Identify constraints on the transfer of liquidity between the Firm’s legal entities; and


•	Maintain the appropriate amount of surplus liquidity at a firmwide and legal entity level, where relevant.

In the context of the Firm’s liquidity management, Treasury and CIO is responsible for:


•	Analyzing and understanding the liquidity characteristics of the assets and liabilities of the Firm, lines of business

and legal entities, taking into account legal, regulatory, and operational restrictions;


•	Developing internal liquidity stress testing assumptions;


•	Defining and monitoring firmwide and legal entity-specific liquidity strategies, policies, reporting and contingency funding plans;


•	Managing liquidity within the Firm’s approved liquidity risk appetite tolerances and limits;


•	Managing compliance with regulatory requirements related to funding and liquidity risk; and


•	Setting transfer pricing in accordance with underlying liquidity characteristics of balance sheet assets and liabilities as well as certain off-balance sheet items.

Risk governance

Committees responsible for liquidity governance include the firmwide ALCO as well as line of business and regional ALCOs, the Treasurer Committee, and the CTC Risk Committee. In addition, the DRPC reviews and recommends to the Board of Directors, for formal approval, the Firm’s liquidity risk tolerances, liquidity strategy, and liquidity policy at least annually. For further discussion of ALCO and other risk-related committees, refer to Enterprise-wide Risk Management on pages 79–140.

Internal stress testing

Liquidity stress tests are intended to ensure that the Firm has sufficient liquidity under a variety of adverse scenarios, including scenarios analyzed as part of the Firm’s resolution and recovery planning. Stress scenarios are produced for JPMorgan Chase & Co. (“Parent Company”) and the Firm’s material legal entities on a regular basis, and ad hoc stress tests are performed, as needed, in response to specific market events or concerns. Liquidity stress tests assume all of the Firm’s contractual financial obligations are met and take into consideration:


•	Varying levels of access to unsecured and secured funding markets,


•	Estimated non-contractual and contingent cash outflows, and


•	Potential impediments to the availability and transferability of liquidity between jurisdictions and material legal entities such as regulatory, legal or other restrictions.

Liquidity outflow assumptions are modeled across a range of time horizons and currency dimensions and contemplate both market and idiosyncratic stresses.

Results of stress tests are considered in the formulation of the Firm’s funding plan and assessment of its liquidity position. The Parent Company acts as a source of funding for the Firm through equity and long-term debt issuances, and the IHC provides funding support to the ongoing operations of the Parent Company and its subsidiaries, as necessary. The Firm maintains liquidity at the Parent Company and the IHC, in addition to liquidity held at the

operating subsidiaries, at levels sufficient to comply with liquidity risk tolerances and minimum liquidity requirements, and to manage through periods of stress where access to normal funding sources is disrupted.

Contingency funding plan

The Firm’s contingency funding plan (“CFP”), which is approved by the firmwide ALCO and the DRPC, is a compilation of procedures and action plans for managing liquidity through stress events. The CFP incorporates the limits and indicators set by the Liquidity Risk Oversight group. These limits and indicators are reviewed regularly to identify emerging risks or vulnerabilities in the Firm’s liquidity position. The CFP identifies the alternative contingent funding and liquidity resources available to the Firm and its legal entities in a period of stress.

Liquidity Coverage Ratio

The LCR rule requires the Firm to maintain an amount of unencumbered High Quality Liquid Assets (“HQLA”) that is sufficient to meet its estimated total net cash outflows over a prospective 30 calendar-day period of significant stress. HQLA is the amount of liquid assets that qualify for inclusion in the LCR. HQLA primarily consist of unencumbered cash and certain high quality liquid securities as defined in the LCR rule.

Under the LCR rule, the amounts of HQLA held by JPMorgan Chase Bank N.A. and Chase Bank USA, N.A that are in excess of each entity’s standalone 100% minimum LCR requirement, and that are not transferable to non-bank affiliates, must be excluded from the Firm’s reported HQLA. The LCR is required to be a minimum of 100%.

The following table summarizes the Firm’s average LCR for the three months ended December 31, 2018, September 30, 2018 and December 31, 2017 based on the Firm’s current interpretation of the finalized LCR framework.



	Three months ended
Average amount (in millions)	December 31, 2018			September 30, 2018			December 31, 2017
HQLA
Eligible cash^(a)	$	297,069		$	344,660		$	370,126
Eligible securities^(b)(c)	232,201			190,349			189,955
Total HQLA^(d)	$	529,270		$	535,009		$	560,081
Net cash outflows	$	467,704		$	466,803		$	472,078
LCR	113		%	115		%	119		%
Net excess HQLA ^(d)	$	61,566		$	68,206		$	88,003


(a)	Represents cash on deposit at central banks, primarily Federal Reserve Banks.


(b)	Predominantly U.S. Treasuries, U.S. Agency MBS, and sovereign bonds net of applicable haircuts under the LCR rules.


(c)	HQLA eligible securities may be reported in securities borrowed or purchased under resale agreements, trading assets, or investment securities on the Firm’s Consolidated balance sheets.


(d)	Excludes average excess HQLA at JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. that are not transferable to non-bank affiliates.

The Firm’s average LCR decreased during the three months ended December 31, 2018, compared with the three month period ended September 30, 2018 due to a decrease in the average amount of reportable HQLA. Although HQLA increased in JPMorgan Chase Bank, N.A. during the period,

there was a decrease in the amount of HQLA in JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. that was determined to be transferable to non-bank affiliates. This decrease was based on a change in the Firm’s interpretation of amounts available for transfer.

The Firm’s average LCR decreased for the three months ended December 31, 2018, compared with the prior year period, due to a reduction in average HQLA primarily driven by (a) long-term debt maturities and CIB activities, and (b) a decrease in the amount of HQLA in JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A that was determined to be transferable to non-bank affiliates based on a change in the Firm’s interpretation of amounts available for transfer.

The Firm’s average LCR may fluctuate from period to period, due to changes in its HQLA and estimated net cash outflows under the LCR as a result of ongoing business activity. The Firm’s HQLA are expected to be available to meet its liquidity needs in a time of stress. For a further discussion of the Firm’s LCR, refer to the Firm’s US LCR Disclosure reports, which are available on the Firm’s website at: (https://jpmorganchaseco.gcs-web.com/financial-information/basel-pillar-3-us-lcr-disclosures).

Other liquidity sources

As of December 31, 2018, in addition to assets reported in the Firm’s HQLA under the LCR rule, the Firm had approximately $226 billion of unencumbered marketable securities, such as equity securities and fixed income debt securities, available to raise liquidity, if required. This includes HQLA-eligible securities included as part of the excess liquidity at JPMorgan Chase Bank, N.A. that are not transferable to non-bank affiliates.

As of December 31, 2018, the Firm also had approximately $276 billion of available borrowing capacity at various FHLBs, discount windows at the Federal Reserve Banks and various other central banks as a result of collateral pledged by the Firm to such banks. This borrowing capacity excludes the benefit of securities reported in the Firm’s HQLA or other unencumbered securities that are currently pledged at the Federal Reserve Bank discount windows. Although available, the Firm does not view the borrowing capacity at Federal Reserve Bank discount windows and the various other central banks as a primary source of liquidity.

Management believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations.

The Firm funds its global balance sheet through diverse sources of funding including a stable deposit franchise as well as secured and unsecured funding in the capital markets. The Firm’s loan portfolio is funded with a portion of the Firm’s deposits, through securitizations and, with respect to a portion of the Firm’s real estate-related loans, with secured borrowings from the FHLBs. Deposits in excess of the amount utilized to fund loans are primarily invested 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. Securities borrowed or purchased under resale agreements and trading assets-debt and equity instruments are primarily funded by the Firm’s securities loaned or sold under agreements to repurchase, trading liabilities–debt and equity instruments, and a portion of the Firm’s long-term debt and stockholders’ equity. In addition to funding securities borrowed or purchased under resale agreements and trading assets-debt and equity instruments, proceeds from the Firm’s debt and equity issuances are used to fund certain loans and other financial and non-financial assets, or may be invested in the Firm’s investment securities portfolio. Refer to the discussion below for additional information relating to Deposits, Short-term funding, and Long-term funding and issuance.

A key strength of the Firm is its diversified deposit franchise, through each of its lines of business, which provides a stable source of funding and limits reliance on the wholesale funding markets. A significant portion of the Firm’s deposits are consumer and wholesale operating deposits, which are both considered to be stable sources of liquidity. Wholesale operating deposits are considered to be stable sources of liquidity because they are generated from customers that maintain operating service relationships with the Firm.

The table below shows the loan and deposit balances, the loans-to-deposits ratios, and deposits as a percentage of total liabilities, as of December 31, 2018 and 2017.



As of December 31, (in billions except ratios)
	2018			2017
Deposits	$	1,470.7		$	1,444.0
Deposits as a % of total liabilities	62		%	63		%
Loans	984.6			930.7
Loans-to-deposits ratio	67		%	64		%

The Firm believes that average deposit balances are generally more representative of deposit trends than period-end deposit balances.

Average deposits increased for the year ended December 31, 2018 in CCB and CIB, partially offset by decreases in AWM, CB and Corporate.


•	The increase in CCB reflects the continuation of growth from new accounts, and in CIB reflects growth in operating deposits in both Treasury Services and Securities Services driven by growth in client activity.


•	The decrease in AWM was driven by balance migration predominantly into the Firm’s investment-related products. The decrease in CB was driven by a reduction in non-operating deposits. The decrease in Corporate was predominantly due to maturities of wholesale non-operating deposits, consistent with the Firm’s efforts to reduce such deposits.

For further information on deposit and liability balance trends, refer to the discussion of the Firm’s Business Segment Results and the Consolidated Balance Sheets Analysis on pages 60-78 and pages 52–53, respectively.

The Firm’s sources of short-term secured funding primarily consist of securities loaned or sold under agreements to repurchase. These instruments are secured predominantly by high-quality securities collateral, including government-issued debt and agency MBS, and constitute a significant portion of the federal funds purchased and securities loaned or sold under repurchase agreements on the Consolidated balance sheets. The increase at December 31, 2018, compared to December 31, 2017, was primarily due to higher client-driven market-making activities and higher secured financing of trading assets-debt and equity instruments in CIB. The balances associated with securities loaned or sold under agreements to repurchase fluctuate over time due to customers’ investment and financing activities; the Firm’s demand for financing; the ongoing management of the mix of the Firm’s liabilities, including its secured and unsecured financing (for both the investment

securities and market-making portfolios); and other market and portfolio factors.

The Firm’s sources of short-term unsecured funding primarily consist of issuance of wholesale commercial paper. The increase in commercial paper was due to higher net issuance primarily for short-term liquidity management.

Long-term funding and issuance

Long-term funding provides additional sources of stable funding and liquidity for the Firm. The Firm’s long-term funding plan is driven primarily by expected client activity, liquidity considerations, and regulatory requirements, including TLAC. Long-term funding objectives include maintaining diversification, maximizing market access and optimizing funding costs. The Firm evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan.

The cost and availability of financing are influenced by credit ratings. Reductions in these ratings could have an adverse effect on the Firm’s access to liquidity sources, increase the cost of funds, trigger additional collateral or funding requirements and decrease the number of investors and counterparties willing to lend to the Firm. Additionally, the Firm’s funding requirements for VIEs and other third-

party commitments may be adversely affected by a decline in credit ratings. For additional information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, refer to SPEs on page 55, and liquidity risk and credit-related contingent features in Note 5.

On October 25, 2018, Moody’s upgraded the Parent Company’s long-term issuer rating to A2 (previously A3) and short-term issuer rating to P-1 (previously P-2). The long-term issuer ratings were also upgraded for JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. to Aa2 (previously Aa3), and for J.P. Morgan Securities LLC and J.P. Morgan Securities plc to Aa3 (previously A1).

On June 21, 2018, Fitch upgraded the Parent Company’s long-term issuer rating to AA- (previously A+) and short-term issuer rating to F1+ (previously F1). The long-term issuer ratings were also upgraded to AA for JPMorgan Chase Bank, N.A, Chase Bank USA, N.A., J.P. Morgan Securities LLC and J.P. Morgan Securities plc (all previously AA-).

Downgrades of the Firm’s long-term ratings by one or two notches could result in an increase in its cost of funds, and access to certain funding markets could be reduced. The nature and magnitude of the impact of ratings downgrades depends on numerous contractual and behavioral factors which the Firm believes are incorporated in its liquidity risk and stress testing metrics. The Firm believes that it

maintains sufficient liquidity to withstand a potential decrease in funding capacity due to ratings downgrades.

JPMorgan Chase’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price.

Critical factors in maintaining high credit ratings include a stable and diverse earnings stream, strong capital 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.

Reputation risk is the potential that an action, inaction, transaction, investment or event will reduce trust in the Firm’s integrity or competence by its various constituents, including clients, counterparties, customers, investors, regulators, employees, communities or the broader public.

Organization and management

Reputation Risk Management is an independent risk management function that establishes the governance framework for managing reputation risk across the Firm. The Firmwide Risk Executive for Reputation Risk reports to the Firm’s CRO.

The Firm’s reputation risk management function includes the following activities:


•	Establishing a firmwide Reputation Risk Governance policy and standards


•	Managing the governance infrastructure and processes that support consistent identification, escalation, management and monitoring of reputation risk issues firmwide


•	Providing oversight to LOB Reputation Risk Offices (“RRO”) on certain situations that have the potential to damage the reputation of the LOB or the Firm

The types of events that give rise to reputation risk are broad and could be introduced in various ways, including by the Firm’s employees and the clients, customers and counterparties with which the Firm does business. These events could result in financial losses, litigation and regulatory fines, as well as other damages to the Firm. As reputation risk is inherently difficult to identify, manage, and quantify, an independent reputation risk management governance function is critical.

Governance and oversight

The Firm’s Reputation Risk Governance policy establishes the principles for managing reputation risk for the Firm, and is approved annually by the Directors’ Risk Policy Committee. It is the responsibility of employees in each LOB and Corporate to consider the reputation of the Firm when deciding whether to offer a new product, engage in a transaction or client relationship, enter a new jurisdiction, initiate a business process or other matters. Increasingly, sustainability, social responsibility and environmental impacts are important considerations in assessing the Firm’s reputation risk, and are considered as part of reputation risk governance.

The Firm’s reputation risk governance framework applies to each LOB and Corporate. Each LOB RRO advises their business on potential reputation risk issues and provides oversight of policy and standards created to guide the identification and assessment of reputation risk. LOB Reputation Risk Committees and forums review and assess reputation risk for their respective businesses. Each function also applies appropriate diligence to reputation risk arising from their day-to-day activities. Reputation risk issues deemed significant are escalated to the appropriate LOB Risk Committee and/or to the Firmwide Risk Committee.

Credit and investment risk is the risk associated with the default or change in credit profile of a client, counterparty or customer; or loss of principal or a reduction in expected returns on investments, including consumer credit risk, wholesale credit risk, and investment portfolio risk.

Credit risk management

Credit risk is the risk associated with the default or change in credit profile of a client, counterparty or customer. The Firm provides credit to a variety of customers, ranging from large corporate and institutional clients to individual consumers and small businesses. In its consumer businesses, the Firm is exposed to credit risk primarily through its home lending, credit card, auto, and business banking businesses. In its wholesale businesses, the Firm is exposed to credit risk through its underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through its operating services activities (such as cash management and clearing activities), securities financing activities, investment securities portfolio, and cash placed with banks.

Credit Risk Management is an independent risk management function that monitors, measures and manages credit risk throughout the Firm and defines credit risk policies and procedures. The credit risk function reports to the Firm’s CRO. The Firm’s credit risk management governance includes the following activities:


•	Establishing a comprehensive credit risk policy framework


•	Monitoring, measuring and managing credit risk across all portfolio segments, including transaction and exposure approval


•	Setting industry and geographic concentration limits, as appropriate, and establishing underwriting guidelines


•	Assigning and managing credit authorities in connection with the approval of all credit exposure


•	Managing criticized exposures and delinquent loans


•	Estimating credit losses and ensuring appropriate credit risk-based capital management

Risk identification and measurement

The Credit Risk Management function monitors, measures, manages and limits credit risk across the Firm’s businesses. To measure credit risk, the Firm employs several methodologies for estimating the likelihood of obligor or counterparty default. Methodologies for measuring credit risk vary depending on several factors, including type of asset (e.g., consumer versus wholesale), risk measurement parameters (e.g., delinquency status and borrower’s credit score versus wholesale risk-rating) and risk management and collection processes (e.g., retail collection center versus centrally managed workout groups). Credit risk measurement is based on the probability of default of an obligor or counterparty, the loss severity given a default event and the exposure at default.

Based on these factors and related market-based inputs, the Firm estimates credit losses for its exposures. Probable credit losses inherent in the consumer and wholesale held-for-investment loan portfolios are reflected in the allowance for loan losses, and probable credit losses inherent in lending-related commitments are reflected in the allowance for lending-related commitments. These losses are estimated using statistical analyses and other factors as described in Note 13. In addition, potential and unexpected credit losses are reflected in the allocation of credit risk capital and represent the potential volatility of actual losses relative to the established allowances for loan losses and lending-related commitments. The analyses for these losses include stress testing that considers alternative economic scenarios as described in the Stress testing section below. For further information, refer to Critical Accounting Estimates used by the Firm on pages 141-143.

The methodologies used to estimate credit losses depend on the characteristics of the credit exposure, as described below.

Scored exposure

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

Risk-rated exposure

Risk-rated portfolios are generally held in CIB, CB and AWM, but also include certain business banking and auto dealer loans held in CCB that are risk-rated because they have characteristics similar to commercial loans. For the risk-rated portfolio, credit loss estimates are based on estimates of the probability of default (“PD”) and loss severity given a default. The probability of default is the likelihood that a borrower will default on its obligation; the loss given default (“LGD”) is the estimated loss on the loan that would be realized upon default and takes into consideration collateral and structural support for each credit facility. The estimation process includes assigning risk ratings to each borrower and credit facility to differentiate risk within the portfolio. These risk ratings are reviewed regularly by Credit Risk Management and revised as needed to reflect the borrower’s current financial position, risk profile and related collateral. The calculations and assumptions are based on both internal and external historical experience and management judgment and are reviewed regularly.

Stress testing

Stress testing is important in measuring and managing credit risk in the Firm’s credit portfolio. The process assesses the potential impact of alternative economic and business scenarios on estimated credit losses for the Firm. Economic scenarios and the underlying parameters are defined centrally, articulated in terms of macroeconomic factors and applied across the businesses. The stress test results may indicate credit migration, changes in delinquency trends and potential losses in the credit portfolio. In addition to the periodic stress testing processes, management also considers additional stresses outside these scenarios, including industry and country- specific stress scenarios, as necessary. The Firm uses stress testing to inform decisions on setting risk appetite both at a Firm and LOB level, as well as to assess the impact of stress on individual counterparties.

Risk monitoring and management

The Firm has developed policies and practices that are designed to preserve the independence and integrity of the approval and decision-making process of extending credit to ensure credit risks are assessed accurately, approved properly, monitored regularly and managed actively at both the transaction and portfolio levels. The policy framework establishes credit approval authorities, concentration limits, risk-rating methodologies, portfolio review parameters and guidelines for management of distressed exposures. In addition, certain models, assumptions and inputs used in evaluating and monitoring credit risk are independently validated by groups that are separate from the line of businesses.

Consumer credit risk is monitored for delinquency and other trends, including any concentrations at the portfolio level, as certain of these trends can be modified through changes in underwriting policies and portfolio guidelines. Consumer Risk Management evaluates delinquency and other trends against business expectations, current and forecasted economic conditions, and industry benchmarks. Historical and forecasted economic performance and trends are incorporated into the modeling of estimated consumer credit losses and are part of the monitoring of the credit risk profile of the portfolio.

Wholesale credit risk is monitored regularly at an aggregate portfolio, industry, and individual client and counterparty level with established concentration limits that are reviewed and revised as deemed appropriate by management, typically on an annual basis. Industry and counterparty limits, as measured in terms of exposure and economic risk appetite, are subject to stress-based loss constraints. In addition, wrong-way risk — the risk that exposure to a counterparty is positively correlated with the impact of a default by the same counterparty, which could cause exposure to increase at the same time as the counterparty’s capacity to meet its obligations is decreasing — is actively monitored as this risk could result in greater exposure at default compared with a transaction with another counterparty that does not have this risk.

Management of the Firm’s wholesale credit risk exposure is accomplished through a number of means, including:


•	Loan underwriting and credit approval process


•	Loan syndications and participations


•	Loan sales and securitizations


•	Credit derivatives


•	Master netting agreements


•	Collateral and other risk-reduction techniques

In addition to Credit Risk Management, an independent Credit Review function is responsible for:


•	Independently validating or changing the risk grades assigned to exposures in the Firm’s wholesale and commercial-oriented retail credit portfolios, and assessing the timeliness of risk grade changes initiated by responsible business units; and


•	Evaluating the effectiveness of business units’ credit management processes, including the adequacy of credit analyses and risk grading/LGD rationales, proper monitoring and management of credit exposures, and compliance with applicable grading policies and underwriting guidelines.

For further discussion of consumer and wholesale loans, refer to Note 12.

Risk reporting

To enable monitoring of credit risk and effective decision-making, aggregate credit exposure, credit quality forecasts, concentration levels and risk profile changes are reported regularly to senior members of Credit Risk Management. Detailed portfolio reporting of industry; clients, counterparties and customers; product and geographic concentrations occurs monthly, and the appropriateness of the allowance for credit losses is reviewed by senior management at least on a quarterly basis. Through the risk reporting and governance structure, credit risk trends and limit exceptions are provided regularly to, and discussed with, risk committees, senior management and the Board of Directors as appropriate.

Credit risk is the risk associated with the default or change

in credit profile of a client, counterparty or customer.

In the following tables, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale; and certain loans accounted for at fair value. The following tables do not include loans which the Firm accounts for at fair value and classifies as trading assets. For further information regarding these loans, refer to Notes 2 and 3. For additional information on the Firm’s loans, lending-related commitments and derivative receivables, including the Firm’s accounting policies, refer to Notes 12, 27, and 5, respectively.

For further information regarding the credit risk inherent in the Firm’s cash placed with banks, refer to Wholesale credit exposure – industry exposures on pages 113–115 ; for information regarding the credit risk inherent in the Firm’s investment securities portfolio, refer to Note 10; and for information regarding credit risk inherent in the securities financing portfolio, refer to Note 11.

For a further discussion of the consumer credit environment and consumer loans, refer to Consumer Credit Portfolio on pages 106–111 and Note 12. For a further discussion of the wholesale credit environment and wholesale loans, refer to Wholesale Credit Portfolio on pages 112–119 and Note 12.



Total credit portfolio
December 31, (in millions)	Credit exposure						Nonperforming^(d)(e)
	2018			2017			2018		2017
Loans retained	$	969,415		$	924,838		$	4,611	$	5,943
Loans held-for-sale	11,988			3,351			—		—
Loans at fair value	3,151			2,508			220		—
Total loans – reported	984,554			930,697			4,831		5,943
Derivative receivables	54,213			56,523			60		130
Receivables from customers and other^(a)	30,217			26,272			—		—
Total credit-related assets	1,068,984			1,013,492			4,891		6,073
Assets acquired in loan satisfactions
Real estate owned	NA			NA			269		311
Other	NA			NA			30		42
Total assets acquired in loan satisfactions	NA			NA			299		353
Lending-related commitments	1,039,258			991,482			469		731
Total credit portfolio	$	2,108,242		$	2,004,974		$	5,659	$	7,157
Credit derivatives used in credit portfolio management activities^(b)	$	(12,682	)	$	(17,609	)	$	—	$	—
Liquid securities and other cash collateral held against derivatives^(c)	(15,322		)	(16,108		)	NA		NA



Year ended December 31, (in millions, except ratios)	2018			2017
Net charge-offs^(f)	$	4,856		$	5,387
Average retained loans
Loans	936,829			898,979
Loans – reported, excluding residential real estate PCI loans	909,386			865,887
Net charge-off rates^(f)
Loans	0.52		%	0.60		%
Loans – excluding PCI	0.53			0.62


(a)	Receivables from customers and other primarily represents held-for-investment margin loans to brokerage customers.


(b)	Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, refer to Credit derivatives on page 119 and Note 5.


(c)	Includes collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained.


(d)	Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.

(e)

At December 31, 2018 and 2017, nonperforming assets excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $2.6 billion and $4.3 billion, respectively, and real estate owned (“REO”) insured by U.S. government agencies of $75 million and $95 million, respectively. These amounts have been excluded based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”).


(f)	For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio transfer, the net charge-off rate for loans would have been 0.55% and for loans - excluding PCI would have been 0.57%.

The Firm’s retained consumer portfolio consists primarily of residential real estate loans, credit card loans, auto loans, and business banking loans, as well as associated lending-related commitments. The Firm’s focus is on serving primarily the prime segment of the consumer credit market. Originated mortgage loans are retained in the mortgage portfolio, securitized or sold to U.S. government agencies and U.S. government-sponsored enterprises; other types of consumer loans are typically retained on the balance sheet. The credit performance of the consumer portfolio continues to benefit from discipline in credit underwriting as well as improvement in the economy driven by low unemployment and increasing home prices. The total amount of residential real estate loans delinquent 30+ days, excluding government guaranteed and purchased credit-impaired loans, decreased from December 31, 2017 due to improved credit performance and the impact of loans that were delinquent in 2017 due to hurricanes. The Credit Card 30+ day delinquency rate and the net charge-off rate increased from the prior year, in line with expectations. For further information on consumer loans, refer to Note 12. For further information on lending-related commitments, refer to Note 27.

Consumer, excluding credit card

Consumer loan balances increased from December 31, 2017 predominantly due to originations of high-quality prime mortgage loans that have been retained on the balance sheet, largely offset by paydowns and the charge-off or liquidation of delinquent loans.

PCI loans are excluded from the following discussions of individual loan products and are addressed separately below. For further information about the Firm’s consumer portfolio, including information about delinquencies, loan modifications and other credit quality indicators, refer to

Note 12.

Residential mortgage: The residential mortgage portfolio, including loans held-for-sale, predominantly consists of high-quality prime mortgage loans with approximately 1% consisting of subprime mortgage loans, which continue to run off. The residential mortgage portfolio increased from December 31, 2017 driven by the retention of originated high-quality prime mortgage loans, which exceeded paydowns and mortgage loan sales. Residential mortgage 30+ day delinquencies decreased from December 31, 2017. Nonaccrual loans decreased from December 31, 2017 due to lower delinquencies. Net recoveries for the year ended December 31, 2018 improved when compared with the prior year, reflecting loan sales and continued improvement in home prices and delinquencies.

At December 31, 2018 and 2017, the Firm’s residential mortgage portfolio included $21.6 billion and $20.2 billion, respectively, of interest-only loans. These loans have an interest-only payment period generally followed by an adjustable-rate or fixed-rate fully amortizing payment period to maturity and are typically originated as higher-balance loans to higher-income borrowers. Performance of this portfolio for the year ended December 31, 2018 was in line with the performance of the broader residential mortgage portfolio for the same period. The Firm continues to monitor the risks associated with these loans.

The following table provides a summary of the Firm’s

residential mortgage portfolio insured and/or guaranteed

by U.S. government agencies, including loans held-for-sale.

The Firm monitors its exposure to certain potential unrecoverable claim payments related to government insured loans and considers this exposure in estimating the allowance for loan losses.



(in millions)	December 31, 2018		December 31, 2017
Current	$	2,884	$	2,401
30-89 days past due	1,528		1,958
90 or more days past due	2,600		4,264
Total government guaranteed loans	$	7,012	$	8,623

Home equity: The home equity portfolio declined from December 31, 2017 primarily reflecting loan paydowns. The amount of 30+ day delinquencies decreased from December 31, 2017. Nonaccrual loans decreased from December 31, 2017 due to lower delinquencies. There was a net recovery for the year ended December 31, 2018 compared to a net charge-off for the prior year, as a result of continued improvement in home prices and lower delinquencies.

At December 31, 2018, approximately 90% of the Firm’s home equity portfolio consists of home equity lines of credit (“HELOCs”) and the remainder consisted of home equity loans (“HELOANs”). HELOANs are generally fixed-rate, closed-end, amortizing loans, with terms ranging from 3–30 years. In general, HELOCs originated by the Firm are revolving loans for a 10-year period, after which time the HELOC recasts into a loan with a 20-year amortization period.

The carrying value of HELOCs outstanding was $26 billion at December 31, 2018. This amount included $12 billion of HELOCs that have recast from interest-only to fully amortizing payments or have been modified and $4 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.

The Firm monitors risks associated with junior lien loans where the borrower has a senior lien loan that is either delinquent or has been modified. These loans are considered “high-risk seconds” and are classified as nonaccrual as they are considered to pose a higher risk of default than other junior lien loans. At December 31, 2018, the Firm estimated that the carrying value of its home equity portfolio contained approximately $550 million of current junior lien loans that were considered high-risk seconds, compared with approximately $725 million at December 31, 2017.

Auto: The auto loan portfolio, which predominantly consists of prime-quality loans, declined when compared with December 31, 2017, as paydowns and the charge-off or liquidation of delinquent loans were predominantly offset by new originations. Nonaccrual loans decreased from December 31, 2017. Net charge-offs for the year ended December 31, 2018 declined when compared with the prior year primarily as a result of an incremental adjustment recorded in 2017 in accordance with regulatory guidance regarding the timing of loss recognition for certain loans in bankruptcy and loans where assets were acquired in loan satisfactions.

Consumer & Business banking: Consumer & Business Banking loans increased when compared with December 31, 2017 due to loan originations, predominantly offset by paydowns and charge-offs of delinquent loans. Nonaccrual loans and net charge-offs decreased when compared with the prior year.

Purchased credit-impaired loans: PCI loans represent certain loans that were acquired and deemed to be credit-impaired on the acquisition date. PCI loans decreased from December 31, 2017 due to portfolio run off and loan sales. As of December 31, 2018, approximately 10% of the option ARM PCI loans were delinquent and approximately 69% of the portfolio had been modified into fixed-rate, fully amortizing loans. The borrowers for substantially all of the remaining option ARM loans are making amortizing payments, although such payments are not necessarily fully amortizing. This latter group of loans is subject to the risk of payment shock due to future payment recast. Default rates generally increase on option ARM loans when payment recast results in a payment increase. The expected increase in default rates is considered in the Firm’s quarterly impairment assessment.

Geographic composition of residential real estate loans

At December 31, 2018, $160.3 billion, or 63% of the total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Texas and Florida, compared with $152.8 billion, or 63%, at December 31, 2017. For additional information on the geographic composition of the Firm’s residential real estate loans, refer to Note 12.

Current estimated loan-to-values of residential real estate loans

Average current estimated loan-to-value (“LTV”) ratios have declined consistent with improvements in home prices, customer pay downs, and charge-offs or liquidations of higher LTV loans. For further information on current estimated LTVs of residential real estate loans, refer to Note 12.

Loan modification activities for residential real estate loans

The performance of modified loans generally differs by product type due to differences in both the credit quality and the types of modifications provided. Performance metrics for modifications to the residential real estate portfolio, excluding PCI loans, that have been seasoned more than six months show weighted-average redefault rates of 22% for residential mortgages and 20% for home equity. Performance metrics for modifications to the PCI residential real estate portfolio that have been seasoned more than six months show weighted average redefault rates of 19% for home equity, 18% for prime mortgages, 16% for option ARMs and 32% for subprime mortgages. The cumulative redefault rates reflect the performance of modifications completed from October 1, 2009 through December 31, 2018.

Certain modified loans have interest rate reset provisions (“step-rate modifications”) where the interest rates on these loans generally began to increase commencing in 2014 by 1% per year, and will continue to do so until the rate reaches a specified cap. The cap on these loans is typically at a prevailing market interest rate for a fixed-rate mortgage loan as of the modification date. At December 31, 2018, the carrying value of non-PCI loans and the unpaid principal balance of PCI loans modified in step-rate modifications, which have not yet met their specified caps, were $2 billion and $3 billion, respectively. The Firm continues to monitor this risk exposure and the impact of these potential interest rate increases is considered in the Firm’s allowance for loan losses.

The following table presents information as of December 31, 2018 and 2017, relating to modified retained residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. For further information on modifications for the years ended December 31, 2018 and 2017, refer to Note 12.



Modified residential real estate loans
	2018				2017
December 31, (in millions)	Retained loans		Nonaccrual retained loans^(d)		Retained loans		Nonaccrual retained loans^(d)
Modified residential real estate loans, excluding PCI loans^(a)(b)
Residential mortgage	$	4,565	$	1,459	$	5,620	$	1,743
Home equity	2,012		955		2,118		1,032
Total modified residential real estate loans, excluding PCI loans	$	6,577	$	2,414	$	7,738	$	2,775
Modified PCI loans^(c)
Home equity	$	2,086	NA		$	2,277	NA
Prime mortgage	3,179		NA		4,490		NA
Subprime mortgage	2,041		NA		2,678		NA
Option ARMs	6,410		NA		8,276		NA
Total modified PCI loans	$	13,716	NA		$	17,721	NA


(a)	Amounts represent the carrying value of modified residential real estate loans.

(b)

At December 31, 2018 and 2017, $4.1 billion and $3.8 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the appropriate government agency (i.e., Federal Housing Administration (“FHA”), U.S. Department of Veterans Affairs (“VA”), Rural Housing Service of the U.S. Department of Agriculture (“RHS”)) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. For additional information about sales of loans in securitization transactions with Ginnie Mae, refer to Note 14.


(c)	Amounts represent the unpaid principal balance of modified PCI loans.


(d)	As of December 31, 2018 and 2017, nonaccrual loans included $2.0 billion and $2.2 billion, respectively, of troubled debt restructurings (“TDRs”) for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, refer to Note 12.

Nonperforming assets

The following table presents information as of December 31, 2018 and 2017, about consumer, excluding credit card, nonperforming assets.



Nonperforming assets^(a)
December 31, (in millions)	2018		2017
Nonaccrual loans^(b)
Residential real estate	$	3,088	$	3,785
Other consumer	373		424
Total nonaccrual loans	3,461		4,209
Assets acquired in loan satisfactions
Real estate owned	210		225
Other	30		40
Total assets acquired in loan satisfactions	240		265
Total nonperforming assets	$	3,701	$	4,474


(a)	At December 31, 2018 and 2017, nonperforming assets excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $2.6 billion and $4.3 billion, respectively, and real estate owned (“REO”) insured by U.S. government agencies of $75 million and $95 million, respectively. These amounts have been excluded based upon the government guarantee.


(b)	Excludes PCI loans which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. The Firm is recognizing interest income on each pool of loans as each of the pools is performing.

Nonaccrual loans in the residential real estate portfolio at December 31, 2018 decreased to $3.1 billion from $3.8 billion at December 31, 2017, of which 24% and 26% were greater than 150 days past due, respectively. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 32% and 40% to the estimated net realizable value of the collateral at December 31, 2018 and 2017, respectively.

Nonaccrual loans: The following table presents changes in the consumer, excluding credit card, nonaccrual loans for the years ended December 31, 2018 and 2017.



Nonaccrual loan activity
Year ended December 31,
(in millions)	2018			2017
Beginning balance	$	4,209		$	4,820
Additions	2,799			3,525
Reductions:
Principal payments and other^(a)	1,407			1,577
Charge-offs	468			699
Returned to performing status	1,399			1,509
Foreclosures and other liquidations	273			351
Total reductions	3,547			4,136
Net changes	(748		)	(611		)
Ending balance	$	3,461		$	4,209


(a)	Other reductions includes loan sales.

Active and suspended foreclosure: For information on loans that were in the process of active or suspended foreclosure, refer to Note 12.

Credit card

Total credit card loans increased from December 31, 2017 due to new account growth and higher sales volume. The December 31, 2018 30+ day delinquency rate increased to 1.83% from 1.80% at December 31, 2017, but the December 31, 2018 90+ day delinquency rate of 0.92% was flat compared to December 31, 2017. Net charge-offs increased for the year ended December 31, 2018 when compared with the prior year, primarily due to the seasoning of more recent vintages with higher loss rates, as anticipated given underwriting standards at the time of origination.

Consistent with the Firm’s policy, all credit card loans typically remain on accrual status until charged off. However, the Firm establishes an allowance, which is offset against loans and reduces interest income, for the estimated uncollectible portion of accrued and billed interest and fee income.

Geographic and FICO composition of credit card loans

At December 31, 2018, $71.2 billion, or 45% of the total retained credit card loan portfolio, were concentrated in California, Texas, New York, Florida and Illinois, compared with $67.2 billion, or 45%, at December 31, 2017. For additional information on the geographic and FICO composition of the Firm’s credit card loans, refer to Note 12.

Modifications of credit card loans

At December 31, 2018 and 2017, the Firm had $1.3 billion and $1.2 billion, respectively, of credit card loans outstanding that have been modified in TDRs. For additional information about loan modification programs to borrowers, refer to Note 12.

In its wholesale businesses, the Firm is exposed to credit risk primarily through its underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through various operating services (such as cash management and clearing activities), securities financing activities and cash placed with banks. A portion of the loans originated or acquired by the Firm’s wholesale businesses is generally retained on the balance sheet. The Firm distributes a significant percentage of the loans that it originates into the market as part of its syndicated loan business and to manage portfolio concentrations and credit risk.

The credit quality of the wholesale portfolio was stable for the year ended December 31, 2018, characterized by low levels of criticized exposure, nonaccrual loans and charge-offs. Refer to the industry discussion on pages 113–115 for further information. Retained loans increased across all wholesale lines of business, primarily driven by commercial and industrial and financial institution clients in CIB, and Wealth Management clients globally in AWM. The wholesale portfolio is actively managed, in part by conducting ongoing, in-depth reviews of client credit quality and transaction structure inclusive of collateral where applicable, and of industry, product and client concentrations.

In the following tables, the Firm’s wholesale credit portfolio includes exposure held in CIB, CB, AWM and Corporate, and excludes all exposure managed by CCB.



Wholesale credit portfolio
December 31, (in millions)	Credit exposure						Nonperforming^(c)
December 31, (in millions)	2018			2017			2018		2017
Loans retained	$	439,162		$	402,898		$	1,150	$	1,734
Loans held-for-sale	11,877			3,099			—		—
Loans at fair value	3,151			2,508			220		—
Loans – reported	454,190			408,505			1,370		1,734
Derivative receivables	54,213			56,523			60		130
Receivables from customers and other^(a)	30,063			26,139			—		—
Total wholesale credit-related assets	538,466			491,167			1,430		1,864
Lending-related commitments	387,813			370,098			469		731
Total wholesale credit exposure	$	926,279		$	861,265		$	1,899	$	2,595
Credit derivatives used in credit portfolio management activities^(b)	$	(12,682	)	$	(17,609	)	$	—	$	—
Liquid securities and other cash collateral held against derivatives	(15,322		)	(16,108		)	NA		NA


(a)	Receivables from customers and other include $30.1 billion and $26.0 billion of held-for-investment margin loans at December 31, 2018 and 2017, respectively, to prime brokerage customers in CIB and AWM; these are classified in accrued interest and accounts receivable on the Consolidated balance sheets.


(b)	Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, refer to Credit derivatives on page 119, and Note 5.


(c)	Excludes assets acquired in loan satisfactions.

Wholesale credit exposure – industry exposures

The Firm focuses on the management and diversification of its industry exposures, and pays particular attention to industries with actual or potential credit concerns. Exposures deemed criticized align with the U.S. banking regulators’ definition of criticized exposures, which consist of the special mention, substandard and doubtful

categories. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, was $12.1 billion at December 31, 2018, compared with $15.6 billion at December 31, 2017. The decrease was driven by Oil & Gas, including credit quality improvements in the portfolio, and a loan sale in the first quarter of 2018.

In the normal course of its wholesale business, the Firm provides loans to a variety of clients, ranging from large corporate and institutional clients to high-net-worth individuals. For a further discussion on loans, including information on credit quality indicators and sales of loans, refer to Note 12.

The following table presents the change in the nonaccrual loan portfolio for the years ended December 31, 2018 and 2017.



Wholesale nonaccrual loan activity
Year ended December 31, (in millions)	2018			2017
Beginning balance	$	1,734		$	2,063
Additions	1,188			1,482
Reductions:
Paydowns and other	692			1,137
Gross charge-offs	299			200
Returned to performing status	234			189
Sales	327			285
Total reductions	1,552			1,811
Net changes	(364		)	(329		)
Ending balance	$	1,370		$	1,734

The following table presents net charge-offs/recoveries, which are defined as gross charge-offs less recoveries, for the years ended December 31, 2018 and 2017. 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)	2018			2017
Loans – reported
Average loans retained	$	416,828		$	392,263
Gross charge-offs	313			212
Gross recoveries	(158		)	(93		)
Net charge-offs	155			119
Net charge-off rate	0.04		%	0.03		%

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 the Firm fulfill its obligations under these guarantees, and the clients subsequently fail to perform according to the terms of these contracts. Most of these commitments and guarantees are refinanced, extended, cancelled, or expire without being drawn upon or a default occurring. In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s expected future credit exposure or funding requirements. For further information on wholesale lending-related commitments, refer to Note 27.

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 provision of clearing services if clients do not adhere to their obligations under the clearing agreement. For further discussion of clearing services, refer to Note 27.

Derivative contracts

Derivatives enable clients and counterparties to manage risks including credit risk and risks arising from fluctuations in interest rates, foreign exchange, equities, and commodities. The Firm makes markets in derivatives in order to meet these needs and uses derivatives to manage certain risks associated with net open risk positions from its market-making activities, including the counterparty credit risk arising from derivative receivables. The Firm also uses derivative instruments to manage its own credit and other market risk exposure. The nature of the counterparty and the settlement mechanism of the derivative affect the credit risk to which the Firm is exposed. For OTC derivatives the Firm is exposed to the credit risk of the derivative counterparty. For exchange-traded derivatives (“ETD”), such as futures and options, and “cleared” over-the-counter (“OTC-cleared”) derivatives, the Firm is generally exposed to the credit risk of the relevant CCP. Where possible, the Firm seeks to mitigate its credit risk exposures arising from derivative contracts through the use of legally enforceable master netting arrangements and collateral agreements. For a further discussion of derivative contracts, counterparties and settlement types, refer to Note 5.

The following table summarizes the net derivative receivables for the periods presented.



Derivative receivables
December 31, (in millions)	2018			2017
Total, net of cash collateral	$	54,213		$	56,523
Liquid securities and other cash collateral held against derivative receivables^(a)	(15,322		)	(16,108		)
Total, net of all collateral	$	38,891		$	40,415


(a)	Includes collateral related to derivative instruments where appropriate legal opinions have not been either sought or obtained with respect to master netting agreements.

The fair value of derivative receivables reported on the Consolidated balance sheets were $54.2 billion and $56.5 billion at December 31, 2018 and 2017, respectively.

Derivative receivables represent the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm. However, in management’s view, the appropriate measure of current credit risk should also take into consideration additional liquid securities (primarily U.S. government and agency securities and other group of seven nations (“G7”) government securities) and other cash collateral held by the Firm aggregating $15.3 billion and $16.1 billion at December 31, 2018 and 2017, respectively, that may be used as security when the fair value of the client’s exposure is in the Firm’s favor.

In addition to the collateral described in the preceding paragraph, the Firm also holds additional collateral (primarily cash, G7 government securities, other liquid government-agency and guaranteed securities, and corporate debt and equity securities) delivered by clients at the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Although this collateral does not reduce the balances and is not included in the table above, it is available as security against potential exposure that could arise should the fair value of the client’s derivative contracts move in the Firm’s favor. The derivative receivables fair value, net of all collateral, also does not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, refer to Note 5.

While useful as a current view of credit exposure, the net fair value of the derivative receivables does not capture the potential future variability of that credit exposure. To capture the potential future variability of credit exposure, the Firm calculates, on a client-by-client basis, three measures of potential derivatives-related credit loss: Peak, Derivative Risk Equivalent (“DRE”), and Average exposure (“AVG”). These measures all incorporate netting and collateral benefits, where applicable.

Peak represents a conservative measure of potential exposure to a counterparty calculated in a manner that is broadly equivalent to a 97.5% confidence level over the life of the transaction. Peak is the primary measure used by the Firm for setting of credit limits for derivative contracts, senior management reporting and derivatives exposure management. DRE exposure is a measure that expresses the risk of derivative exposure on a basis intended to be

equivalent to the risk of loan exposures. DRE is a less extreme measure of potential credit loss than Peak and is used as an input for aggregating derivative credit risk exposures with loans and other credit risk.

Finally, AVG is a measure of the expected fair value of the Firm’s derivative receivables at future time periods, including the benefit of collateral. AVG over the total life of the derivative contract is used as the primary metric for pricing purposes and is used to calculate credit risk capital and the CVA, as further described below.

The fair value of the Firm’s derivative receivables incorporates CVA to reflect the credit quality of counterparties. CVA is based on the Firm’s AVG to a counterparty and the counterparty’s credit spread in the credit derivatives market. The Firm believes that active risk management is essential to controlling the dynamic credit risk in the derivatives portfolio. In addition, the Firm’s risk management process takes into consideration the potential impact of wrong-way risk, which is broadly defined as the potential for increased correlation between the Firm’s exposure to a counterparty (AVG) and the counterparty’s credit quality. Many factors may influence the nature and magnitude of these correlations over time. To the extent that these correlations are identified, the Firm may adjust the CVA associated with that counterparty’s AVG. The Firm risk manages exposure to changes in CVA by entering into

credit derivative contracts, as well as interest rate, foreign exchange, equity and commodity derivative contracts.

The accompanying graph shows exposure profiles to the Firm’s current derivatives portfolio over the next 10 years as calculated by the Peak, DRE and AVG metrics. The three measures generally show that exposure will decline after the first year, if no new trades are added to the portfolio.

Exposure profile of derivatives measures

December 31, 2018

(in billions)

As previously noted, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm’s over-the-counter derivative transactions subject to collateral agreements — excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity and centrally cleared trades that are settled daily — was approximately 90% at both December 31, 2018, and December 31, 2017.

Credit derivatives

The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker, and second, as an end-user, to manage the Firm’s own credit risk associated with various exposures. For a detailed description of credit derivatives, refer to Credit derivatives in Note 5.

Credit portfolio management activities

Included in the Firm’s end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm’s wholesale businesses (collectively, “credit portfolio management” activities). Information on credit portfolio management activities is provided in the table below. For further information on derivatives used in credit portfolio management activities, refer to Credit derivatives in Note 5.

The Firm also uses credit derivatives as an end-user to manage other exposures, including credit risk arising from certain securities held in the Firm’s market-making businesses. These credit derivatives are not included in credit portfolio management activities; for further information on these credit derivatives as well as credit derivatives used in the Firm’s capacity as a market-maker in credit derivatives, refer to Credit derivatives in Note 5.



Credit derivatives used in credit portfolio management activities
	Notional amount of protection purchased and sold ^(a)
December 31, (in millions)	2018		2017
Credit derivatives used to manage:
Loans and lending-related commitments	$	1,272	$	1,867
Derivative receivables	11,410		15,742
Credit derivatives used in credit portfolio management activities	$	12,682	$	17,609


(a)	Amounts are presented net, considering the Firm’s net protection purchased or sold with respect to each underlying reference entity or index.

The credit derivatives used in credit portfolio management activities do not qualify for hedge accounting under U.S. GAAP; these derivatives are reported at fair value, with gains and losses recognized in principal transactions revenue. In contrast, the loans and lending-related commitments being risk-managed are accounted for on an accrual basis. This asymmetry in accounting treatment, between loans and lending-related commitments and the credit derivatives used in credit portfolio management activities, causes earnings volatility that is not representative, in the Firm’s view, of the true changes in value of the Firm’s overall credit exposure.

The effectiveness of credit default swaps (“CDS”) as a hedge against the Firm’s exposures may vary depending on a number of factors, including the named reference entity (i.e., the Firm may experience losses on specific exposures that are different than the named reference entities in the purchased CDS); the contractual terms of the CDS (which may have a defined credit event that does not align with an actual loss realized by the Firm); and the maturity of the Firm’s CDS protection (which in some cases may be shorter than the Firm’s exposures). However, the Firm generally seeks to purchase credit protection with a maturity date that is the same or similar to the maturity date of the exposure for which the protection was purchased, and remaining differences in maturity are actively monitored and managed by the Firm.

The Firm’s allowance for credit losses covers the retained consumer and wholesale loan portfolios, as well as the Firm’s wholesale and certain consumer lending-related commitments.

For further information on the components of the allowance for credit losses and related management judgments, refer to Critical Accounting Estimates Used by the Firm on pages 141-143 and Note 13.

At least quarterly, the allowance for credit losses is reviewed by the CRO, the CFO and the Controller of the Firm. As of December 31, 2018, JPMorgan Chase deemed the allowance for credit losses to be appropriate and sufficient to absorb probable credit losses inherent in the portfolio.

The allowance for credit losses decreased compared with December 31, 2017 driven by:

•

a reduction in the consumer allowance due to a $250 million reduction in the CCB allowance for loan losses in the residential real estate PCI portfolio, reflecting continued improvement in home prices and lower delinquencies, as well as a $187 million reduction in the allowance for write-offs of PCI loans partially due to loan sales. These reductions were largely offset by a $300 million addition to the allowance in the credit card portfolio, due to loan growth and higher loss rates, as anticipated.

For additional information on the consumer and wholesale credit portfolios, refer to Consumer Credit Portfolio on pages 106–111, Wholesale Credit Portfolio on pages 112–119 and Note 12.

The for the year ended December 31, 2018 as a result of a decline in the consumer provision, partially offset by an increase in the wholesale provision provision for credit losses for the year ended December 31, 2018 as a result of a decline in the consumer provision, partially offset by an increase in the wholesale provision for the year ended December 31, 2018 as a result of a decline in the consumer provision, partially offset by an increase in the wholesale provision decreased for the year ended December 31, 2018 as a result of a decline in the consumer provision, partially offset by an increase in the wholesale provision


•	the decrease in the consumer, excluding credit card portfolio in CCB was due to


–	lower net charge-offs in the residential real estate portfolio, largely driven by recoveries from loan sales, and


–	lower net charge-offs in the auto portfolio

partially offset by


–	a $250 million reduction in the allowance for loan losses in the residential real estate portfolio — PCI, reflecting continued improvement in home prices and lower delinquencies; the reduction was $75 million lower than the prior year for the residential real estate portfolio — non credit-impaired


•	the prior year also included a net $218 million write-down recorded in connection with the sale of the student loan portfolio, and


•	the decrease in the credit card portfolio was due to


–	a $300 million addition to the allowance for loan losses, reflecting loan growth and higher loss rates, as anticipated; the addition was $550 million lower than the prior year,

largely offset by


–	higher net charge-offs due to seasoning of more recent vintages, as anticipated, and


•	in wholesale , the current period expense of $116 million reflected additions to the allowance for loan losses from select client downgrades,

largely offset by

–

other net portfolio activity, including a reduction in the allowance for loan losses related to a single name in the Oil & Gas portfolio in the first quarter of 2018, compared to a net benefit of $303 million in the prior year. The prior year benefit reflected a reduction in the allowance for loan losses on credit quality improvements in the Oil & Gas, Natural Gas Pipelines, and Metals and Mining portfolios.

Investment portfolio risk is the risk associated with the loss of principal or a reduction in expected returns on investments arising from the investment securities portfolio held predominantly by Treasury and CIO in connection with the Firm’s balance sheet or asset-liability management objectives or from principal investments managed in various LOBs and Corporate in predominantly privately-held financial instruments. Investments are typically intended to be held over extended periods and, accordingly, the Firm has no expectation for short-term realized gains with respect to these investments.

Investment securities risk

Investment securities risk includes the exposure associated with a default in the payment of principal and interest. This risk is minimized given that Treasury and CIO substantially invest in high-quality securities. At December 31, 2018, the investment securities portfolio was $260.1 billion, and the average credit rating of the securities comprising the portfolio was AA+ (based upon external ratings where available and where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody’s). For further information on the investment securities portfolio, refer to Corporate segment results on pages 77–78 and Note 10. For further information on the market risk inherent in the portfolio, refer to Market Risk Management on pages 124–131. For further information on related liquidity risk, refer to Liquidity Risk on pages 95–100.

Governance and oversight

Investment securities risks are governed by the Firm’s Risk Appetite framework, and discussed at the CIO, Treasury and Corporate (CTC) Risk Committee with regular updates to the DRPC.

The Firm’s independent control functions are responsible for reviewing the appropriateness of the carrying value of investment securities in accordance with relevant policies. Approved levels for investment securities are established for each risk category, including capital and credit risks.

Principal investment risk

Principal investments are typically private non-traded financial instruments representing ownership or other forms of junior capital. Principal investments cover multiple asset classes and are made either in stand-alone investing businesses or as part of a broader business platform. In general, new principal investments include tax-oriented investments, as well as investments made to enhance or accelerate LOB and Corporate strategic business initiatives. The Firm’s principal investments are managed by the various LOBs and Corporate and are reflected within their respective financial results. Effective January 1, 2018, the Firm adopted new accounting guidance related to the recognition and measurement of financial assets, which requires fair value adjustments upon observable price changes to certain equity investments previously held at cost in the principal investment portfolios. For additional information, refer to Notes 1 and 2.

As of December 31, 2018 and 2017, the aggregate carrying values of the principal investment portfolios were $22.2 billion and $19.5 billion, respectively, which included tax-oriented investments (e.g., affordable housing and alternative energy investments) of $16.6 billion and $14.0 billion, respectively, and private equity, various debt and equity instruments, and real assets of $5.6 billion and $5.5 billion, respectively.

Governance and oversight

The Firm’s approach to managing principal risk is consistent with the Firm’s general risk governance structure. A Firmwide risk policy framework exists for all principal investing activities. All investments are approved by investment committees that include executives who are independent from the investing businesses.

The Firm’s independent control functions are responsible for reviewing the appropriateness of the carrying value of investments in accordance with relevant policies. 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.

Market risk is the risk associated with the effect of changes in market factors such as interest and foreign exchange rates, equity and commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short and long term.

Market Risk Management

Market Risk Management monitors market risks throughout the Firm and defines market risk policies and procedures. The Market Risk Management function reports to the Firm’s CRO.

Market Risk Management seeks to manage risk, facilitate efficient risk/return decisions, reduce volatility in operating performance and provide transparency into the Firm’s market risk profile for senior management, the Board of Directors and regulators. Market Risk Management is responsible for the following functions:


•	Establishment of a market risk policy framework


•	Independent measurement, monitoring and control of line of business, Corporate, and firmwide market risk


•	Definition, approval and monitoring of limits


•	Performance of 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 the Firm 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, the Firm takes into consideration factors such as market volatility, product liquidity, accommodation of client business, and management experience. The Firm maintains different levels of limits. Firm level limits include VaR and stress limits. Similarly, line of business 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 lines of business and Corporate, as well as at the portfolio and/or legal entity level.

Market Risk Management sets limits and regularly reviews and updates them as appropriate, with any changes approved by line of business or Corporate management and Market Risk Management. Senior management, including the Firm’s CEO and CRO, are responsible for reviewing and approving certain of these risk limits on an ongoing basis. Limits that have not been reviewed within specified time periods by Market Risk Management are escalated to senior management. The lines of business 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 senior management of the Firm and of the line of business or Corporate to determine the appropriate course of action required to return the applicable positions to compliance, which may include a reduction in risk in order to remedy the breach or granting a temporary increase in limits to accommodate an expected increase in client activity and/or market volatility. Certain Firm, Corporate or line of business-level limits that have been breached are escalated to senior management, the LOB Risk Committee, and/or the Firmwide Risk Committee.

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 lines of business and Corporate, and provides the appropriate information needed to respond to risk events.

The Firm’s Risk Management VaR is calculated assuming a one-day holding period and an expected tail-loss methodology which approximates a 95% confidence level. Risk Management VaR provides a consistent framework to measure risk profiles and levels of diversification across product types and is used for aggregating risks and monitoring limits across businesses. VaR results are reported to senior management, the Board of Directors and regulators.

Under the Firm’s Risk Management VaR methodology, assuming current changes in market values are consistent with the historical changes used in the simulation, the Firm would expect to incur VaR “back-testing exceptions,” defined as losses greater than that predicted by VaR estimates, an average of five times every 100 trading days. The number of VaR back-testing exceptions observed can differ from the statistically expected number of back-testing exceptions if the current level of market volatility is materially different from the level of market volatility during the 12 months of historical data used in the VaR calculation.

Underlying the overall VaR model framework are individual VaR models that simulate historical market returns for individual risk factors and/or product types. To capture material market risks as part of the Firm’s risk management framework, comprehensive VaR model calculations are performed daily for businesses whose activities give rise to market risk. These VaR models are granular and incorporate numerous risk factors and inputs to simulate daily changes in market values over the historical period; inputs are selected based on the risk profile of each portfolio, as sensitivities and historical time series used to generate daily market values may be different across product types or risk management systems. The VaR model results across all portfolios are aggregated at the Firm level.

As VaR is based on historical data, it is an imperfect measure of market risk exposure and potential future losses. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions.

For certain products, specific risk parameters are not captured in VaR due to the lack of inherent liquidity and availability of appropriate historical data. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented. The Firm therefore considers other nonstatistical measures such as stress testing, in addition to VaR, to capture and manage its market risk positions.

The daily market data used in VaR models may be different than the independent third-party data collected for VCG price testing in its monthly valuation process. For example, in cases where market prices are not observable, or where proxies are used in VaR historical time series, the data sources may differ. For further information on the Firm’s valuation process, refer to Valuation process in Note 2. Because VaR model calculations require daily data and a consistent source for valuation, it may not be practical to use the data collected in the VCG monthly valuation process for VaR model calculations.

The Firm’s VaR model calculations are periodically evaluated and enhanced in response to changes in the composition of the Firm’s portfolios, changes in market conditions, improvements in the Firm’s modeling techniques and measurements, and other factors. Such changes may affect historical comparisons of VaR results. For information regarding model reviews and approvals, refer to Estimations and Model Risk Management on page 140.

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.

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), refer to JPMorgan Chase’s Basel

III Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website at: (http://investor.shareholder.com/jpmorganchase/basel.cfm).

Average Total VaR increased $12 million for the year-ended December 31, 2018 as compared with the prior year.

The increase was primarily due to changes in the risk profile for Fixed Income and Equities risk types, the inclusion of certain CIB marketable equity investments and a Corporate private equity position that became publicly traded in the fourth quarter of 2017, as well as increased volatility in the one-year historical look-back period.

In addition, average Credit Portfolio VaR has declined by $4 million, reflecting the sale of select positions in the prior year.

VaR can vary significantly over time as positions change, market volatility fluctuates, and diversification benefits change.

VaR back-testing

The Firm evaluates the effectiveness of its VaR methodology by back-testing, which compares the daily Risk Management VaR results with the daily gains and losses actually recognized on market-risk related revenue.

The Firm’s definition of market risk-related gains and losses is consistent with the definition used by the banking regulators under Basel III. Under this definition, market risk-related gains and losses are defined as: gains and losses on the positions included in the Firm’s Risk Management VaR, excluding fees, commissions, certain valuation adjustments, net interest income, and gains and losses arising from intraday trading.

Stress testing

Along with VaR, stress testing is an important tool used to assess risk. While VaR reflects the risk of loss due to adverse changes in markets using recent historical market behavior, stress testing reflects the risk of loss from hypothetical changes in the value of market risk sensitive positions applied simultaneously. Stress testing measures the Firm’s vulnerability to losses under a range of stressed but possible economic and market scenarios. The results are used to understand the exposures responsible for those potential losses and are measured against limits.

The Firm’s stress framework covers Corporate and all lines of business with market risk sensitive positions. The framework is used to calculate multiple magnitudes of potential stress for both market rallies and market sell-offs, assuming significant changes in market factors such as credit spreads, equity prices, interest rates, currency rates and commodity prices, and combines them in multiple ways to capture an array of hypothetical economic and market scenarios.

The Firm generates a number of scenarios that focus on tail events in specific asset classes and geographies, including how the event may impact multiple market factors simultaneously. Scenarios also incorporate specific idiosyncratic risks and stress basis risk between different products. The flexibility in the stress framework allows the Firm to construct new scenarios that can test the outcomes against possible future stress events. Stress testing results are reported on a regular basis to the respective LOBs, Corporate and the Firm’s senior management.

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 by the relevant LOB Risk Committees on an annual basis or as changing market conditions warrant and may be redefined to reflect current or expected market conditions.

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 quarterly to the DRPC.

Profit and loss drawdowns

Profit and loss drawdowns are used to highlight trading losses above certain levels of risk tolerance. Profit and loss drawdowns are defined as the decline in net profit and loss since the year-to-date peak revenue level.

Earnings-at-risk

The VaR and sensitivity measures illustrate the economic sensitivity of the Firm’s Consolidated balance sheets to changes in market variables.

The effect of interest rate exposure on the Firm’s reported net income is also important as interest rate risk represents one of the Firm’s significant market risks. Interest rate risk arises not only from trading activities but also from the Firm’s traditional banking activities, which include extension of loans and credit facilities, taking deposits and issuing debt. The Firm evaluates its structural interest rate risk exposure through earnings-at-risk, which measures the extent to which changes in interest rates will affect the Firm’s net interest income and interest rate-sensitive fees. For a summary by line of business and Corporate, identifying positions included in earnings-at-risk, refer to the table on page 125.

The CTC Risk Committee establishes the Firm’s structural interest rate risk policy and related limits, which are subject to approval by the DRPC. Treasury and CIO, working in partnership with the lines of business, calculates the Firm’s structural interest rate risk profile and reviews it with senior management, including the CTC Risk Committee. 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 the timing among the maturity or repricing of assets, liabilities and off-balance sheet instruments


•	Differences in the amounts of assets, liabilities and off-balance sheet instruments that are repricing at the same time


•	Differences in the amounts by which short-term and long-term market interest rates change (for example, changes in the slope of the yield curve)


•	The impact of changes in the maturity of various assets, liabilities or off-balance sheet instruments as interest rates change

The Firm manages interest rate exposure related to its assets and liabilities on a consolidated, firmwide basis. Business units transfer their interest rate risk to Treasury and CIO through funds transfer pricing, which takes into account the elements of interest rate exposure that can be risk-managed in financial markets. These elements include asset and liability balances and contractual rates of interest, contractual principal payment schedules, expected prepayment experience, interest rate reset dates and maturities, rate indices used for repricing, and any interest rate ceilings or floors for adjustable rate products. All transfer-pricing assumptions are dynamically reviewed.

The Firm generates a baseline for net interest income and certain interest rate-sensitive fees, and then conducts simulations of changes for interest rate-sensitive assets and liabilities denominated in U.S. dollars and other currencies (“non-U.S. dollar” currencies). This simulation primarily includes retained loans, deposits, deposits with banks, investment securities, long term debt and any related interest rate hedges, and excludes other positions in risk management VaR and other sensitivity-based measures as described on page 125.

Earnings-at-risk scenarios estimate the potential change in this baseline, over the following 12 months utilizing multiple assumptions. These scenarios include a parallel shift involving changes to both short-term and long-term rates by an equal amount; a steeper yield curve involving holding short-term rates constant and increasing long-term rates or decreasing short-term rates and holding long-term rates constant; and a flatter yield curve involving holding short-term rates constant and decreasing long-term rates or increasing short-term rates and holding long-term rates constant. These scenarios consider the impact on exposures as a result of changes in interest rates from baseline rates, as well as pricing sensitivities of deposits, optionality and changes in product mix. The scenarios include forecasted balance sheet changes, as well as modeled prepayment and reinvestment behavior, but do not include assumptions about actions that could be taken by the Firm in response to any such instantaneous rate changes. Mortgage prepayment assumptions are based on 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 in the baseline and scenarios use

assumed rates paid which may differ from actual rates paid due to timing lags and other factors. The Firm’s earnings-at-risk scenarios are periodically evaluated and enhanced in response to changes in the composition of the Firm’s balance sheet, changes in market conditions, improvements in the Firm’s simulation and other factors.

The Firm’s U.S. dollar sensitivities are presented in the table below.



December 31, (in billions)	2018			2017
Parallel shift:
+100 bps shift in rates	$	0.9		$	1.7
-100 bps shift in rates	(2.1		)	(3.6		)
Steeper yield curve:
+100 bps shift in long-term rates	0.5			0.7
-100 bps shift in short-term rates	(1.2		)	(2.2		)
Flatter yield curve:
+100 bps shift in short-term rates	0.4			1.0
-100 bps shift in long-term rates	(0.9		)	(1.4		)

The Firm’s sensitivity to rates is largely a result of assets repricing at a faster pace than deposits.

The Firm’s net U.S. dollar sensitivities as of December 31, 2018 decreased when compared to December 31, 2017 primarily as a result of updating the Firm’s baseline to reflect higher interest rates. As higher interest rates are now reflected in the Firm’s baselines, sensitivities to changes in rates are expected to be less significant.

The Firm’s non-U.S. dollar sensitivities are presented in the table below.



December 31, (in billions)	2018		2017
Parallel shift:
+100 bps shift in rates	$	0.5	$	0.5
Flatter yield curve:
+100 bps shift in short-term rates	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, 2018 and 2017.

Non-U.S. dollar foreign exchange risk

Non-U.S. dollar FX risk is the risk that changes in foreign exchange rates affect the value of the Firm’s assets or liabilities or future results. The Firm has structural non-U.S. dollar FX exposures arising from capital investments, forecasted expense and revenue, the investment securities

portfolio and non-U.S. dollar-denominated debt issuance. Treasury and CIO, working in partnership with the lines of business, primarily manage these risks on behalf of the Firm. Treasury and CIO may hedge certain of these risks using derivatives within risk limits governed by the CTC Risk Committee.

The Firm, through its lines of business 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 Firmwide Risk Executive for Country Risk reports to the Firm’s CRO.

The Firm’s country risk management function includes the following activities:


•	Establishing policies, procedures and standards consistent with a comprehensive country risk framework


•	Assigning sovereign ratings, assessing country risks and establishing risk tolerance relative to a country


•	Measuring and monitoring country risk exposure and stress across the Firm


•	Managing and approving country limits and reporting trends and limit breaches to senior management


•	Developing surveillance tools, such as signaling models and ratings indicators, for early identification of potential country risk concerns


•	Providing country risk scenario analysis

Sources and measurement

The Firm is exposed to country risk through its lending and deposits, investing, and market-making activities, whether cross-border or locally funded. Country exposure includes activity with both government and private-sector entities in a country. Under the Firm’s internal country risk management approach, attribution of exposure to a specific country is based on the country where the largest proportion of the assets of the counterparty, issuer, obligor or guarantor are located or where the largest proportion of its revenue is derived, which may be different than the domicile (i.e. legal residence) or country of incorporation of the counterparty, issuer, obligor or guarantor. Country exposures are generally measured by considering the Firm’s risk to an immediate default of the counterparty, issuer, obligor or guarantor, with zero recovery. Assumptions are sometimes required in determining the measurement and allocation of country exposure, particularly in the case of certain non-linear or index exposures. The use of different measurement approaches or assumptions could affect the amount of reported country exposure.

During the fourth quarter of 2018, the Firm refined its country exposure measurement approach to exclude capital invested in local entities. With this change, country exposure more directly measures the Firm’s risk to an immediate default of a counterparty, issuer, obligor or guarantor. The risk associated with capital invested in local entities will continue to be examined in tailored stress scenarios, depending on the vulnerabilities being tested. For more on the Firm’s country risk stress testing, refer to page 133.

Under the Firm’s internal country risk measurement framework:


•	Lending exposures are measured at the total committed amount (funded and unfunded), net of the allowance for credit losses and eligible cash and marketable securities collateral received


•	Deposits are measured as the cash balances placed with central and commercial banks


•	Securities financing exposures are measured at their receivable balance, net of eligible collateral received


•	Debt and equity securities are measured at the fair value of all positions, including both long and short positions


•	Counterparty exposure on derivative receivables is measured at the derivative’s fair value, net of the fair value of the eligible collateral received

•

Credit derivatives protection purchased and sold is reported based on the underlying reference entity and is measured at the notional amount of protection purchased or sold, net of the fair value of the recognized derivative receivable or payable. Credit derivatives protection purchased and sold in the Firm’s market-making activities is measured on a net basis, as such activities often result in selling and purchasing protection related to the same underlying reference entity; this reflects the manner in which the Firm manages these exposures

Some activities may create contingent or indirect exposure related to a country (for example, providing clearing services or secondary exposure to collateral on securities financing receivables). These exposures are managed in the normal course of business through the Firm’s credit, market, and operational risk governance, rather than through Country Risk Management.

The Firm’s internal country risk reporting differs from the reporting provided under the FFIEC bank regulatory requirements. For further information on the FFIEC’s reporting methodology, refer to Cross-border outstandings on page 306 of the 2018 Form 10-K.

Stress testing

Stress testing is an important component of the Firm’s country risk management framework, which aims to estimate and limit losses arising from a country crisis by measuring the impact of adverse asset price movements to a country based on market shocks combined with counterparty specific assumptions. Country Risk Management periodically designs and runs tailored stress scenarios to test vulnerabilities to individual countries or sets of countries in response to specific or potential market events, sector performance concerns, sovereign actions and geopolitical risks. These tailored stress results are used to inform potential risk reduction across the Firm, as necessary.

Risk reporting

To enable effective risk management of country risk to the Firm, country exposure and stress are measured and reported weekly, and used by Country Risk Management to identify trends, and monitor high usages and breaches against limits.

The following table presents the Firm’s top 20 exposures by country (excluding the U.S.) as of December 31, 2018, and their comparative exposures as of December 31, 2017. The selection of countries represents the Firm’s largest total exposures by country, based on the Firm’s internal country risk management approach, and does not represent the Firm’s view of any actual or potentially adverse credit conditions. Country exposures may fluctuate from period to period due to client activity and market flows.

As discussed on page 132, during the fourth quarter of 2018 the Firm refined its country exposure measurement approach to exclude capital invested in local entities. While this change did not have a material impact to country exposure, prior period amounts have been revised within the following table to conform with the current period presentation.



Top 20 country exposures (excluding the U.S.)^(a)
December 31, (in billions)	2018								2017^(f)
	Lending and deposits^(b)		Trading and investing^(c)(d)		Other^(e)		Total exposure		Total exposure
Germany	$	53.7	$	8.1	$	0.3	$	62.1	$	57.4
United Kingdom	28.0		10.1		2.6		40.7		44.9
Japan	25.4		3.3		0.4		29.1		30.8
China	9.5		7.1		2.7		19.3		16.3
France	10.8		6.5		0.6		17.9		19.4
Canada	10.8		3.4		0.1		14.3		14.9
Australia	7.2		5.4		0.4		13.0		11.4
Switzerland	9.1		0.6		3.1		12.8		13.9
India	6.1		4.0		1.7		11.8		12.3
Luxembourg	10.5		0.5		—		11.0		9.5
South Korea	4.2		3.2		0.2		7.6		6.8
Brazil	4.4		2.9		—		7.3		4.6
Singapore	3.9		1.4		1.5		6.8		6.3
Italy	2.4		3.8		0.2		6.4		6.7
Netherlands	5.0		0.4		0.4		5.8		8.0
Mexico	3.7		1.8		—		5.5		5.2
Hong Kong	2.4		1.1		1.9		5.4		4.2
Saudi Arabia	4.7		0.6		—		5.3		4.5
Spain	3.8		1.3		—		5.1		6.8
Malaysia	1.8		1.1		1.4		4.3		3.0


(a)	Country exposures presented in the table reflect 87% and 86% of total firmwide non-U.S. exposure, where exposure is attributed to a specific country, for the periods ending December 31, 2018 and 2017, respectively.

(b)

Lending and deposits includes loans and accrued interest receivable (net of eligible collateral and the allowance for loan losses), deposits with banks (including central banks), acceptances, other monetary assets, issued letters of credit net of participations, and unused commitments to extend credit. Excludes intra-day and operating exposures, such as those from settlement and clearing activities.


(c)	Includes market-making inventory, AFS securities, and counterparty exposure on derivative and securities financings net of eligible collateral and hedging.


(d)	Includes single reference entity (“single-name”), index and other multiple reference entity transactions for which one or more of the underlying reference entities is in a country listed in the above table.


(e)	Predominantly includes physical commodity inventory.


(f)	The country rankings presented in the table as of December 31, 2017, are based on the country rankings of the corresponding exposures at December 31, 2018, not actual rankings of such exposures at December 31, 2017.

Operational risk is the risk associated with inadequate or failed internal processes, people and systems, or from external events and includes compliance risk, conduct risk, legal risk, and estimations and model risk. Operational risk is inherent in the Firm’s activities and can manifest itself in various ways, including fraudulent acts, business interruptions, cybersecurity attacks, inappropriate employee behavior, failure to comply with applicable laws and regulations or failure of vendors to perform in accordance with their agreements. These events could result in financial losses, litigation and regulatory fines, as well as other damages to the Firm. The goal is to keep operational risk at appropriate levels in light of the Firm’s financial position, the characteristics of its businesses, and the markets and regulatory environments in which it operates.

Operational Risk Management Framework

To monitor and control operational risk, the Firm has an Operational Risk Management Framework (“ORMF”) which is designed to enable the Firm to maintain a sound and well-controlled operational environment. The ORMF has four main components: Governance, Operational Risk Identification and Assessment, Operational Risk Measurement, and Operational Risk Monitoring and Reporting.

Governance

The lines of business and Corporate are responsible for applying the ORMF in order to manage the operational risk that arises from their activities. The Control Management organization, which consists of control managers within each line of business and Corporate, is responsible for the day-to-day execution of the ORMF.

Line of business and Corporate control committees are responsible for reviewing data that indicates the quality and stability of processes, addressing key operational risk issues, focusing on processes with control concerns, and overseeing control remediation. These committees escalate operational risk issues to the FCC, as appropriate. For additional information on the FCC, refer to Enterprise-wide Risk Management on pages 79–140.

The Firmwide Risk Executive for Operational Risk Management (“ORM”), a direct report to the CRO, is responsible for defining the ORMF and establishing minimum standards for its execution. Operational Risk Officers report to both the line of business CROs and to the Firmwide Risk Executive for ORM, and are independent of the respective businesses or corporate functions they oversee.

The Firm’s Operational Risk Management Policy is approved by the DRPC. This policy establishes the Operational Risk Management Framework for the Firm.

Operational Risk identification and assessment

The Firm utilizes a structured risk and control self-assessment process which is executed by the lines of business and Corporate in accordance with the minimum standards established by ORM, to identify, assess, mitigate and manage its operational risk. As part of this process, lines of business and Corporate identify key operational risks inherent in their activities, address gaps or deficiencies identified, and define actions to reduce residual risk. Action plans are developed for identified control issues and lines of business and Corporate are held accountable for tracking and resolving issues in a timely manner. Operational Risk Officers independently challenge the execution of the self-assessment and evaluate the appropriateness of the residual risk results.

In addition to the self-assessment process, the Firm tracks and monitors events that have led to or could lead to actual operational risk losses, including litigation-related events. Responsible lines of business and Corporate analyze their losses to evaluate the effectiveness of their control environment to assess where controls have failed, and to determine where targeted remediation efforts may be required. ORM 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

In addition to the level of actual operational risk losses, operational risk measurement includes operational risk-based capital and operational risk loss projections under both baseline and stressed conditions.

The primary component of the operational risk capital estimate is the Loss Distribution Approach (“LDA”) statistical model, which simulates the frequency and severity of future operational risk loss projections based on historical data. The LDA model is used to estimate an aggregate operational risk loss over a one-year time horizon, at a 99.9% confidence level. The LDA model incorporates actual internal operational risk losses in the quarter following the period in which those losses were realized, and the calculation generally continues to reflect such losses even after the issues or business activities giving rise to the losses have been remediated or reduced.

As required under the Basel III capital framework, the Firm’s operational risk-based capital methodology, which uses the Advanced Measurement Approach (“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.

For information related to operational risk RWA, CCAR or ICAAP, refer to Capital Risk Management section, pages 85-94.

Operational Risk Monitoring and reporting

ORM has established standards for consistent operational risk monitoring and reporting. Operational risk reports are produced on a firmwide basis as well as by line of business and Corporate. Reporting includes the evaluation of key risk indicators against established thresholds as well as the assessment of different types of operational risk against stated risk appetite. The standards reinforce escalation protocols to senior management and to the Board of Directors.

Subcategories and examples of operational risks

Operational risk can manifest itself in various ways. Operational risk subcategories such as Compliance risk, Conduct risk, Legal risk and Estimations and Model risk, as well as other operational risks, can lead to losses which are captured through the Firm’s operational risk measurement processes. For more information on Compliance risk, Conduct risk, Legal risk and Estimations and Model risk, refer to pages 137, 138, 139 and 140, respectively. Details on other select examples of operational risks are provided below.

Cybersecurity risk

Cybersecurity risk is an important, continuous and evolving focus for the Firm. The Firm devotes significant resources to protecting and continuing to improve the security of the Firm’s computer systems, software, networks and other technology assets. The Firm’s security efforts are designed to protect against, among other things, cybersecurity attacks by unauthorized parties attempting to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage. The Firm continues to make significant investments in enhancing its cyberdefense capabilities and to strengthen its partnerships with the appropriate government and law enforcement agencies and other businesses in order to understand the full spectrum of cybersecurity risks in the operating environment, enhance defenses and improve resiliency against cybersecurity threats. The Firm actively participates in discussions of cybersecurity risks with law enforcement, government officials, peer and industry groups, and has significantly increased efforts to educate employees and certain clients on the topic.

Third parties with which the Firm does business or that facilitate the Firm’s business activities (e.g., vendors, exchanges, clearing houses, central depositories, and financial intermediaries) could also be sources of

cybersecurity risk to the Firm. Third party cybersecurity incidents such as system breakdowns or failures, misconduct by the employees of such parties, or cyberattacks could affect their ability to deliver a product or service to the Firm or result in lost or compromised information of the Firm or its clients. Clients can also be sources of cybersecurity risk to the Firm, particularly when their activities and systems are beyond the Firm’s own security and control systems. As a result, the Firm engages in regular and ongoing discussions with certain vendors and clients regarding cybersecurity risks and opportunities to improve security. However, where cybersecurity incidents are due to client failure to maintain the security of their own systems and processes, clients will generally be responsible for losses incurred.

To protect the confidentiality, integrity and availability of the Firm’s infrastructure, resources and information, the Firm maintains a cybersecurity program to prevent, detect, and respond to cyberattacks. The Global Chief Information Officer, Chief Technology Control Officer, and Chief Information Security Officer (“CISO”) update the Audit Committee of the Board of Directors at least annually 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 detailed 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. 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 in this regard including Compliance and the Legal Department.

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 lines of business, the Cybersecurity and Technology Control organization identifies information security risk issues and champions 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 Control organization comprises Governance and Control, Assessments, Assurance and Training, Cybersecurity Operations, business aligned control officers, Identity and Access Management, and resiliency functions that execute the Information Security Program.

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 line of business 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 including technology management, Firmwide management and the Operating Committee. The forums are used to escalate information security risks or other matters as appropriate to the FCC.

IRM provides oversight of the activities which identify, assess, manage and mitigate cybersecurity risk. As integral participants in cybersecurity governance forums, the IRM organization actively monitors and oversees the Cybersecurity and Technology Control functions.

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 an annual basis, and it is supplemented by firmwide testing initiatives, including quarterly phishing tests. Finally, the Firm’s Global Privacy Program requires all employees to take annual awareness training on data privacy. This privacy-focused training includes information about confidentiality and security, as well as responding to unauthorized access to or use of information.

Business and technology resiliency risk

Business disruptions can occur due to forces beyond the Firm’s control such as severe weather, power or telecommunications loss, flooding, transit strikes, terrorist threats or infectious disease. The safety of the Firm’s employees and customers is of the highest priority. The Firm’s global resiliency program is intended to enable the Firm to recover its critical business functions and supporting assets (i.e., staff, technology and facilities) in the event of a business interruption. The program includes corporate governance, awareness 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 Firm’s global resiliency program has played an integral role in maintaining the Firm’s business operations during and after various events.

Payment fraud risk

Payment fraud risk is the risk of external and internal parties unlawfully obtaining personal monetary benefit through misdirected or otherwise improper payment. Over the past year, the risk of payment fraud remained at a heightened level across the industry. The complexities of these incidents and the strategies used by perpetrators continue to evolve. A Payments Control Program including the LOBs and Corporate develop methods for managing the risk, implementing controls and providing employee and client education and awareness training. The Firm’s monitoring of customer behavior is periodically evaluated and enhanced in an effort to detect and mitigate new strategies implemented by fraud perpetrators. The Firm’s consumer and wholesale businesses collaborate closely to deploy risk mitigation controls across their businesses.

Third-party outsourcing risk

To identify and manage the operational risk inherent in its outsourcing activities, the Firm has a Third-Party Oversight (“TPO”) framework to assist the lines of business and Corporate in selecting, documenting, onboarding, monitoring and managing their supplier relationships. The objective of the TPO framework is to hold third parties to the same high level of operational performance as is expected of the Firm’s internal operations. The Corporate Third-Party Oversight group is responsible for Firmwide TPO training, monitoring, reporting and standards.

Insurance

One of the ways in which operational risk may be mitigated is through insurance maintained by the Firm. The Firm purchases insurance from commercial insurers and utilizes a wholly-owned captive insurer, Park Assurance Company, as needed to comply with local laws and regulations (e.g., workers compensation), as well as to serve other needs (e.g., property loss and public liability). Insurance may also be required by third parties with whom the Firm does business. The insurance purchased is reviewed and approved by senior management.

Compliance risk, a subcategory of operational risk, is the risk of failure to comply with legal or regulatory obligations or codes of conduct and standards of self-regulatory organizations applicable to the business activities of the Firm.

Overview

Each line of business and Corporate hold primary ownership of and accountability for managing compliance risk. The Firm’s Compliance Organization (“Compliance”), which is independent of the lines of business, works closely with senior management to provide independent review, monitoring and oversight of business operations with a focus on compliance with the legal and regulatory obligations applicable to the delivery of the Firm’s products and services to clients and customers.

These compliance risks relate to a wide variety of legal and regulatory obligations, depending on the line of business and the jurisdiction, and include those related to financial products and services, relationships and interactions with clients and customers, and employee activities. For example, compliance risks include those associated with anti-money laundering compliance, trading activities, market conduct, and complying with the rules and regulations related to the offering of products and services across jurisdictional borders, among others. Compliance risk is also inherent in the Firm’s fiduciary activities, including the failure to exercise the applicable standard of care (such as the duties of loyalty or care), to act in the best interest of clients and customers or to treat clients and customers fairly.

Other Functions provide oversight of significant regulatory obligations that are specific to their respective areas of responsibility.

Compliance implements various practices designed to identify and mitigate compliance risk by establishing policies and standards, testing, monitoring, training and providing guidance.

Governance and oversight

Compliance is led by the Firms’ CCO who reports to the Firm’s CRO.

The Firm maintains oversight and coordination of its Compliance Risk Management practices through the Firm’s CCO, lines of business CCOs and regional CCOs to implement the Compliance program globally across the lines of business and regions. The Firm’s CCO is a member of the FCC and the FRC. The Firm’s CCO also provides regular updates to the Audit Committee and DRPC. In addition, certain Special Purpose Committees of the Board have been established to oversee the Firm’s compliance with regulatory Consent Orders.

The Firm has a Code of Conduct (the “Code”). Each employee is given annual training on the Code and is required annually to affirm his or her compliance with the Code. All new hires must complete Code training shortly after their start date with the Firm. The Code sets forth the Firm’s expectation that employees will conduct themselves with integrity at all times and provides the principles that govern employee conduct with clients, customers, shareholders and one another, as well as with the markets and communities in which the Firm does business. The Code requires employees to promptly report any known or suspected violation of the Code, any internal Firm policy, or any law or regulation applicable to the Firm’s business. It also requires employees to report any illegal conduct, or conduct that violates the underlying principles of the Code, by any of the Firm’s employees, customers, suppliers, contract workers, business partners, or agents. The Code prohibits retaliation against anyone who raises an issue or concern in good faith. Specified compliance officers are specially trained and designated as “code specialists” who act as a resource to employees on questions related to the Code. Employees can report any known or suspected violations of the Code through the Code Reporting Hotline by phone or the internet. The Hotline is anonymous, except in certain non-U.S. jurisdictions where laws prohibit anonymous reporting, and is available 24/7 globally, with translation services. It is maintained by an outside service provider. Annually, the Audit Committee receives a report on the Code of Conduct program, including an update on the employee completion rate for Code of Conduct training and affirmation.

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 line of business 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 law everywhere the Firm operates. For further discussion of the Code, refer to Compliance Risk Management on page 137.

Governance and oversight

The Conduct Risk Program is governed by a Board-level approved Conduct Risk Governance Policy. The Conduct Risk Governance Policy establishes the framework for ownership, assessment, managing and escalating conduct risk in the Firm.

The CRSC provides oversight of the Firm’s conduct initiatives to develop a more holistic view of conduct risks and to connect key programs across the Firm in order to identify opportunities and emerging areas of focus.

The CRSC may escalate systemic conduct risk issues to the FRC and as appropriate to the DRPC. The misconduct (actual or potential) of individuals involved in material risk and control issues are escalated to the HR Control Forum.

Certain committees of the Board oversee conduct risk issues within the scope of their responsibilities.

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 function completes an assessment of conduct risk quarterly, reviews metrics and issues which may involve conduct risk, and provides business conduct training as appropriate.

Legal risk, a subcategory of operational risk, is the risk of loss primarily caused by the actual or alleged failure to meet legal obligations that arise from the rule of law in jurisdictions in which the Firm operates, agreements with clients and customers, and products and services offered by the Firm.

Overview

The global Legal function (“Legal”) provides legal services and advice to the Firm. Legal is responsible for managing the Firm’s exposure to Legal risk by:


•	managing actual and potential litigation and enforcement matters, including internal reviews and investigations related to such matters


•	advising on products and services, including contract negotiation and documentation


•	advising on offering and marketing documents and new business initiatives


•	managing dispute resolution


•	interpreting existing laws, rules and regulations, and advising on changes thereto


•	advising on advocacy in connection with contemplated and proposed laws, rules and regulations, and


•	providing legal advice to the LOBs and Corporate, in alignment with the lines of defense described under Enterprise-wide Risk Management.

Legal selects, engages and manages outside counsel for the Firm on all matters in which outside counsel is engaged. In addition, Legal advises the Firm’s Conflicts Office which reviews the Firm’s wholesale transactions that may have the potential to create conflicts of interest for the Firm.

Governance and oversight

The Firm’s General Counsel reports to the CEO and is a member of the Operating Committee, the Firmwide Risk Committee and the Firmwide Control Committee. The General Counsel’s leadership team includes a General Counsel for each line of business, the heads of the Litigation and Corporate & Regulatory practices, as well as the Firm’s Corporate Secretary. Each region (e.g., Latin America, Asia Pacific) has a General Counsel who is responsible for managing legal risk across all lines of business and functions in the region.

The Firm’s General Counsel and other members of Legal report on significant legal matters at each meeting of the Firm’s Board of Directors, at least quarterly to the Audit Committee, and periodically to the DRPC.

Legal serves on and advises various committees (including new business initiative and reputation risk committees) and advises the Firm’s businesses to protect the Firm’s reputation beyond any particular legal requirements.

Estimations and Model risk, a subcategory of operational risk, is the potential for adverse consequences from decisions based on incorrect or misused estimation outputs.

The Firm uses models and other analytical and judgment-based estimations across various businesses and functions. The estimation methods are of varying levels of sophistication and are used for many purposes, such as the valuation of positions and measurement of risk, assessing regulatory capital requirements, conducting stress testing, and making business decisions. A dedicated independent function, Model Risk Governance and Review (“MRGR”), defines and governs the Firm’s model risk management policies and certain analytical and judgment-based estimations, such as those used in risk management, budget forecasting and capital planning and analysis. MRGR reports to the Firm’s CRO.

The governance of analytical and judgment-based estimations within MRGR’s scope follows a consistent approach to the approach used for models, which is described in detail below.

Model risks are owned by the users of the models within the Firm based on the specific purposes of such models. Users and developers of models are responsible for developing, implementing and testing their models, as well as referring models to the Model Risk function for review and approval. Once models have been approved, model users and developers are responsible for maintaining a robust operating environment, and must monitor and evaluate the performance of the models on an ongoing basis. Model users and developers may seek to enhance models in response to changes in the portfolios and in product and market developments, as well as to capture improvements in available modeling techniques and systems capabilities.

Models are tiered based on an internal standard according to their complexity, the exposure associated with the model and the Firm’s reliance on the model. This tiering is subject to the approval of the Model Risk function. In its review of a model, the Model Risk function considers whether the model is suitable for the specific purposes for which it will be used. The factors considered in reviewing a model include whether the model accurately reflects the characteristics of the product and its significant risks, the selection and reliability of model inputs, consistency with models for similar products, the appropriateness of any model-related adjustments, and sensitivity to input parameters and assumptions that cannot be observed from the market. When reviewing a model, the Model Risk function analyzes and challenges the model methodology and the reasonableness of model assumptions and may perform or require additional testing, including back-testing of model outcomes. Model reviews are approved by the appropriate level of management within the Model Risk function based on the relevant model tier.

Under the Firm’s Estimations and Model Risk Management Policy, the Model Risk function reviews and approves new models, as well as material changes to existing models, prior to implementation in the operating environment. In certain circumstances, the head of the Model Risk function may grant exceptions to the Firm’s policy to allow a model to be used prior to review or approval. The Model Risk function may also require the user to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity.

For a summary of model-based valuations and other valuation techniques, refer to Critical Accounting Estimates Used by the Firm on pages 141-143 and Note 2.

JPMorgan Chase’s accounting policies and use of estimates are integral to understanding its reported results. The Firm’s most complex accounting estimates require management’s judgment to ascertain the appropriate carrying value of assets and liabilities. The Firm has established policies and control procedures intended to ensure that estimation methods, including any judgments made as part of such methods, are well-controlled, independently reviewed and applied consistently from period to period. The methods used and judgments made reflect, among other factors, the nature of the assets or liabilities and the related business and risk management strategies, which may vary across the Firm’s businesses and portfolios. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The Firm believes its estimates for determining the carrying value of its assets and liabilities are appropriate. The following is a brief description of the Firm’s critical accounting estimates involving significant judgments.

Allowance for credit losses

JPMorgan Chase’s allowance for credit losses covers the retained consumer and wholesale loan portfolios, as well as the Firm’s wholesale and certain consumer lending-related commitments. The allowance for loan losses is intended to adjust the carrying value of the Firm’s loan assets to reflect probable credit losses inherent in the loan portfolio as of the balance sheet date. Similarly, the allowance for lending-related commitments is established to cover probable credit losses inherent in the lending-related commitments portfolio as of the balance sheet date.

The allowance for credit losses includes a formula-based component, an asset-specific component, and a component related to PCI loans. The determination of each of these components involves significant judgment on a number of matters. For further information on these components, areas of judgment and methodologies used in establishing the Firm’s allowance for credit losses, refer to Allowance for credit losses on pages 120–122 and Note 13.

Allowance for credit losses sensitivity

The Firm’s allowance for credit losses is sensitive to numerous factors, which may differ depending on the portfolio. Changes in economic conditions or in the Firm’s assumptions and estimates could affect its estimate of probable credit losses inherent in the portfolio at the balance sheet date. The Firm uses its best judgment to assess these economic conditions and loss data in estimating the allowance for credit losses and these estimates are subject to periodic refinement based on changes to underlying external or Firm-specific historical data. Refer to Note 13 for further discussion.

To illustrate the potential magnitude of certain alternate judgments, the Firm estimates that changes in the following inputs would have the following effects on the Firm’s modeled credit loss estimates as of December 31, 2018, without consideration of any offsetting or correlated effects of other inputs in the Firm’s allowance for loan losses:


•	A combined 5% decline in housing prices and a 100 basis point increase in unemployment rates from current levels could imply:


◦	an increase to modeled credit loss estimates of approximately $425 million for PCI loans.


◦	an increase to modeled annual credit loss estimates of approximately $50 million for residential real estate loans, excluding PCI loans.


•	For credit card loans, a 100 basis point increase in unemployment rates from current levels could imply an increase to modeled annual credit loss estimates of approximately $875 million.


•	An increase in probability of default (“PD”) factors consistent with a one-notch downgrade in the Firm’s internal risk ratings for its entire wholesale loan portfolio could imply an increase in the Firm’s modeled credit loss estimates of approximately $1.6 billion.


•	A 100 basis point increase in estimated loss given default (“LGD”) for the Firm’s entire wholesale loan portfolio could imply an increase in the Firm’s modeled credit loss estimates of approximately $175 million.

The purpose of these sensitivity analyses is to provide an indication of the isolated impacts of hypothetical alternative assumptions on modeled loss estimates. The changes in the inputs presented above are not intended to imply management’s expectation of future deterioration of those risk factors. In addition, these analyses are not intended to estimate changes in the overall allowance for loan losses, which would also be influenced by the judgment management applies to the modeled loss estimates to reflect the uncertainty and imprecision of these modeled loss estimates based on then-current circumstances and conditions.

It is difficult to estimate how potential changes in specific factors might affect the overall allowance for credit losses because management considers a variety of factors and inputs in estimating the allowance for credit losses. Changes in these factors and inputs may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors may be directionally inconsistent, such that improvement in one factor may offset deterioration in other factors. In addition, it is difficult to predict how changes in specific economic conditions or assumptions could affect borrower behavior or other factors considered by management in estimating the allowance for credit losses. Given the process the Firm follows and the judgments made in evaluating the risk factors related to its loss estimates, management believes that its current estimate of the allowance for credit losses is appropriate.

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. For further information, refer to Note 2.



December 31, 2018 (in billions, except ratios)	Total assets at fair value		Total level 3 assets
Trading debt and equity instruments	$	359.5	$	4.2
Derivative receivables^(a)	54.2		5.8
Trading assets	413.7		10.0
AFS securities	230.4		—
Loans	3.2		0.1
MSRs	6.1		6.1
Other	27.2		1.0
Total assets measured at fair value on a recurring basis	680.6		17.2
Total assets measured at fair value on a nonrecurring basis	1.4		1.1
Total assets measured at fair value	$	682.0	$	18.3
Total Firm assets	$	2,622.5
Level 3 assets as a percentage of total Firm assets^(a)			0.7		%
Level 3 assets as a percentage of total Firm assets at fair value^(a)			2.7		%

(a)

For purposes of the table above, the derivative receivables total reflects the impact of netting adjustments; however, the $5.8 billion of derivative receivables classified as level 3 does not reflect the netting adjustment as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral.

Valuation

Details of the Firm’s processes for determining fair value are set out in Note 2. Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed valuation models and other valuation techniques that use significant unobservable inputs and are therefore classified within level 3 of the valuation hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.

In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate valuation technique to use. Second, the lack of observability of certain significant inputs requires management to assess all relevant empirical data in deriving valuation inputs including, for example, transaction details, yield curves, interest rates, prepayment rates, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves. For further discussion of the valuation of level 3 instruments, including unobservable inputs used, refer to Note 2.

For instruments classified in levels 2 and 3, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality,

the Firm’s creditworthiness, market funding rates, liquidity considerations, unobservable parameters, and for portfolios that meet specified criteria, the size of the net open risk position. The judgments made are typically affected by the type of product and its specific contractual terms, and the level of liquidity for the product or within the market as a whole. For a further discussion of valuation adjustments applied by the Firm, refer to Note 2.

Imprecision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.

The Firm uses various methodologies and assumptions in the determination of fair value. The use of methodologies or assumptions different than those used by the Firm could result in a different estimate of fair value at the reporting date. For a detailed discussion of the Firm’s valuation process and hierarchy, and its determination of fair value for individual financial instruments, refer to Note 2.

Goodwill impairment

Under U.S. GAAP, goodwill must be allocated to reporting units and tested for impairment at least annually. The Firm’s process and methodology used to conduct goodwill impairment testing is described in Note 15.

Management applies significant judgment when 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, 2018, the Firm reviewed current economic conditions, business performance, estimated market cost of equity, and projections of business performance for all its businesses. Based upon such reviews, the Firm concluded that the goodwill allocated to its reporting units was not impaired as of December 31, 2018. The fair values of these reporting units exceeded their carrying values by approximately 20% or higher and did not indicate a significant risk of goodwill impairment based on current projections and valuations.

The projections for all of the Firm’s reporting units are consistent with management’s current short-term business outlook assumptions, and in the longer term, incorporate a set of macroeconomic assumptions and the Firm’s best estimates of long-term growth and returns on equity of its businesses. Where possible, the Firm uses third-party and peer data to benchmark its assumptions and estimates.

Declines in business performance, increases in credit losses, increases in capital requirements, as well as deterioration in economic or market conditions, adverse regulatory or legislative changes or increases in the estimated market cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.

For additional information on goodwill, refer to Note 15.

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 they expire, and these points can be redeemed for a variety of rewards, including cash (predominantly in the form of account credits), gift cards and travel. The Firm maintains a rewards liability which represents the estimated cost of rewards points earned and expected to be redeemed by cardholders. The rewards liability is sensitive to various assumptions, including cost per point and redemption rates for each of the various rewards programs, which are evaluated periodically. The liability is accrued as the cardholder earns the benefit and is reduced when the cardholder redeems points. This liability was $5.8 billion and $4.9 billion at December 31, 2018 and 2017, respectively, and is recorded in accounts payable and other liabilities on the Consolidated balance sheets.

Income taxes

JPMorgan Chase is subject to the income tax laws of the various jurisdictions in which it operates, including U.S. federal, state and local, and non-U.S. jurisdictions. These laws are often complex and may be subject to different interpretations. To determine the financial statement impact of accounting for income taxes, including the provision for income tax expense and unrecognized tax benefits, JPMorgan Chase must make assumptions and judgments about how to interpret and apply these complex tax laws to numerous transactions and business events, as well as make judgments regarding the timing of when certain items may affect taxable income in the U.S. and non-U.S. tax jurisdictions.

JPMorgan Chase’s interpretations of tax laws around the world are subject to review and examination by the various taxing authorities in the jurisdictions where the Firm operates, and disputes may occur regarding its view on a tax position. These disputes over interpretations with the various taxing authorities may be settled by audit, administrative appeals or adjudication in the court systems of the tax jurisdictions in which the Firm operates. JPMorgan Chase regularly reviews whether it may be assessed additional income taxes as a result of the resolution of these matters, and the Firm records additional reserves as appropriate. In addition, the Firm may revise its estimate of income taxes due to changes in income tax laws, legal interpretations, and business strategies. It is possible that revisions in the Firm’s estimate of income taxes may materially affect the Firm’s results of operations in any reporting period.

The Firm’s provision for income taxes is composed of current and deferred taxes. Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. The Firm has also recognized deferred tax assets in connection with certain tax attributes, including NOLs. The Firm performs regular reviews to ascertain whether its deferred tax assets are realizable. These reviews include

management’s estimates and assumptions regarding future taxable income, which also incorporates various tax planning strategies, including strategies that may be available to utilize NOLs before they expire. In connection with these reviews, if it is determined that a deferred tax asset is not realizable, a valuation allowance is established. The valuation allowance may be reversed in a subsequent reporting period if the Firm determines that, based on revised estimates of future taxable income or changes in tax planning strategies, it is more likely than not that all or part of the deferred tax asset will become realizable. As of December 31, 2018, management has determined it is more likely than not that the Firm will realize its deferred tax assets, net of the existing valuation allowance.

Prior to December 31, 2017, U.S. federal income taxes had not been provided on the undistributed earnings of certain non-U.S. subsidiaries, to the extent that such earnings had been reinvested abroad for an indefinite period of time. The Firm is no longer maintaining the indefinite reinvestment assertion on the undistributed earnings of those non-U.S. subsidiaries in light of the enactment of the TCJA. The U.S. federal and state and local income taxes associated with the undistributed and previously untaxed earnings of those non-U.S. subsidiaries was included in the deemed repatriation charge recorded as of December 31, 2017. The Firm will recognize any taxes it may incur on global intangible low tax income as income tax expense in the period in which the tax is incurred.

The Firm adjusts its unrecognized tax benefits as necessary when additional information becomes available. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the largest amount of benefit that management believes is more likely than not to be realized upon settlement. It is possible that the reassessment of JPMorgan Chase’s unrecognized tax benefits may have a material impact on its effective income tax rate in the period in which the reassessment occurs.

The income tax expense for the current year includes a change in estimate recorded under SEC Staff Accounting Bulletin No. 118 (SAB 118) resulting from the enactment of the TCJA. The accounting under SAB 118 is complete.

For additional information on income taxes, refer to Note 24.

Litigation reserves

For a description of the significant estimates and judgments associated with establishing litigation reserves, refer to

Note 29.

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 2018 Form 10-K contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Firm also may make forward-looking statements in its other documents filed or furnished with the SEC. In addition, the Firm’s senior management may make forward-looking statements orally to investors, analysts, representatives of the media and others.

All forward-looking statements are, by their nature, subject to risks and uncertainties, many of which are beyond the Firm’s control. JPMorgan Chase’s actual future results may differ materially from those set forth in its forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ from those in the forward-looking statements:


•	Local, regional and global business, economic and political conditions and geopolitical events;


•	Changes in laws and regulatory requirements, including capital and liquidity requirements affecting the Firm’s businesses, and the ability of the Firm to address those requirements;


•	Heightened regulatory and governmental oversight and scrutiny of JPMorgan Chase’s business practices, including dealings with retail customers;


•	Changes in trade, monetary and fiscal policies and laws;


•	Changes in income tax laws and regulations;


•	Securities and capital markets behavior, including changes in market liquidity and volatility;


•	Changes in investor sentiment or consumer spending or savings behavior;


•	Ability of the Firm to manage effectively its capital and liquidity, including approval of its capital plans by banking regulators;


•	Changes in credit ratings assigned to the Firm or its subsidiaries;


•	Damage to the Firm’s reputation;


•	Ability of the Firm to appropriately address social and environmental concerns that may arise from its business activities;


•	Ability of the Firm to deal effectively with an economic slowdown or other economic or market disruption;


•	Technology changes instituted by the Firm, its counterparties or competitors;


•	The effectiveness of the Firm’s control agenda;


•	Ability of the Firm to develop or discontinue products and services, and the extent to which products or services previously sold by the Firm (including but not limited to mortgages and asset-backed securities) require the Firm to incur liabilities or absorb losses not contemplated at their initiation or origination;


•	Acceptance of the Firm’s new and existing products and services by the marketplace and the ability of the Firm to innovate and to increase market share;


•	Ability of the Firm to attract and retain qualified employees;


•	Ability of the Firm to control expenses;


•	Competitive pressures;


•	Changes in the credit quality of the Firm’s customers and counterparties;


•	Adequacy of the Firm’s risk management framework, disclosure controls and procedures and internal control over financial reporting;


•	Adverse judicial or regulatory proceedings;


•	Changes in applicable accounting policies, including the introduction of new accounting standards;


•	Ability of the Firm to determine accurate values of certain assets and liabilities;


•	Occurrence of natural or man-made disasters or calamities or conflicts and the Firm’s ability to deal effectively with disruptions caused by the foregoing;


•	Ability of the Firm to maintain the security of its financial, accounting, technology, data processing and other operational systems and facilities;


•	Ability of the Firm to withstand disruptions that may be caused by any failure of its operational systems or those of third parties;


•	Ability of the Firm to effectively defend itself against cyberattacks and other attempts by unauthorized parties to access information of the Firm or its customers or to disrupt the Firm’s systems; and


•	The other risks and uncertainties detailed in Part I, Item 1A: Risk Factors in the Firm’s 2018 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 forward-looking statements. The reader should, however, consult any further disclosures of a forward-looking nature the Firm may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, or Current Reports on Form 8-K.

Management of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Firm’s principal executive and principal financial officers, or persons performing similar functions, and effected by JPMorgan Chase’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

JPMorgan Chase’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Firm’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Firm are being made only in accordance with authorizations of JPMorgan Chase’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Firm’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has completed an assessment of the effectiveness of the Firm’s internal control over financial reporting as of December 31, 2018. 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, 2018, 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, 2018.

The effectiveness of the Firm’s internal control over financial reporting as of December 31, 2018, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

James Dimon

Chairman and Chief Executive Officer

Marianne Lake

Executive Vice President and Chief Financial Officer

February 26, 2019

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, 2018 and 2017, 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, 2018, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 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, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Firm’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on internal control over financial reporting. Our responsibility is to express opinions on the Firm’s consolidated financial statements and on the Firm’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Firm in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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.

February 26, 2019

We have served as the Firm’s auditor since 1965.

JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the U.S. with operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing and asset management. For a discussion of the Firm’s business segments, refer to Note 31.

i 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.

i Certain amounts reported in prior periods have been reclassified to conform with the current presentation.

Consolidation

i 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 certain limited liability companies. For many of these entities, the Firm is the general partner or managing member, but the non-affiliated partners or members have the ability to remove the Firm as the general partner or managing member without cause

(i.e., kick-out rights), based on a simple majority vote, or the non-affiliated partners or members have rights to participate in important decisions. Accordingly, the Firm does not consolidate these voting interest entities. However, in the limited cases where the non-managing partners or members do not have substantive kick-out or participating rights, the Firm evaluates the funds as VIEs and consolidates the funds if the Firm is t h e general partner or managing member and has a potentially significant interest.

The Firm’s investment companies and asset management funds have investments in both publicly-held and privately-held entities, including investments in buyouts, growth equity and venture opportunities. These investments are accounted for under investment company guidelines and, accordingly, irrespective of the percentage of equity ownership interests held, are carried on the Consolidated balance sheets at fair value, and are recorded in other assets, with income or loss included in noninterest revenue. If consolidated, the Firm retains such specialized investment company guidelines.

Variable interest entities

VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity.

The most common type of VIE is an SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. The basic SPE structure involves a company selling assets to the SPE; the SPE funds the purchase of those assets by issuing securities to investors. The legal documents that govern the transaction specify how the cash earned on the assets must be allocated to the SPE’s investors and other parties that have rights to those cash flows. SPEs are generally structured to insulate investors from claims on the SPE’s assets by creditors of other entities, including the creditors of the seller of the assets.

The primary beneficiary of a VIE (i.e., the party that has a controlling financial interest) is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

To assess whether the Firm has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Firm considers all the facts and 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.

Revenue recognition

i Interest income

The Firm records interest income on loans, debt securities, and other debt instruments, generally on a level-yield basis, based on the underlying contractual rate. For further discussion of interest income, refer to Note 7.

Revenue from contracts with customers

JPMorgan Chase records noninterest revenue from certain contracts with customers under ASC 606, Revenue from Contracts with customers, in investment banking fees, deposit-related fees, asset management administration and commissions, and components of card income. Under this guidance, revenue is recognized when the Firm’s performance obligations are satisfied. For further discussion of the Firm’s revenue from contracts with customers, refer to Note 6.

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. For further discussion of fair value measurement, refer to Notes 2 and 3. For further discussion of principal transactions revenue, refer to Note 6.

Use of estimates in the preparation of consolidated financial statements

i 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

i JPMorgan Chase revalues assets, liabilities, revenue and expense denominated in non-U.S. currencies into U.S. dollars using applicable exchange rates.

Gains and losses relating to translating functional currency financial statements for U.S. reporting are included in OCI within stockholders’ equity. Gains and losses relating to nonfunctional currency transactions, including non-U.S. operations where the functional currency is the U.S. dollar, are reported in the Consolidated statements of income.

Offsetting assets and liabilities

i 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.

Typical master netting agreements for these types of transactions also often contain a collateral/margin agreement that provides for a security interest in, or title transfer of, securities or cash collateral/margin to the party that has the right to demand margin (the “demanding party”). The collateral/margin agreement typically requires a party to transfer collateral/margin to the demanding party with a value equal to the amount of the margin deficit on a net basis across all transactions governed by the master netting agreement, less any threshold. The collateral/margin agreement grants to the demanding party, upon default by the counterparty, the right to set-off any amounts payable by the counterparty against any posted collateral or the cash equivalent of any posted collateral/margin. It also grants to the demanding party the right to liquidate collateral/margin and to apply the proceeds to an amount payable by the counterparty.

For further discussion of the Firm’s derivative instruments, refer to Note 5. For further discussion of the Firm’s securities financing agreements, refer to Note 11.

Statements of cash flows

i 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 standards adopted January 1, 2018

i Revenue recognition – revenue from contracts with customers

The adoption of this guidance requires gross presentation of certain costs that were previously offset against revenue. Adoption of the guidance did not result in any material changes in the timing of the Firm’s revenue recognition. This guidance was adopted retrospectively and, accordingly, prior period amounts were revised, which resulted in an increase in both noninterest revenue and noninterest expense. The Firm did not apply any practical expedients. For additional information, refer to the table on page 158 of this Note, and Note 6.

Recognition and measurement of financial assets and financial liabilities

The adoption of this guidance requires that certain equity instruments be measured at fair value, with changes in fair value recognized in earnings. The guidance also provides an alternative to measure 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 (the “measurement alternative”). The Firm elected the measurement alternative for its qualifying equity securities and the adoption of the guidance resulted in fair value gains of $ i 505 million which were recognized in other income in the first quarter of 2018. For additional information, refer to Notes 2 and 10.

Premium amortization on purchased callable debt securities

The adoption of this guidance requires that premiums be amortized to the earliest call date on certain debt securities. The adoption of this guidance resulted in a cumulative-effect adjustment to retained earnings and

AOCI. For additional information, refer to the table below, and Notes 10 and 23.

Hedge accounting

The adoption of this guidance better aligns hedge accounting with the economics of the Firm’s risk management activities. As permitted by the guidance, the Firm also elected to transfer certain investment securities from HTM to AFS. The adoption of this guidance resulted in a cumulative-effect adjustment to retained earnings and AOCI as a result of the investment securities transfer and the revised guidance for excluded components. For additional information, refer to the table below, and Notes 5, 10 and 23.

Treatment of restricted cash on the statement of cash flows

The adoption of this guidance requires restricted cash to be combined with unrestricted cash when reconciling the beginning and ending cash balances on the Consolidated statements of cash flows. To align the Consolidated balance sheets with the Consolidated statements of cash flows, the Firm reclassified restricted cash into cash and due from banks or deposits with banks. In addition, for the Firm’s Consolidated statements of cash flows, cash is defined as those amounts included in cash and due from banks and deposits with banks. This guidance was applied retrospectively and, accordingly, prior period amounts have been revised. For additional information, refer to the table below, and Note 25.

Presentation of net periodic pension cost and net periodic postretirement benefit cost

The adoption of this guidance requires the service cost component of net periodic pension cost and net periodic postretirement benefit cost to be reported separately in the Consolidated statements of income from the other cost components. This change was adopted retrospectively and, accordingly, prior period amounts were revised, which resulted in an increase in compensation expense and a reduction in other expense. For additional information, refer to the table below, and Note 8.

Reclassification of certain tax effects from AOCI

The adoption of this guidance permitted the Firm to reclassify from AOCI to retained earnings stranded tax effects due to the revaluation of deferred tax assets and liabilities as a result of changes in applicable tax rates under the TCJA. The adoption of this guidance resulted in a cumulative-effect adjustment to retained earnings and AOCI. For additional information, refer to the table below, and Note 23.

i The following tables present the prior period impact to the Consolidated statements of income and the Consolidated balance sheets from the retrospective adoption of the new accounting standards in the first quarter of 2018:



Selected Consolidated statements of income data
Year ended December 31, 2017 (in millions)	Reported		Revisions^(a)			Revised
Revenue
Investment banking fees	$	i 7,248	$	i 164		$	i 7,412
Asset management, administration and commissions	i 15,377		i 910			i 16,287
Other income	i 3,639		i 7			i 3,646
Total net revenue	i 99,624		i 1,081			i 100,705

Noninterest expense
Compensation expense	i 31,009		i 199			i 31,208
Technology, communication and equipment expense	i 7,706		i 9			i 7,715
Professional and outside services	i 6,840		i 1,050			i 7,890
Other expense	i 6,256		( i 177		)	i 6,079
Total noninterest expense	$	i 58,434	$	i 1,081		$	i 59,515



Year ended December 31, 2016 (in millions)	Reported		Revisions^(a)			Revised
Revenue
Investment banking fees	$	i 6,448	$	i 124		$	i 6,572
Asset management, administration and commissions	i 14,591		i 773			i 15,364
Other income	i 3,795		i 4			i 3,799
Total net revenue	i 95,668		i 901			i 96,569

Noninterest expense
Compensation expense	i 29,979		i 224			i 30,203
Technology, communication and equipment expense	i 6,846		i 7			i 6,853
Professional and outside services	i 6,655		i 871			i 7,526
Other expense	i 5,756		( i 201		)	i 5,555
Total noninterest expense	$	i 55,771	$	i 901		$	i 56,672


(a)	Revisions relate to revenue recognition and pension cost guidance.



Selected Consolidated balance sheets data
December 31, 2017 (in millions)	Reported		Revisions^(a)			Revised
Assets
Cash and due from banks	$	i 25,827	$	i 71		$	i 25,898
Deposits with banks	i 404,294		i 1,112			i 405,406
Other assets	i 114,770		( i 1,183		)	i 113,587
Total assets	$	i 2,533,600	$	i —		$	i 2,533,600


(a)	Revisions relate to the reclassification of restricted cash.

The following table presents the adjustment to retained earnings and AOCI as a result of the adoption of new accounting standards in the first quarter of 2018:



Increase/(decrease) (in millions)	Retained earnings			AOCI
Premium amortization on purchased callable debt securities	$	( i 505	)	$	i 261
Hedge accounting	i 34			i 115
Reclassification of certain tax effects from AOCI	i 288			( i 288		)
Total	$	( i 183	)	$	i 88

Significant accounting policies

i 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	Note 2	Page 159
Fair value option	Note 3	Page 179
Derivative instruments	Note 5	Page 184
Noninterest revenue	Note 6	Page 198
Interest income and interest expense	Note 7	Page 201
Pension and other postretirement employee benefit plans	Note 8	Page 202
Employee share-based incentives	Note 9	Page 209
Investment securities	Note 10	Page 211
Securities financing activities	Note 11	Page 216
Loans	Note 12	Page 219
Allowance for credit losses	Note 13	Page 239
Variable interest entities	Note 14	Page 244
Goodwill and Mortgage servicing rights	Note 15	page 252
Premises and equipment	Note 16	page 256
Long-term debt	Note 19	page 257
Income taxes	Note 24	page 264
Off–balance sheet lending-related financial instruments, guarantees and other commitments	Note 27	page 271
Litigation	Note 29	page 278

Note 2 – i Fair value measurement

i JPMorgan Chase carries a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly carried at fair value on a recurring basis (i.e., assets and liabilities that are measured and reported at fair value on the Firm’s Consolidated balance sheets). Certain assets (e.g., held-for-sale loans), liabilities and unfunded lending-related commitments are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on quoted market prices or inputs, where available. If prices or quotes are not available, fair value is based on valuation models and other valuation techniques that consider relevant transaction characteristics (such as maturity) and use as inputs observable or unobservable market parameters, including yield curves, interest rates, volatilities, equity or debt prices, foreign exchange rates and credit curves. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, as described below.

The level of precision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and 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 below for further information on the fair value hierarchy). For other positions, judgment is required to assess the need for valuation adjustments to appropriately reflect liquidity considerations, unobservable parameters, and, for certain portfolios that meet specified criteria, the size of the net open risk position. The determination of such adjustments follows a consistent framework across the Firm:

•

Liquidity valuation adjustments are considered where an observable external price or valuation parameter exists but is of lower reliability, potentially due to lower market activity. Liquidity valuation adjustments are applied and determined based on current market conditions. Factors that may be considered in determining the liquidity adjustment include analysis of: (1) the estimated bid-offer spread for the instrument being traded; (2) alternative pricing points for similar instruments in active markets; and (3) the range of reasonable values that the price or parameter could take.

•

The Firm manages certain portfolios of financial instruments on the basis of net open risk exposure and, as permitted by U.S. GAAP, has elected to estimate the fair value of such portfolios on the basis of a transfer of the entire net open risk position in an orderly transaction. Where this is the case, valuation adjustments may be necessary to reflect the cost of exiting a larger-than-normal market-size net open risk position. Where applied, such adjustments are based on factors that a relevant market participant would consider in the transfer of the net open risk position, including the size of the adverse market move that is likely to occur during the period required to reduce the net open risk position to a normal market-size.


•	Unobservable parameter valuation adjustments may be made when positions are valued using prices or input parameters to valuation models that are unobservable due to a lack of market activity or because they cannot be implied from observable market data. Such prices or parameters must be estimated and are, therefore, subject to management judgment. Unobservable

parameter valuation adjustments are applied to reflect the uncertainty inherent in the resulting valuation estimate.


•	Where appropriate, the Firm also applies adjustments to its estimates of fair value in order to appropriately reflect counterparty credit quality (CVA), the Firm’s own creditworthiness (DVA) and the impact of funding (FVA), using a consistent framework across the Firm. For more information on such adjustments refer to Credit and funding adjustments on page 175 of this Note.

Valuation model review and approval

If prices or quotes are not available for an instrument or a similar instrument, fair value is generally determined using valuation models that consider relevant transaction data such as maturity and use as inputs market-based or independently sourced parameters. Where this is the case the price verification process described above is applied to the inputs to those models.

Under the Firm’s Estimations and Model Risk Management Policy, the Model Risk function reviews and approves new models, as well as material changes to existing models, prior to implementation in the operating environment. In certain circumstances, the head of the Model Risk function may grant exceptions to the Firm’s policy to allow a model to be used prior to review or approval. The Model Risk function may also require the user to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity.

Valuation hierarchy

A three-level valuation hierarchy has been established under U.S. GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.


•	Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level 3 – one or more inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Firm has established well-structured processes for determining fair value, including for instruments where fair value is estimated using significant unobservable inputs (level 3). For further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments, refer to pages 159–163 of this Note.

Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed valuation models and other valuation techniques that use significant unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.

In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate valuation model or other valuation technique to use. Second, due to the lack of observability of significant inputs, management must assess all relevant empirical data in deriving valuation inputs including transaction details, yield curves, interest rates, prepayment speed, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves.

i

The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and, for certain instruments, the weighted averages of such inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy.

The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the instruments that the input is being used to value.

In the Firm’s view, the input range and the weighted average value do not reflect the degree of input uncertainty or an assessment of the reasonableness of the Firm’s estimates and assumptions. Rather, they reflect the characteristics of the various instruments held by the Firm and the relative distribution of instruments within the range of characteristics. For example, two option contracts may have similar levels of market risk exposure and valuation uncertainty, but may have significantly different implied volatility levels because the option contracts have different underlyings, tenors, or strike prices. The input range and weighted average values will therefore vary from period-to-period and parameter-to-parameter based on the characteristics of the instruments held by the Firm at each balance sheet date.

For the Firm’s derivatives and structured notes positions classified within level 3 at December 31, 2018, interest rate correlation inputs used in estimating fair value were concentrated towards the upper end of the range; equity correlation, equity-FX and equity-IR correlation inputs were concentrated in the middle of the range; commodity correlation inputs were concentrated in the middle of the range; credit correlation inputs were concentrated towards the lower end of the range; and the interest rate-foreign exchange (“IR-FX”) correlation inputs were distributed across the range. In addition, the interest rate spread volatility inputs used in estimating fair value were distributed across the range; equity volatilities and commodity volatilities were concentrated in the middle of the range; and forward commodity prices used in estimating the fair value of commodity derivatives were concentrated towards the lower end of the range. Recovery rate inputs used in estimating the fair value of credit derivatives were distributed across the range; credit spreads and conditional default rates were concentrated towards the lower end of the range; loss severity and price inputs were concentrated towards the upper end of the range.

Changes in and ranges of unobservable inputs

The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation, and the interrelationship between unobservable inputs, where relevant and significant. The impact of changes in inputs may not be independent, as a change in one unobservable input may give rise to a change in another unobservable input. Where relationships do exist between two unobservable inputs, those relationships are discussed below. Relationships may also exist between observable and unobservable inputs (for example, as observable interest rates rise, unobservable prepayment rates decline); such relationships have not been included in the discussion below. In addition, for each of the individual relationships described below, the inverse relationship would also generally apply.

The following discussion also provides a description of attributes of the underlying instruments and external market factors that affect the range of inputs used in the valuation of the Firm’s positions.

Yield – The yield of an asset is the interest rate used to discount future cash flows in a discounted cash flow calculation. An increase in the yield, in isolation, would result in a decrease in a fair value measurement.

Credit spread – The credit spread is the amount of additional annualized return over the market interest rate that a market participant would demand for taking exposure to the credit risk of an instrument. The credit spread for an instrument forms part of the discount rate used in a discounted cash flow calculation. Generally, an increase in the credit spread would result in a decrease in a fair value measurement.

The yield and the credit spread of a particular mortgage-backed security primarily reflect the risk inherent in the instrument. The yield is also impacted by the absolute level of the coupon paid by the instrument (which may not correspond directly to the level of inherent risk). Therefore, the range of yield and credit spreads reflects the range of risk inherent in various instruments owned by the Firm. The risk inherent in mortgage-backed securities is driven by the subordination of the security being valued and the characteristics of the underlying mortgages within the collateralized pool, including borrower FICO scores, LTV ratios for residential mortgages and the nature of the property and/or any tenants for commercial mortgages. For corporate debt securities, obligations of U.S. states and municipalities and other similar instruments, credit spreads reflect the credit quality of the obligor and the tenor of the obligation.

Prepayment speed – The prepayment speed is a measure of the voluntary unscheduled principal repayments of a prepayable obligation in a collateralized pool. Prepayment speeds generally decline as borrower delinquencies rise. An increase in prepayment speeds, in isolation, would result in a decrease in a fair value measurement of assets valued at a premium to par and an increase in a fair value measurement of assets valued at a discount to par.

Prepayment speeds may vary from collateral pool to collateral pool, and are driven by the type and location of the

underlying borrower, and the remaining tenor of the obligation as well as the level and type (e.g., fixed or floating) of interest rate being paid by the borrower. Typically collateral pools with higher borrower credit quality have a higher prepayment rate than those with lower borrower credit quality, all other factors being equal.

Conditional default rate – The conditional default rate is a measure of the reduction in the outstanding collateral balance underlying a collateralized obligation as a result of defaults. While there is typically no direct relationship between conditional default rates and prepayment speeds, collateralized obligations for which the underlying collateral has high prepayment speeds will tend to have lower conditional default rates. An increase in conditional default rates would generally be accompanied by an increase in loss severity and an increase in credit spreads. An increase in the conditional default rate, in isolation, would result in a decrease in a fair value measurement. Conditional default rates reflect the quality of the collateral underlying a securitization and the structure of the securitization itself. Based on the types of securities owned in the Firm’s market-making portfolios, conditional default rates are most typically at the lower end of the range presented.

Loss severity – The loss severity (the inverse concept is the recovery rate) is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance. An increase in loss severity is generally accompanied by an increase in conditional default rates. An increase in the loss severity, in isolation, would result in a decrease in a fair value measurement.

The loss severity applied in valuing a mortgage-backed security investment depends on factors relating to the underlying mortgages, including the LTV ratio, the nature of the lender’s lien on the property and other instrument-specific factors.

Correlation – Correlation is a measure of the relationship between the movements of two variables (e.g., how the change in one variable influences the change in the other). Correlation is a pricing input for a derivative product where the payoff is driven by one or more underlying risks. Correlation inputs are related to the type of derivative (e.g., interest rate, credit, equity, 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.

EBITDA multiple – EBITDA multiples refer to the input (often derived from the value of a comparable company) that is multiplied by the historic and/or expected earnings before interest, taxes, depreciation and amortization (“EBITDA”) of a company in order to estimate the company’s value. An increase in the EBITDA multiple, in isolation, net of adjustments, would result in an increase in a fair value measurement.

Changes in level 3 recurring fair value measurements

i

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, 2018, 2017 and 2016. 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.

Consolidated balance sheets changes

Level 3 assets (including assets measured at fair value on a nonrecurring basis) were i 0.7% of total Firm assets at December 31, 2018. The following describes significant changes to level 3 assets since December 31, 2017, for those items measured at fair value on a recurring basis. For further information on changes impacting items measured at fair value on a nonrecurring basis, refer to Assets and liabilities measured at fair value on a nonrecurring basis on page 176.

For the year ended December 31, 2018

Level 3 assets were $ i 17.2 billion at December 31, 2018, reflecting a decrease of $ i 2.1 billion from December 31, 2017, largely due to:


•	$ i 1.2 billion decrease in trading assets — debt and equity instruments predominantly driven by a decrease of $ i 1.0 billion in trading loans primarily due to settlements and net sales.

Transfers between levels for instruments carried at

fair value on a recurring basis

During the year ended December 31, 2018, transfers from level 3 into level 2 included the following:


•	$ i 1.5 billion of total debt and equity instruments, the majority of which were trading loans, driven by an increase in observability.


•	$ i 1.2 billion of gross equity derivative receivables and $ i 1.5 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.

During the year ended December 31, 2018, transfers from level 2 into level 3 included the following:


•	$ i 1.4 billion of total debt and equity instruments, the majority of which were trading loans, driven by a decrease in observability.


•	$ i 1.0 billion of gross equity derivative receivables and $ i 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.


•	$ i 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, 2017, transfers from level 3 into level 2 included the following:


•	$ i 1.5 billion of trading loans driven by an increase in observability.


•	$ i 1.2 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.

During the year ended December 31, 2017, transfers from level 2 into level 3 included the following:


•	$ i 1.0 billion of gross equity derivative receivables and $ i 2.5 billion of gross equity derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.


•	$ i 1.7 billion of long-term debt driven by a decrease in observability and an increase in the significance of unobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers from level 3 into level 2 included the following:


•	$ i 1.4 billion of long-term debt driven by an increase in observability and a reduction in the significance of unobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers from level 2 into level 3 included the following:


•	$ i 1.1 billion of gross equity derivative receivables and $ i 1.0 billion of gross equity derivative payables as a result of an decrease in observability and an increase in the significance of unobservable inputs.


•	$ i 1.0 billion of trading loans driven by a decrease in observability.

All transfers are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.

Gains and losses

The following describes significant components of total realized/unrealized gains/(losses) for instruments measured at fair value on a recurring basis for the years ended December 31, 2018, 2017 and 2016. For further information on these instruments, refer to Changes in level 3 recurring fair value measurements rollforward tables on pages 170-174.

2018


•	$ i 1.6 billion of net gains on liabilities largely driven by market movements in long-term debt.

2017


•	$ i 1.3 billion of net losses on liabilities predominantly driven by market movements in long-term debt.

2016


•	There were no individually significant movements for the year ended December 31, 2016.

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.

i 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)	2018			2017			2016
Credit and funding adjustments:
Derivatives CVA	$	i 193		$	i 802		$	( i 84	)
Derivatives FVA	( i 74		)	( i 295		)	i 7

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 174 in this Note and Note 23 for further information.

The following table presents the total change in value of assets and liabilities for which a fair value adjustment has been recognized for the years ended December 31, 2018, 2017 and 2016, related to financial instruments held at those dates.



December 31, (in millions)	2018				2017			2016
Loans	$	( i 68	)		$	( i 159	)	$	( i 209	)
Other assets	i 132			^(a)	( i 148		)	i 37
Accounts payable and other liabilities	i —				( i 1		)	i —
Total nonrecurring fair value gains/(losses)	$	i 64			$	( i 308	)	$	( i 172	)

(a) Included $ i 149 million for the year ended 2018 of net gains as a result of the measurement alternative.

For further information about the measurement of impaired collateral-dependent loans, and other loans where the carrying value is based on the fair value of the underlying collateral (e.g., residential mortgage loans charged off in accordance with regulatory guidance), refer to Note 12.

Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated balance sheets at fair value

U.S. GAAP requires disclosure of the estimated fair value of certain financial instruments. Financial instruments within the scope of these disclosure requirements are included in the following table. However, certain financial instruments and all nonfinancial instruments are excluded from the scope of these disclosure requirements. Accordingly, the fair value disclosures provided in the following table include only a partial estimate of the fair value of JPMorgan Chase’s assets and liabilities. For example, the Firm has developed long-term relationships with its customers through its deposit base and credit card accounts, commonly referred to as core deposit intangibles and credit card relationships. In the opinion of management, these items, in the aggregate, add significant value to JPMorgan Chase, but their fair value is not disclosed in this Note.

Financial instruments for which carrying value approximates fair value

Certain financial instruments that are not carried at fair value on the Consolidated balance sheets are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and due from banks, deposits with banks, federal funds sold, securities purchased under resale agreements and securities borrowed, short-term receivables and accrued interest receivable, short-term borrowings, federal funds purchased, securities loaned and sold under repurchase agreements, accounts payable, and accrued liabilities. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market deposits) be equal to their carrying value; recognition of the inherent funding value of these instruments is not permitted.

i The fair value option provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments.

The Firm has elected to measure certain instruments at fair value for several reasons including to mitigate income statement volatility caused by the differences between the measurement basis of elected instruments (e.g., certain instruments elected were previously accounted for on an accrual basis) and the associated risk management arrangements that are accounted for on a fair value basis, as well as to better reflect those instruments that are managed on a fair value basis.

The Firm’s election of fair value includes the following instruments:


•	Loans purchased or originated as part of securitization warehousing activity, subject to bifurcation accounting, or managed on a fair value basis, including lending-related commitments


•	Certain securities financing agreements, such as those with an embedded derivative and/or a maturity of greater than one year


•	Owned beneficial interests in securitized financial assets that contain embedded credit derivatives, which would otherwise be required to be separately accounted for as a derivative instrument


•	Structured notes, which are predominantly financial instruments that contain embedded derivatives, that are issued as part of CIB’s client-driven activities


•	Certain long-term beneficial interests issued by CIB’s consolidated securitization trusts where the underlying assets are carried at fair value

Determination of instrument-specific credit risk for items for which a fair value election was made

The following describes how the gains and losses that are attributable to changes in instrument-specific credit risk, were determined.

•

Loans and lending-related commitments: For floating-rate instruments, all changes in value are attributed to instrument-specific credit risk. For fixed-rate instruments, an allocation of the changes in value for the period is made between those changes in value that are interest rate-related and changes in value that are credit-related. Allocations are generally based on an analysis of borrower-specific credit spread and recovery information, where available, or benchmarking to similar entities or industries.


•	Long-term debt: Changes in value attributable to instrument-specific credit risk were derived principally from observable changes in the Firm’s credit spread as observed in the bond market.


•	Securities financing agreements: Generally, for these types of agreements, there is a requirement that collateral be maintained with a market value equal to or in excess of the principal amount loaned; as a result, there would be no adjustment or an immaterial adjustment for instrument-specific credit risk related to these agreements.

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. For additional information on the geographic composition of the Firm’s consumer loan portfolios, refer to Note 12. In the wholesale portfolio, credit risk concentrations are evaluated primarily by industry and monitored regularly on both an aggregate portfolio level and on an individual client or counterparty basis.

The Firm’s wholesale exposure is managed through loan syndications and participations, loan sales, securitizations, credit derivatives, master netting agreements, collateral and other risk-reduction techniques. For additional information on loans, refer to Note 12.

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.

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 contracts 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 increases or decreases as a result of variable-rate assets and liabilities resetting to current market rates, and as a result of the repayment and subsequent origination or issuance of fixed-rate assets and liabilities at current market rates. Gains and losses on the derivative instruments related to these assets and liabilities are expected to substantially offset this variability.

Foreign currency forward contracts are used to manage the foreign exchange risk associated with certain foreign currency–denominated (i.e., non-U.S. dollar) assets and liabilities and forecasted transactions, as well as the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. As a result of fluctuations in foreign currencies, the U.S. dollar–equivalent values of the foreign currency–denominated assets and liabilities or the forecasted revenues or expenses increase or decrease. Gains or losses on the derivative instruments related to these foreign currency–denominated assets or liabilities, or forecasted transactions, are expected to substantially offset this variability.

Commodities contracts are used to manage the price risk of certain commodities inventories. Gains or losses on these derivative instruments are expected to substantially offset the depreciation or appreciation of the related inventory.

Credit derivatives are used to manage the counterparty credit risk associated with loans and lending-related commitments. Credit derivatives compensate the purchaser when the entity referenced in the contract experiences a credit event, such as bankruptcy or a failure to pay an obligation when due. Credit derivatives primarily consist of CDS. For a further discussion of credit derivatives, refer to the discussion in the Credit derivatives section on pages 195-197 of this Note.

For more information about risk management derivatives, refer to the risk management derivatives gains and losses table on page 195 of this Note, and the hedge accounting gains and losses tables on pages 192-195 of this Note.

Derivative counterparties and settlement types

The Firm enters into OTC derivatives, which are negotiated and settled bilaterally with the derivative counterparty. The Firm also enters into, as principal, certain ETD such as futures and options, and OTC-cleared derivative contracts with CCPs. ETD contracts are generally standardized contracts traded on an exchange and cleared by the CCP, which is the Firm’s counterparty from the inception of the transactions. OTC-cleared derivatives are traded on a bilateral basis and then novated to the CCP for clearing.

Derivative clearing services

The Firm provides clearing services for clients in which the Firm acts as a clearing member at certain derivative exchanges and clearing houses. The Firm does not reflect the clients’ derivative contracts in its Consolidated Financial Statements. For further information on the Firm’s clearing services, refer to Note 27.

Accounting for derivatives

i All free-standing derivatives that the Firm executes for its own account are required to be recorded on the Consolidated balance sheets at fair value.

As permitted under U.S. GAAP, the Firm nets derivative assets and liabilities, and the related cash collateral receivables and payables, when a legally enforceable master netting agreement exists between the Firm and the derivative counterparty. For further discussion of the offsetting of assets and liabilities, refer to Note 1. The accounting for changes in value of a derivative depends on whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured at fair value through earnings. The tabular disclosures on pages 188-195 of this Note provide additional information on the amount of, and reporting for, derivative assets, liabilities, gains and losses. For further discussion of derivatives embedded in structured notes, refer to Notes 2 and 3.

Derivatives designated as hedges

The Firm adopted new hedge accounting guidance in the first quarter of 2018, which required prospective amendments to the disclosures, as reflected in this Note. For additional information on the impact upon adoption of the new guidance, refer to Notes 1 and 23.

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 interest income, interest expense, noninterest revenue and compensation expense. If the hedge relationship is terminated, then the change in value of the derivative recorded in AOCI is recognized in earnings when the cash flows that were hedged affect earnings. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge forecast, any related derivative values recorded in AOCI are immediately recognized in earnings.

JPMorgan Chase uses net investment hedges to protect the value of the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. For qualifying net investment hedges, changes in the fair value of the derivatives due to changes in spot foreign exchange rates are recorded in OCI as translation adjustments. Amounts excluded from the assessment of effectiveness are recorded directly in earnings.

Notional amount of derivative contracts

i The following table summarizes the notional amount of derivative contracts outstanding as of December 31, 2018 and 2017.



	Notional amounts^(b)
December 31, (in billions)	2018		2017
Interest rate contracts
Swaps	$	i 21,763	$	i 21,043
Futures and forwards	i 3,562		i 4,904
Written options	i 3,997		i 3,576
Purchased options	i 4,322		i 3,987
Total interest rate contracts	i 33,644		i 33,510
Credit derivatives^(a)	i 1,501		i 1,522
Foreign exchange contracts
Cross-currency swaps	i 3,548		i 3,953
Spot, futures and forwards	i 5,871		i 5,923
Written options	i 835		i 786
Purchased options	i 830		i 776
Total foreign exchange contracts	i 11,084		i 11,438
Equity contracts
Swaps	i 346		i 367
Futures and forwards	i 101		i 90
Written options	i 528		i 531
Purchased options	i 490		i 453
Total equity contracts	i 1,465		i 1,441
Commodity contracts
Swaps	i 134		i 133		^(c)
Spot, futures and forwards	i 156		i 168
Written options	i 135		i 98
Purchased options	i 120		i 93
Total commodity contracts	i 545		i 492		^(c)
Total derivative notional amounts	$	i 48,239	$	i 48,403	^(c)


(a)	For more information on volumes and types of credit derivative contracts, refer to the Credit derivatives discussion on pages 195-197.


(b)	Represents the sum of gross long and gross short third-party notional derivative contracts.


(c)	The prior period amounts have been revised to conform with the current period presentation.

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 used simply as a reference to calculate payments.

Liquidity risk and credit-related contingent features

In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to credit risk — the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral agreements to mitigate derivative counterparty credit risk. The amount of derivative receivables reported on the Consolidated balance sheets is the fair value of the derivative contracts after giving effect to legally enforceable master netting agreements and cash collateral held by the Firm.

i 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 v

alue 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, 2018 and 2017.

Gains and losses on derivatives used for specified risk management purposes

i The following table presents pre-tax gains/(losses) recorded on a limited number of derivatives, not designated in hedge accounting relationships, that are used to manage risks associated with certain specified assets and liabilities, including certain risks arising from the mortgage pipeline, warehouse loans, MSRs, wholesale lending exposures, and foreign currency denominated assets and liabilities.

Derivatives gains/(losses)

recorded in income

Year ended December 31,
(in millions)

2018

2017

2016

Contract type

Interest rate^(a)

$

i 79

$

i 331

$

i 1,174

Credit^(b)

( i 21

)

( i 74

)

( i 282

)

Foreign exchange^(c)

i 117

( i 107

)

^(d)

( i 20

)

^(d)

Total

$

i 175

$

i 150

^(d)

$

i 872

^(d)


(a)	Primarily represents interest rate derivatives used to hedge the interest rate risk inherent in the mortgage pipeline, warehouse loans and MSRs, as well as written commitments to originate warehouse loans. Gains and losses were recorded predominantly in mortgage fees and related income.

(b)

Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm’s wholesale businesses. These derivatives do not include credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, which is included in gains and losses on derivatives related to market-making activities and other derivatives. Gains and losses were recorded in principal transactions revenue.


(c)	Primarily relates to derivatives used to mitigate foreign exchange risk of specified foreign currency-denominated assets and liabilities. Gains and losses were recorded in principal transactions revenue.


(d)	The prior period amounts have been revised to conform with the current period presentation.

Gains and losses on derivatives related to market-making activities and other derivatives

The Firm makes markets in derivatives in order to meet the needs of customers and uses derivatives to manage certain risks associated with net open risk positions from its market-making activities, including the counterparty credit risk arising from derivative receivables. All derivatives not included in the hedge accounting or specified risk management categories above are included in this category. Gains and losses on these derivatives are primarily recorded in principal transactions revenue. Refer to Note 6 for information on principal transactions revenue.

Credit derivatives

Credit derivatives are financial instruments whose value is derived from the credit risk associated with the debt of a third-party issuer (the reference entity) and which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Credit derivatives expose the protection purchaser to the creditworthiness of the protection seller, as the protection seller is required to make payments under the contract when the reference entity experiences a credit event, such as a bankruptcy, a failure to pay its obligation or a restructuring. The seller of credit protection receives a premium for providing protection but has the risk that the underlying instrument referenced in the contract will be subject to a credit event.

The Firm is both a purchaser and seller of protection in the credit derivatives market and uses these derivatives for two primary purposes. First, in its capacity as a market-maker, the Firm actively manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. Second, as an end-user, the Firm uses credit derivatives to manage credit risk associated with lending exposures (loans and unfunded commitments) and derivatives counterparty exposures in the Firm’s wholesale businesses, and to manage the credit risk arising from certain financial instruments in the Firm’s market-making businesses. Following is a summary of various types of credit derivatives.

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 $ i 1 million of realized credit losses in a $ i 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, 2018 and 2017. 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.

The Firm records noninterest revenue from certain contracts with customers under ASC 606, 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. Revenue from Contracts with Customers 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. , in investment banking fees, deposit-related fees, asset management, administration, and commissions, and components of card income. Contracts in the scope of ASC 606 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.

The adoption of the revenue recognition guidance in the first quarter of 2018, required gross presentation of certain costs previously offset against revenue, predominantly associated with certain distribution costs (previously offset against asset management, administration and commissions), with the remainder associated with certain underwriting costs (previously offset against investment banking fees). Adoption of the guidance did not result in any material changes in the timing of revenue recognition. This guidance was adopted retrospectively and, accordingly, prior period amounts were revised, which resulted in an increase in both noninterest revenue and noninterest expense. The Firm did not apply any practical expedients. For additional information, refer to Note 1.

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. i



Year ended December 31, (in millions)	2018		2017		2016
Underwriting
Equity	$	i 1,684	$	i 1,466	$	i 1,200
Debt	i 3,347		i 3,802		i 3,277
Total underwriting	i 5,031		i 5,268		i 4,477
Advisory	i 2,519		i 2,144		i 2,095
Total investment banking fees	$	i 7,550	$	i 7,412	$	i 6,572

/

Investment banking fees are earned primarily by CIB. Refer to Note 31 for segment results.

Principal transactions

Principal transactions revenue is driven by many factors, including the bid-offer spread, which is the difference between the price at which the Firm is willing to buy a financial or other instrument and the price at which the Firm is willing to sell that instrument. It also consists of the realized (as a result of the sale of instruments, closing out or termination of transactions, or interim cash payments) and unrealized (as a result of changes in valuation) gains and losses on financial and other instruments (including those accounted for under the fair value option) primarily used in client-driven market-making activities and on private equity investments. In connection with its client-driven market-making activities, the Firm transacts in debt and equity instruments, derivatives and commodities (including physical commodities inventories and financial instruments that reference commodities).

Principal transactions revenue also includes certain realized and unrealized gains and losses related to hedge accounting and specified risk-management activities, including: (a) certain derivatives designated in qualifying hedge accounting relationships (primarily fair value hedges of commodity and foreign exchange risk), (b) certain derivatives used for specific risk management purposes, primarily to mitigate credit risk and foreign exchange risk, and (c) other derivatives. For further information on the income statement classification of gains and losses from derivatives activities, refer to Note 5.

In the financial commodity markets, the Firm transacts in OTC derivatives (e.g., swaps, forwards, options) and ETD that reference a wide range of underlying commodities. In the physical commodity markets, the Firm primarily purchases and sells precious and base metals and may hold other commodities inventories under financing and other arrangements with clients.

i 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. 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 line of business.



Year ended December 31, (in millions)	2018			2017		2016
Trading revenue by instrument type
Interest rate	$	i 1,961		$	i 2,479	$	i 2,325
Credit	i 1,395			i 1,329		i 2,096
Foreign exchange	i 3,222			i 2,746		i 2,827
Equity	i 4,924			i 3,873		i 2,994
Commodity	i 906			i 661		i 1,067
Total trading revenue	i 12,408			i 11,088		i 11,309
Private equity gains	( i 349		)	i 259		i 257
Principal transactions	$	i 12,059		$	i 11,347	$	i 11,566

Principal transactions revenue is earned primarily by CIB. Refer to Note 31 for segment results.

Lending- and deposit-related fees

Lending-related fees include fees earned from loan commitments, standby letters of credit, financial guarantees, and other loan-servicing activities. Deposit-related fees include fees earned in lieu of compensating balances, and fees earned from performing cash management activities and other deposit account services. Lending- and deposit-related fees in this revenue category are recognized over the period in which the related service is provided. i



Year ended December 31, (in millions)	2018		2017		2016
Lending-related fees	$	i 1,117	$	i 1,110	$	i 1,114
Deposit-related fees	i 4,935		i 4,823		i 4,660
Total lending- and deposit-related fees	$	i 6,052	$	i 5,933	$	i 5,774

/

Lending- and deposit-related fees are earned by CCB, CIB, CB, and AWM. Refer to Note 31 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 third-party service providers are recorded in professional and outside services expense.

i



Year ended December 31, (in millions)	2018		2017		2016
Asset management fees
Investment management fees^(a)	$	i 10,768	$	i 10,434	$	i 9,636
All other asset management fees^(b)	i 270		i 296		i 338
Total asset management fees	i 11,038		i 10,730		i 9,974

Total administration fees^(c)	i 2,179		i 2,029		i 1,915

Commissions and other fees
Brokerage commissions^(d)	i 2,505		i 2,239		i 2,151
All other commissions and fees	i 1,396		i 1,289		i 1,324
Total commissions and fees	i 3,901		i 3,528		i 3,475
Total asset management, administration and commissions	$	i 17,118	$	i 16,287	$	i 15,364

/


(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)

The Firm receives other asset management fees for services that are ancillary to investment management services, including commissions earned on sales or distribution of mutual funds to clients. These fees are recorded as revenue at the time the service is rendered or, in the case of certain distribution fees based on the underlying fund’s asset value and/or investor redemption, recorded over time as the investor remains in the fund or upon investor redemption.


(c)	The Firm receives administrative fees predominantly from custody, securities lending, fund services and securities clearance services it provides. These fees are recorded as revenue over the period in which the related service is provided.


(d)	The Firm acts as a broker, by facilitating its clients’ purchases and sales of securities and other financial instruments. Brokerage commissions are collected and recognized as revenue upon occurrence of the client transaction. The Firm reports certain costs paid to third-party clearing houses and exchanges net against commission revenue.

Asset management, administration and commissions are earned primarily by AWM, CIB, CCB, and CB. Refer to Note 31 for segment results.

Mortgage fees and related income

This revenue category primarily reflects CCB’s Home Lending net production and net mortgage servicing revenue.

Net production revenue includes fees and income recognized as earned on mortgage loans originated with the intent to sell; the impact of risk management activities associated with the mortgage pipeline and warehouse loans; and changes in the fair value of any residual interests held from mortgage securitizations. Net production revenue also includes gains and losses on sales of mortgage loans, lower of cost or fair value adjustments on mortgage loans held-for-sale, changes in fair value on mortgage loans originated with the intent to sell and measured at fair value under the fair value option, as well as losses recognized as incurred related to the repurchase of previously sold loans.

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 and the impact of risk management activities associated with MSRs.

For further discussion of risk management activities and MSRs, refer to Note 15.

Net interest income from mortgage loans is recorded in interest income.

Card income

This revenue category includes interchange income from credit and debit cards and fees earned from processing card transactions for merchants, both of which are recognized when purchases are made by a cardholder. Card income also includes account origination costs and annual fees, which are deferred and recognized on a straight-line basis over a i 12-month period.

Certain Chase credit card products offer the cardholder the ability to earn points based on account activity, which the cardholder can choose to redeem for cash and non-cash rewards. The cost to the Firm related to these proprietary rewards programs varies based on multiple factors including the terms and conditions of the rewards programs, cardholder activity, cardholder reward redemption rates and cardholder reward selections. The Firm maintains a liability for its obligations under its rewards programs and reports the current-period cost as a reduction of card income.

Credit card revenue sharing agreements

The Firm has contractual agreements with numerous co-brand partners that grant the Firm exclusive rights to issue co-branded credit card products and market them to the customers of such partners. These partners endorse the co-brand credit card programs and provide their customer or member lists to the Firm. The partners may also conduct marketing activities and provide rewards redeemable under their own loyalty programs that the Firm will grant to co-brand credit cardholders based on account activity. The terms of these agreements generally range from five to ten years.

The Firm typically makes payments to the co-brand credit card partners based on the cost of partners’ marketing activities and loyalty program rewards provided to credit cardholders, new account originations and sales volumes. Payments to partners based on marketing efforts undertaken by the partners are expensed by the Firm as incurred and reported as marketing expense. Payments for partner loyalty program rewards are reported as a reduction of card income when incurred. Payments to partners based on new credit card account originations are accounted for as direct loan origination costs and are deferred and recognized as a reduction of card income on a straight-line basis over a i 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.

i The following table presents the components of card income:



Year ended December 31, (in millions)	2018				2017			2016
Interchange and merchant processing income	$	i 18,808			$	i 17,080		$	i 15,367
Reward costs and partner payments	( i 13,074		)	^(b)	( i 10,820		)	( i 9,480		)
Other card income^(a)	( i 745		)		( i 1,827		)	( i 1,108		)
Total card income	$	i 4,989			$	i 4,433		$	i 4,779


(a)	Predominantly represents annual fees and new account origination costs, which are deferred and recognized on a straight-line basis over a i 12-month period and are outside the scope of the revenue recognition guidance, ASC 606, Revenue from Contracts with Customers.


(b)	Includes an adjustment to the credit card rewards liability of approximately $ i 330 million, recorded in the second quarter of 2018.

Card income is earned primarily by CCB and CB. Refer to Note 31 for segment results.

Other income

i Other income on the Firm’s Consolidated statements of income included the following:



Year ended December 31, (in millions)	2018		2017		2016
Operating lease income	$	i 4,540	$	i 3,613	$	i 2,724

Operating lease income is recognized on a straight–line basis over the lease term.

Noninterest expense

Other expense

i Other expense on the Firm’s Consolidated statements of income included the following:



Year ended December 31, (in millions)	2018		2017			2016
Legal expense/(benefit)	$	i 72	$	( i 35	)	$	( i 317	)
FDIC-related expense	i 1,239		i 1,492			i 1,296

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.

i The following table presents the components of interest income and interest expense:



Year ended December 31, (in millions)	2018		2017			2016
Interest income
Loans^(a)	$	i 47,620	$	i 41,008		$	i 36,634
Taxable securities	i 5,653		i 5,535			i 5,538
Non-taxable securities^(b)	i 1,595		i 1,847			i 1,766
Total investment securities	i 7,248		i 7,382			i 7,304
Trading assets	i 8,703		i 7,610			i 7,292
Federal funds sold and securities purchased under resale agreements	i 3,819		i 2,327			i 2,265
Securities borrowed^(c)	i 728		( i 37		)	( i 332		)
Deposits with banks	i 5,907		i 4,238			i 1,879
All other interest-earning assets^(d)	i 3,417		i 1,844			i 859
Total interest income	$	i 77,442	$	i 64,372		$	i 55,901
Interest expense
Interest bearing deposits	$	i 5,973	$	i 2,857		$	i 1,356
Federal funds purchased and securities loaned or sold under repurchase agreements	i 3,066		i 1,611			i 1,089
Short-term borrowings^(e)	i 1,144		i 481			i 203
Trading liabilities - debt and all other interest-bearing liabilities^(f)	i 3,729		i 2,070			i 1,102
Long-term debt	i 7,978		i 6,753			i 5,564
Beneficial interest issued by consolidated VIEs	i 493		i 503			i 504
Total interest expense	$	i 22,383	$	i 14,275		$	i 9,818
Net interest income	$	i 55,059	$	i 50,097		$	i 46,083
Provision for credit losses	i 4,871		i 5,290			i 5,361
Net interest income after provision for credit losses	$	i 50,188	$	i 44,807		$	i 40,722


(a)	Includes the amortization/accretion of unearned income (e.g., purchase premiums/discounts, net deferred fees/costs, etc.).


(b)	Represents securities that are tax-exempt for U.S. federal income tax purposes.


(c)	Negative interest income is related to client-driven demand for certain securities combined with the impact of low interest rates. This is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense.


(d)	Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets, which are classified in other assets on the Consolidated balance sheets.


(e)	Includes commercial paper.


(f)	Other interest-bearing liabilities include brokerage customer payables.

i Interest income and interest expense includes the current-period interest accruals for financial instruments measured at fair value, except for derivatives and financial instruments containing embedded derivatives that would be separately accounted for in accordance with U.S. GAAP, absent the fair value option election; for those instruments, all changes in fair value including any interest elements, are reported in principal transactions revenue. For financial instruments that are not measured at fair value, the related interest is included within interest income or interest expense, as applicable. For further information on accounting for interest income and interest expense related to loans, investment securities, securities financing (i.e. securities purchased or sold under resale or repurchase agreements; securities borrowed; and securities loaned) and long-term debt, refer to Notes 12, 10, 11 and 19, respectively.

Note 8 – i Pension and other postretirement employee benefit plans

i The Firm has various defined benefit pension plans and OPEB plans that provide benefits to its employees in the U.S. and certain non-U.S. locations. The Firm also provides a qualified defined contribution plan in the U.S. and maintains other similar arrangements in certain non-U.S. locations.

The principal defined benefit pension plan in the U.S. is a qualified noncontributory plan that provides benefits to substantially all U.S. employees. In connection with changes to the U.S. Retirement Savings Program during the fourth quarter of 2018, the Firm announced that it will freeze the U.S. defined benefit pension plan. Commencing on January 1, 2020 (and January 1, 2019 for new hires), pay credits will be directed to the U.S. defined contribution plan. Interest credits will continue to accrue. As a result, a curtailment was triggered and a remeasurement of the U.S. defined benefit pension obligation and plan assets occurred as of November 30, 2018. The plan design change resulted in an increase to pension expense of $ i 21 million representing the immediate recognition of the prior service cost, but 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 any contribution to the U.S. defined benefit pension plan in 2019. The 2019 contributions to the non-U.S. defined benefit pension plans are expected to be $ i 45 million of which $ i 30 million are contractually required.

The Firm also has a number of nonqualified noncontributory defined benefit pension plans that are unfunded. These plans provide supplemental defined pension benefits to certain employees.

The Firm offers postretirement medical and life insurance benefits to certain U.S. retirees and postretirement medical benefits to qualifying U.S. and U.K. employees.

The Firm defrays the cost of its U.S. OPEB obligation through corporate-owned life insurance (“COLI”) purchased on the lives of eligible employees and retirees. While the Firm owns the COLI policies, COLI proceeds (death benefits, withdrawals and other distributions) may be used only to reimburse the Firm for its net postretirement benefit claim payments and related administrative expense. The Firm has generally funded its postretirement benefit obligations through contributions to the relevant trust on a pay-as-you go basis. On December 21, 2017, the Firm contributed $ i 600 million of cash to the trust as a prefunding of a portion of its postretirement benefit obligations. The U.K. OPEB plan is unfunded.

Pension and OPEB accounting generally requires that the difference between plan assets at fair value and the benefit obligation be measured and recorded on the balance sheet. Plans that are overfunded (excess of plan assets over benefit obligation) are recorded in other assets and plans that are underfunded (excess benefit obligation over plan assets) are recorded within other liabilities. Gains or losses resulting from changes in the benefit obligation and the value of plan assets are recorded in other comprehensive income (“OCI”) and recognized as part of the net periodic benefit cost over subsequent periods as discussed in the Gains and losses section of this Note. Additionally, income statement items related to pension and OPEB plans (other than benefits earned during the period) are aggregated and reported net within other expense.

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 i 10% of the greater of the PBO or the fair value of the plan assets. Any excess is amortized over the average future service period of defined benefit pension plan participants, which for the U.S. defined benefit pension plan is currently i eight years and for the non-U.S. defined benefit pension plans is the period appropriate for the affected plan. In addition, prior service costs are amortized over the average remaining service period of active employees expected to receive benefits under the plan when the prior service cost is first recognized. Due to the curtailment of the principal U.S. defined benefit pension plan in 2018, all related prior service cost was recognized in the annual net periodic benefit cost.

For the Firm’s OPEB plans, a calculated value that recognizes changes in fair value over a five-year period is used to determine the expected return on plan assets. This value is referred to as the market-related value of assets. Amortization of net gains and losses, adjusted for gains and losses not yet recognized, is included in annual net periodic benefit cost if, as of the beginning of the year, the net gain or loss exceeds i 10% of the greater of the accumulated postretirement benefit obligation or the market-related value of assets. Any excess net gain or loss is amortized over the average expected lifetime of retired participants, which is currently i eleven years; however, prior service costs resulting from plan changes are amortized over the average years of service remaining to full eligibility age, which is currently i one year.

Plan assumptions

The Firm’s expected long-term rate of return for defined benefit pension and OPEB plan assets is a blended weighted average, by asset allocation of the projected long-term returns for the various asset classes, taking into consideration local market conditions and the specific allocation of plan assets. Returns on asset classes are developed using a forward-looking approach and are not strictly based on historical returns. Consideration is also given to current market conditions and the short-term portfolio mix of each plan.

The discount rate used in determining the benefit obligation under the U.S. defined benefit pension and OPEB plans was provided by the Firm’s actuaries. This rate was selected by reference to the yields on portfolios of bonds with maturity dates and coupons that closely match each of the plan’s projected cash flows. The discount rate for the U.K. defined benefit pension plan represents a rate of appropriate duration from the analysis of yield curves provided by the Firm’s actuaries.

At December 31, 2018, the Firm increased the discount rates used to determine its benefit obligations for the U.S. defined benefit pension and OPEB plans in light of curr

ent market interest rates, which will decrease expense by approximately $ i 20 million in 2019. The 2019 expected long-term rate of return on U.S. defined benefit pension plan assets and U.S. OPEB plan assets are i 5.50% and i 4.30%, respectively. As of December 31, 2018, the interest crediting rate assumption was i 4.90%.

i The following table represents the effect of a 25-basis point decline in the two listed rates below on estimated 2019 defined benefit pension and OPEB plan expense, as well as the effect on the postretirement benefit obligations.



(in millions)	Defined benefit pension and OPEB plan expense		Benefit obligation
Expected long-term rate of return	$	i 51	NA
Discount rate	$	i 50	$	i 490

/

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 defray the cost of the Firm’s U.S. OPEB plan are invested in separate accounts of an insurance company and are allocated to investments intended to replicate equity and fixed income indices.

The investment policies for the assets of the Firm’s defined benefit pension plans are to optimize the risk-return relationship as appropriate to the needs and goals of each plan using a global portfolio of various asset classes diversified by market segment, economic sector, and issuer. Assets are managed by a combination of internal and external investment managers. The Firm regularly reviews the asset allocations and asset managers, as well as other factors that impact the portfolios, which are rebalanced when deemed necessary.

Investments held by the plans include financial instruments which are exposed to various risks such as interest rate, market and credit risks. Exposure to a concentration of credit risk is mitigated by the broad diversification of both U.S. and non-U.S. investment instruments. Additionally, the investments in each of the collective investment funds and/or registered investment companies are further diversified into various financial instruments. As of December 31, 2018, assets held by the Firm’s defined benefit pension and OPEB plans do not include JPMorgan Chase common stock, except through indirect exposures through investments in third-party stock-index funds. The plans hold investments in funds that are sponsored or managed by affiliates of JPMorgan Chase in the amount of $ i 3.7 billion and $ i 6.0 billion, as of December 31, 2018 and 2017, respectively.

Estimated future benefit payments

i The following table presents benefit payments expected to be paid, which include the effect of expected future service, for the years indicated. The OPEB medical and life insurance payments are net of expected retiree contributions.

Year ended December 31,

(in millions)

Defined benefit pension plans

OPEB before Medicare Part D subsidy

Medicare Part D subsidy

2019

$

i 939

$

i 62

$

i 1

2020

i 932

i 60

i 1

2021

i 921

i 57

i 1

2022

i 920

i 55

i 1

2023

i 919

i 52

i —

Years 2024–2028

i 4,529

i 223

i 2

Employee share-based awards

In 2018, 2017 and 2016, JPMorgan Chase granted long-term share-based awards to certain employees under its LTIP, as amended and restated effective May 19, 2015, and further amended and restated effective May 15, 2018. Under the terms of the LTIP, as of December 31, 2018, i 86 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.

i 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 i two years and 50% after i three years and are converted into shares of common stock as of the vesting date. In addition, RSUs typically include full-career eligibility provisions, which allow employees to continue to vest upon voluntary termination based on age or service-related requirements, subject to post-employment and other restrictions. All RSU awards are subject to forfeiture until vested and contain clawback provisions that may result in cancellation under certain specified circumstances. Generally, RSUs entitle the recipient to receive cash payments equivalent to any dividends paid on the underlying common stock during the period the RSUs are outstanding and, as such, are considered participating securities as discussed in Note 22.

In January 2018, 2017 and 2016, the Firm’s Board of Directors approved the grant of performance share units (“PSUs”) to members of the Firm’s Operating Committee under the variable compensation program for performance years 2017, 2016 and 2015, respectively. PSUs are subject to the Firm’s achievement of specified performance criteria over a three-year period. The number of awards that vest can range from zero to 150% of the grant amount. The awards vest and are converted into shares of common stock in the quarter after the end of the performance period, which is generally three years. In addition, dividends are notionally reinvested in the Firm’s common stock and will be delivered only in respect of any earned shares.

Once the PSUs have vested, the shares of common stock that are delivered, after applicable tax withholding, must be held for an additional two-year period, typically for a total combined vesting and holding period of five years from the grant date.

Under the LTI Plans, stock options and stock appreciation rights (“SARs”) have generally been granted with an exercise price equal to the fair value of JPMorgan Chase’s common stock on the grant date. The Firm periodically grants employee stock options to individual employees. There were no material grants of stock options or SARs

in 2018, 2017 and 2016. SARs generally expire ten years after the grant date.

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 2018, 2017 and 2016, the Firm settled all of its employee share-based awards by issuing treasury shares.

Compensation expense

i 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)	2018		2017		2016
Cost of prior grants of RSUs, PSUs and SARs that are amortized over their applicable vesting periods	$	i 1,241	$	i 1,125	$	i 1,046
Accrual of estimated costs of share-based awards to be granted in future periods including those to full-career eligible employees	i 1,081		i 945		i 894
Total noncash compensation expense related to employee share-based incentive plans	$	i 2,322	$	i 2,070	$	i 1,940

At December 31, 2018, approximately $ i 704 million (pretax) of compensation expense related to unvested awards had not yet been charged to net income. That cost is expected to be amortized into compensation expense over a weighted-average period of i 1.6 years. The Firm does not capitalize any compensation expense related to share-based compensation awards to employees.

Cash flows and tax benefits

Effective January 1, 2016, the Firm adopted new accounting guidance related to employee share-based payments. As a result of the adoption of this new guidance, all excess tax benefits (including tax benefits from dividends or dividend equivalents) on share-based payment awards are recognized within income tax expense in the Consolidated statements of income. Income tax benefits related to share-based incentive arrangements recognized in the Firm’s Consolidated statements of income for the years ended December 31, 2018, 2017 and 2016, were $ i 1.1 billion, $ i 1.0 billion and $ i 916 million, respectively.

i The following table sets forth the cash received from the exercise of stock options under all share-based incentive arrangements, and the actual income tax benefit related to tax deductions from the exercise of the stock options.



Year ended December 31, (in millions)	2018		2017		2016
Cash received for options exercised	$	i 14	$	i 18	$	i 26
Tax benefit	i 75		i 190		i 70

Investment securities consist of debt securities that are classified as AFS or HTM. Debt securities classified as trading assets are discussed in Note 2. Predominantly all of the Firm’s AFS and HTM securities are held by Treasury and CIO in connection with its asset-liability management activities. At December 31, 2018, the investment securities portfolio consisted of debt securities with an average credit rating of AA+ (based upon external ratings where available, and where not available, based primarily upon internal ratings which correspond to ratings as defined by S&P and Moody’s). AFS securities are carried at fair value on the Consolidated balance sheets. Unrealized gains and losses, after any applicable hedge accounting adjustments, are reported as net increases or decreases to AOCI. The specific identification method is used to determine realized gains and losses on AFS securities, which are included in securities gains/(losses) on the Consolidated statements of income. HTM debt securities, which the Firm has the intent and ability to hold until maturity, are carried at amortized cost on the Consolidated balance sheets.

For both AFS and HTM debt securities, purchase discounts or premiums are generally amortized into interest income on a level-yield basis over the contractual life of the security. However, as a result of the adoption of the premium amortization accounting guidance in the first quarter of 2018, premiums on purchased callable debt securities must be amortized to the earliest call date for debt securities with call features that are explicit, noncontingent and callable at fixed prices and on preset dates. The guidance primarily impacts obligations of U.S. states and municipalities held in the Firm’s investment securities portfolio. For additional information, refer to Note 23.

As permitted by the new hedge accounting guidance, the Firm also elected to transfer U.S. government agency MBS,

commercial MBS, and obligations of U.S. states and municipalities with a carrying value of $ i 22.4 billion from HTM to AFS in the first quarter of 2018. The transfer of these investment securities resulted in the recognition of a net pretax unrealized gain of $ i 221 million within AOCI. This transfer was a noncash transaction. For additional information, refer to Notes 1, 5 and 23.

Other-than-temporary impairment

AFS and HTM debt securities in unrealized loss positions are analyzed as part of the Firm’s ongoing assessment of OTTI. The Firm considers a decline in fair value to be other-than-temporary when the Firm does not expect to recover the entire amortized cost basis of the security.

For AFS debt securities, the Firm recognizes OTTI losses in earnings if the Firm has the intent to sell the debt security, or if it is more likely than not that the Firm will be required to sell the debt security before recovery of its amortized cost basis. In these circumstances the impairment loss is equal to the full difference between the amortized cost basis and the fair value of the securities.

For debt securities in an unrealized loss position that the Firm has the intent and ability to hold, the securities are evaluated to determine if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. Amounts relating to factors other than credit losses are recorded in OCI.

Factors considered in evaluating potential OTTI include adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a security; payment structure of the

security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and the Firm’s intent and ability to hold the security until recovery.

The Firm’s cash flow evaluations take into account the factors noted above and expectations of relevant market and economic data as of the end of the reporting period. When assessing securities issued in a securitization for OTTI, the Firm estimates cash flows considering underlying loan-level data and structural features of the securitization, such as subordination, excess spread, overcollateralization or other forms of credit enhancement, and compares the losses projected for the underlying collateral (“pool losses”) against the level of credit enhancement in the securitization structure to determine whether these features are sufficient to absorb the pool losses, or whether a credit loss exists. The Firm also performs other analyses to support its cash flow projections, such as first-loss analyses or stress scenarios.

For beneficial interests in securitizations that are rated below “AA” at their acquisition, or that can be contractually prepaid or otherwise settled in such a way that the Firm would not recover substantially all of its recorded investment, the Firm considers an impairment to be other-than-temporary when there is an adverse change in expected cash flows.

As a result of the adoption of the recognition and measurement guidance in the first quarter of 2018, equity securities are no longer permitted to be classified as AFS. For additional information, refer to Note 1. Additionally, the Firm did not recognize any OTTI for AFS equity securities for the years ended December 31, 2017 and 2016.

For the year ended December 31, 2018, the Firm recognized $ i 22 million of unrealized losses as OTTI on securities it intended to sell and subsequently sold during the year. The Firm does not intend to sell any of the remaining investment securities with an unrealized loss in AOCI as of December 31, 2018, and it is not likely that the Firm will be required to sell these securities before recovery of their amortized cost basis. Further, the Firm did not recognize any credit-related OTTI losses during the year ended December 31, 2018. Accordingly, the Firm believes that the investment securities with an unrealized loss in AOCI as of December 31, 2018, are not other-than-temporarily impaired.

Investment securities gains and losses

i The following table presents realized gains and losses and OTTI from AFS securities that were recognized in income.



Year ended December 31, (in millions)	2018			2017			2016
Realized gains	$	i 211		$	i 1,013		$	i 401
Realized losses	( i 606		)	( i 1,072		)	( i 232		)
OTTI losses	i —			( i 7		)	( i 28		)
Net investment securities gains/(losses)	( i 395		)	( i 66		)	i 141

OTTI losses
Credit-related losses recognized in income	i —			i —			( i 1		)
Investment securities the Firm intends to sell^(a)	i —			( i 7		)	( i 27		)
Total OTTI losses recognized in income	$	i —		$	( i 7	)	$	( i 28	)


(a)	Excludes realized losses on securities sold of $ i 22 million, $ i 6 million and $ i 24 million for the years ended December 31, 2018, 2017 and 2016, respectively, that had been previously reported as an OTTI loss due to the intention to sell the securities.

Changes in the credit loss component of credit-impaired debt securities

The cumulative credit loss component, including any changes therein, of OTTI losses that have been recognized in income related to AFS securities was not material as of and during the years ended December 31, 2018, 2017 and 2016.

JPMorgan Chase enters into resale, repurchase, securities borrowed and securities loaned agreements (collectively, “securities financing agreements”) primarily to finance the Firm’s inventory positions, acquire securities to cover short sales, accommodate customers’ financing needs, settle other securities obligations and to deploy the Firm’s excess cash.

Securities financing agreements are treated as collateralized financings on the Firm’s Consolidated balance sheets. Resale and repurchase agreements are generally carried at the amounts at which the securities will be subsequently sold or repurchased. Securities borrowed and securities loaned agreements are generally carried at the amount of cash collateral advanced or received. Where appropriate under applicable accounting guidance, securities financing agreements with the same counterparty are reported on a net basis. For further discussion of the offsetting of assets and liabilities, refer to Note 1. 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. For further information regarding the fair value option, refer to Note 3. The securities financing agreements for which the fair value option has been elected are reported within securities purchased under resale agreements, securities loaned or sold under repurchase agreements, and securities borrowed on the Consolidated balance sheets. Generally, for agreements carried at fair value, current-period interest accruals are recorded within interest income and interest expense, with changes in fair value reported in principal transactions revenue. However, for financial instruments containing embedded derivatives that would be separately accounted for in accordance with accounting guidance for hybrid instruments, all changes in fair value, including any interest elements, are reported in principal transactions revenue.

Securities financing 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 agency MBS) that it has received from or provided to its counterparties compared to the value of cash proceeds and exchanged collateral, and either requests additional collateral or returns securities or collateral when appropriate. Margin levels are initially established based upon the counterparty, the type of underlying securities, and the permissible collateral, and are monitored on an ongoing basis.

In resale 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. For further information regarding assets pledged and collateral received in securities financing agreements, refer to Note 28.

As a result of the Firm’s credit risk mitigation practices with respect to resale and securities borrowed agreements as described above, the Firm did not hold any reserves for credit impairment with respect to these agreements as of December 31, 2018 and 2017.

Loan accounting framework

i The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. The Firm accounts for loans based on the following categories:


•	Originated or purchased loans held-for-investment (i.e., “retained”), other than PCI loans


•	Loans held-for-sale


•	Loans at fair value


•	PCI loans held-for-investment

The following provides a detailed accounting discussion of these loan categories:

Loans held-for-investment (other than PCI loans)

Originated or purchased loans held-for-investment, other than PCI loans, are recorded at the principal amount outstanding, net of the following: charge-offs; interest applied to principal (for loans accounted for on the cost recovery method); unamortized discounts and premiums; and net deferred loan fees or costs. Credit card loans also include billed finance charges and fees net of an allowance for uncollectible amounts.

Interest income

Interest income on performing loans held-for-investment, other than PCI loans, is accrued and recognized as interest income at the contractual rate of interest. Purchase price discounts or premiums, as well as net deferred loan fees or costs, are amortized into interest income over the contractual life of the loan as an adjustment of yield.

Nonaccrual loans

Nonaccrual loans are those on which the accrual of interest has been suspended. Loans (other than credit card loans and certain consumer loans insured by U.S. government agencies) are placed on nonaccrual status and considered nonperforming when full payment of principal and interest is not expected, regardless of delinquency status, or when principal and interest has been in default for a period of i 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 i 30 days or more. Finally, collateral-dependent loans are typically maintained on nonaccrual status.

On the date a loan is placed on nonaccrual status, all interest accrued but not collected is reversed against interest income. In addition, the amortization of deferred amounts is suspended. Interest income on nonaccrual loans may be recognized as cash interest payments are received (i.e., on a cash basis) if the recorded loan balance is deemed fully collectible; however, if there is doubt regarding the ultimate collectibility of the recorded loan balance, all interest cash receipts are applied to reduce the

carrying value of the loan (the cost recovery method). For consumer loans, application of this policy typically results in the Firm recognizing interest income on nonaccrual consumer loans on a cash basis.

A loan may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loan.

As permitted by regulatory guidance, credit card loans are generally exempt from being placed on nonaccrual status; accordingly, interest and fees related to credit card loans continue to accrue until the loan is charged off or paid in full. The Firm separately establishes an allowance, which reduces loans and is charged to interest income, for the estimated uncollectible portion of accrued and billed interest and fee income on credit card loans.

Allowance for loan losses

The allowance for loan losses represents the estimated probable credit losses inherent in the held-for-investment loan portfolio at the balance sheet date and is recognized on the balance sheet as a contra asset, which brings the recorded investment to the net carrying value. Changes in the allowance for loan losses are recorded in the provision for credit losses on the Firm’s Consolidated statements of income. Refer to Note 13 for further information on the Firm’s accounting policies for the allowance for loan losses.

Charge-offs

Consumer loans, other than risk-rated business banking and auto loans, and PCI loans, are generally charged off or charged down to the net realizable value of the underlying collateral (i.e., fair value less costs to sell), with an offset to the allowance for loan losses, upon reaching specified stages of delinquency in accordance with standards established by the FFIEC. Residential real estate loans and non-modified credit card loans are generally charged off no later than i 180 days past due. Scored auto and modified credit card loans are charged off no later than i 120 days past due.

Certain consumer loans will be charged off or charged down to their net realizable value earlier than the FFIEC charge-off standards in certain circumstances as follows:


•	Loans modified in a TDR that are determined to be collateral-dependent.


•	Loans to borrowers who have experienced an event that suggests a loss is either known or highly certain are subject to accelerated charge-off standards (e.g., residential real estate and auto loans are charged off within 60 days of receiving notification of a bankruptcy filing).


•	Auto loans upon repossession of the automobile.

Other than in certain limited circumstances, the Firm typically does not recognize charge-offs on government-guaranteed loans.

Wholesale loans, risk-rated business banking loans and risk-rated auto loans are charged off when it is highly certain that a loss has been realized, including situations where a loan is determined to be both impaired and collateral-dependent. The determination of whether to recognize a charge-off includes many factors, including the prioritization of the Firm’s claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity or the loan collateral.

When a loan is charged down to the estimated net realizable value, the determination of the fair value of the collateral depends on the type of collateral (e.g., securities, real estate). In cases where the collateral is in the form of liquid securities, the fair value is based on quoted market prices or broker quotes. For illiquid securities or other financial assets, the fair value of the collateral is estimated using a discounted cash flow model.

For residential real estate loans, collateral values are based upon external valuation sources. When it becomes likely that a borrower is either unable or unwilling to pay, the Firm 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 i 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 i twelve months, either by obtaining a new appraisal or by performing an internal analysis, in accordance with the Firm’s policies. The Firm also considers both borrower- and market-specific factors, which may result in obtaining appraisal updates or broker price opinions at more frequent intervals.

Loans held-for-sale

Held-for-sale loans are measured at the lower of cost or fair value, with valuation changes recorded in noninterest revenue. For consumer loans, the valuation is performed on a portfolio basis. For wholesale loans, the valuation is performed on an individual loan basis.

Interest income on loans held-for-sale is accrued and recognized based on the contractual rate of interest.

Loan origination fees or costs and purchase price discounts or premiums are deferred in a contra loan account until the related loan is sold. The deferred fees or costs and discounts or premiums are an adjustment to the basis of the loan and therefore are included in the periodic determination of the lower of cost or fair value adjustments and/or the gain or loss recognized at the time of sale.

Held-for-sale loans are subject to the nonaccrual policies described above.

Because held-for-sale loans are recognized at the lower of cost or fair value, the Firm’s allowance for loan losses and charge-off policies do not apply to these loans.

Loans at fair value

Loans used in a market-making strategy or risk managed on a fair value basis are measured at fair value, with changes in fair value recorded in noninterest revenue.

Interest income on these loans is accrued and recognized based on the contractual rate of interest. Changes in fair value are recognized in noninterest revenue. Loan origination fees are recognized upfront in noninterest revenue. Loan origination costs are recognized in the associated expense category as incurred.

Because these loans are recognized at fair value, the Firm’s allowance for loan losses and charge-off policies do not apply to these loans. However, loans at fair value are subject to the nonaccrual policies described above.

Refer to Note 3 for further information on the Firm’s elections of fair value accounting under the fair value option. Refer to Note 2 and Note 3 for further information on loans carried at fair value and classified as trading assets.

PCI loans

PCI loans held-for-investment are initially measured at fair value. PCI loans have evidence of credit deterioration since the loan’s origination date and therefore it is probable, at acquisition, that all contractually required payments will not be collected. Because PCI loans are initially measured at fair value, which includes an estimate of future credit losses, no allowance for loan losses related to PCI loans is recorded at the acquisition date. Refer to page 231 of this Note for information on accounting for PCI loans subsequent to their acquisition.

Loan classification changes

Loans in the held-for-investment portfolio that management decides to sell are transferred to the held-for-sale portfolio at the lower of cost or fair value on the date of transfer. Credit-related losses are charged against the allowance for loan losses; non-credit related losses such as those due to changes in interest rates or foreign currency exchange rates are recognized in noninterest revenue.

In the event that management decides to retain a loan in the held-for-sale portfolio, the loan is transferred to the held-for-investment portfolio at the lower of cost or fair value on the date of transfer. These loans are subsequently assessed for impairment based on the Firm’s allowance methodology. For a further discussion of the methodologies used in establishing the Firm’s allowance for loan losses, refer to Note 13.

Loan modifications

The Firm seeks to modify certain loans in conjunction with its loss-mitigation activities. Through the modification, JPMorgan Chase grants one or more concessions to a borrower who is experiencing financial difficulty in order to minimize the Firm’s economic loss and avoid foreclosure or repossession of the collateral, and to ultimately maximize payments received by the Firm from the borrower. The concessions granted vary by program and by borrower-specific characteristics, and may include interest rate reductions, term extensions, payment deferrals, principal forgiveness, or the acceptance of equity or other assets in lieu of payments.

Such modifications are accounted for and reported as TDRs. A loan that has been modified in a TDR is generally considered to be impaired until it matures, is repaid, or is otherwise liquidated, regardless of whether the borrower performs under the modified terms. In certain limited cases, the effective interest rate applicable to the modified loan is at or above the current market rate at the time of the restructuring. In such circumstances, and assuming that the loan subsequently performs under its modified terms and the Firm expects to collect all contractual principal and interest cash flows, the loan is disclosed as impaired and as a TDR only during the year of the modification; in subsequent years, the loan is not disclosed as an impaired loan or as a TDR so long as repayment of the restructured loan under its modified terms is reasonably assured.

Loans, except for credit card loans, modified in a TDR are generally placed on nonaccrual status, although in many cases such loans were already on nonaccrual status prior to modification. These loans may be returned to performing status (the accrual of interest is resumed) if the following criteria are met: (i) the borrower has performed under the modified terms for a minimum of i six months and/or i six payments, and (ii) the Firm has an expectation that repayment of the modified loan is reasonably assured based on, for example, the borrower’s debt capacity and level of future earnings, collateral values, LTV ratios, and other current market considerations. In certain limited and well-defined circumstances in which the loan is current at the modification date, such loans are not placed on nonaccrual status at the time of modification.

Because loans modified in TDRs are considered to be impaired, these loans are measured for impairment using the Firm’s established asset-specific allowance methodology, which considers the expected re-default rates for the modified loans. A loan modified in a TDR generally remains subject to the asset-specific allowance methodology throughout its remaining life, regardless of whether the loan is performing and has been returned to accrual status and/or the loan has been removed from the impaired loans disclosures (i.e., loans restructured at market rates). For further discussion of the methodology used to estimate the Firm’s asset-specific allowance, refer to Note 13.

Foreclosed property

The Firm acquires property from borrowers through loan restructurings, workouts, and foreclosures. Property acquired may include real property (e.g., residential real estate, land, and buildings) and commercial and personal property (e.g., automobiles, aircraft, railcars, and ships).

The Firm recognizes foreclosed property upon receiving assets in satisfaction of a loan (e.g., by taking legal title or physical possession). For loans collateralized by real property, the Firm generally recognizes the asset received at foreclosure sale or upon the execution of a deed in lieu of foreclosure transaction with the borrower. Foreclosed assets are reported in other assets on the Consolidated balance sheets and initially recognized at fair value less costs to sell. Each quarter the fair value of the acquired property is reviewed and adjusted, if necessary, to the lower of cost or fair value. Subsequent adjustments to fair value are charged/credited to noninterest revenue. Operating expense, such as real estate taxes and maintenance, are charged to other expense.

Loan portfolio

Consumer loans, excluding credit card loans, consist primarily of residential mortgages, home equity loans and lines of credit, auto loans and consumer and business banking loans, with a focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by junior liens, prime mortgage loans with an interest-only payment period, and certain payment-option loans that may result in negative amortization.

The following table provides information about retained consumer loans, excluding credit card, by class. In 2017, the Firm sold its student loan portfolio.



December 31, (in millions)	2018		2017
Residential real estate – excluding PCI
Residential mortgage	$	i 231,078	$	i 216,496
Home equity	i 28,340		i 33,450
Other consumer loans
Auto	i 63,573		i 66,242
Consumer & Business Banking	i 26,612		i 25,789
Residential real estate – PCI
Home equity	i 8,963		i 10,799
Prime mortgage	i 4,690		i 6,479
Subprime mortgage	i 1,945		i 2,609
Option ARMs	i 8,436		i 10,689
Total retained loans	$	i 373,637	$	i 372,553

Delinquency rates are a primary credit quality indicator for consumer loans. Loans that are more than 30 days past due provide an early warning of borrowers who may be experiencing financial difficulties and/or who may be unable or unwilling to repay the loan. As the loan continues to age, it becomes more clear whether the borrower is likely either unable or unwilling to pay. In the case of residential real estate loans, late-stage delinquencies (greater than 150 days past due) are a strong indicator of loans that will ultimately result in a foreclosure or similar liquidation transaction. In addition to delinquency rates, other credit quality indicators for consumer loans vary based on the class of loan, as follows:

•

For residential real estate loans, including both non-PCI and PCI portfolios, the current estimated LTV ratio, or the combined LTV ratio in the case of junior lien loans, is an indicator of the potential loss severity in the event of default. Additionally, LTV or combined LTV ratios can provide insight into a borrower’s continued willingness to pay, as the delinquency rate of high-LTV loans tends to be greater than that for loans where the borrower has equity in the collateral. The geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, home price changes and specific events such as natural disasters, will affect credit quality. The borrower’s current or “refreshed” FICO score is a secondary credit-quality indicator for certain loans, as FICO scores are an indication of the borrower’s credit payment history. Thus, a loan to a borrower with a low FICO score (less than 660 ) is considered to be of higher risk than a loan to a borrower with a higher FICO score. Further, a loan to a borrower with a high LTV ratio and a low FICO score is at greater risk of default than a loan to a borrower that has both a high LTV ratio and a high FICO score.


•	For scored auto and scored business banking loans, geographic distribution is an indicator of the credit performance of the portfolio. Similar to residential real estate loans, geographic distribution provides insights into the portfolio performance based on regional economic activity and events.

•

Risk-rated business banking and auto loans are similar to wholesale loans in that the primary credit quality indicators are the risk rating that is assigned to the loan and whether the loans are considered to be criticized and/or nonaccrual. Risk ratings are reviewed on a regular and ongoing basis by Credit Risk Management and are adjusted as necessary for updated information about borrowers’ ability to fulfill their obligations. For further information about risk-rated wholesale loan credit quality indicators, refer to page 236 of this Note.

Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There were no additional commitments to lend to borrowers whose residential real estate loans, excluding PCI loans, have been modified in TDRs.

i The following table presents new TDRs reported by the Firm.



Year ended December 31, (in millions)	2018		2017		2016
Residential mortgage	$	i 401	$	i 373	$	i 254
Home equity	i 286		i 321		i 385
Total residential real estate – excluding PCI	$	i 687	$	i 694	$	i 639

At December 31, 2018, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were i 9 years for residential mortgage and i 8 years for home equity. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and involuntary (i.e., foreclosures and other forced liquidations).

Active and suspended foreclosure

At December 31, 2018 and 2017, the Firm had non-PCI residential real estate loans, excluding those insured by U.S. government agencies, with a carrying value of $ i 653 million and $ i 787 million, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.



December 31, (in millions)	2018		2017
Impaired loans
With an allowance	$	i 222	$	i 272
Without an allowance^(a)	i 29		i 26
Total impaired loans^(b)(c)	$	i 251	$	i 298
Allowance for loan losses related to impaired loans	$	i 63	$	i 73
Unpaid principal balance of impaired loans^(d)	i 355		i 402
Impaired loans on nonaccrual status	i 229		i 268


(a)	When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged off and/or there have been interest payments received and applied to the loan balance.


(b)	Predominantly all other consumer impaired loans are in the U.S.


(c)	Other consumer average impaired loans were $ i 275 million, $ i 427 million and $ i 635 million for the years ended December 31, 2018, 2017 and 2016, respectively. The related interest income on impaired loans, including those on a cash basis, was not material for the years ended December 31, 2018, 2017 and 2016.


(d)	Represents the contractual amount of principal owed at December 31, 2018 and 2017. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs, interest payments received and applied to the principal balance, net deferred loan fees or costs and unamortized discounts or premiums on purchased loans.

Loan modifications

Certain other consumer loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All of these TDRs are reported as impaired loans. At December 31, 2018 and 2017, other consumer loans modified in TDRs were $ i 79 million and $ i 102 million, respectively. The impact of these modifications, as well as new TDRs, were not material to the Firm for the years ended December 31, 2018, 2017 and 2016. Additional commitments to lend to borrowers whose loans have been modified in TDRs as of December 31, 2018 and 2017 were not material. TDRs on nonaccrual status were $ i 57 million and $ i 72 million at December 31, 2018 and 2017, respectively.

PCI loans are initially recorded at fair value at acquisition. PCI loans acquired in the same fiscal quarter may be aggregated into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. All of the Firm’s residential real estate PCI loans were acquired in the same fiscal quarter and aggregated into pools of loans with common risk characteristics.

On a quarterly basis, the Firm estimates the total cash flows (both principal and interest) expected to be collected over the remaining life of each pool. These estimates incorporate assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that reflect then-current market conditions. Probable decreases in expected cash flows (i.e., increased credit losses) trigger the recognition of impairment, which is then measured as the present value of the expected principal loss plus any related forgone interest cash flows, discounted at the pool’s effective interest rate. Impairments are recognized through the provision for credit losses and an increase in the allowance for loan losses. Probable and significant increases in expected cash flows (e.g., decreased credit losses, the net benefit of modifications) would first reverse any previously recorded allowance for loan losses with any remaining increases recognized prospectively as a yield adjustment over the remaining estimated lives of the underlying loans. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows are generally recognized prospectively as adjustments to interest income.

The Firm continues to modify certain PCI loans. The impact of these modifications is incorporated into the Firm’s quarterly assessment of whether a probable and significant change in expected cash flows has occurred, and the loans continue to be accounted for and reported as PCI loans. In evaluating the effect of modifications on expected cash flows, the Firm incorporates the effect of any forgone interest and also considers the potential for redefault. The Firm develops product-specific probability of default estimates, which are used to compute expected credit losses. In developing these probabilities of default, the Firm considers the relationship between the credit quality characteristics of the underlying loans and certain assumptions about home prices and unemployment based upon industry-wide data. The Firm also considers its own historical loss experience to-date based on actual redefaulted modified PCI loans.

The excess of cash flows expected to be collected over the carrying value of the underlying loans is referred to as the accretable yield. This amount is not reported on the Firm’s Consolidated balance sheets but is accreted into interest income at a level rate of return over the remaining estimated lives of the underlying pools of loans.

Since the timing and amounts of expected cash flows for the Firm’s PCI consumer loan pools are reasonably estimable, interest is being accreted and the loan pools are being reported as performing loans. No interest would be accreted and the PCI loan pools would be reported as nonaccrual loans if the timing and/or amounts of expected cash flows on the loan pools were determined not to be reasonably estimable.

The liquidation of PCI loans, which may include sales of loans, receipt of payment in full from the borrower, or foreclosure, results in removal of the loans from the underlying PCI pool. When the amount of the liquidation proceeds (e.g., cash, real estate), if any, is less than the unpaid principal balance of the loan, the difference is first applied against the PCI pool’s nonaccretable difference for principal losses (i.e., the lifetime credit loss estimate established as a purchase accounting adjustment at the acquisition date). When the nonaccretable difference for a particular loan pool has been fully depleted, any excess of the unpaid principal balance of the loan over the liquidation proceeds is written off against the PCI pool’s allowance for loan losses. Write-offs of PCI loans also include other adjustments, primarily related to principal forgiveness modifications. Because the Firm’s PCI loans are accounted for at a pool level, the Firm does not recognize charge-offs of PCI loans when they reach specified stages of delinquency (i.e., unlike non-PCI consumer loans, these loans are not charged off based on FFIEC standards).

The PCI portfolio affects the Firm’s results of operations primarily through: (i) contribution to net interest margin; (ii) expense related to defaults and servicing resulting from the liquidation of the loans; and (iii) any provision for loan losses. The Firm’s residential real estate PCI loans were funded based on the interest rate characteristics of the loans. For example, variable-rate loans were funded with variable-rate liabilities and fixed-rate loans were funded with fixed-rate liabilities with a similar maturity profile. A net spread will be earned on the declining balance of the portfolio, which is estimated as of December 31, 2018, to have a remaining weighted-average life of i 7 years.

The credit card portfolio segment includes credit card loans originated and purchased by the Firm. Delinquency rates are the primary credit quality indicator for credit card loans as they provide an early warning that borrowers may be experiencing difficulties (30 days past due); information on those borrowers that have been delinquent for a longer period of time (90 days past due) is also considered. In addition to delinquency rates, the geographic distribution of the loans provides insight as to the credit quality of the portfolio based on the regional economy.

While the borrower’s credit score is another general indicator of credit quality, the Firm does not view credit scores as a primary indicator of credit quality because the borrower’s credit score tends to be a lagging indicator. The distribution of such scores provides a general indicator of credit quality trends within the portfolio; however, the score does not capture all factors that would be predictive of future credit performance. Refreshed FICO score information, which is obtained at least quarterly, for a statistically significant random sample of the credit card portfolio is indicated in the following table. FICO is considered to be the industry benchmark for credit scores.

The Firm generally originates new card accounts to prime consumer borrowers. However, certain cardholders’ FICO scores may decrease over time, depending on the performance of the cardholder and changes in credit score calculation.

The table below provides information about the Firm’s credit card loans.



As of or for the year ended December 31, (in millions, except ratios)	2018			2017
Net charge-offs	$	i 4,518		$	i 4,123
% of net charge-offs to retained loans	i 3.10		%	i 2.95		%
Loan delinquency
Current and less than 30 days past due and still accruing	$	i 153,746		$	i 146,704
30–89 days past due and still accruing	i 1,426			i 1,305
90 or more days past due and still accruing	i 1,444			i 1,378
Total retained credit card loans	$	i 156,616		$	i 149,387
Loan delinquency ratios
% of 30+ days past due to total retained loans	i 1.83		%	i 1.80		%
% of 90+ days past due to total retained loans	i 0.92			i 0.92
Credit card loans by geographic region^(a)
California	$	i 23,757		$	i 22,245
Texas	i 15,085			i 14,200
New York	i 13,601			i 13,021
Florida	i 9,770			i 9,138
Illinois	i 8,938			i 8,585
New Jersey	i 6,739			i 6,506
Ohio	i 5,094			i 4,997
Pennsylvania	i 4,996			i 4,883
Colorado	i 4,309			i 4,006
Michigan	i 3,912			i 3,826
All other	i 60,415			i 57,980
Total retained credit card loans	$	i 156,616		$	i 149,387
Percentage of portfolio based on carrying value with estimated refreshed FICO scores
Equal to or greater than 660	i 84.2		%	i 84.0		%
Less than 660	i 15.0			i 14.6
No FICO available	i 0.8			i 1.4


a)	The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.

The table below provides information about the Firm’s impaired credit card loans. All of these loans are considered to be impaired as they have been modified in TDRs.



December 31, (in millions)	2018		2017
Impaired credit card loans with an allowance^(a)(b)(c)	$	i 1,319	$	i 1,215
Allowance for loan losses related to impaired credit card loans	i 440		i 383


(a)	The carrying value and the unpaid principal balance are the same for credit card impaired loans.


(b)	There were no impaired loans without an allowance.


(c)	Predominantly all impaired credit card loans are in the U.S.

The following table presents average balances of impaired credit card loans and interest income recognized on those loans.



Year ended December 31, (in millions)	2018		2017		2016
Average impaired credit card loans	$	i 1,260	$	i 1,214	$	i 1,325
Interest income on impaired credit card loans	i 65		i 59		i 63

Loan modifications

The Firm may offer one of a number of loan modification programs to credit card borrowers who are experiencing financial difficulty. Most of the credit card loans have been modified under long-term programs for borrowers who are experiencing financial difficulties. These modifications involve placing the customer on a fixed payment plan, generally for i 60 months, and typically include reducing the interest rate on the credit card. Substantially all modifications are considered to be TDRs.

If the cardholder does not comply with the modified payment terms, then the credit card loan continues to age and will ultimately be charged-off in accordance with the Firm’s standard charge-off policy. In most cases, the Firm does not reinstate the borrower’s line of credit.

New enrollments in these loan modification programs for the years ended December 31, 2018, 2017 and 2016, were $ i 866 million, $ i 756 million and $ i 636 million, respectively. For all periods disclosed, new enrollments were less than i 1% of total retained credit card loans.

Financial effects of modifications and redefaults

The following table provides information about the financial effects of the concessions granted on credit card loans modified in TDRs and redefaults for the periods presented.



Year ended December 31, (in millions, except weighted-average data)	2018			2017			2016
Weighted-average interest rate of loans – before TDR	i 17.98		%	i 16.58		%	i 15.56		%
Weighted-average interest rate of loans – after TDR	i 5.16			i 4.88			i 4.76
Loans that redefaulted within one year of modification^(a)(b)	$	i 116		$	i 93		$	i 74


(a)	Represents loans modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within i 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.


(b)	The prior period amounts have been revised to conform with the current period presentation.

For credit card loans modified in TDRs, payment default is deemed to have occurred when the borrower misses two consecutive contractual payments. A substantial portion of these loans are expected to be charged-off in accordance with the Firm’s standard charge-off policy. Based on historical experience, the estimated weighted-average default rate for modified credit card loans was expected to be i 33.38%, i 31.54% and i 28.87% as of December 31, 2018, 2017 and 2016, respectively.

Wholesale loans include loans made to a variety of clients, ranging from large corporate and institutional clients to high-net-worth individuals.

The primary credit quality indicator for wholesale loans is the risk rating assigned to each loan. Risk ratings are used to identify the credit quality of loans and differentiate risk within the portfolio. Risk ratings on loans consider the PD and the LGD. The PD is the likelihood that a loan will default. The LGD is the estimated loss on the loan that would be realized upon the default of the borrower and takes into consideration collateral and structural support for each credit facility.

Management considers several factors to determine an appropriate risk rating, including the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. The Firm’s definition of criticized aligns with the banking regulatory definition of criticized exposures, which consist of special mention, substandard and doubtful categories. Risk ratings generally represent ratings profiles similar to those defined by S&P and Moody’s. Investment-grade ratings range from “AAA/Aaa” to “BBB-/Baa3.” Noninvestment-grade ratings are classified as noncriticized (“BB+/Ba1 and B-/B3”) and criticized (“CCC+”/“Caa1 and below”), and the criticized portion is further subdivided into performing and nonaccrual loans, representing management’s assessment of the collectibility of principal and interest. Criticized loans have a higher probability of default than noncriticized loans.

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.

The following table presents the Firm’s average impaired retained loans for the years ended 2018, 2017 and 2016.



Year ended December 31, (in millions)	2018		2017^(b)		2016
Commercial and industrial	$	i 1,027	$	i 1,256	$	i 1,480
Real estate	i 133		i 165		i 217
Financial institutions	i 57		i 48		i 13
Governments & Agencies	i —		i —		i —
Other	i 199		i 241		i 213
Total^(a)	$	i 1,416	$	i 1,710	$	i 1,923


(a)	The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the years ended December 31, 2018, 2017 and 2016.


(b)	The prior period amounts have been revised to conform with the current period presentation.

Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All TDRs are reported as impaired loans in the tables above. TDRs were $ i 576 million and $ i 614 million as of December 31, 2018 and 2017, respectively. The impact of these modifications, as well as new TDRs, were not material to the Firm for the years ended December 31, 2018, 2017 and 2016.

i JPMorgan Chase’s allowance for loan losses represents management’s estimate of probable credit losses inherent in the Firm’s retained loan portfolio, which consists of the two consumer portfolio segments (primarily scored) and the wholesale portfolio segment (risk-rated). The allowance for loan losses includes a formula-based component, an asset-specific component, and a component related to PCI loans, as described below. Management also estimates an allowance for wholesale and certain consumer lending-related commitments using methodologies similar to those used to estimate the allowance on the underlying loans.

The Firm’s policies used to determine its allowance for credit losses are described in the following paragraphs.

Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowances for loan losses and lending-related commitments in future periods. At least quarterly, the allowance for credit losses is reviewed by the CRO, the CFO and the Controller of the Firm. As of December 31, 2018, JPMorgan Chase deemed the allowance for credit losses to be appropriate and sufficient to absorb probable credit losses inherent in the portfolio.

Formula-based component

The formula-based component is based on a statistical calculation to provide for incurred credit losses in all consumer loans and performing risk-rated loans. All loans restructured in TDRs as well as any impaired risk-rated loans have an allowance assessed as part of the asset-specific component, while PCI loans have an allowance assessed as part of the PCI component. Refer to Note 12 for more information on TDRs, Impaired loans and PCI loans.

Formula-based component - Consumer loans and certain lending-related commitments

The formula-based allowance for credit losses for the consumer portfolio segments is calculated by applying statistical credit loss factors (estimated PD and loss severities) to the recorded investment balances or loan-equivalent amounts of pools of loan exposures with similar risk characteristics over a loss emergence period to arrive at an estimate of incurred credit losses. Estimated loss emergence periods may vary by product and may change over time; management applies judgment in estimating loss emergence periods, using available credit information and trends. In addition, management applies judgment to the statistical loss estimates for each loan portfolio category, using delinquency trends and other risk characteristics to estimate the total incurred credit losses in the portfolio. Management uses additional statistical methods and considers actual portfolio performance, including actual losses recognized on defaulted loans and collateral valuation trends, to review the appropriateness of the primary statistical loss estimate. The economic impact of

potential modifications of residential real estate loans is not included in the statistical calculation because of the uncertainty regarding the type and results of such modifications.

The statistical calculation is then adjusted to take into consideration model imprecision, external factors and current economic events that have occurred but that are not yet reflected in the factors used to derive the statistical calculation; these adjustments are accomplished in part by analyzing the historical loss experience for each major product segment. However, it is difficult to predict whether historical loss experience is indicative of future loss levels. Management applies judgment in making this adjustment, taking into account uncertainties associated with current macroeconomic and political conditions, quality of underwriting standards, borrower behavior, and other relevant internal and external factors affecting the credit quality of the portfolio. In certain instances, the interrelationships between these factors create further uncertainties. The application of different inputs into the statistical calculation, and the assumptions used by management to adjust the statistical calculation, are subject to management judgment, and emphasizing one input or assumption over another, or considering other inputs or assumptions, could affect the estimate of the allowance for credit losses for the consumer credit portfolio.

Overall, the allowance for credit losses for consumer portfolios is sensitive to changes in the economic environment (e.g., unemployment rates), delinquency rates, the realizable value of collateral (e.g., housing prices), FICO scores, borrower behavior and other risk factors. While all of these factors are important determinants of overall allowance levels, changes in the various factors may not occur at the same time or at the same rate, or changes may be directionally inconsistent such that improvement in one factor may offset deterioration in another. In addition, changes in these factors would not necessarily be consistent across all geographies or product types. Finally, it is difficult to predict the extent to which changes in these factors would ultimately affect the frequency of losses, the severity of losses or both.

Formula-based component - Wholesale loans and lending-related commitments

The Firm’s methodology for determining the allowance for loan losses and the allowance for lending-related commitments involves the early identification of credits that are deteriorating. The formula-based component of the allowance for wholesale loans and lending-related commitments is calculated by applying statistical credit loss factors (estimated PD and LGD) to the recorded investment balances or loan-equivalent over a loss emergence period to arrive at an estimate of incurred credit losses in the portfolio. Estimated loss emergence periods may vary by the funded versus unfunded status of the instrument and may change over time.

The Firm assesses the credit quality of a borrower or counterparty and assigns a risk rating. Risk ratings are assigned at origination or acquisition, and if necessary, adjusted for changes in credit quality over the life of the exposure. In assessing the risk rating of a particular loan or lending-related commitment, among the factors considered are the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. These factors are based on an evaluation of historical and current information and involve subjective assessment and interpretation. Determining risk ratings involves significant judgment; emphasizing one factor over another or considering additional factors could affect the risk rating assigned by the Firm.

A PD estimate is determined based on the Firm’s history of defaults over more than one credit cycle.

LGD estimate is a judgment-based estimate assigned to each loan or lending-related commitment. The estimate represents the amount of economic loss if the obligor were to default. The type of obligor, quality of collateral, and the seniority of the Firm’s lending exposure in the obligor’s capital structure affect LGD.

The Firm applies judgment in estimating PD, LGD, loss emergence period and loan-equivalent used in calculating the allowance for credit losses. Estimates of PD, LGD, loss emergence period and loan-equivalent used are subject to periodic refinement based on any changes to underlying external or Firm-specific historical data. Changes to the time period used for PD and LGD estimates could also affect the allowance for credit losses. The use of different inputs, estimates or methodologies could change the amount of the allowance for credit losses determined appropriate by the Firm.

In addition to the statistical credit loss estimates applied to the wholesale portfolio, management applies its judgment to adjust the statistical estimates for wholesale loans and lending-related commitments, taking into consideration model imprecision, external factors and economic events that have occurred but are not yet reflected in the loss factors. Historical experience of both LGD and PD are

considered when estimating these adjustments. Factors related to concentrated and deteriorating industries also are incorporated where relevant. These estimates are based on management’s view of uncertainties that relate to current macroeconomic conditions, quality of underwriting standards and other relevant internal and external factors affecting the credit quality of the current portfolio.

Asset-specific component

The asset-specific component of the allowance relates to loans considered to be impaired, which includes loans that have been modified in TDRs as well as risk-rated loans that have been placed on nonaccrual status. To determine the asset-specific component of the allowance, larger risk-rated loans (primarily loans in the wholesale portfolio segment) are evaluated individually, while smaller loans (both risk-rated and scored) are evaluated as pools using historical loss experience for the respective class of assets.

The Firm generally measures the asset-specific allowance as the difference between the recorded investment in the loan and the present value of the cash flows expected to be collected, discounted at the loan’s original effective interest rate. Subsequent changes in impairment are reported as an adjustment to the allowance for loan losses. In certain cases, the asset-specific allowance is determined using an observable market price, and the allowance is measured as the difference between the recorded investment in the loan and the loan’s fair value. Collateral-dependent loans are charged down to the fair value of collateral less costs to sell. For any of these impaired loans, the amount of the asset-specific allowance required to be recorded, if any, is dependent upon the recorded investment in the loan (including prior charge-offs), and either the expected cash flows or fair value of collateral. Refer to Note 12 for more information about charge-offs and collateral-dependent loans.

The asset-specific component of the allowance for impaired loans that have been modified in TDRs (including forgone interest, principal forgiveness, as well as other concessions) incorporates the effect of the modification on the loan’s expected cash flows, which considers the potential for redefault. For residential real estate loans modified in TDRs, the Firm develops product-specific probability of default estimates, which are applied at a loan level to compute expected losses. In developing these probabilities of default, the Firm considers the relationship between the credit quality characteristics of the underlying loans and certain assumptions about home prices and unemployment, based upon industry-wide data. The Firm also considers its own historical loss experience to-date based on actual redefaulted modified loans. For credit card loans modified in TDRs, expected losses incorporate projected redefaults based on the Firm’s historical experience by type of modification program. For wholesale loans modified in TDRs, expected losses incorporate management’s expectation of the borrower’s ability to repay under the modified terms.

Estimating the timing and amounts of future cash flows is highly judgmental as these cash flow projections rely upon estimates such as loss severities, asset valuations, default rates (including redefault rates on modified loans), the amounts and timing of interest or principal payments (including any expected prepayments) or other factors that are reflective of current and expected market conditions. These estimates are, in turn, dependent on factors such as the duration of current overall economic conditions, industry-, portfolio-, or borrower-specific factors, the expected outcome of insolvency proceedings as well as, in certain circumstances, other economic factors, including the level of future home prices. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.

PCI loans

In connection with the acquisition of certain PCI loans, which are accounted for as described in Note 12, the allowance for loan losses for the PCI portfolio is based on quarterly estimates of the amount of principal and interest cash flows expected to be collected over the estimated remaining lives of the loans.

These cash flow projections are based on estimates regarding default rates (including redefault rates on modified loans), loss severities, the amounts and timing of prepayments and other factors that are reflective of current and expected future market conditions. These estimates are dependent on assumptions regarding the level of future home prices, and the duration of current overall economic conditions, among other factors. These estimates and assumptions require significant management judgment and certain assumptions are highly subjective.

Credit card securitizations

CCB’s Card business securitizes originated credit card loans, primarily through the Chase Issuance Trust (the “Trust”). The Firm’s continuing involvement in credit card securitizations includes servicing the receivables, retaining an undivided seller’s interest in the receivables, retaining certain senior and subordinated securities and maintaining escrow accounts.

The Firm is considered to be the primary beneficiary of these Firm-sponsored credit card securitization trusts based on the Firm’s ability to direct the activities of these VIEs through its servicing responsibilities and other duties, including making decisions as to the receivables that are transferred into those trusts and as to any related modifications and workouts. Additionally, the nature and extent of the Firm’s other continuing involvement with the trusts, as indicated above, obligates the Firm to absorb

losses and gives the Firm the right to receive certain benefits from these VIEs that could potentially be significant.

The underlying securitized credit card receivables and other assets of the securitization trusts are available only for payment of the beneficial interests issued by the securitization trusts; they are not available to pay the Firm’s other obligations or the claims of the Firm’s creditors.

The agreements with the credit card securitization trusts require the Firm to maintain a minimum undivided interest in the credit card trusts (generally i 5%). As of December 31, 2018 and 2017, the Firm held undivided interests in Firm-sponsored credit card securitization trusts of $ i 15.1 billion and $ i 15.8 billion, respectively. The Firm maintained an average undivided interest in principal receivables owned by those trusts of approximately i 37% and i 26% for the years ended December 31, 2018 and 2017. The Firm did

not retain any senior securities and retained $ i 3.0 billion and $ i 4.5 billion of subordinated securities in certain of its credit card securitization trusts as of December 31, 2018 and 2017, 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.

Residential mortgage

The Firm securitizes residential mortgage loans originated by CCB, as well as residential mortgage loans purchased from third parties by either CCB or CIB. CCB generally retains servicing for all residential mortgage loans it originated or purchased, and for certain mortgage loans purchased by CIB. For securitizations of loans serviced by CCB, the Firm has the power to direct the significant activities of the VIE because it is responsible for decisions related to loan modifications and workouts. CCB may also retain an interest upon securitization.

In addition, CIB engages in underwriting and trading activities involving securities issued by Firm-sponsored securitization trusts. As a result, CIB at times retains senior and/or subordinated interests (including residual interests and amounts required to be held pursuant to credit risk retention rules) in residential mortgage securitizations at the time of securitization, and/or reacquires positions in the secondary market in the normal course of business. In certain instances, as a result of the positions retained or reacquired by CIB or held by CCB, when considered together with the servicing arrangements entered into by CCB, the Firm is deemed to be the primary beneficiary of certain securitization trusts. Refer to the table on page 248 of this Note for more information on consolidated residential mortgage securitizations.

The Firm does not consolidate a residential mortgage securitization (Firm-sponsored or third-party-sponsored) when it is not the servicer (and therefore does not have the power to direct the most significant activities of the trust) or does not hold a beneficial interest in the trust that could potentially be significant to the trust. Refer to the table on page 248 of this Note for more information on the consolidated residential mortgage securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated residential mortgage securitizations.

Commercial mortgages and other consumer securitizations

CIB originates and securitizes commercial mortgage loans, and engages in underwriting and trading activities involving the securities issued by securitization trusts. CIB may retain unsold senior and/or subordinated interests (including amounts required to be held pursuant to credit risk retention rules) in commercial mortgage securitizations at the time of securitization but, generally, the Firm does not service commercial loan securitizations. For commercial mortgage securitizations the power to direct the significant activities of the VIE generally is held by the servicer or investors in a specified class of securities (“controlling class”). The Firm generally does not retain an interest in the controlling class in its sponsored commercial mortgage securitization transactions. Refer to the table on page 248 of this Note for more information on the consolidated commercial mortgage securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated securitizations.

Re-securitizations

The Firm engages in certain re-securitization transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests. These transfers occur in connection with both agency (Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Government National Mortgage Association (“Ginnie Mae”)) and nonagency (private-label) sponsored VIEs, which may be backed by either residential or commercial mortgages. The Firm’s consolidation analysis is largely dependent on the Firm’s role and interest in the re-securitization trusts.

The following table presents the principal amount of securities transferred to re-securitization VIEs.



Year ended December 31, (in millions)	2018		2017		2016
Transfers of securities to VIEs
Firm-sponsored private-label	$	i —	$	i —	$	i 647
Agency	i 15,532		i 12,617		i 11,241

Most re-securitizations with which the Firm is involved are client-driven transactions in which a specific client or group of clients is seeking a specific return or risk profile. For these transactions, the Firm has concluded that the decision-making power of the entity is shared between the Firm and its clients, considering the joint effort and decisions in establishing the re-securitization trust and its assets, as well as the significant economic interest the client holds in the re-securitization trust; therefore the Firm does not consolidate the re-securitization VIE.

In more limited circumstances, the Firm creates a nonagency re-securitization trust independently and not in conjunction with specific clients. In these circumstances, the Firm is deemed to have the unilateral ability to direct the most significant activities of the re-securitization trust because of the decisions made during the establishment and design of the trust; therefore, the Firm consolidates the re-securitization VIE if the Firm holds an interest that could potentially be significant.

Additionally, the Firm may invest in beneficial interests of third-party-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.

i The following table presents information on nonconsolidated re-securitization VIEs.



	Nonconsolidated re-securitization VIEs
December 31, (in millions)	2018		2017
Firm-sponsored private-label
Assets held in VIEs with continuing involvement^(a)	$	i 118	$	i 783
Interest in VIEs	i 10		i 29
Agency
Interest in VIEs	i 3,058		i 2,250


(a)	Represents the principal amount and includes the notional amount of interest-only securities.

As of December 31, 2018 and 2017, the Firm did not consolidate any 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 i 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 248 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 $ i 20.1 billion and $ i 20.4 billion of the commercial paper issued by the Firm-administered multi-seller conduits at December 31, 2018 and 2017, 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 $ i 8.0 billion and $ i 8.8 billion at December 31, 2018 and 2017, respectively, and are reported as off-balance sheet lending-related commitments. For more information on off-balance sheet lending-related commitments, refer to Note 27.

Municipal bond vehicles

Municipal bond vehicles or tender option bond (“TOB”) trusts allow institutions to finance their municipal bond investments at short-term rates. In a typical TOB transaction, the trust purchases highly rated municipal bond(s) of a single issuer and funds the purchase by issuing two types of securities: (1) puttable floating-rate certificates (“floaters”) and (2) inverse floating-rate residual interests (“residuals”). The floaters are typically purchased by money market funds or other short-term investors and may be tendered, with requisite notice, to the TOB trust. The residuals are retained by the investor seeking to finance its municipal bond investment. TOB transactions where the residual is held by a third-party investor are typically known as customer TOB trusts, and non-customer TOB trusts are transactions where the Residual is retained by the Firm. Customer TOB trusts are sponsored by a third party; refer to page 249 on this Note for further information. The Firm serves as sponsor for all non-customer TOB transactions. The Firm may provide various services to a TOB trust, including remarketing agent, liquidity or tender option provider, and/or sponsor.

J.P. Morgan Securities LLC may serve as a remarketing agent on the floaters for TOB trusts. The remarketing agent is responsible for establishing the periodic variable rate on the floaters, conducting the initial placement and remarketing tendered floaters. The remarketing agent may,

but is not obligated to, make markets in floaters. Floaters held by the Firm were not material during 2018 and 2017.

JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC often serves as the sole liquidity or tender option provider for the TOB trusts. The liquidity provider’s obligation to perform is conditional and is limited by certain events (“Termination Events”), which include bankruptcy or failure to pay by the municipal bond issuer or credit enhancement provider, an event of taxability on the municipal bonds or the immediate downgrade of the municipal bond to below investment grade. In addition, the liquidity provider’s exposure is typically further limited by the high credit quality of the underlying municipal bonds, the excess collateralization in the vehicle, or, in certain transactions, the reimbursement agreements with the Residual holders.

Holders of the floaters may “put,” or tender, their floaters to the TOB trust. If the remarketing agent cannot successfully remarket the floaters to another investor, the liquidity provider either provides a loan to the TOB trust for the TOB trust’s purchase of the floaters, or it directly purchases the tendered floaters.

TOB trusts are considered to be variable interest entities. The Firm consolidates Non-Customer TOB trusts because as the Residual holder, the Firm has the right to make decisions that significantly impact the economic performance of the municipal bond vehicle, and it has the right to receive benefits and bear losses that could potentially be significant to the municipal bond vehicle.

Consolidated VIE assets and liabilities

VIEs sponsored by third parties

The Firm enters into transactions with VIEs structured by other parties. These include, for example, acting as a derivative counterparty, liquidity provider, investor, underwriter, placement agent, remarketing agent, trustee or custodian. These transactions are conducted at arm’s-length, and individual credit decisions are based on the analysis of the specific VIE, taking into consideration the quality of the underlying assets. Where the Firm does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, or a variable interest that could potentially be significant, the Firm generally does not consolidate the VIE, but it records and reports these positions on its Consolidated balance sheets in the same manner it would record and report positions in respect of any other third-party transaction.

Tax credit vehicles

The Firm holds investments in unconsolidated tax credit vehicles, which are limited partnerships and similar entities that construct, own and operate affordable housing, alternative 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 $ i 16.5 billion and $ i 13.4 billion, of which $ i 4.0 billion and $ i 3.2 billion was unfunded at December 31, 2018 and 2017, 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 24 for further information on affordable housing tax credits. For more information on off-balance sheet lending-related commitments, refer to Note 27.

Customer municipal bond vehicles (TOB trusts)

The Firm may provide various services to Customer TOB trusts, including remarketing agent, liquidity or tender option provider. In certain Customer TOB transactions, the Firm, as liquidity provider, has entered into a reimbursement agreement with the Residual holder. In those transactions, upon the termination of the vehicle, the Firm has recourse to the third-party Residual holders for any shortfall. The Firm does not have any intent to protect Residual holders from potential losses on any of the underlying municipal bonds. The Firm does not consolidate Customer TOB trusts, since the Firm does not have the power to make decisions that significantly impact the economic performance of the municipal bond vehicle. The Firm’s maximum exposure as a liquidity provider to Customer TOB trusts at December 31, 2018 and 2017, was $ i 4.8 billion and $ i 5.3 billion, respectively. The fair value of assets held by such VIEs at December 31, 2018 and 2017 was $ i 7.7 billion and $ i 9.2 billion, respectively. For more

information on off-balance sheet lending-related commitments, refer to Note 27.

Loan securitizations

i 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.

Key assumptions used to value retained interests originated during the year are shown in the table below.



Year ended December 31,	2018		2017		2016
Residential mortgage retained interest:
Weighted-average life (in years)	i 7.6		i 4.8		i 4.5
Weighted-average discount rate	i 3.6	%	i 2.9	%	i 4.2	%
Commercial mortgage retained interest:
Weighted-average life (in years)	i 5.3		i 7.1		i 6.2
Weighted-average discount rate	i 4.0	%	i 4.4	%	i 5.8	%

Loans and excess MSRs sold to U.S. government-sponsored enterprises, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities

In addition to the amounts reported in the securitization activity tables above, the Firm, in the normal course of business, sells originated and purchased mortgage loans and certain originated excess MSRs on a nonrecourse basis, predominantly to U.S. government-sponsored enterprises (“U.S. GSEs”). These loans and excess MSRs are sold primarily for the purpose of securitization by the U.S. GSEs, who provide certain guarantee provisions (e.g., credit enhancement of the loans). The Firm also sells loans into securitization transactions pursuant to Ginnie Mae guidelines; these loans are typically insured or guaranteed by another U.S. government agency. The Firm does not consolidate the securitization vehicles underlying these transactions as it is not the primary beneficiary. For a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans with the purchaser. Refer to Note 27 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.

i The following table summarizes the activities related to loans sold to the U.S. GSEs, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities.



Year ended December 31, (in millions)	2018			2017		2016
Carrying value of loans sold	$	i 44,609		$	i 64,542	$	i 52,869
Proceeds received from loan sales as cash	$	i 9		$	i 117	$	i 592
Proceeds from loans sales as securities^(a)	i 43,671			i 63,542		i 51,852
Total proceeds received from loan sales^(b)	$	i 43,680		$	i 63,659	$	i 52,444
Gains/(losses) on loan sales^(c)(d)	$	( i 93	)	$	i 163	$	i 222


(a)	Predominantly includes securities from U.S. GSEs and Ginnie Mae that are generally sold shortly after receipt.


(b)	Excludes the value of MSRs retained upon the sale of loans.


(c)	Gains/(losses) on loan sales include the value of MSRs.


(d)	The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.

Options to repurchase delinquent loans

In addition to the Firm’s obligation to repurchase certain loans due to material breaches of representations and warranties as discussed in Note 27, the Firm also has the option to repurchase delinquent loans that it services for Ginnie Mae loan pools, as well as for other U.S. government agencies under certain arrangements. The Firm typically elects to repurchase delinquent loans from Ginnie Mae loan pools as it continues to service them and/or manage th

e 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. For additional information, refer to Note 12.

i 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, 2018 and 2017. Substantially all of these loans and real estate are insured or guaranteed by U.S. government agencies.



December 31, (in millions)	2018		2017
Loans repurchased or option to repurchase^(a)	$	i 7,021	$	i 8,629
Real estate owned	i 75		i 95
Foreclosed government-guaranteed residential mortgage loans^(b)	i 361		i 527


(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.

Goodwill

i Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of the net assets acquired. Subsequent to initial recognition, goodwill is not amortized but is tested for impairment during the fourth quarter of each fiscal year, or more often if events or circumstances, such as adverse changes in the business climate, indicate there may be impairment.

The goodwill associated with each business combination is allocated to the related reporting units, which are determined based on how the Firm’s businesses are managed and how they are reviewed by the Firm’s Operating Committee. i The following table presents goodwill attributed to the business segments.



December 31, (in millions)	2018		2017		2016
Consumer & Community Banking	$	i 30,984	$	i 31,013	$	i 30,797
Corporate & Investment Bank	i 6,770		i 6,776		i 6,772
Commercial Banking	i 2,860		i 2,860		i 2,861
Asset & Wealth Management	i 6,857		i 6,858		i 6,858
Total goodwill	$	i 47,471	$	i 47,507	$	i 47,288

The following table presents changes in the carrying amount of goodwill.



Year ended December 31, (in millions)	2018			2017		2016
Balance at beginning of period	$	i 47,507		$	i 47,288	$	i 47,325
Changes during the period from:
Business combinations^(a)	i —			i 199		i —
Dispositions^(b)	i —			i —		( i 72		)
Other^(c)	( i 36		)	i 20		i 35
Balance at December 31,	$	i 47,471		$	i 47,507	$	i 47,288


(a)	For 2017, represents CCB goodwill in connection with an acquisition.


(b)	For 2016, represents AWM goodwill, which was disposed of as part of a sale.


(c)	Includes foreign currency remeasurement and other adjustments.

Goodwill impairment testing

The Firm’s goodwill was not impaired at December 31, 2018, 2017, and 2016.

The goodwill impairment test is performed in two steps. In the first step, the current fair value of each reporting unit is compared with its carrying value. If the fair value is in excess of the carrying value, then the reporting unit’s goodwill is considered not to be impaired. If the fair value is less than the carrying value, then a second step is performed. In the second step, the implied current fair value of the reporting unit’s goodwill is determined by comparing the fair value of the reporting unit (as determined in step one) to the fair value of the net assets of the reporting unit, as if the reporting unit were being acquired in a business combination. The resulting implied current fair value of goodwill is then compared with the carrying value of the reporting unit’s goodwill. If the carrying value of the goodwill exceeds its implied current fair value, then an impairment charge is recognized for the excess. If the carrying value of goodwill is less than its implied current fair value, then no goodwill impairment is recognized.

The Firm uses the reporting units’ allocated capital plus goodwill and other intangible assets capital as a proxy for the carrying values of equity for the reporting units in the goodwill impairment testing. Reporting unit equity is determined on a similar basis as the allocation of capital to the Firm’s lines of business and takes into consideration capital level of similarly-rated peers and applicable regulatory requirements. Proposed line of business equity levels are incorporated into the Firm’s annual budget process, which is reviewed by the Firm’s Board of Directors. Allocated capital is further reviewed on a periodic basis and updated as needed.

The primary method the Firm uses to estimate the fair value of its reporting units is the income approach. This approach projects cash flows for the forecast period and uses the perpetuity growth method to calculate terminal values. These cash flows and terminal values are then discounted using an appropriate discount rate. Projections of cash flows are based on the reporting units’ earnings forecasts which are reviewed with senior management of the Firm. The discount rate used for each reporting unit represents an estimate of the cost of equity for that reporting unit and is determined considering the Firm’s overall estimated cost of equity (estimated using the Capital Asset Pricing Model), as adjusted for the risk characteristics specific to each reporting unit (for example, for higher levels of risk or uncertainty associated with the business or management’s forecasts and assumptions). To assess the reasonableness of the discount rates used for each reporting unit management compares the discount rate to the estimated cost of equity for publicly traded institutions with similar businesses and risk characteristics. In addition, the weighted average cost of equity (aggregating the various reporting units) is compared with the Firms’ overall estimated cost of equity to ensure reasonableness.

The valuations derived from the discounted cash flow analysis are then compared with market-based trading and transaction multiples for relevant competitors. Trading and transaction comparables are used as general indicators to assess the general reasonableness of the estimated fair values, although precise conclusions generally cannot be drawn due to the differences that naturally exist between the Firm’s businesses and competitor institutions. Management also takes into consideration a comparison between the aggregate fair values of the Firm’s reporting units and JPMorgan Chase’s market capitalization. In evaluating this comparison, management considers several factors, including (i) a control premium that would exist in a market transaction, (ii) factors related to the level of execution risk that would exist at the firmwide level that do not exist at the reporting unit level and (iii) short-term market volatility and other factors that do not directly affect the value of individual reporting units.

Declines in business performance, increases in credit losses, increases in capital requirements, as well as deterioration in economic or market conditions, adverse regulatory or legislative changes or increases in the estimated market cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated goodwill to decline in the future, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.

Mortgage servicing rights

i MSRs represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained.

As permitted by U.S. GAAP, the Firm has elected to account for its MSRs at fair value. The Firm treats its MSRs as a single class of servicing assets based on the availability of market inputs used to measure the fair value of its MSR asset and its treatment of MSRs as one aggregate pool for risk management purposes. The Firm estimates the fair value of MSRs using an option-adjusted spread (“OAS”) model, which projects MSR cash flows over multiple interest rate scenarios in conjunction with the Firm’s prepayment model, and then discounts these cash flows at risk-adjusted rates. The model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, costs to service, late charges and other ancillary revenue, and other economic factors. The Firm compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience.

The fair value of MSRs is sensitive to changes in interest rates, including their effect on prepayment speeds. MSRs typically decrease in value when interest rates decline because declining interest rates tend to increase prepayments and therefore reduce the expected life of the net servicing cash flows that comprise the MSR asset. Conversely, securities (e.g., mortgage-backed securities), principal-only certificates and certain derivatives (i.e.,

those for which the Firm receives fixed-rate interest payments) increase in value when interest rates decline. JPMorgan Chase uses combinations of derivatives and securities to manage the risk of changes in the fair value of MSRs. The intent is to offset any interest-rate related changes in the fair value of MSRs with changes in the fair value of the related risk management instruments.

i 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, 2018, 2017 and 2016.



Year ended December 31, (in millions)	2018			2017			2016
CCB mortgage fees and related income
Net production revenue	$	i 268		$	i 636		$	i 853

Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue	i 1,835			i 2,014			i 2,336
Changes in MSR asset fair value due to collection/realization of expected cash flows	( i 740		)	( i 795		)	( i 916		)
Total operating revenue	i 1,095			i 1,219			i 1,420
Risk management:
Changes in MSR asset fair value due to market interest rates and other^(a)	i 300			( i 202		)	( i 72		)
Other changes in MSR asset fair value due to other inputs and assumptions in model^(b)	( i 70		)	( i 30		)	( i 91		)
Change in derivative fair value and other	( i 341		)	( i 10		)	i 380
Total risk management	( i 111		)	( i 242		)	i 217
Total net mortgage servicing revenue	i 984			i 977			i 1,637

Total CCB mortgage fees and related income	i 1,252			i 1,613			i 2,490

All other	i 2			i 3			i 1
Mortgage fees and related income	$	i 1,254		$	i 1,616		$	i 2,491


(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).

i The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at December 31, 2018 and 2017, and outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.



December 31, (in millions, except rates)	2018			2017
Weighted-average prepayment speed assumption (“CPR”)	i 8.78		%	i 9.35		%
Impact on fair value of 10% adverse change	$	( i 205	)	$	( i 221	)
Impact on fair value of 20% adverse change	( i 397		)	( i 427		)
Weighted-average option adjusted spread	i 8.70		%	i 9.04		%
Impact on fair value of 100 basis points adverse change	$	( i 235	)	$	( i 250	)
Impact on fair value of 200 basis points adverse change	( i 452		)	( i 481		)

CPR: Constant prepayment rate.

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.

Note 16 – i Premises and equipment

i Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization. JPMorgan Chase computes depreciation using the straight-line method over the estimated useful life of an asset. For leasehold improvements, the Firm uses the straight-line method computed over the lesser of the remaining term of the leased facility or the estimated useful life of the leased asset.

i 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 – i Deposits

i At December 31, 2018 and 2017, noninterest-bearing and interest-bearing deposits were as follows.



December 31, (in millions)	2018		2017
U.S. offices
Noninterest-bearing	$	i 369,505	$	i 393,645
Interest-bearing (included $19,691, and $14,947 at fair value)^(a)	i 831,085		i 793,618
Total deposits in U.S. offices	i 1,200,590		i 1,187,263
Non-U.S. offices
Noninterest-bearing	i 19,092		i 15,576
Interest-bearing (included $3,526 and $6,374 at fair value)^(a)	i 250,984		i 241,143
Total deposits in non-U.S. offices	i 270,076		i 256,719
Total deposits	$	i 1,470,666	$	i 1,443,982


(a)	Includes structured notes classified as deposits for which the fair value option has been elected. For further discussion, refer to Note 3.

i At December 31, 2018 and 2017, time deposits in denominations of $250,000 or more were as follows.



December 31, (in millions)	2018		2017
U.S. offices	$	i 25,119	$	i 30,671
Non-U.S. offices	i 41,661		i 29,049
Total	$	i 66,780	$	i 59,720

i At December 31, 2018, the maturities of interest-bearing time deposits were as follows.

December 31, 2018

(in millions)

U.S.

Non-U.S.

Total

2019

$

i 31,757

$

i 40,259

$

i 72,016

2020

i 6,309

i 229

i 6,538

2021

i 5,235

i 19

i 5,254

2022

i 2,884

i 173

i 3,057

2023

i 1,719

i 372

i 2,091

After 5 years

i 3,515

i 2,023

i 5,538

Total

$

i 51,419

$

i 43,075

$

i 94,494

Note 18 – i Accounts payable and other liabilities

Accounts payable and other liabilities consist of brokerage payables, which includes payables to customers, dealers and clearing organizations, and payables from security purchases that did not settle; accrued expenses, including income tax payables and credit card rewards liability; and all other liabilities, including obligations to return securities received as collateral and litigation reserves.

i The following table details the components of accounts payable and other liabilities.



December 31, (in millions)	2018		2017
Brokerage payables	$	i 114,794	$	i 102,727
Other payables and liabilities^(a)	i 81,916		i 86,656
Total accounts payable and other liabilities	$	i 196,710	$	i 189,383


(a)	Includes credit card rewards liability of $ i 5.8 billion and $ i 4.9 billion at December 31, 2018 and 2017, respectively.

The weighted-average contractual interest rates for total long-term debt excluding structured notes accounted for at fair value were i 3.28% and i 2.87% as of December 31, 2018 and 2017, 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 i 3.64% and i 2.56% as of December 31, 2018 and 2017, respectively.

JPMorgan Chase & Co. has guaranteed certain long-term debt of its subsidiaries, including both long-term debt and structured notes. These guarantees rank on parity with the Firm’s other unsecured and unsubordinated indebtedness. The amount of such guaranteed long-term debt and structured notes was $ i 10.9 billion and $ i 7.9 billion at December 31, 2018 and 2017, respectively.

The Firm’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings or stock price.

Junior subordinated deferrable interest debentures

On September 10, 2018 the Firm’s last remaining issuer of outstanding trust preferred securities (“issuer trust”) was liquidated, resulting in $ i 475 million of trust preferred securities and $ i 15 million of trust common securities originally issued by the issuer trust being cancelled. The junior subordinated debentures previously held by the trust issuer were distributed pro rata to the holders of the trust preferred and trust common securities. The carrying value of the junior subordinated debt was $ i 659 million as of December 31, 2018.

At December 31, 2018 and 2017, JPMorgan Chase was authorized to issue i 200 million shares of preferred stock, in one or more series, with a par value of $ i 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.

Each series of preferred stock has a liquidation value and redemption price per share of $ i 10,000, plus accrued but unpaid dividends.

On January 24, 2019, the Firm issued $1.85 billion of 6.00% non-cumulative preferred stock, Series EE, and on January 30, 2019, the Firm announced that it will redeem all $925 million of its outstanding 6.70% non-cumulative preferred stock, Series T, on March 1, 2019. On September 21, 2018, the Firm issued $1.7 billion of 5.75% non-cumulative preferred stock, Series DD. On October 30, 2018, the Firm redeemed $1.7 billion of its fixed-to-floating rate non-cumulative perpetual preferred stock, Series I.

On October 20, 2017, the Firm issued $1.3 billion of fixed-to-floating rate non-cumulative preferred stock, Series CC, with an initial dividend rate of 4.625%. On December 1,

2017, the Firm redeemed all $1.3 billion of its outstanding 5.50% non-cumulative preferred stock, Series O. Quarterly dividend per share for Series O was $ i 137.50 for the years ended December 31, 2017 and 2016.

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”).

At December 31, 2018 and 2017, JPMorgan Chase was authorized to issue i 9.0 billion shares of common stock with a par value of $ i 1 per share.

Common shares issued (newly issued or reissuance from treasury) by JPMorgan Chase during the years ended December 31, 2018, 2017 and 2016 were as follows.



Year ended December 31, (in millions)	2018		2017		2016
Total issued – balance at January 1	i 4,104.9		i 4,104.9		i 4,104.9
Treasury – balance at January 1	( i 679.6	)	( i 543.7	)	( i 441.4	)
Repurchase	( i 181.5	)	( i 166.6	)	( i 140.4	)
Reissuance:
Employee benefits and compensation plans	i 21.7		i 24.5		i 26.0
Warrant exercise	i 9.4		i 5.4		i 11.1
Employee stock purchase plans	i 0.9		i 0.8		i 1.0
Total reissuance	i 32.0		i 30.7		i 38.1
Total treasury – balance at December 31	( i 829.1	)	( i 679.6	)	( i 543.7	)
Outstanding at December 31	i 3,275.8		i 3,425.3		i 3,561.2

There were i no warrants to purchase shares of common stock (“Warrants”) outstanding at December 31, 2018, as any Warrants that were not exercised on or before October 29, 2018, have expired. At December 31, 2017, and 2016, respectively, the Firm had i 15.0 million and i 24.9 million Warrants outstanding.

On June 28, 2018, in conjunction with the Federal Reserve’s release of its 2018 CCAR results, the Firm’s Board of Directors authorized a $ i 20.7 billion common equity repurchase program. As of December 31, 2018, $ i 10.4 billion of authorized repurchase capacity remained under the program. This authorization includes shares repurchased to offset issuances under the Firm’s share-based compensation plans.

i The following table sets forth the Firm’s repurchases of common equity for the years ended December 31, 2018, 2017 and 2016. There were i no Warrants repurchased during the years ended December 31, 2018, 2017 and 2016.



Year ended December 31, (in millions)	2018		2017		2016
Total number of shares of common stock repurchased	i 181.5		i 166.6		i 140.4
Aggregate purchase price of common stock repurchases	$	i 19,983	$	i 15,410	$	i 9,082

The Firm from time to time enters into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading “blackout periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. For additional information regarding repurchases of the Firm’s equity securities, refer to Part II, Item 5: Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities, on page 30.

As of December 31, 2018, approximately i 85 million shares of common stock were reserved for issuance under various employee incentive, compensation, option and stock purchase plans, and directors’ compensation plans.

Note 22 – i Earnings per share

i Basic earnings per share (“EPS”) is calculated using the two-class method. Dilutive EPS is calculated under both the two-class and treasury stock methods, and the more dilutive amount is reported. 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. JPMorgan Chase grants RSUs under its share-based compensation programs, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock; these unvested awards meet the definition of participating securities. Accordingly, these RSUs are treated as a separate class of securities in computing basic EPS, and are not included as incremental shares in computing dilutive EPS; refer to Note 9 for additional information. For each of the periods presented diluted EPS calculated under the two-class method was more dilutive.

i The following table presents the calculation of basic and diluted EPS for the years ended December 31, 2018, 2017 and 2016.



Year ended December 31, (in millions, except per share amounts)	2018		2017		2016
Basic earnings per share
Net income	$	i 32,474	$	i 24,441	$	i 24,733
Less: Preferred stock dividends	i 1,551		i 1,663		i 1,647
Net income applicable to common equity	i 30,923		i 22,778		i 23,086
Less: Dividends and undistributed earnings allocated to participating securities	i 214		i 211		i 252
Net income applicable to common stockholders	$	i 30,709	$	i 22,567	$	i 22,834

Total weighted-average basic shares outstanding	i 3,396.4		i 3,551.6		i 3,658.8
Net income per share	$	i 9.04	$	i 6.35	$	i 6.24

Diluted earnings per share
Net income applicable to common stockholders	$	i 30,709	$	i 22,567	$	i 22,834

Total weighted-average basic shares outstanding	i 3,396.4		i 3,551.6		i 3,658.8
Add: Employee stock options, SARs, warrants and unvested PSUs	i 17.6		i 25.2		i 31.2
Total weighted-average diluted shares outstanding	i 3,414.0		i 3,576.8		i 3,690.0
Net income per share	$	i 9.00	$	i 6.31	$	i 6.19

i 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

i A reconciliation of the applicable statutory U.S. federal income tax rate to the effective tax rate for each of the years ended December 31, 2018, 2017 and 2016, is presented in the following table.



Effective tax rate
Year ended December 31,	2018		2017			2016
Statutory U.S. federal tax rate	i 21.0	%	i 35.0	%		i 35.0	%
Increase/(decrease) in tax rate resulting from:
U.S. state and local income taxes, net of U.S. federal income tax benefit	i 4.0		i 2.2			i 2.4
Tax-exempt income	( i 1.5	)	( i 3.3	)		( i 3.1	)
Non-U.S. subsidiary earnings	i 0.6		( i 3.1	)	^(a)	( i 1.7	)	^(a)
Business tax credits	( i 3.5	)	( i 4.2	)		( i 3.9	)
Impact of the TCJA	( i 0.7	)	i 5.4			i —
Other, net	i 0.4		( i 0.1	)		( i 0.3	)
Effective tax rate	i 20.3	%	i 31.9	%		i 28.4	%


(a)	Predominantly includes earnings of U.K. subsidiaries that were deemed to be reinvested indefinitely through December 31, 2017.

Impact of the TCJA

2018

The Firm’s effective tax rate decreased in 2018 due to the TCJA, including the reduction in the U.S. federal statutory income tax rate as well as a $ i 302 million net tax benefit recorded in 2018 resulting from changes in the estimates related to the remeasurement of certain deferred taxes and the deemed repatriation tax on non-U.S. earnings. The change in estimate was recorded under SEC Staff Accounting Bulletin No. 118 (“SAB 118”) and the accounting under SAB 118 is complete.

2017

The Firm’s effective tax rate increased in 2017 driven by a $ i 1.9 billion income tax expense representing the estimated impact of the enactment of the TCJA. The $ i 1.9 billion tax expense was predominantly driven by a deemed repatriation of the Firm’s unremitted non-U.S. earnings and adjustments to the value of certain tax-oriented investments partially offset by a benefit from the revaluation of the Firm’s net deferred tax liability.

The deemed repatriation of the Firm’s unremitted non-U.S. earnings is based on the post-1986 earnings and profits of each controlled foreign corporation. The calculation resulted in an estimated income tax expense of $ i 3.7 billion. Furthermore, accounting for income taxes requires the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The Firm remeasured its deferred tax asset and liability balances in the fourth quarter of 2017 to the new statutory U.S. federal income tax rate of 21% as well as any federal benefit associated with state and local deferred income taxes. The remeasurement resulted in an estimated income tax benefit of $ i 2.1 billion.

Adjustments were also recorded in 2017 to income tax expense for certain tax-oriented investments. These adjustments were driven by changes to affordable housing proportional amortization resulting from the reduction of the federal income tax rate under the TCJA. SAB 118 did not apply to these adjustments.

i The components of income tax expense/(benefit) included in the Consolidated statements of income were as follows for each of the years ended December 31, 2018, 2017, and 2016.

Income tax expense/(benefit)

Year ended December 31,
(in millions)

2018

2017

2016

Current income tax expense/(benefit)

U.S. federal

$

i 2,854

$

i 5,718

$

i 2,488

Non-U.S.

i 2,077

i 2,400

i 1,760

U.S. state and local

i 1,638

i 1,029

i 904

Total current income tax expense/(benefit)

i 6,569

i 9,147

i 5,152

Deferred income tax expense/(benefit)

U.S. federal

i 1,359

i 2,174

i 4,364

Non-U.S.

( i 93

)

( i 144

)

( i 73

)

U.S. state and local

i 455

i 282

i 360

Total deferred income tax
expense/(benefit)

i 1,721

i 2,312

i 4,651

Total income tax expense

$

i 8,290

$

i 11,459

$

i 9,803

Total income tax expense includes $ i 54 million, $ i 252 million and $ i 55 million of tax benefits recorded in 2018, 2017, and 2016, respectively, as a result of tax audit resolutions.

Tax effect of items recorded in stockholders’ equity

The preceding table does not reflect the tax effect of certain items that are recorded each period directly in stockholders’ equity. The tax effect of all items recorded directly to stockholders’ equity resulted in an increase of $ i 172 million in 2018, a decrease of $ i 915 million in 2017, and an increase of $ i 925 million in 2016.

Results from Non-U.S. earnings

i The following table presents the U.S. and non-U.S. components of income before income tax expense for the years ended December 31, 2018, 2017 and 2016.



Year ended December 31, (in millions)	2018		2017		2016
U.S.	$	i 33,052	$	i 27,103	$	i 26,651
Non-U.S.^(a)	i 7,712		i 8,797		i 7,885
Income before income tax expense	$	i 40,764	$	i 35,900	$	i 34,536


(a)	For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S.

Prior to December 31, 2017, U.S. federal income taxes had not been provided on the undistributed earnings of certain non-U.S. subsidiaries, to the extent that such earnings had been reinvested abroad for an indefinite period of time. The Firm is no longer maintaining the indefinite reinvestment assertion on the undistributed earnings of those non-U.S. subsidiaries in light of the enactment of the TCJA. The U.S. federal and state and local income taxes associated with the undistributed and previously untaxed earnings of those non-U.S. subsidiaries was included in the deemed repatriation charge recorded as of December 31, 2017.

Affordable housing tax credits

The Firm recognized $ i 1.5 billion, $ i 1.7 billion and $ i 1.7 billion of tax credits and other tax benefits associated with investments in affordable housing projects within income tax expense for the years 2018, 2017 and 2016, respectively. The amount of amortization of such investments reported in income tax expense was $ i 1.2 billion, $ i 1.7 billion and $ i 1.2 billion, respectively. The carrying value of these investments, which are reported in other assets on the Firm’s Consolidated balance sheets, was $ i 7.9 billion and $ i 7.8 billion at December 31, 2018 and 2017, 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 $ i 2.3 billion and $ i 2.4 billion at December 31, 2018 and 2017, 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. i The significant components of deferred tax assets and liabilities are reflected in the following table as of December 31, 2018 and 2017.



December 31, (in millions)	2018			2017
Deferred tax assets
Allowance for loan losses	$	i 3,433		$	i 3,395
Employee benefits	i 1,129			i 688
Accrued expenses and other	i 2,701			i 3,528
Non-U.S. operations	i 629			i 327
Tax attribute carryforwards	i 163			i 219
Gross deferred tax assets	i 8,055			i 8,157
Valuation allowance	( i 89		)	( i 46		)
Deferred tax assets, net of valuation allowance	$	i 7,966		$	i 8,111
Deferred tax liabilities
Depreciation and amortization	$	i 2,533		$	i 2,299
Mortgage servicing rights, net of hedges	i 2,586			i 2,757
Leasing transactions	i 4,719			i 3,483
Non-U.S. operations	i —			i 200
Other, net	i 3,713			i 3,502
Gross deferred tax liabilities	i 13,551			i 12,241
Net deferred tax (liabilities)/assets	$	( i 5,585	)	$	( i 4,130	)

JPMorgan Chase has recorded deferred tax assets of $ i 163 million at December 31, 2018, in connection with U.S. federal and non-U.S. net operating loss (“NOL”) carryforwards and state and local capital loss carryforwards. At December 31, 2018, total U.S. federal NOL carryforwards were approximately $ i 423 million, non-U.S. NOL carryforwards were approximately $ i 120 million and state and local capital loss carryforwards were $ i 1.3 billion. If not utilized, the U.S. federal NOL carryforwards will expire between 2022 and 2036 and the state and local capital loss carryforwards will expire between 2020 and 2022. Certain non-U.S. NOL carryforwards will expire between 2028 and 2034 whereas others have an unlimited carryforward period.

The valuation allowance at December 31, 2018, was due to the state and local capital loss carryforwards and certain non-U.S. deferred tax assets, including NOL carryforwards.

Unrecognized tax benefits

At December 31, 2018, 2017 and 2016, JPMorgan Chase’s unrecognized tax benefits, excluding related interest expense and penalties, were $ i 4.9 billion, $ i 4.7 billion and $ i 3.5 billion, respectively, of which $ i 3.8 billion, $ i 3.5 billion and $ i 2.6 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 $ i 0.9 billion. Upon settlement of an audit, the change in the unrecognized tax benefit would result from payment or income statement recognition.

i The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016.

Year ended December 31,
(in millions)

2018

2017

2016

Balance at January 1,

$

i 4,747

$

i 3,450

$

i 3,497

Increases based on tax positions related to the current period

i 980

i 1,355

i 262

Increases based on tax positions related to prior periods

i 649

i 626

i 583

Decreases based on tax positions related to prior periods

( i 1,249

)

( i 350

)

( i 785

)

Decreases related to cash settlements with taxing authorities

( i 266

)

( i 334

)

( i 56

)

Decreases related to a lapse of applicable statute of limitations

i —

( i 51

)

Balance at December 31,

$

i 4,861

$

i 4,747

$

i 3,450

After-tax interest expense/(benefit) and penalties related to income tax liabilities recognized in income tax expense were $ i 192 million, $ i 102 million and $ i 86 million in 2018, 2017 and 2016, respectively.

At December 31, 2018 and 2017, in addition to the liability for unrecognized tax benefits, the Firm had accrued $ i 887 million and $ i 639 million, respectively, for income tax-related interest and penalties.

Tax examination status

i 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, 2018.



December 31, 2018	Periods under examination	Status
JPMorgan Chase – U.S.	2006 – 2010	Field examination of amended returns
JPMorgan Chase – U.S.	2011 – 2013	Field Examination
JPMorgan Chase – U.S.	2014 - 2016	Field Examination
JPMorgan Chase – New York State	2012 - 2014	Field Examination
JPMorgan Chase – New York City	2012 - 2014	Field Examination
JPMorgan Chase – California	2011 – 2012	Field Examination
JPMorgan Chase – U.K.	2006 – 2016	Field examination of certain select entities

Note 25 – i Restricted cash, other restricted

assets and intercompany funds transfers

Restricted cash and other restricted assets

Certain of the Firm’s cash and other assets are restricted as to withdrawal or usage. These restrictions are imposed by various regulatory authorities based on the particular activities of the Firm’s subsidiaries.

The business of JPMorgan Chase Bank, N.A. is subject to examination and regulation by the OCC. The Bank is a member of the U.S. Federal Reserve System, and its deposits in the U.S. are insured by the FDIC, subject to applicable limits.

The Federal Reserve requires depository institutions to maintain cash reserves with a Federal Reserve Bank. The average required amount of reserve balances is deposited by the Firm’s bank subsidiaries. In addition, the Firm is required to maintain cash reserves at certain non-US central banks.

The Firm is also subject to rules and regulations established by other U.S. and non U.S. regulators. As part of its compliance with the respective regulatory requirements, the Firm’s broker-dealers (principally J.P. Morgan Securities LLC in the U.S and J.P. Morgan Securities plc in the U.K.) are subject to certain restrictions on cash and other assets.

i Upon the adoption of the restricted cash guidance in the first quarter of 2018, restricted and unrestricted cash are reported together on the Consolidated balance sheets and Consolidated statements of cash flows. The following table presents the components of the Firm’s restricted cash:



December 31, (in billions)	2018		2017
Cash reserves – Federal Reserve Banks	$	i 22.1	$	i 25.7
Segregated for the benefit of securities and futures brokerage customers	i 14.6		i 16.8
Cash reserves at non-U.S. central banks and held for other general purposes	i 4.1		i 3.3
Total restricted cash^(a)	$	i 40.8	$	i 45.8


(a)	Comprises $ i 39.6 billion and $ i 44.8 billion in deposits with banks, and $ i 1.2 billion and $ i 1.0 billion in cash and due from banks on the Consolidated balance sheets as of December 31, 2018 and 2017, respectively.

Also, as of December 31, 2018 and 2017, the Firm had the following other restricted assets:


•	Cash and securities pledged with clearing organizations for the benefit of customers of $ i 20.6 billion and $ i 18.0 billion, respectively.


•	Securities with a fair value of $ i 9.7 billion and $ i 3.5 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 i 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 i 20% of the banking subsidiary’s total capital.

The Parent Company’s two principal subsidiaries are JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings LLC, an intermediate holding company (the “IHC”). The IHC holds the stock of substantially all of JPMorgan Chase’s subsidiaries other than JPMorgan Chase Bank, N.A. and its subsidiaries. The IHC also owns other assets and intercompany indebtedness owing to the holding company. The Parent Company is obligated to contribute to the IHC substantially all the net proceeds received from securities issuances (including issuances of senior and subordinated debt securities and of preferred and common stock).

The principal sources of income and funding for the Parent Company are dividends from JPMorgan Chase Bank, N.A. and dividends and extensions of credit from the IHC. In addition to dividend restrictions set forth in statutes and regulations, the Federal Reserve, the OCC and the FDIC have authority under the Financial Institutions Supervisory Act to prohibit or to limit the payment of dividends by the banking organizations they supervise, including 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, 2019, the Parent Company’s banking subsidiaries could pay, in the aggregate, approximately $ i 10 billion in dividends to their respective bank holding companies without the prior approval of their relevant banking regulators. The capacity to pay dividends in 2019 will be supplemented by the banking subsidiaries’ earnings during the year.

The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The OCC establishes similar minimum capital requirements and standards for the Firm’s IDI, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.

Capital rules under Basel III establish minimum capital ratios and overall capital adequacy standards for large and internationally active U.S. bank holding companies and banks, including the Firm and its IDI subsidiaries. Basel III set forth two comprehensive approaches for calculating RWA: a standardized approach (“Basel III Standardized”) and an advanced approach (“Basel III Advanced”). Certain of the requirements of Basel III were subject to phase-in periods that began on January 1, 2014 and continued through the end of 2018 (“transitional period”).

The three components of regulatory capital under the Basel III rules are as illustrated below:

Under the risk-based and leverage-based capital guidelines of the Federal Reserve, JPMorgan Chase is required to maintain minimum ratios for CET1, Tier 1, Total, Tier 1 leverage and the SLR. Failure to meet these minimum requirements could cause the Federal Reserve to take action. IDI subsidiaries are also subject to these capital requirements by their respective primary regulators.

i The following table presents the minimum and well-capitalized ratios to which the Firm and its IDI subsidiaries were subject as of December 31, 2018.



	Minimum capital ratios				Well-capitalized ratios
	BHC^(a)(e)(f)		IDI^(b)(e)(f)		BHC^(c)		IDI^(d)
Capital ratios
CET1	i 9.0	%	i 6.375	%	i —	%	i 6.5	%
Tier 1	i 10.5		i 7.875		i 6.0		i 8.0
Total	i 12.5		i 9.875		i 10.0		i 10.0
Tier 1 leverage	i 4.0		i 4.00		i 5.0		i 5.0
SLR	i 5.0		i 6.00		i —		i 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 Transitional minimum capital ratios applicable to the Firm under Basel III at December 31, 2018. At December 31, 2018, the CET1 minimum capital ratio includes i 1.875% resulting from the phase in of the Firm’s i 2.5% capital conservation buffer, and i 2.625% resulting from the phase in of the Firm’s i 3.5% GSIB surcharge.


(b)	Represents requirements for JPMorgan Chase’s IDI subsidiaries. The CET1 minimum capital ratio includes i 1.875% resulting from the phase in of the i 2.5% capital conservation buffer that is applicable to the IDI subsidiaries. The IDI subsidiaries are not subject to the GSIB surcharge.


(c)	Represents requirements for bank holding companies pursuant to regulations issued by the Federal Reserve.


(d)	Represents requirements for IDI subsidiaries pursuant to regulations issued under the FDIC Improvement Act.


(e)	For the period ended December 31, 2017 the CET1, Tier 1, Total and Tier 1 leverage minimum capital ratios applicable to the Firm were i 7.5%, i 9.0%, i 11.0% and i 4.0% and the CET1, Tier 1, Total and Tier 1 leverage minimum capital ratios applicable to the Firm’s IDI subsidiaries were i 5.75%, i 7.25%, i 9.25% and i 4.0% respectively.


(f)	Represents minimum SLR requirement of 3.0%, as well as, supplementary leverage buffers of 2.0% and 3.0% for BHC and IDI, respectively.

JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to address the financing needs of its customers and clients. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the customer or client draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the customer or client subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees are refinanced, extended, cancelled, or expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its expected future credit exposure or funding requirements.

i To provide for probable credit losses inherent in wholesale and certain consumer lending-commitments, an allowance for credit losses on lending-related commitments is maintained. Refer to Note 13 for further information regarding the allowance for credit losses on lending-related commitments. The following table summarizes the contractual amounts and carrying values of off-balance sheet lending-related financial instruments, guarantees and other commitments at December 31, 2018 and 2017. 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 i 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.

Other unfunded commitments to extend credit

Other unfunded commitments to extend credit generally consist of commitments for working capital and general corporate purposes, extensions of credit to support commercial paper facilities and bond financings in the event that those obligations cannot be remarketed to new investors, as well as committed liquidity facilities to clearing organizations. The Firm also issues commitments under multipurpose facilities which could be drawn upon in several forms, including the issuance of a standby letter of credit.

The Firm acts as a settlement and custody bank in the U.S. tri-party repurchase transaction market. In its role as settlement and custody bank, the Firm in part is exposed to the intra-day credit risk of its cash borrower clients, usually broker-dealers. This exposure arises under secured clearance advance facilities that the Firm extended to its clients (i.e. cash borrowers); these facilities contractually limit the Firm’s intra-day credit risk to the facility amount and must be repaid by the end of the day. As of December 31, 2017, the secured clearance advance facility maximum outstanding commitment amount was $ i 1.5 billion. As of December 31, 2018 the Firm no longer offers such arrangements to its clients.

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 indemnificat

ion agreements included within third-party contractual arrangements, certain derivative contracts and the guarantees under the sponsored member repo program.

As required by U.S. GAAP, the Firm initially records guarantees at the inception date fair value of the obligation assumed (e.g., the amount of consideration received or the net present value of the premium receivable). For certain types of guarantees, the Firm records this fair value amount in other liabilities with an offsetting entry recorded in cash (for premiums received), or other assets (for premiums receivable). Any premium receivable recorded in other assets is reduced as cash is received under the contract, and the fair value of the liability recorded at inception is amortized into income as lending and deposit-related fees over the life of the guarantee contract. For indemnifications provided in sales agreements, a portion of the sale proceeds is allocated to the guarantee, which adjusts the gain or loss that would otherwise result from the transaction. For these indemnifications, the initial liability is amortized to income as the Firm’s risk is reduced (i.e., over time or when the indemnification expires). Any contingent liability that exists as a result of issuing the guarantee or indemnification is recognized when it becomes probable and reasonably estimable. The contingent portion of the liability is not recognized if the estimated amount is less than the carrying amount of the liability recognized at inception (adjusted for any amortization). The contractual amount and carrying value of guarantees and indemnifications are included in the table on page 272. 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.

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 i 100% of the value of the securities on loan from the borrower. Collateral is marked to market daily to help assure that collateralization is adequate. Additional collateral is called from the borrower if a shortfall exists, or collateral may be released to the borrower in the event of overcollateralization. If a borrower defaults, the Firm would use the collateral held to purchase replacement securities in the market or to credit the lending client or counterparty with the cash equivalent thereof.

Derivatives qualifying as guarantees

The Firm transacts certain derivative contracts that have the characteristics of a guarantee under U.S. GAAP. These contracts include written put options that require the Firm to purchase assets upon exercise by the option holder at a specified price by a specified date in the future. The Firm may enter into written put option contracts in order to meet client needs, or for other trading purposes. The terms of written put options are typically five years or less.

Derivatives deemed to be guarantees also includes stable value contracts, commonly referred to as “stable value products”, that require the Firm to make a payment of the difference between the market value and the book value of a counterparty’s reference portfolio of assets in the event that market value is less than book value and certain other conditions have been met. Stable value products are transacted in order to allow investors to realize investment returns with less volatility than an unprotected portfolio. These contracts are typically longer-term or may have no stated maturity, but allow the Firm to elect to terminate the contract under certain conditions.

The notional value of derivatives guarantees generally represents the Firm’s maximum exposure. However, exposure to certain stable value products is contractually limited to a substantially lower percentage of the notional amount.

The fair value of derivative guarantees reflects the probability, in the Firm’s view, of whether the Firm will be required to perform under the contract. The Firm reduces exposures to these contracts by entering into offsetting transactions, or by entering into contracts that hedge the market risk related to the derivative guarantees.

i The following table summarizes the derivatives qualifying as guarantees as of December 31, 2018 and 2017.



(in millions)	December 31, 2018		December 31, 2017
Notional amounts
Derivative guarantees	$	i 55,271	$	i 57,174
Stable value contracts with contractually limited exposure	i 28,637		i 29,104
Maximum exposure of stable value contracts with contractually limited exposure	i 2,963		i 3,053

Fair value
Derivative payables	i 367		i 304
Derivative receivables	i —		i —

In addition to derivative contracts that meet the characteristics of a guarantee, the Firm is both a purchaser and seller of credit protection in the credit derivatives market. For a further discussion of credit derivatives, refer to Note 5.

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. For a further discussion of securities financing agreements, refer to Note 11.

Loan sales- and securitization-related indemnifications

Mortgage repurchase liability

In connection with the Firm’s mortgage loan sale and securitization activities with GSEs the Firm has made representations and warranties that the loans sold meet certain requirements, and that may require the Firm to repurchase mortgage loans and/or indemnify the loan purchaser if such representations and warranties are breached by the Firm. Further, although the Firm’s securitizations are predominantly nonrecourse, the Firm does provide recourse servicing in certain limited cases where it agrees to share credit risk with the owner of the mortgage loans. To the extent that repurchase demands that are received relate to loans that the Firm purchased from third parties that remain viable, the Firm typically will have the right to seek a recovery of related repurchase losses from the third party. Generally, the maximum amount of future payments the Firm would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers (including securitization-related SPEs) plus, in certain circumstances, accrued interest on such loans and certain expenses.

Private label securitizations

The liability related to repurchase demands associated with private label securitizations is separately evaluated by the Firm in establishing its litigation reserves.

For additional information regarding litigation, refer to Note 29.

Loans sold with recourse

The Firm provides servicing for mortgages and certain commercial lending products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit risk to the Firm is the cost of temporary servicing advances of funds (i.e., normal servicing advances). In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans, such as Fannie Mae or Freddie Mac or a private investor, insurer or guarantor. Losses on recourse servicing predominantly occur when foreclosure sales proceeds of the property underlying a defaulted loan are less than the sum of the outstanding principal balance, plus accrued interest on the loan and the cost of holding and disposing of the underlying property. The Firm’s securitizations are predominantly nonrecourse, thereby effectively transferring the risk of future credit losses to the purchaser of the mortgage-backed securities issued by the trust. At December 31, 2018 and 2017, the unpaid principal balance of loans sold with recourse totaled $ i 1.0 billion and $ i 1.2 billion, respectively. The carrying value of the related liability that the Firm has recorded in accounts payable and other liabilities on the Consolidated balance sheets, which is representative of the Firm’s view of the likelihood it will have to perform under its recourse obligations, was $ i 30 million and $ i 38 million at December 31, 2018 and 2017, 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.

Card charge-backs

Under the rules of Visa USA, Inc., and MasterCard International, JPMorgan Chase Bank, N.A., is primarily liable for the amount of each processed card sales transaction that is the subject of a dispute between a cardmember and a merchant. If a dispute is resolved in the cardmember’s favor, Merchant Services will (through the cardmember’s issuing bank) credit or refund the amount to the cardmember and will charge back the transaction to the merchant. If Merchant Services is unable to collect the amount from the merchant, Merchant Services will bear the loss for the amount credited or refunded to the cardmember. Merchant Services mitigates this risk by withholding future settlements, retaining cash reserve accounts or by obtaining other collateral. However, in the unlikely event that: (1) a merchant ceases operations and is unable to deliver products, services or a refund; (2) Merchant Services does not have sufficient collateral from the merchant to provide cardmember refunds; and (3) Merchant Services does not have sufficient financial resources to provide cardmember refunds, JPMorgan Chase Bank, N.A., would recognize the loss.

Merchant Services incurred aggregate losses of $ i 30 million, $ i 28 million, and $ i 85 million on $ i 1,366.1 billion, $ i 1,191.7 billion, and $ i 1,063.4 billion of aggregate volume processed for the years ended December 31, 2018, 2017 and 2016, respectively. Incurred losses from merchant charge-backs are charged to other expense, with the offset recorded in a valuation allowance against accrued interest and accounts receivable on the Consolidated balance sheets. The carrying value of the valuation allowance was $ i 23 million and $ i 7 million at December 31, 2018 and 2017, respectively, which the Firm believes, based on historical experience and the collateral held by Merchant Services of $ i 144 million and $ i 141 million at December 31, 2018 and 2017, respectively, is representative of the payment or performance risk to the Firm related to charge-backs.

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.

For information on the derivatives that the Firm executes for its own account and records in its Consolidated Financial Statements, refer to Note 5.

Exchange & Clearing House Memberships

The Firm is a member of several securities and derivative exchanges and clearing houses, both in the U.S. and other countries, and it provides clearing services 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 272, in the Exchange & clearing house guarantees and commitments line.



For the fiscal year ended		Commission file
December 31, 2018		number 1-5805



Delaware		13-2624428
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

383 Madison Avenue, New York, New York		10179
(Address of principal executive offices)		(Zip code)



Title of each class		Name of each exchange on which registered
Common stock		The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 5.45% Non-Cumulative Preferred Stock, Series P		The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.70% Non-Cumulative Preferred Stock, Series T		The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.30% Non-Cumulative Preferred Stock, Series W		The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.125% Non-Cumulative Preferred Stock, Series Y		The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.10% Non-Cumulative Preferred Stock, Series AA		The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.15% Non-Cumulative Preferred Stock, Series BB		The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 5.75% Non-Cumulative Preferred Stock, Series DD		The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.00% Non-Cumulative Preferred Stock, Series EE		The New York Stock Exchange
Alerian MLP Index ETNs due May 24, 2024		NYSE Arca, Inc.
Guarantee of Callable Step-Up Fixed Rate Notes due April 26, 2028 of JPMorgan Chase Financial Company LLC		The New York Stock Exchange
Guarantee of Cushing 30 MLP Index ETNs due June 15, 2037 of JPMorgan Chase Financial Company LLC		NYSE Arca, Inc.



x Large accelerated filer	o Accelerated filer	o Non-accelerated filer	o Smaller reporting company	o Emerging growth company



Year ended December 31, 2018	Total shares of common stock repurchased	Average price paid per share of common stock^(a)		Aggregate repurchases of common equity (in millions)^(a)		Dollar value of remaining authorized repurchase (in millions)^(a)
First quarter	41,419,035	$	112.78	$	4,671	$	5,156
Second quarter	45,299,370	109.67		4,968		188		^(b)
Third quarter	39,282,276	112.41		4,416		16,309
October	22,697,641	108.97		2,474		13,836
November	15,389,818	109.25		1,681		12,155
December	17,416,343	101.81		1,773		10,381
Fourth quarter	55,503,802	106.80		5,928		10,381
Year-to-date	181,504,483	$	110.09	$	19,983	$	10,381	^(c)



Part I		Page
Item 1.	Business.	1
	Overview	1
	Business segments	1
	Competition	1
	Supervision and regulation	1–6
	Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials	288–292
	Return on equity and assets	40, 287, 288
	Investment securities portfolio	300
	Loan portfolio	102–119, 219–238, 301–306
	Summary of loan and lending-related commitments loss experience	120–122, 239–243, 307–308
	Deposits	256, 309
	Short-term and other borrowed funds	310
Item 1A.	Risk Factors.	7–28
Item 1B.	Unresolved Staff Comments.	28
Item 2.	Properties.	29
Item 3.	Legal Proceedings.	29
Item 4.	Mine Safety Disclosures.	29

Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	30
Item 6.	Selected Financial Data.	30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	30
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	30
Item 8.	Financial Statements and Supplementary Data.	30
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	31
Item 9A.	Controls and Procedures.	31
Item 9B.	Other Information.	31

Part III
Item 10.	Directors, Executive Officers and Corporate Governance.	32
Item 11.	Executive Compensation.	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	33
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	33
Item 14.	Principal Accounting Fees and Services.	33

Part IV
Item 15.	Exhibits, Financial Statement Schedules.	34-37


(b)	The $188 million unused portion under the prior Board authorization was canceled when the $20.7 billion repurchase program was authorized by the Board of Directors on June 28, 2018.


(c)	Represents the amount remaining under the $20.7 billion repurchase program.



	Age
Name	(at December 31, 2018)	Positions and offices
James Dimon	62	Chairman of the Board and Chief Executive Officer; he had been President from July 2004 until January 2018.
Ashley Bacon	49	Chief Risk Officer since June 2013.
Lori A. Beer	51	Chief Information Officer since September 2017, prior to which she had been Chief Information Officer of the Corporate & Investment Bank since June 2016. She was Global Head of Banking Technology from January 2014 until May 2016. Prior to joining JPMorgan Chase in 2014, she was Executive Vice President of Specialty Businesses and Information Technology for Anthem, Inc.
Mary Callahan Erdoes	51	Chief Executive Officer of Asset & Wealth Management since September 2009.
Stacey Friedman	50	General Counsel since January 2016, prior to which she was Deputy General Counsel since July 2015 and General Counsel for the Corporate & Investment Bank since August 2012.
Marianne Lake	49	Chief Financial Officer since January 2013.
Robin Leopold	54	Head of Human Resources since January 2018, prior to which she had been Head of Human Resources for the Corporate & Investment Bank since August 2012.
Douglas B. Petno	53	Chief Executive Officer of Commercial Banking since January 2012.
Daniel E. Pinto	56	Co-President and Co-Chief Operating Officer since January 2018, Chief Executive Officer of the Corporate & Investment Bank since March 2014, and Chief Executive Officer of Europe, the Middle East and Africa since June 2011. He had been Co-Chief Executive Officer of the Corporate & Investment Bank from July 2012 until March 2014.
Peter Scher	57	Head of Corporate Responsibility since 2011 and Chairman of the Mid-Atlantic Region since 2015.
Gordon A. Smith	60	Co-President and Co-Chief Operating Officer since January 2018, and Chief Executive Officer of Consumer & Community Banking since December 2012.



December 31, 2018	Number of shares to be issued upon exercise of outstanding options/stock appreciation rights		Weighted-average exercise price of outstanding options/stock appreciation rights			Number of shares remaining available for future issuance under stock incentive plans
Plan category
Employee share-based incentive plans approved by shareholders	12,462,572	^(a)		$	41.46	85,860,463	^(b)
Total	12,462,572			$	41.46	85,860,463


(a)	Does not include restricted stock units or performance stock units granted under the shareholder-approved Long-Term Incentive Plan (“LTIP”), as amended and restated effective May 15, 2018. For further discussion, refer to Note 9.


(b)	Represents shares available for future issuance under the shareholder-approved LTIP.



Financial:

40	Five-Year Summary of Consolidated Financial Highlights	Audited financial statements:

41	Five-Year Stock Performance	148	Management’s Report on Internal Control Over Financial Reporting

Management’s discussion and analysis:		149	Report of Independent Registered Public Accounting Firm

42	Introduction	150	Consolidated Financial Statements

43	Executive Overview	155	Notes to Consolidated Financial Statements

48	Consolidated Results of Operations

52	Consolidated Balance Sheets and Cash Flows Analysis

55	Off–Balance Sheet Arrangements and Contractual Cash Obligations

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

60	Business Segment Results	287	Selected quarterly financial data (unaudited)

79	Enterprise-wide Risk Management	288	Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials


84	Strategic Risk Management	293	Glossary of Terms and Acronyms

102	Credit and Investment Risk Management

124	Market Risk Management

132	Country Risk Management

134	Operational Risk Management

141	Critical Accounting Estimates Used by the Firm

144	Accounting and Reporting Developments

147	Forward-Looking Statements


(a)	TBVPS and ROTCE are non-GAAP financial measures. For a further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59.


(b)	For the years ended December 31, 2018 and 2017, the percentage represents the Firm’s reported average LCR for the three months ended December 31, 2018 and 2017, per the U.S. LCR public disclosure requirements which became effective April 1, 2017. Refer to Liquidity Risk Management on pages 95–100 for additional information on the Firm’s LCR.


(d)	Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm’s total leverage exposure. Ratios prior to 2018 were calculated under the Basel III Transitional rules, per the SLR public disclosure requirements which became effective January 1, 2015.


(e)	Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on pages 120–122.


(f)	On December 22, 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. For additional information related to the impact of the TCJA, refer to Note 24.



December 31, (in dollars)	2013		2014		2015		2016		2017		2018
JPMorgan Chase	$	100.00	$	109.88	$	119.07	$	160.23	$	203.07	$	189.57
KBW Bank Index	100.00		109.36		109.90		141.23		167.49		137.82
S&P Financial Index	100.00		115.18		113.38		139.17		169.98		147.82
S&P 500 Index	100.00		113.68		115.24		129.02		157.17		150.27



Type of off-balance sheet arrangement	Location of disclosure	Page references
Special-purpose entities: variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs	Refer to Note 14	244–251
Off-balance sheet lending-related financial instruments, guarantees, and other commitments	Refer to Note 27	271–276



Contractual cash obligations
By remaining maturity at December 31, (in millions)	2018										2017
	2019		2020-2021		2022-2023		After 2023		Total		Total
On-balance sheet obligations
Deposits^(a)	$	1,447,407	$	8,958	$	6,227	$	5,439	$	1,468,031	$	1,437,464
Federal funds purchased and securities loaned or sold under repurchase agreements	181,491		458		—		371		182,320		158,916
Short-term borrowings^(a)	62,393		—		—		—		62,393		42,664
Beneficial interests issued by consolidated VIEs	13,502		5,075		1,400		281		20,258		26,036
Long-term debt^(a)	26,889		75,816		37,171		118,782		258,658		260,895
Other^(b)(c)	5,592		1,687		1,669		2,846		11,794		13,613
Total on-balance sheet obligations	1,737,274		91,994		46,467		127,719		2,003,454		1,939,588
Off-balance sheet obligations
Unsettled resale and securities borrowed agreements^(d)	102,008		—		—		—		102,008		76,859
Contractual interest payments^(e)	10,960		11,501		8,295		27,496		58,252		54,103
Operating leases^(f)	1,561		2,840		2,111		4,480		10,992		9,877
Equity investment commitments^(c)(g)	262		2		—		7		271		117
Contractual purchases and capital expenditures^(c)	1,948		1,048		543		60		3,599		3,743
Obligations under co-brand programs	356		728		566		287		1,937		1,434
Total off-balance sheet obligations	117,095		16,119		11,515		32,330		177,059		146,133
Total contractual cash obligations	$	1,854,369	$	108,113	$	57,982	$	160,049	$	2,180,513	$	2,085,721


(a)	Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return an amount based on the performance of the structured notes.


(b)	Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit obligations, insurance liabilities and income taxes payable associated with the deemed repatriation under the TCJA.


(d)	For further information, refer to unsettled resale and securities borrowed agreements in Note 27.


(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.

December 31, 2018

Net capital

(in millions)

J.P. Morgan Securities


(f)	Includes noncancelable operating leases for premises and equipment used primarily for banking purposes. Excludes the benefit of noncancelable sublease rentals of $825 million and $1.0 billion at December 31, 2018 and 2017, respectively. Refer to Note 28 for more information on lease commitments.


(g)	Included unfunded commitments of $40 million at both December 31, 2018 and 2017, to third-party private equity funds, and $231 million and $77 million of unfunded commitments at December 31, 2018 and 2017, respectively, to other equity investments.



	Period-end				Average
	Dec 31, 2018		Dec 31, 2017		Year ended December 31,
(in millions, except per share and ratio data)	Dec 31, 2018		Dec 31, 2017		2018			2017			2016
Common stockholders’ equity	$	230,447	$	229,625	$	229,222		$	230,350		$	224,631
Less: Goodwill	47,471		47,507		47,491			47,317			47,310
Less: Other intangible assets	748		855		807			832			922
Add: Certain deferred tax liabilities^(a)(b)	2,280		2,204		2,231			3,116			3,212
Tangible common equity	$	184,508	$	183,467	$	183,155		$	185,317		$	179,611

Return on tangible common equity	NA		NA		17		%	12		%	13		%
Tangible book value per share	$	56.33	$	53.56	NA			NA			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.


(b)	Amounts presented for December 31, 2017 and later periods include the effect from revaluation of the Firm’s net deferred tax liability as a result of the TCJA.



League table results – wallet share
	2018			2017			2016
Year ended December 31,	Rank	Share		Rank	Share		Rank	Share
Based on fees^(a)
Long-term debt^(b)
Global	#1	7.3	%	#1	7.8	%	#1	6.8	%
U.S.	1	11.2		2	11.1		1	11.1
Equity and equity-related
Global^(c)	1	9.1		2	7.1		1	7.4
U.S.	1	12.3		1	11.6		1	13.4
M&A^(d)
Global	2	8.9		2	8.4		2	8.3
U.S.	2	9.1		2	9.1		2	9.8
Loan syndications
Global	1	9.5		1	9.3		1	9.3
U.S.	1	12.1		1	11.0		2	11.9
Global investment banking fees^(e)	#1	8.7	%	#1	8.1	%	#1	7.9	%


(a)	Source: Dealogic as of January 1, 2019. Reflects the ranking of revenue wallet and market share.


(b)	Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities (“MBS”); and exclude money market, short-term debt, and U.S. municipal securities.


(c)	Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.


(d)	Global M&A reflects the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.