Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
Commission file
March 31, 2018
number 1-5805

JPMorgan Chase & Co.
(Exact name of registrant as specified in its charter)
Delaware
13-2624428
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification no.)
 
 
270 Park Avenue, New York, New York
10017
(Address of principal executive offices)
(Zip Code)
 
 
Registrant’s telephone number, including area code: (212) 270-6000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x  Yes
o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x  Yes
o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer
o
 
 
 
Non-accelerated filer (Do not check if a smaller reporting company)      o
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o  Yes
x  No
 
Number of shares of common stock outstanding as of March 31, 2018: 3,404,776,922
 



FORM 10-Q
TABLE OF CONTENTS
Page
Item 1.
 
 
 
 
74
 
75
 
76
 
77
 
78
 
79
 
154
 
155
 
156
Item 2.
 
 
3
 
4
 
5
 
8
 
10
 
13
 
14
 
16
 
30
 
32
 
38
 
45
 
50
 
60
 
61
 
66
 
67
 
70
 
73
Item 3.
164
Item 4.
164
 
Item 1.
164
Item 1A.
164
Item 2.
164
Item 3.
165
Item 4.
165
Item 5.
165
Item 6.
166

2



JPMorgan Chase & Co.
Consolidated financial highlights
(unaudited)
As of or for the period ended, (in millions, except per share, ratio, headcount data and where otherwise noted)

1Q18

4Q17

3Q17

 
2Q17

 
1Q17

 
Selected income statement data
 
 
 
 
 
 
 
 
Total net revenue
$
27,907

$
24,457

$
25,578

 
$
25,731

 
$
24,939

 
Total noninterest expense
16,080

14,895

14,570

 
14,767

 
15,283

 
Pre-provision profit
11,827

9,562

11,008

 
10,964

 
9,656

 
Provision for credit losses
1,165

1,308

1,452

 
1,215

 
1,315

 
Income before income tax expense
10,662

8,254

9,556

 
9,749

 
8,341

 
Income tax expense
1,950

4,022

2,824

 
2,720

 
1,893

 
Net income
$
8,712

$
4,232

$
6,732

 
$
7,029

 
$
6,448

 
Earnings per share data
 
 
 
 
 
 
 
 
Net income:    Basic
$
2.38

$
1.08

$
1.77

 
$
1.83

 
$
1.66

 
 Diluted
2.37

1.07

1.76

 
1.82

 
1.65

 
Average shares: Basic
3,458.3

3,489.7

3,534.7

 
3,574.1

 
3,601.7

 
 Diluted
3,479.5

3,512.2

3,559.6

 
3,599.0

 
3,630.4

 
Market and per common share data
 
 
 
 
 
 
 
 
Market capitalization
374,423

366,301

331,393

 
321,633

 
312,078

 
Common shares at period-end
3,404.8

3,425.3

3,469.7

 
3,519.0

 
3,552.8

 
Share price:(a)
 
 
 
 
 
 
 
 
High
$
119.33

$
108.46

$
95.88

 
$
92.65

 
$
93.98

 
Low
103.98

94.96

88.08

 
81.64

 
83.03

 
Close
109.97

106.94

95.51

 
91.40

 
87.84

 
Book value per share
67.59

67.04

66.95

 
66.05

 
64.68

 
Tangible book value per share (“TBVPS”)(b)
54.05

53.56

54.03

 
53.29

 
52.04

 
Cash dividends declared per share
0.56

0.56

0.56

 
0.50

 
0.50

 
Selected ratios and metrics
 
 
 
 
 
 
 
 
Return on common equity (“ROE”)
15
%
7
%
11
%
 
12
%
 
11
%
 
Return on tangible common equity (“ROTCE”)(b)
19

8

13

 
14

 
13

 
Return on assets
1.37

0.66

1.04

 
1.10

 
1.03

 
Overhead ratio
58

61

57

 
57

 
61

 
Loans-to-deposits ratio
63

64

63

 
63

 
63

 
High quality liquid assets (“HQLA”) (in billions)(c)
$
539

$
560

$
568

 
$
541

 
$
528

 
Liquidity coverage ratio (“LCR”) (average)
115
%
119
%
120
%
 
115
%
 
NA
 
Common equity Tier 1 (“CET1”) capital ratio(d)
11.8

12.2

12.5

(h) 
12.5

(h) 
12.4

(h) 
Tier 1 capital ratio(d)
13.5

13.9

14.1

(h) 
14.2

(h) 
14.1

(h) 
Total capital ratio(d)
15.3

15.9

16.1

 
16.0

 
15.6

 
Tier 1 leverage ratio(d)
8.2

8.3

8.4

 
8.5

 
8.4

 
Supplementary leverage ratio (“SLR”)(e)
6.5
%
6.5
%
6.6
%
 
6.7
%
 
6.6
%
 
Selected balance sheet data (period-end)
 
 
 
 
 
 
 
 
Trading assets
$
412,282

$
381,844

$
420,418

 
$
407,064

 
$
402,513

 
Investment securities
238,188

249,958

263,288

 
263,458

 
281,850

 
Loans
934,424

930,697

913,761

 
908,767

 
895,974

 
Core loans
870,536

863,683

843,432

 
834,935

 
812,119

 
Average core loans
861,089

850,166

837,522

 
824,583

 
805,382

 
Total assets
2,609,785

2,533,600

2,563,074

 
2,563,174

 
2,546,290

 
Deposits
1,486,961

1,443,982

1,439,027

 
1,439,473

 
1,422,999

 
Long-term debt
274,449

284,080

288,582

 
292,973

 
289,492

 
Common stockholders’ equity
230,133

229,625

232,314

 
232,415

 
229,795

 
Total stockholders’ equity
256,201

255,693

258,382

 
258,483

 
255,863

 
Headcount
253,707

252,539

251,503

 
249,257

 
246,345

 
Credit quality metrics
 
 
 
 
 
 
 
 
Allowance for credit losses
$
14,482

$
14,672

$
14,648

 
$
14,480

 
$
14,490

 
Allowance for loan losses to total retained loans
1.44
%
1.47
%
1.49
%
 
1.49
%
 
1.52
%
 
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(f)
1.25

1.27

1.29

 
1.28

 
1.31

 
Nonperforming assets
$
6,364

$
6,426

$
6,154

 
$
6,432

 
$
6,826

 
Net charge-offs(g)
1,335

1,264

1,265

 
1,204

 
1,654

 
Net charge-off rate(g)
0.59
%
0.55
%
0.56
%
 
0.54
%
 
0.76
%
 
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, see Note 1.
(a)
Based on daily prices reported by the New York Stock Exchange.
(b)
TBVPS and ROTCE are non-GAAP financial measures. For a further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 14–15.
(c)
HQLA represents the average amount of assets that qualify for inclusion in the LCR for all periods presented except March 31, 2017, which represents the period-end balance. For additional information, see HQLA on page 38.
(d)
Ratios presented are calculated under the Basel III Transitional capital rules and for the capital ratios represent the lower of the Standardized or Advanced approach as required by the Collins Amendment of the Dodd-Frank Act (the “Collins Floor”). See Capital Risk Management on pages 32-37 for additional information on Basel III and the Collins Floor.
(e)
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. Prior period ratios were calculated under the Basel III Transitional rules.    
(f)
Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For a further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 14–15. For a further discussion, see Allowance for credit losses on pages 57–59.
(g)
Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the three months ended March 31, 2017 would have been 0.54%.
(h)
The prior period ratios have been revised to conform with the current period presentation.

3


INTRODUCTION
The following is management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) for the first quarter of 2018.
This Form 10-Q should be read in conjunction with JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the U.S. Securities and Exchange Commission (“2017 Annual Report” or “2017 Form 10-K”), to which reference is hereby made, and which is referred to throughout this document. See the Glossary of terms and acronyms on pages 156–163 for definitions of terms and acronyms used throughout this Form 10-Q.
The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a further discussion of certain of those risks and uncertainties and the factors that could cause JPMorgan Chase’s actual results to differ materially because of those risks and uncertainties, see Forward-looking Statements on page 73 of this Form 10-Q and Part I, Item 1A, Risk Factors, on pages 8–26 of JPMorgan Chase’s 2017 Annual Report.
JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (U.S.), with operations worldwide; the Firm had $2.6 trillion in assets and $256.2 billion in stockholders’ equity as of March 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 many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (JPMorgan Chase Bank, N.A.), a national banking association with U.S. branches in 23 states, and Chase Bank USA, National Association (Chase Bank USA, N.A.), a national banking association that is the Firm’s principal credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (JPMorgan Securities), a U.S. broker-dealer. The bank and non-bank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. The Firm’s principal operating subsidiary in the United Kingdom (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 Note 31 of JPMorgan Chase’s 2017 Form 10-K.




4


EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. 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 Form 10-Q and incorporated documents should be read in their entirety.
Effective January 1, 2018, the Firm adopted several new accounting standards, of which the most significant to the Firm are 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 in the first quarter of 2018 resulted in fair value gains, which were recorded in total net revenue, on certain equity investments that were previously held at cost. For additional information, see Note 1.
Financial performance of JPMorgan Chase
 
 
(unaudited)
As of or for the period ended,
(in millions, except per share data and ratios)
Three months ended March 31,
2018

 
2017

 
Change

Selected income statement data
 
 
 
 
 
Total net revenue
$
27,907

 
$
24,939

 
12
 %
Total noninterest expense
16,080

 
15,283

 
5

Pre-provision profit
11,827

 
9,656

 
22

Provision for credit losses
1,165

 
1,315

 
(11
)
Net income
8,712

 
6,448

 
35

Diluted earnings per share
$
2.37

 
$
1.65

 
44

Selected ratios and metrics
 
 
 
 
 
Return on common equity
15
%
 
11
%
 
 
Return on tangible common equity
19

 
13

 
 
Book value per share
$
67.59

 
$
64.68

 
4

Tangible book value per share
54.05

 
52.04

 
4

Capital ratios(a)
 
 
 
 
 
CET1(b)
11.8
%
 
12.4
%
 
 
Tier 1 capital(b)
13.5

 
14.1

 
 
Total capital
15.3

 
15.6

 
 
(a)
Ratios presented are calculated under the Basel III Transitional capital rules and represent the Collins Floor. See Capital Risk Management on pages 32-37 for additional information on Basel III.
(b)
The prior period ratios have been revised to conform with the current period presentation.


 
Comparisons noted in the sections below are calculated for the first quarter of 2018 versus the first quarter of 2017, unless otherwise specified.
Firmwide overview
JPMorgan Chase reported strong results in the first quarter of 2018 with record net income of $8.7 billion, or $2.37 per share, on net revenue of $27.9 billion. Excluding the benefit of tax reform, net income was still a record for the quarter. The Firm reported ROE of 15% and ROTCE of 19%.
Net income increased 35%, reflecting higher net revenue and the impact of the lower U.S. federal statutory income tax rate as a result of the Tax Cuts & Jobs Acts (“TCJA”), partially offset by an increase in noninterest expense.
Total net revenue increased 12%. Net interest income was $13.3 billion, up 10%, driven by the impact of higher rates and loan growth, partially offset by declines in CIB Markets net interest income. Noninterest revenue was $14.6 billion, up 13%, driven by higher CIB Markets revenue, lower new account origination costs, higher auto lease income and higher management fees in AWM, partially offset by lower investment banking fees. Noninterest revenue also included $505 million of fair value gains related to the adoption of the new recognition and measurement accounting guidance for certain equity investments previously held at cost.
Noninterest expense was $16.1 billion, up 5%, driven by higher compensation expense, volume-related transaction costs in CIB Markets and auto lease depreciation in CCB.
The provision for credit losses was $1.2 billion, down from $1.3 billion in the prior year. In Wholesale, the provision for credit losses was a benefit, reflecting a reduction in the allowance of $170 million in the current quarter, driven by a single name in the Oil & Gas portfolio. The consumer provision reflected higher net charge-offs in Card in the current quarter, in line with expectations. The prior year included a $218 million write-down of the student loan portfolio, which was sold in 2017.
The total allowance for credit losses was $14.5 billion at March 31, 2018, and the Firm had a loan loss coverage ratio, excluding the PCI portfolio, of 1.25%, compared with 1.31% in the prior year. The Firm’s nonperforming assets totaled $6.4 billion at March 31, 2018, a decrease from $6.8 billion in the prior year.
Firmwide average core loans increased 7%, and excluding CIB, core loans increased 8%.
Selected capital-related metrics
The Firm’s Basel III Fully Phased-In CET1 capital was $184 billion, and the Standardized and Advanced CET1 ratios were 11.8% and 12.5%, respectively.
Effective January 1, 2018, the Firm’s SLR was fully phased-in and was 6.5% at March 31, 2018.

5


The Firm continued to grow tangible book value per share (“TBVPS”), ending the first quarter of 2018 at $54.05,
up 4%.
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, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 14–15, and Capital Risk Management on pages 32-37.
Lines of business highlights
Selected business metrics for each of the Firm’s four lines of business are presented below for the first quarter of 2018.
CCB
ROE 25%
 
Average core loans up 8%; average deposits of $660 billion, up 6%
Client investment assets of $276 billion, up 13%, with record net flows this quarter
Credit card sales volume up 12% and merchant processing volume up 15%
CIB
ROE 22%
 
Maintained #1 ranking for Global Investment Banking fees with 8.1% wallet share in 1Q18
Record Equity Markets revenue of $2.0 billion
Treasury Services revenue up 14% and Securities Services revenue up 16%
CB
ROE 20%
 
Average loan balances of $202 billion, up 6%
Strong credit quality with 0 bps net charge-off rate
AWM
ROE 34%
 
Record average loan balances of $133 billion, up 12%
Assets under management (“AUM”) of $2.0 trillion, up 10%
For a detailed discussion of results by line of business, refer to the Business Segment Results on pages 16-29.
Credit provided and capital raised
JPMorgan Chase continues to support consumers, businesses and communities around the globe. The Firm provided credit and raised capital of $617 billion for wholesale and consumer clients during the first three months of 2018:
$55 billion of credit for consumers
$5 billion of credit for U.S. small businesses
$217 billion of credit for corporations
$331 billion of capital raised for corporate clients and non-U.S. government entities
$9 billion of credit and capital raised for U.S. government and nonprofit entities, including states, municipalities, hospitals and universities.

 
2018 outlook
These current expectations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on page 73 of this Form 10-Q and Risk Factors on pages 8–26 of JPMorgan Chase’s 2017 Annual Report. There is no assurance that actual results for the full year of 2018 will be in line with the outlook set forth below, and the Firm does not undertake to update any forward-looking statements.
JPMorgan Chase’s outlook for the remainder of 2018 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client and customer activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these interrelated factors will affect the performance of the Firm and its lines of business. The Firm expects that it will continue to make appropriate adjustments to its businesses and operations in response to ongoing developments in the legal, regulatory, business and economic environments in which it operates.
Firmwide
For full-year 2018, management expects net interest income, on a managed basis, to be in the $54 to $55 billion range, depending on market conditions, and assuming expected core loan growth. Management expects Firmwide average core loan growth to be in the 6% to 7% range for 2018, excluding CIB loans.
Management expects Firmwide noninterest revenue for full-year 2018, on a managed basis, and depending on market conditions, to be up approximately 7%. Noninterest revenue includes the $1.2 billion impact of the revenue recognition accounting guidance.
The Firm continues to take a disciplined approach to managing its expenses, while investing for growth and innovation. As a result, management expects Firmwide adjusted expense for full-year 2018 to be approximately $63 billion, including the approximately $1.2 billion expected impact of the new revenue recognition accounting guidance, predominantly impacting AWM with the remainder in CIB. For additional information on the new accounting guidance, see Note 1.
Management estimates the full-year 2018 effective income tax rate to be approximately 20%, depending upon several factors, including the geographic mix of taxable income and refinements to estimates of the impacts of the TCJA.

6


Management expects the full-year 2018 net charge-off rates to remain relatively flat across the wholesale and consumer portfolios, with the exception of Card.
CCB
In Card, management expects the full-year 2018 net charge-off rate to be approximately 3.25%.
Management expects the full-year 2018 Card Services net revenue rate to be at or above 11.25%.

7


CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three months ended March 31, 2018 and 2017, unless otherwise specified. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 67–69 of this Form 10-Q and pages 138–140 of JPMorgan Chase’s 2017 Annual Report.
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, see Note 1.
Revenue
 
 
 
 
 
 
Three months ended March 31,
(in millions)
2018

 
2017

 
Change

Investment banking fees
$
1,736

 
$
1,880

 
(8
)%
Principal transactions
3,952

 
3,582

 
10

Lending- and deposit-related fees
1,477

 
1,448

 
2

Asset management, administration and commissions
4,309

 
3,877

 
11

Investment securities losses
(245
)
 
(3
)
 
NM

Mortgage fees and related income
465

 
406

 
15

Card income
1,275

 
914

 
39

Other income(a)
1,626

 
771

 
111

Noninterest revenue
14,595

 
12,875

 
13

Net interest income
13,312

 
12,064

 
10

Total net revenue
$
27,907

 
$
24,939

 
12
 %
(a)
Included operating lease income of $1.0 billion and $824 million for the three months ended March 31, 2018 and 2017.
Investment banking fees decreased reflecting lower debt and equity underwriting fees, partially offset by higher advisory fees in CIB. The decrease in debt underwriting fees was primarily driven by declines in industry-wide fee levels and a lower share in leveraged finance. The decrease in equity underwriting fees was also driven by declines in industry-wide fee levels as well as a lower share of large transactions. The increase in advisory fees was driven by a higher number of large completed transactions. For additional information, see CIB segment results on pages 20-24 and Note 5.
Principal transactions revenue increased primarily reflecting:
higher client-driven market-making revenue in CIB as a result of strong performance across products in Equity Markets, particularly in derivatives, and Prime Services. Fixed Income Markets revenue was relatively flat, with strong performance in Currencies & Emerging Markets and Commodities, offset by lower revenue in Credit and Rates
partially offset by
losses on legacy private equity investments in Corporate.
For additional information, see CIB and Corporate segment results on pages 20-24 and page 29, respectively, and
Note 5.
 
For information on lending- and deposit-related fees, see the segment results for CCB on pages 17-19, CIB on pages 20-24, CB on pages 25-26 and Note 5.
Asset management, administration and commissions revenue increased as a result of:
higher asset management fees in AWM and CCB due to growth in assets under management, which benefited from higher market levels and net inflows, and
higher brokerage commissions in CIB and AWM driven by higher volumes.
For additional information, see AWM, CCB and CIB segment results on pages 27-28, pages 17-19 and pages 20-24, respectively, and Note 5.
Investment securities losses increased primarily due to sales related to the repositioning of the investment securities portfolio. For further information, see the Corporate segment discussion on page 29.
Mortgage fees and related income increased driven by higher MSR risk management results and servicing revenue, partially offset by lower net production revenue reflecting lower margins. For further information, see CCB segment results on pages 17-19 and Note 14.
Card income increased driven by:
lower new account origination costs,
higher net interchange income reflecting higher card sales volume, predominantly offset by higher reward costs and partner payments, and
higher merchant processing fees reflecting higher merchant processing volumes.
For further information, see CCB segment results on pages 17-19 and Note 5.
Other income increased primarily due to:
Fair value gains of $505 million related to the adoption of the new recognition and measurement accounting guidance for certain equity investments previously held at cost, and
higher operating lease income from growth in auto operating lease volume in CCB.
For further information, see Note 5.
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 $43 billion from the prior year, and the net interest yield on these assets, on a fully taxable

8


equivalent (“FTE”) basis, was 2.48%, an increase of 15 basis points from the prior year.
Provision for credit losses
 
 
 
 
 
Three months ended March 31,
(in millions)

2018

 
2017

 
Change

Consumer, excluding credit card
$
146

 
$
442

 
(67
)%
Credit card
1,170

 
993

 
18

Total consumer
1,316

 
1,435

 
(8
)
Wholesale
(151
)
 
(120
)
 
(26
)
Total provision for credit losses
$
1,165

 
$
1,315

 
(11
)%
The provision for credit losses decreased as a result of:
a net $170 million reduction in the wholesale allowance for credit losses, primarily in the Oil & Gas portfolio driven by a single name, compared with a reduction of $93 million in the prior year primarily for Oil & Gas
and in consumer
$102 million of higher net charge-offs primarily in the credit card portfolio due to seasoning of newer vintages, in line with expectations, partially offset by a decrease in net charge-offs in the residential real estate portfolio, reflecting continued improvement in home prices and delinquencies, and
the absence of a $218 million write-down recorded in the prior year in connection with the sale of the student loan portfolio.
For a more detailed discussion of the credit portfolio and the allowance for credit losses, see the segment discussions of CCB on pages 17-19, CIB on pages 20-24, CB on pages 25-26, the Allowance for Credit Losses on pages 57–59 and
Note 12.
 
Noninterest expense
 
 
 
 
 
Three months ended March 31,
(in millions)

2018

 
2017

 
Change

Compensation expense
$
8,862

 
$
8,256

 
7
 %
Noncompensation expense:
 
 
 
 
 
Occupancy
888

 
961

 
(8
)
Technology, communications and equipment
2,054

 
1,834

 
12

Professional and outside services
2,121

 
1,792

 
18

Marketing
800

 
713

 
12

Other expense(a)(b)
1,355

 
1,727

 
(22
)
Total noncompensation expense
7,218

 
7,027

 
3

Total noninterest expense
$
16,080

 
$
15,283

 
5
 %
(a)
Included Firmwide legal expense of $70 million and $218 million for the three months ended March 31, 2018 and 2017, respectively.
(b)
Included FDIC-related expense of $383 million and $381 million for the three months ended March 31, 2018 and 2017, respectively.
Compensation expense increased driven by investments in headcount across the businesses, including bankers and business-related support staff; and higher performance-based compensation expense predominantly in CIB.
Noncompensation expense increased as a result of:
higher outside services expense primarily due to higher volume-related transaction costs in CIB and revenue-driven external fees in AWM
higher depreciation expense due to growth in auto operating lease volume in CCB
partially offset by
lower legal expense.
For a discussion of legal expense, see Note 22.
Income tax expense
 
 
Three months ended March 31,
(in millions)

2018

 
2017

 
Change

Income before income tax expense
$
10,662

 
$
8,341

 
28
%
Income tax expense
1,950

 
1,893

 
3

Effective tax rate
18.3
%
 
22.7
%
 
 
The effective tax rate decreased due to the reduction of the U.S. federal statutory income tax rate as a result of the TCJA. The decrease was partially offset by changes in the mix of income and expense subject to U.S. federal, state and local taxes, as well as to certain tax reserves.

9


CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
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, see Note 1.
Consolidated balance sheets analysis
The following is a discussion of the significant changes between March 31, 2018, and December 31, 2017.
Selected Consolidated balance sheets data
(in millions)
Mar 31,
2018

 
Dec 31,
2017

Change

Assets
 
 
 
 
Cash and due from banks
$
24,834

 
$
25,898

(4
)%
Deposits with banks
389,978

 
405,406

(4
)
Federal funds sold and securities purchased under resale agreements
247,608

 
198,422

25

Securities borrowed
116,132

 
105,112

10

Trading assets:
 
 
 
 
Debt and equity instruments
355,368

 
325,321

9

Derivative receivables
56,914

 
56,523

1

Investment securities
238,188

 
249,958

(5
)
Loans
934,424

 
930,697


Allowance for loan losses
(13,375
)
 
(13,604
)
(2
)
Loans, net of allowance for loan losses
921,049

 
917,093


Accrued interest and accounts receivable
72,659

 
67,729

7

Premises and equipment
14,382

 
14,159

2

Goodwill, MSRs and other intangible assets
54,533

 
54,392


Other assets
118,140

 
113,587

4

Total assets
$
2,609,785

 
$
2,533,600

3
 %
Cash and due from banks and deposits with banks decreased primarily reflecting a shift in the deployment of excess cash from deposits with banks and investment securities into securities purchased under resale agreements. The Firm’s excess cash is largely placed with various central banks, predominantly Federal Reserve Banks.
Federal funds sold and securities purchased under resale agreements increased primarily due to the shift in the deployment of excess cash from deposits with banks and investment securities into securities purchased under resale agreements, and higher client activity in CIB. For additional information on the Firm’s Liquidity Risk Management, see pages 38–42.
Securities borrowed increased driven by higher demand for securities to cover short positions related to client-driven market-making activities in CIB.
Trading assets-debt and equity instruments increased predominantly as a result of client-driven market-making activities in CIB, primarily equity instruments in Prime Services, and debt instruments in Fixed Income Markets, driven by higher client demand. For additional information, see Notes 2 and 4.
Investment securities decreased primarily reflecting net sales, paydowns and maturities of U.S. government agency mortgage-backed securities (“MBS”), obligations of U.S. states and municipalities, and commercial MBS. For additional information on Investment securities, see Corporate segment results on page 29, Investment Portfolio Risk Management on page 60, and Notes 2 and 9.
 
Loans were relatively flat reflecting:
higher wholesale loans in CIB primarily driven by higher originations of commercial and industrial loans, and in AWM driven by higher loans to Private Banking clients
offset by
lower consumer loans driven by the seasonal decline in Card balances.
The allowance for loan losses decreased reflecting:
a net reduction in the wholesale allowance primarily as a result of a reduction in the allowance for the Oil & Gas portfolio driven by a single name
the consumer allowance for loan losses was relatively unchanged, reflecting stable credit quality trends.
For a detailed discussion of loans and the allowance for loan losses, refer to Credit Risk Management on pages 43–60, and Notes 2, 3, 11 and 12.
Accrued interest and accounts receivable increased primarily reflecting higher client receivables related to client-driven activities in CIB.
Other assets increased partly reflecting higher cash collateral pledged for derivative contracts in CIB and higher auto operating lease assets from growth in business volume in CCB.
For information on Goodwill and MSRs, see Note 14.

10


Selected Consolidated balance sheets data (continued)
 
(in millions)
Mar 31,
2018

 
Dec 31,
2017

Change

Liabilities
 
 
 
 
Deposits
$
1,486,961

 
$
1,443,982

3
 %
Federal funds purchased and securities loaned or sold under repurchase agreements
179,091

 
158,916

13

Short-term borrowings
62,667

 
51,802

21

Trading liabilities:
 
 
 
 
Debt and equity instruments
99,588

 
85,886

16

Derivative payables
36,949

 
37,777

(2
)
Accounts payable and other liabilities
192,295

 
189,383

2

Beneficial interests issued by consolidated variable interest entities (“VIEs”)
21,584

 
26,081

(17
)
Long-term debt
274,449

 
284,080

(3
)
Total liabilities
2,353,584

 
2,277,907

3

Stockholders’ equity
256,201

 
255,693


Total liabilities and stockholders’ equity
$
2,609,785

 
$
2,533,600

3
 %
Deposits increased due to:
higher consumer deposits reflecting the continuation of growth from new and existing customers, low attrition rates, and the impact of seasonality in CCB
higher wholesale deposits driven by growth in client activity in CIB’s Treasury Services and Securities Services businesses, partially offset by the impact of seasonality
in CB.
For more information, refer to the Liquidity Risk Management discussion on pages 38–42; and Notes 2
and 15.
Federal funds purchased and securities loaned or sold under repurchase agreements increased reflecting higher secured financing of trading assets-debt and equity instruments, partially offset by a change in the mix of funding to short-term borrowings in CIB.
Short-term borrowings increased driven by a change in
the mix of funding for CIB activities from federal funds
sold under repurchase agreements to other borrowed funds, and the net issuance of commercial paper. For additional information, see Liquidity Risk Management on pages 38–42.
 
Trading liabilities–debt and equity instruments increased predominantly related to client-driven market-making activities in CIB Markets, driven by higher levels of short positions in both debt and equity instruments. For additional information, refer to Derivative contracts on pages 55–56, and Notes 2 and 4.
Beneficial interests issued by consolidated VIEs decreased due to maturities of credit card securitizations. For further information on Firm-sponsored VIEs and loan securitization trusts, see Off-Balance Sheet Arrangements on page 13 and Notes 13 and 20.
Long-term debt decreased primarily driven by net maturities of senior debt and lower Federal Home Loan Bank (“FHLB”) advances. For additional information on the Firm’s long-term debt activities, see Liquidity Risk Management on pages 38–42.
For information on changes in stockholders’ equity, see page 77, and on the Firm’s capital actions, see Capital actions on page 32.

11


Consolidated cash flows analysis
The following is a discussion of cash flow activities during the three months ended March 31, 2018 and 2017.
(in millions)
 
Three months ended March 31,
 
2018

 
2017

Net cash provided by/(used in)
 
 
 
 
Operating activities
 
$
(35,109
)
 
$
(22,559
)
Investing activities
 
(45,021
)
 
47,112

Financing activities
 
60,589

 
43,605

Effect of exchange rate changes on cash
 
3,049

 
2,574

Net increase/(decrease) in cash and due from banks and deposits with banks
 
$
(16,492
)
 
$
70,732

Operating activities
In 2018, cash used primarily reflected increases in trading assets-debt and equity instruments, and securities borrowed.
In 2017, cash used reflected an increase in trading assets-debt and equity instruments; decreases in trading liabilities-derivative payables, and accounts payable and other liabilities.
 
Investing activities
In 2018, cash used reflected an increase in securities purchased under resale agreements, partially offset by lower investment securities.
In 2017, cash provided reflected a decrease in securities purchased under resale agreements and lower investment securities.
Financing activities
In 2018 and 2017, cash provided reflected higher deposits, and securities loaned or sold under repurchase agreements, partially offset by a decrease in long-term borrowings.
Additionally, for both periods, cash was used for repurchases of common stock and dividends on common and preferred stock.
For a further discussion of the activities affecting the Firm’s cash flows, see Consolidated Balance Sheets Analysis on pages 10–12, Capital Risk Management on pages 32-37, and Liquidity Risk Management on pages 38–42 of this Form 10-Q, and pages 92–97 of JPMorgan Chase’s 2017 Annual Report.

12


OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, the Firm enters into various contractual obligations that may require future cash payments. Certain obligations are recognized on-balance sheet, while others are off-balance sheet under accounting principles generally accepted in the U.S. (“U.S. GAAP”).
The Firm is involved with several types of off–balance sheet arrangements, including through nonconsolidated 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 transactions and lending-related commitments and guarantees.
The Firm has no commitments to issue its own stock to support any SPE transaction, and its policies require that transactions with SPEs be conducted at arm’s length and reflect market pricing. Consistent with this policy, no JPMorgan Chase employee is permitted to invest in SPEs with which the Firm is involved where such investment would violate the Firm’s Code of Conduct.
The table below provides an index of where in this Form 10-Q a discussion of the Firm’s various off-balance sheet arrangements can be found. In addition, see Note 1 for information about the Firm’s consolidation policies.
Type of off-balance sheet arrangement
Location of disclosure
Page references
Special-purpose entities: variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs
See Note 13
130-135
Off-balance sheet lending-related financial instruments, guarantees, and other commitments
See Note 20
145-148



13


EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements using U.S. GAAP; these financial statements appear on pages 74-78. 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, see Business Segment Results on pages 16-29.
Additionally, certain credit metrics and ratios disclosed by the Firm exclude PCI loans, and are therefore non-GAAP measures. For additional information on these non-GAAP measures, see Credit and Investment Risk Management on pages 43–60.
Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.
The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
 
Three months ended March 31,
 
2018
 
2017
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)(b)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income
$
1,626

 
$
455

 
 
$
2,081

 
$
771

 
$
582

 
 
$
1,353

Total noninterest revenue
14,595

 
455

 
 
15,050

 
12,875

 
582

 
 
13,457

Net interest income
13,312

 
158

 
 
13,470

 
12,064

 
329

 
 
12,393

Total net revenue
27,907

 
613

 
 
28,520

 
24,939

 
911

 
 
25,850

Pre-provision profit
11,827

 
613

 
 
12,440

 
9,656

 
911

 
 
10,567

Income before income tax expense
10,662

 
613

 
 
11,275

 
8,341

 
911

 
 
9,252

Income tax expense
$
1,950

 
$
613

 
 
$
2,563

 
$
1,893

 
$
911

 
 
$
2,804

Overhead ratio
58
%
 
NM

 
 
56
%
 
61
%
 
NM

 
 
59
%
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, see Note 1.
(a)
Predominantly recognized in CIB and CB business segments and Corporate.
(b)
The decrease in fully taxable-equivalent adjustments in the three months ended March 31, 2018, reflects the impact of the TCJA.
Net interest income excluding CIB’s Markets businesses
In addition to reviewing net interest income on a managed basis, management also reviews net interest income excluding net interest income arising from CIB’s Markets businesses to assess the performance of the Firm’s lending, investing (including asset-liability management) and deposit-raising activities. This net interest income is referred to as non-markets related net interest income. CIB’s Markets businesses are Fixed Income Markets and
 
Equity Markets. Management believes that disclosure of non-markets related net interest income provides investors and analysts with another measure by which to analyze the non-markets-related business trends of the Firm and provides a comparable measure to other financial institutions that are primarily focused on lending, investing and deposit-raising activities.


14


The data presented below are non-GAAP financial measures due to the exclusion of markets-related net interest income arising from CIB.

(in millions, except rates)
Three months ended March 31,
2018

2017

 
Change

Net interest income – managed basis(a)(b)
$
13,470

$
12,393

 
9
 %
Less: CIB Markets net interest income(c)
1,030

1,364

 
(24
)
Net interest income excluding CIB Markets(a)
$
12,440

$
11,029

 
13

 
 
 
 
 
Average interest-earning assets
$
2,203,413

$
2,160,912

 
2

Less: Average CIB Markets interest-earning assets(c)
591,547

522,759

 
13

Average interest-earning assets excluding CIB Markets
$
1,611,866

$
1,638,153

 
(2
)%
Net interest yield on average interest-earning assets – managed basis
2.48
%
2.33
%
 
 
Net interest yield on average CIB Markets interest-earning assets(c)
0.71

1.06

 
 
Net interest yield on average interest-earning assets excluding CIB Markets
3.13
%
2.73
%
 
 
(a)
Interest includes the effect of related hedges. Taxable-equivalent amounts are used where applicable.
(b)
For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 14.
(c)
For further information on CIB’s Markets businesses, see page 23.
 
Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income applicable to common equity as a percentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE, ROTCE, and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.
The following summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE.
 
Period-end
 
Average
(in millions, except per share and ratio data)
Mar 31,
2018

Dec 31,
2017

 
Three months ended March 31,
 
 
2018

2017

 
Common stockholders’ equity
$
230,133

$
229,625

 
$
227,615

$
227,703

 
Less: Goodwill
47,499

47,507

 
47,504

47,293

 
Less: Other intangible assets
832

855

 
845

853

 
Add: Certain Deferred tax liabilities(a)(b)
2,216

2,204

 
2,210

3,228

 
Tangible common equity
$
184,018

$
183,467

 
$
181,476

$
182,785

 
 
 
 
 
 
 
 
Return on tangible common equity
NA

NA

 
19
%
13
%
 
Tangible book value per share
$
54.05

$
53.56

 
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)
Includes the effect from the revaluation of the Firm’s net deferred tax liability as a result of the TCJA.
Key performance measures
The Firm considers the following to be key regulatory capital measures:
Capital, risk-weighted assets (“RWA”), and capital and leverage ratios presented under Basel III Standardized and Advanced Fully Phased-In rules, and
SLR calculated under Basel III Advanced Fully Phased-In rules.
The Firm, as well as banking regulators, investors and analysts use these measures to assess the Firm’s regulatory capital position and to compare the Firm’s regulatory capital to that of other financial services companies.
 
For additional information on these measures, see Capital Risk Management on pages 32-37.
Core loans are also considered a key performance measure. Core loans represent loans considered central to the Firm’s ongoing businesses; and exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit. Core loans is a measure utilized by the Firm and its investors and analysts in assessing actual growth in the loan portfolio.

15


BUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are four major reportable business segments – Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset & Wealth Management. In addition, there is a Corporate segment.
The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm’s use of Non-GAAP Financial Measures and Key Performance Measures on pages 14–15.
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were a stand-alone business. The management reporting process that derives business segment results includes the allocation of certain income and expense items. For further information about line of business capital, see Line of business equity on page 35.
 
The Firm periodically assesses the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.
Business segment capital allocation
The amount of capital assigned to each business is referred to as equity. On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital. For additional information on business segment capital allocation, see Line of business equity on page 88 of JPMorgan Chase’s 2017 Annual Report.
For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on pages 55–56 of JPMorgan Chase’s 2017 Annual Report.

Segment results – managed basis
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, see Note 1.
Net income in the first quarter of 2018 for the business segments reflects the favorable impact of the reduction in the U.S. federal statutory income tax rate as a result of the TCJA.
The following tables summarize the business segment results for the periods indicated.
Three months ended March 31,
Total net revenue
 
Total noninterest expense
 
Pre-provision profit/(loss)
(in millions)
2018

2017

Change
 
2018

2017

Change

 
2018

2017

Change

Consumer & Community Banking
$
12,597

$
10,970

15
 
$
6,909

$
6,395

8
 %
 
$
5,688

$
4,575

24
 %
Corporate & Investment Bank
10,483

9,599

9
 
5,659

5,184

9

 
4,824

4,415

9

Commercial Banking
2,166

2,018

7
 
844

825

2

 
1,322

1,193

11

Asset & Wealth Management
3,506

3,288

7
 
2,581

2,781

(7
)
 
925

507

82

Corporate
(232
)
(25
)
NM
 
87

98

(11
)
 
(319
)
(123
)
(159
)
Total
$
28,520

$
25,850

10
 
$
16,080

$
15,283

5
 %
 
$
12,440

$
10,567

18
 %
Three months ended March 31,
Provision for credit losses
 
 
Net income/(loss)
 
Return on equity
(in millions, except ratios)
2018

2017

Change

 
2018

2017

Change
 
2018

2017

Consumer & Community Banking
$
1,317

$
1,430

(8
)%
 
$
3,326

$
1,988

67
 
25
%
15
%
Corporate & Investment Bank
(158
)
(96
)
(65
)
 
3,974

3,241

23
 
22

18

Commercial Banking
(5
)
(37
)
86

 
1,025

799

28
 
20

15

Asset & Wealth Management
15

18

(17
)
 
770

385

100
 
34

16

Corporate
(4
)

NM
 
(383
)
35

NM
 
NM
NM
Total
$
1,165

$
1,315

(11
)%
 
$
8,712

$
6,448

35
 
15
%
11
%

The following sections provide a comparative discussion of business segment results as of or for the three months ended March 31, 2018 versus the corresponding period in the prior year, unless otherwise specified.



16



CONSUMER & COMMUNITY BANKING
For a discussion of the business profile of CCB, see pages 57-61 of JPMorgan Chase’s 2017 Annual Report and Line of Business Metrics on page 161.
Selected income statement data
 
 
 
 
 
Three months ended March 31,
(in millions, except ratios)
2018

 
2017

 
Change

Revenue
 
 
 
 
 
Lending- and deposit-related fees
$
857

 
$
812

 
6
 %
Asset management, administration and commissions
575

 
539

 
7

Mortgage fees and related income
465

 
406

 
15

Card income
1,170

 
817

 
43

All other income
1,072

 
743

 
44

Noninterest revenue
4,139

 
3,317

 
25

Net interest income
8,458

 
7,653

 
11

Total net revenue
12,597

 
10,970

 
15

 
 
 
 
 
 
Provision for credit losses
1,317

 
1,430

 
(8
)
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
Compensation expense(a)
2,660

 
2,526

 
5

Noncompensation expense(a)(b)
4,249

 
3,869

 
10

Total noninterest expense
6,909

 
6,395

 
8

Income before income tax expense
4,371

 
3,145

 
39

Income tax expense
1,045

 
1,157

 
(10
)
Net income
$
3,326

 
$
1,988

 
67
 %
 
 
 
 
 
 
Revenue by line of business
 
 
 
 
 
Consumer & Business Banking
$
5,722

 
$
4,906

 
17

Home Lending
1,509

 
1,529

 
(1
)
Card, Merchant Services & Auto
5,366

 
4,535

 
18

 
 
 
 
 
 
Mortgage fees and related income details:
 
 
 
 
 
Net production revenue
95

 
141

 
(33
)
Net mortgage servicing revenue(c)
370

 
265

 
40

Mortgage fees and related income
$
465

 
$
406

 
15
 %
 
 
 
 
 
 
Financial ratios
 
 
 
 
 
Return on equity
25
%
 
15
%
 
 
Overhead ratio
55

 
58

 
 
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, see CB segment results on page 25.
(b)
Included operating lease depreciation expense of $777 million and $599 million for the three months ended March 31, 2018 and 2017, respectively.
(c)
Included MSR risk management results of $17 million and $(52) million for the three months ended March 31, 2018 and 2017, respectively.
 
Quarterly results
Net income was $3.3 billion, an increase of 67%, driven by higher net revenue, partially offset by higher noninterest expense.
Net revenue was $12.6 billion, an increase of 15%.
Net interest income was $8.5 billion, up 11%, driven by:
higher deposit margins and growth in deposit balances, and
margin expansion and higher loan balances in Card,
partially offset by
loan spread compression from higher rates in Home Lending and Auto, and
the impact of the sale of the student loan portfolio in the prior year.
Noninterest revenue was $4.1 billion, up 25%, driven by:
lower new account origination costs in Card,
higher auto lease volume,
higher MSR risk management results,
higher net interchange reflecting higher card sales volume, predominantly offset by higher reward costs and partner payments,
higher deposit-related fees, and
higher merchant processing fees reflecting higher merchant processing volumes
partially offset by
lower net production revenue reflecting lower mortgage production margins.
See Note 14 for further information regarding changes in value of the MSR asset and related hedges, and mortgage fees and related income.
Noninterest expense was $6.9 billion, up 8%, driven by:
investments in technology and marketing,
higher auto lease depreciation, and
continued business growth.
The provision for credit losses was $1.3 billion, a decrease of 8% from the prior year, driven by:
$105 million of higher net charge-offs, primarily in the credit card portfolio due to seasoning of newer vintages, in line with expectations, partially offset by a decrease in net charge-offs in the residential real estate portfolio reflecting continued improvement in home prices and delinquencies, and
the absence of a $218 million write-down recorded in the prior year in connection with the sale of the student loan portfolio.

17



Selected metrics
 
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except headcount)
2018

 
2017

 
Change

Selected balance sheet data (period-end)
 
 
 
 
 
Total assets
$
540,659

 
$
524,770

 
3
 %
Loans:
 
 
 
 
 
Consumer & Business Banking
25,856

 
24,386

 
6

Home equity
40,777

 
48,234

 
(15
)
Residential mortgage
199,548

 
185,114

 
8

Home Lending
240,325

 
233,348

 
3

Card
140,414

 
135,016

 
4

Auto
66,042

 
65,568

 
1

Student

 
6,253

 
NM
Total loans
472,637

 
464,571

 
2

Core loans
409,296

 
381,393

 
7

Deposits
685,170

 
646,962

 
6

Equity
51,000

 
51,000

 

Selected balance sheet data (average)
 
 
 
 
 
Total assets
$
538,938

 
$
532,098

 
1

Loans:
 
 
 
 
 
Consumer & Business Banking
25,845

 
24,359

 
6

Home equity
41,786

 
49,278

 
(15
)
Residential mortgage
198,653

 
183,756

 
8

Home Lending
240,439

 
233,034

 
3

Card
142,927

 
137,211

 
4

Auto
65,863

 
65,315

 
1

Student

 
6,916

 
NM
Total loans
475,074

 
466,835

 
2

Core loans
410,147

 
381,016

 
8

Deposits
659,599

 
622,915

 
6

Equity
51,000

 
51,000

 

 
 
 
 
 
 
Headcount(a)
133,408

 
133,176

 

(a)
Effective in the first quarter of 2018, certain operations staff were transferred from CCB to CB. The prior period amount has been revised to conform with the current period presentation. For further discussion of this transfer, see CB segment results on page 25.
 
Selected metrics
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except ratio data)
2018


2017

 
Change

Credit data and quality statistics
 
 
 
 
 
Nonaccrual loans(a)(b)
$
4,104


$
4,442


(8
)%
 
 
 
 
 
 
Net charge-offs(c)
 
 
 
 
 
Consumer & Business Banking
53

 
57

 
(7
)
Home equity
16

 
47

 
(66
)
Residential mortgage
2

 
3

 
(33
)
Home Lending
18

 
50

 
(64
)
Card
1,170

 
993

 
18

Auto
76

 
81

 
(6
)
Student

 
498

(g) 
NM

Total net charge-offs
$
1,317

 
$
1,679

(g) 
(22
)
 
 
 
 
 
 
Net charge-off rate(c)
 
 
 
 
 
Consumer & Business Banking
0.83
%
 
0.95
%
 
 
Home equity(d)
0.21

 
0.52

 
 
Residential mortgage(d)

 
0.01

 
 
Home Lending(d)
0.03

 
0.10

 
 
Card
3.32

 
2.94

 
 
Auto
0.47

 
0.50

 
 
Student

 
NM

 
 
Total net charge-off rate(d)
1.20

 
1.58

(g) 
 
 
 
 
 
 
 
30+ day delinquency rate
 
 
 
 
 
Home Lending(e)(f)
0.98
%
 
1.08
%
 
 
Card
1.82

 
1.66

 
 
Auto
0.71

 
0.93

 
 
 
 
 
 
 
 
90+ day delinquency rate — Card
0.95

 
0.87

 
 
 
 
 
 
 
 
Allowance for loan losses
 
 
 
 
 
Consumer & Business Banking
$
796

 
$
753

 
6

Home Lending, excluding PCI loans
1,003

 
1,328

 
(24
)
Home Lending — PCI loans(c)
2,205

 
2,287

 
(4
)
Card
4,884

 
4,034

 
21

Auto
464

 
474

 
(2
)
Total allowance for loan losses(c)
$
9,352

 
$
8,876

 
5
 %
(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 March 31, 2018 and 2017, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $4.0 billion and $4.5 billion, respectively. Student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) and 90 or more days past due were also excluded from nonaccrual loans prior to sale of the student loan portfolio in the second quarter of 2017. These amounts have been excluded based upon the government guarantee.
(c)
Net charge-offs and the net charge-off rates for the three months ended March 31, 2018 and 2017, excluded $20 million and $24 million, respectively, of write-offs in the PCI portfolio. These write-offs decreased the allowance for loan losses for PCI loans. For further information on PCI write-offs, see Summary of changes in the allowance for credit losses on page 58.

18



(d)
Excludes the impact of PCI loans. For the three months ended March 31, 2018 and 2017, the net charge-off rates including the impact of PCI loans were as follows: (1) home equity of 0.16% and 0.39%, respectively; (2) residential mortgage of -% and 0.01%, respectively; (3) Home Lending of 0.03% and 0.09%, respectively; and (4) total CCB of 1.12% and 1.46%, respectively.
(e)
At March 31, 2018 and 2017, excluded mortgage loans insured by U.S. government agencies of $5.7 billion and $6.3 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 9.49% and 9.11% at March 31, 2018 and 2017, respectively.
(g)
Excluding net charge-offs of $467 million related to the student loan portfolio sale, the total net charge-off rate for the three months ended March 31, 2017 would have been 1.14%.
 
Selected metrics
 
 
 
 
 
As of or for the three months
ended March 31,
(in billions, except ratios and where otherwise noted)
2018

 
2017

 
Change

Business Metrics
 
 
 
 
 
Number of branches
5,106

 
5,246

 
(3
)%
Active digital customers
(in thousands)(a)
47,911

 
45,463

 
5

Active mobile customers
(in thousands)(b)
30,924

 
27,256

 
13

Debit and credit card sales volume(c)
$
232.4


$
209.4


11

 
 
 
 
 
 
Consumer & Business Banking
 
 
 
 
 
Average deposits
$
646.4

 
$
609.0

 
6

Deposit margin
2.20
%
 
1.88
%
 
 
Business banking origination volume
$
1.7

 
$
1.7

 
(3
)
Client investment assets
276.2

 
245.1

 
13

 
 
 
 
 
 
Home Lending
 
 
 
 
 
Mortgage origination volume by channel
 
 
 
 
 
Retail
$
8.3

 
$
9.0

 
(8
)
Correspondent
9.9

 
13.4

 
(26
)
Total mortgage origination volume(d)
$
18.2

 
$
22.4

 
(19
)
 
 
 
 
 
 
Total loans serviced (period-end)
$
804.9

 
$
836.3

 
(4
)
Third-party mortgage loans serviced (period-end)
539.0

 
582.6

 
(7
)
MSR carrying value (period-end)
6.2

 
6.1

 
2

Ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end)
1.15
%
 
1.05
%
 
 
 
 
 
 
 
 
MSR revenue multiple(e)
3.19
x
 
3.00
x
 
 
 
 
 
 
 
 
Card, excluding Commercial Card
 
 
 
 
 
Credit card sales volume
$
157.1

 
$
139.7

 
12

New accounts opened (in millions)
2.0

 
2.5

 
(20
)
 
 
 
 
 
 
Card Services
 
 
 
 
 
Net revenue rate
11.61
%
 
10.15
%
 
 
 
 
 
 
 
 
Merchant Services
 
 
 
 
 
Merchant processing volume
$
316.3

 
$
274.3

 
15

 
 
 
 
 
 
Auto
 
 
 
 
 
Loan and lease origination volume
$
8.4

 
$
8.0

 
5

Average Auto operating lease assets
17.6

 
13.8

 
28
 %
(a)
Users of all web and/or mobile platforms who have logged in within the past 90 days.
(b)
Users of all mobile platforms who have logged in within the past 90 days.
(c)
The prior period amount has been revised to conform with the current period presentation.
(d)
Firmwide mortgage origination volume was $20.0 billion and $25.6 billion for the three months ended March 31, 2018 and 2017, respectively.
(e)
Represents the ratio of MSR carrying value (period-end) to third-party mortgage loans serviced (period-end) divided by the ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average).


19


CORPORATE & INVESTMENT BANK
For a discussion of the business profile of CIB, see pages 62–66 of JPMorgan Chase’s 2017 Annual Report and Line of Business Metrics on page 161.
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, see Note 1.
Selected income statement data
 
 
 
Three months ended March 31,
(in millions, except ratios)
2018
 
2017
 
Change
Revenue
 
 
 
 
 
Investment banking fees
$
1,696

 
$
1,875

 
(10
)%
Principal transactions
4,029

 
3,507

 
15

Lending- and deposit-related fees
381

 
388

 
(2
)
Asset management, administration and commissions
1,131

 
1,052

 
8

All other income
680

 
177

 
284

Noninterest revenue
7,917

 
6,999

 
13

Net interest income
2,566

 
2,600

 
(1
)
Total net revenue(a)
10,483

 
9,599

 
9

 
 
 
 
 
 
Provision for credit losses
(158
)
 
(96
)
 
(65
)
 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
Compensation expense
3,036

 
2,799

 
8

Noncompensation expense
2,623

 
2,385

 
10

Total noninterest expense
5,659

 
5,184

 
9

Income before income tax expense
4,982

 
4,511

 
10

Income tax expense
1,008

 
1,270

 
(21
)
Net income
$
3,974

 
$
3,241

 
23
 %
Financial ratios
 
 
 
 
 
Return on equity
22
%
 
18
%
 
 
Overhead ratio
54

 
54

 
 
Compensation expense as percentage of total net revenue
29

 
29

 
 
(a)
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 $405 million and $551 million for the three months ended March 31, 2018 and 2017, respectively.
 
Selected income statement data
 
 
 
Three months ended March 31,
(in millions)
2018
 
2017
 
Change
Revenue by business
 
 
 
 
 
Investment Banking
$
1,587

 
$
1,714

 
(7
)%
Treasury Services
1,116

 
981

 
14

Lending
302

 
389

 
(22
)
Total Banking
3,005

 
3,084

 
(3
)
Fixed Income Markets
4,553

 
4,215

 
8

Equity Markets
2,017

 
1,606

 
26

Securities Services
1,059

 
916

 
16

Credit Adjustments & Other(a)
(151
)
 
(222
)
 
32

Total Markets & Investor Services
7,478

 
6,515

 
15

Total net revenue
$
10,483

 
$
9,599

 
9
 %
(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.
Quarterly results
Net income was $4.0 billion, up 23%, compared with the prior year reflecting higher net revenue, largely offset by higher noninterest expense.
Net revenue was $10.5 billion, up 9%.
Banking revenue was $3.0 billion, down 3%. Investment banking revenue was $1.6 billion, down 7%, driven by lower debt and equity underwriting fees, partially offset by higher advisory fees. The Firm maintained its #1 ranking for Global Investment Banking fees, according to Dealogic. Debt underwriting fees were $775 million, down 18%, primarily driven by declines in industry-wide fee levels and a lower share in leveraged finance. Equity underwriting fees were $346 million, down 19% compared to a strong prior year, driven by declines in industry-wide fee levels and a lower share of large transactions. Advisory fees were $575 million, up 15%, driven by a higher number of large completed transactions. Treasury Services revenue was $1.1 billion, up 14%, driven by the impact of higher interest rates and growth in operating deposits. Lending revenue was $302 million, down 22%, predominantly driven by prior year gains on securities received from restructurings.
Markets & Investor Services revenue was $7.5 billion, up 15%. The current quarter included approximately $500 million of fair value gains related to the adoption of the new recognition and measurement accounting guidance for certain equity investments previously held at cost, and a reduction of approximately $150 million in tax-equivalent adjustments as a result of the TCJA. Fixed Income Markets revenue was $4.6 billion, up 8%. Excluding the impact of these fair value gains and tax-equivalent adjustments, Fixed Income Markets revenue was flat, with strong performance in Currencies & Emerging Markets and Commodities, offset

20


by lower revenue in Rates and Credit, which reverted to more normal levels following a strong prior year. Equity Markets revenue was $2.0 billion, up 26% (excluding the impact of fair value gains noted above up 25%), driven by strength across derivatives, Prime Services and Cash Equities. Securities Services revenue was $1.1 billion, up 16%, driven by higher interest rates and deposit growth, as well as increased asset-based fees driven by net client inflows and improving market levels.
The provision for credit losses was a benefit of $158 million, driven by a reduction in the allowance for credit losses in the Oil & Gas portfolio related to a single name. The prior year was a benefit of $96 million primarily driven by a reduction in the allowance for credit losses in the Oil & Gas portfolio.
Noninterest expense was $5.7 billion, up 9%, driven by higher compensation and volume-related transaction costs in Markets.
Selected metrics
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except headcount)
2018
 
2017
 
Change
Selected balance sheet data (period-end)
 
 
 
 
 
Assets
$
909,845

 
$
840,304

 
8
 %
Loans:
 
 
 
 
 
Loans retained(a)
112,626

 
107,902

 
4

Loans held-for-sale and loans at fair value
6,122

 
6,477

 
(5
)
Total loans
118,748

 
114,379

 
4

Core loans
118,434

 
114,003

 
4

Equity
70,000

 
70,000

 

Selected balance sheet data (average)
 
 
 
 
 
Assets
$
910,146

 
$
838,017

 
9

Trading assets-debt and equity instruments
354,869

 
328,339

 
8

Trading assets-derivative receivables
60,161

 
58,948

 
2

Loans:
 
 
 
 
 
Loans retained(a)
$
109,355

 
$
108,389

 
1

Loans held-for-sale and loans at fair value
5,480

 
5,308

 
3

Total loans
$
114,835

 
$
113,697

 
1

Core loans
114,514

 
113,309

 
1

Equity
70,000

 
70,000

 

Headcount
51,291

 
48,700

 
5
 %
(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.
 
Selected metrics
 
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except ratios)
2018
 
2017
 
Change
Credit data and quality statistics
 
 
 
 
 
Net charge-offs/(recoveries)
$
20

 
$
(18
)
 
NM
Nonperforming assets:
 
 
 
 
 
Nonaccrual loans:
 
 
 
 
 
Nonaccrual loans retained(a)
$
668

 
$
308

 
117
 %
Nonaccrual loans held-for-sale and loans at fair value
29

 
109

 
(73
)
Total nonaccrual loans
697

 
417

 
67

Derivative receivables
132

 
179

 
(26
)
Assets acquired in loan satisfactions
91

 
87

 
5

Total nonperforming assets
$
920

 
$
683

 
35

Allowance for credit losses:
 
 
 
 
 
Allowance for loan losses
$
1,128

 
$
1,346

 
(16
)
Allowance for lending-related commitments
800

 
797

 

Total allowance for credit losses
$
1,928

 
$
2,143

 
(10
)%
Net charge-off/(recovery) rate(b)
0.07
%
 
(0.07
)%
 
 
Allowance for loan losses to period-end loans retained
1.00

 
1.25

 
 
Allowance for loan losses to period-end loans retained, excluding trade finance and conduits(c)
1.46

 
1.91

 
 
Allowance for loan losses to nonaccrual loans retained(a)
169

 
437

 
 
Nonaccrual loans to total period-end loans
0.59
%
 
0.36
 %
 
 
(a)
Allowance for loan losses of $298 million and $61 million were held against these nonaccrual loans at March 31, 2018 and 2017, respectively.
(b)
Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate.
(c)
Management uses allowance for loan losses to period-end loans retained, excluding trade finance and conduits, a non-GAAP financial measure, to provide a more meaningful assessment of CIB’s allowance coverage ratio.

21


Investment banking fees
 
 
 
 
 
Three months ended March 31,
(in millions)
2018
 
2017
 
Change
Advisory
$
575

 
$
501

 
15
 %
Equity underwriting
346

 
425

 
(19
)
Debt underwriting(a)
775

 
949

 
(18
)
Total investment banking fees
$
1,696

 
$
1,875

 
(10
)%
(a)
Includes loan syndications.

 
League table results – wallet share
 
 
 
 
 
Three months ended March 31, 2018
 
Full-year 2017
 
Rank
Share
 
Rank
Share
Based on fees(a)
 
 
 
 
 
 
 
Long-term debt(b)
 
 
 
 
 
 
 
Global
#
2

 
6.7
 
#
1

 
7.6
U.S.
2

 
9.1
 
2

 
11.0
Equity and equity-related(c)
 
 
 
 
 
 
 
Global
3

 
7.1
 
2

 
7.1
U.S.
2

 
11.0
 
1

 
11.6
M&A(d)
 
 
 
 
 
 
 
Global
1

 
10.3
 
2

 
8.5
U.S.
1

 
11.7
 
2

 
9.1
Loan syndications
 
 
 
 
 
 
 
Global
1

 
8.3
 
1

 
9.4
U.S.
2

 
9.7
 
1

 
11.0
Global investment banking fees(e)
#
1

 
8.1
 
#
1

 
8.1
(a)
Source: Dealogic as of April 1, 2018. Reflects the ranking of revenue wallet and market share.
(b)
Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities (“MBS”); and exclude money market, short-term debt, and U.S. municipal securities.
(c)
Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d)
Global M&A reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(e)
Global investment banking fees exclude money market, short-term debt and shelf deals.


22


Markets revenue
The following table summarizes select income statement data for the Markets businesses. Markets includes both Fixed Income Markets and Equity Markets. Markets revenue comprises principal transactions, fees, commissions and other income, as well as net interest income. The Firm assesses its Markets business performance on a total revenue basis, as offsets may occur across revenue line items. For example, securities that generate net interest income may be risk-managed by derivatives that are recorded in principal transactions. For a description of the composition of these income statement line items, see Notes 5 and 6.
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.
 
Three months ended March 31,
 
Three months ended March 31,
 
2018
 
2017

(in millions)
Fixed Income Markets
Equity Markets
Total Markets
 
Fixed Income Markets
Equity Markets
Total Markets
Principal transactions
$
2,732

$
1,612

$
4,344

 
$
2,701

$
1,009

$
3,710

Lending- and deposit-related fees
47

1

48

 
49

1

50

Asset management, administration and commissions
113

458

571

 
104

423

527

All other income
560

17

577

 
177

(7
)
170

Noninterest revenue
3,452

2,088

5,540

 
3,031

1,426

4,457

Net interest income(a)
1,101

(71
)
1,030

 
1,184

180

1,364

Total net revenue
$
4,553

$
2,017

$
6,570

 
$
4,215

$
1,606

$
5,821

(a)
Declines in Markets net interest income were driven by higher funding costs.

23


Selected metrics
 
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except where otherwise noted)
2018
 
2017
 
Change
Assets under custody (“AUC”) by asset class (period-end)
(in billions):
 
 
 
 
 
Fixed Income
$
13,145


$
12,473

 
5
Equity
8,241


6,856

 
20
Other(a)
2,640


2,054

 
29
Total AUC
$
24,026


$
21,383

 
12
Client deposits and other third party liabilities (average)(b)
$
423,301


$
391,716

 
8
(a)
Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b)
Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.

 
International metrics
 
 
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except where
 otherwise noted)
2018
 
2017
 
Change
Total net revenue(a)
 
 
 
 
 
Europe/Middle East/Africa
$
3,656

 
$
3,189

 
15
 %
Asia/Pacific
1,471

 
1,239

 
19

Latin America/Caribbean
414

 
341

 
21

Total international net revenue
5,541

 
4,769

 
16

North America
4,942

 
4,830

 
2

Total net revenue
$
10,483

 
$
9,599

 
9

 
 
 
 
 
 
Loans retained (period-end)(a)
 
 
 
 
Europe/Middle East/Africa
$
25,924

 
$
26,290

 
(1
)
Asia/Pacific
16,451

 
13,942

 
18

Latin America/Caribbean
4,293

 
7,074

 
(39
)
Total international loans
46,668

 
47,306

 
(1
)
North America
65,958

 
60,596

 
9

Total loans retained(a)
$
112,626

 
$
107,902

 
4

 
 
 
 
 
 
Client deposits and other third-party liabilities (average)(a)(b)
 
 
 
 
 
Europe/Middle East/Africa
$
159,414

 
$
137,504

 
16

Asia/Pacific
83,668

 
73,007

 
15

Latin America/Caribbean
25,480

 
23,897

 
7

Total international
$
268,562

 
$
234,408

 
15

North America
154,739

 
157,308

 
(2
)
Total client deposits and other third-party liabilities
$
423,301

 
$
391,716

 
8

 
 
 
 
 
 
AUC (period-end)(a)
(in billions)
 
 
 
 
 
North America
$
14,493

 
$
12,768

 
14

All other regions
9,533

 
8,615

 
11

Total AUC
$
24,026

 
$
21,383

 
12
 %
(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.

24


COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 67–69 of JPMorgan Chase’s 2017 Annual Report and Line of Business Metrics on page 162.
Selected income statement data
 
Three months ended March 31,
(in millions)
2018

 
2017

 
Change

Revenue
 
 
 
 
 
Lending- and deposit-related fees
$
226

 
$
235

 
(4
)%
Asset management, administration and commissions
18

 
18

 

All other income(a)
305

 
346

 
(12
)
Noninterest revenue
549

 
599

 
(8
)
Net interest income
1,617

 
1,419

 
14

Total net revenue(b)
2,166

 
2,018

 
7

 
 
 
 
 
 
Provision for credit losses
(5
)
 
(37
)
 
86

 
 
 
 
 
 
Noninterest expense
 
 
 
 
 
Compensation expense(c)
421

 
388

 
9

Noncompensation expense(c)
423

 
437

 
(3
)
Total noninterest expense
844

 
825

 
2

 
 
 
 
 
 
Income before income tax expense
1,327

 
1,230

 
8

Income tax expense
302

 
431

 
(30
)
Net income
$
1,025

 
$
799

 
28
 %
(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 $103 million and $121 million for the three months ended March 31, 2018 and 2017.
(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.
Quarterly results
Net income was $1.0 billion, an increase of 28%, driven by higher net revenue, partially offset by a lower net benefit for credit losses and higher noninterest expense.
Net revenue was $2.2 billion, an increase of 7%. Net interest income was $1.6 billion, an increase of 14%,
 
driven by higher deposit margins. Noninterest revenue was $549 million, a decrease of 8% predominantly driven by lower investment banking revenue.
Noninterest expense was $844 million, an increase of 2%. Excluding the impairment of leased assets in the prior year of $29 million, noninterest expense would have been up 6%, predominantly driven by the hiring of bankers, business-related support staff, and technology investments.

The provision for credit losses was a benefit of $5 million, reflecting strong credit performance. The prior year was a benefit of $37 million driven by the Oil & Gas portfolio, partially offset by select client downgrades.
Selected income statement data (continued)
 
Three months ended March 31,
(in millions, except ratios)
2018

 
2017

 
Change

Revenue by product
 
 
 
 
 
Lending
$
999

 
$
992

 
1
 %
Treasury services
972

 
796

 
22

Investment banking(a)
184

 
216

 
(15
)
Other
11

 
14

 
(21
)
Total Commercial Banking net revenue
$
2,166

 
$
2,018

 
7

 
 
 
 
 
 
Investment banking revenue, gross(b)
$
569

 
$
666

 
(15
)
 
 
 
 
 
 
Revenue by client segment
 
 
 
 
 
Middle Market Banking
$
895

 
$
784

 
14

Corporate Client Banking
687

 
666

 
3

Commercial Term Lending
352

 
367

 
(4
)
Real Estate Banking
164

 
134

 
22

Other
68

 
67

 
1

Total Commercial Banking net revenue
$
2,166

 
$
2,018

 
7
 %
 
 
 
 
 
 
Financial ratios
 
 
 
 
 
Return on equity
20
%
 
15
%
 
 
Overhead ratio
39

 
41

 
 
(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, see Note 1.



25


Selected metrics
 
 
 
As of or for the three months
ended March 31,
(in millions, except headcount)
2018

2017

Change

Selected balance sheet data (period-end)
 
 
 
Total assets
$
220,880

$
217,348

2
 %
Loans:
 
 
 
Loans retained
202,812

194,538

4

Loans held-for-sale and loans at fair value
2,473

1,056

134

Total loans
$
205,285

$
195,594

5

Core loans
205,087

195,296

5

Equity
20,000

20,000


 
 
 
 
Period-end loans by client segment
 
 
 
Middle Market Banking
$
57,835

$
55,113

5

Corporate Client Banking
47,562

45,798

4

Commercial Term Lending
75,052

72,496

4

Real Estate Banking
17,709

15,846

12

Other
7,127

6,341

12

Total Commercial Banking loans
$
205,285

$
195,594

5

 
 
 
 
Selected balance sheet data (average)
 
 
 
Total assets
$
217,159

$
213,784

2

Loans:
 
 
 
Loans retained
201,966

190,774

6

Loans held-for-sale and loans at fair value
406

717

(43
)
Total loans
$
202,372

$
191,491

6

Core loans
202,161

191,180

6

 
 
 
 
Average loans by client segment
 
 
 
Middle Market Banking
$
56,754

$
54,267

5

Corporate Client Banking
45,760

43,582

5

Commercial Term Lending
74,942

71,880

4

Real Estate Banking
17,845

15,525

15

Other
7,071

6,237

13

Total Commercial Banking loans
$
202,372

$
191,491

6

 
 
 
 
Client deposits and other third-party liabilities
$
175,618

$
176,780

(1
)
Equity
20,000

20,000


 
 
 
 
Headcount(a)
10,372

9,593

8
 %
(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, see page 25, Selected income statement data,
footnote (c).

 
Selected metrics (continued)
 
 
 
As of or for the three months
ended March 31,
(in millions, except ratios)
2018

2017

Change

Credit data and quality statistics
 
 
 
Net charge-offs/(recoveries)
$

$
(10
)
100
 %
Nonperforming assets
 
 
 
Nonaccrual loans:
 
 
 
Nonaccrual loans retained(a)
$
666

$
929

(28
)
Nonaccrual loans held-for-sale and loans at fair value



Total nonaccrual loans
$
666

$
929

(28
)
Assets acquired in loan satisfactions
1

11

(91
)
Total nonperforming assets
$
667

$
940

(29
)
Allowance for credit losses:
 
 
 
Allowance for loan losses
$
2,591

$
2,896

(11
)
Allowance for lending-related commitments
263

251

5

Total allowance for credit losses
$
2,854

$
3,147

(9
)%
Net charge-off/(recovery) rate(b)

(0.02
)%
 
Allowance for loan losses to period-end loans retained
1.28

1.49

 
Allowance for loan losses to nonaccrual loans retained(a)
389

312

 
Nonaccrual loans to period-end total loans
0.32

0.47

 
(a)
Allowance for loan losses of $116 million and $115 million was held against nonaccrual loans retained at March 31, 2018 and 2017, respectively.
(b)
Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate.


26


ASSET & WEALTH MANAGEMENT
For a discussion of the business profile of AWM, see pages 70–72 of JPMorgan Chase’s 2017 Annual Report and Line of Business Metrics on pages 162–163.
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, see Note 1.
Selected income statement data
(in millions, except ratios)
Three months ended March 31,
2018

2017

Change

Revenue
 
 
 
Asset management, administration and commissions
$
2,528

$
2,304

10
 %
All other income
102

165

(38
)
Noninterest revenue
2,630

2,469

7

Net interest income
876

819

7

Total net revenue
3,506

3,288

7

 
 
 
 
Provision for credit losses
15

18

(17
)
 
 
 
 
Noninterest expense
 
 
 
Compensation expense
1,392

1,332

5

Noncompensation expense
1,189

1,449

(18
)
Total noninterest expense
2,581

2,781

(7
)
 
 
 
 
Income before income tax expense
910

489

86

Income tax expense
140

104

35

Net income
$
770

$
385

100

 
 
 
 
Revenue by line of business
 
 
 
Asset Management
$
1,787

$
1,688

6

Wealth Management
1,719

1,600

7

Total net revenue
$
3,506

$
3,288

7
 %
 
 
 
 
Financial ratios
 
 
 
Return on equity
34
%
16
%
 
Overhead ratio
74

85

 
Pre-tax margin ratio:
 
 
 
Asset Management
26

1

 
Wealth Management
26

30

 
Asset & Wealth Management
26

15

 
Quarterly results
Net income was $770 million, driven by lower noninterest expense and higher net revenue.
Net revenue was $3.5 billion, an increase of 7%. Net interest income was $876 million, up 7%, driven by deposit margin expansion and loan growth. Noninterest revenue was $2.6 billion, up 7%, due to higher management fees resulting from growth in assets under management.
Noninterest expense was $2.6 billion, a decrease of 7%, driven by lower legal expense, partially offset by higher revenue driven external fees and compensation expense.
 
Selected metrics
 
 
 
 
As of or for the three months
ended March 31,
(in millions, except ranking data, headcount and ratios)
2018

2017

Change

% of JPM mutual fund assets rated as 4- or 5-star(a)
58
%
63
%
 
% of JPM mutual fund assets ranked in 1st or 2nd quartile:(b)
 
 
 
1 year
61

59

 
3 years
67

80

 
5 years
82

77

 
 
 
 
 
Selected balance sheet data (period-end)
 
 
 
Total assets
$
158,439

$
141,049

12
 %
Loans
136,030

119,947

13

Core loans
136,030

119,947

13

Deposits
147,238

157,295

(6
)
Equity
9,000

9,000


 
 
 
 
Selected balance sheet data (average)
 
 
 
Total assets
$
154,345

$
138,178

12

Loans
132,634

118,310

12

Core loans
132,634

118,310

12

Deposits
144,199

158,810

(9
)
Equity
9,000

9,000


 
 
 
 
Headcount
23,268

22,196

5

 
 
 
 
Number of Wealth Management client advisors
2,640

2,480

6

 
 
 
 
Credit data and quality statistics
 
 
 
Net charge-offs
$
1

$
3

(67
)
Nonaccrual loans
359

379

(5
)
Allowance for credit losses:
 
 
 
Allowance for loan losses
$
301

$
289

4

Allowance for lending-related commitments
13

4

225

Total allowance for credit losses
$
314

$
293

7
 %
Net charge-off rate

0.01
%
 
Allowance for loan losses to period-end loans
0.22

0.24

 
Allowance for loan losses to nonaccrual loans
84

76

 
Nonaccrual loans to period-end loans
0.26

0.32

 
(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 and India 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 and India domiciled funds.

27


Client assets
Client assets of $2.8 trillion and assets under management of $2.0 trillion were up 9% and 10%, respectively, reflecting higher market levels and net inflows into long-term products, partially offset by outflows from liquidity products.
Client assets
 
 
 
 
 
March 31,
 
(in billions)
2018

2017

Change

Assets by asset class
 
 
 
Liquidity
$
432

$
444

(3
)%
Fixed income
467

432

8

Equity
432

378

14

Multi-asset and alternatives
685

587

17

Total assets under management
2,016

1,841

10

Custody/brokerage/administration/deposits
772

707

9

Total client assets
$
2,788

$
2,548

9

 
 
 
 
Memo:
 
 
 
Alternatives client assets (a)
$
169

$
157

8

 
 
 
 
Assets by client segment
 
 
 
Private Banking
$
537

$
468

15

Institutional
937

889

5

Retail
542

484

12

Total assets under management
$
2,016

$
1,841

10

 
 
 
 
Private Banking
$
1,285

$
1,154

11

Institutional
958

908

6

Retail
545

486

12

Total client assets
$
2,788

$
2,548

9
 %
(a)
Represents assets under management, as well as client balances in brokerage account
Client assets (continued)
 
 


Three months ended
March 31,
(in billions)
2018

2017

Assets under management rollforward
 
 
Beginning balance
$
2,034

$
1,771

Net asset flows:
 
 
Liquidity
(21
)
1

Fixed income
(5
)
5

Equity
5

(4
)
Multi-asset and alternatives
16

7

Market/performance/other impacts
(13
)
61

Ending balance, March 31
$
2,016

$
1,841

 
 
 
Client assets rollforward
 
 
Beginning balance
$
2,789

$
2,453

Net asset flows
14

10

Market/performance/other impacts
(15
)
85

Ending balance, March 31
$
2,788

$
2,548

 
International metrics
 
 
 
 
As of or for the three months
ended March 31,
(in millions)
2018

2017

Change

Total net revenue (a)
 
 
 
Europe/Middle East/Africa
$
726

$
615

18
 %
Asia/Pacific
393

318

24

Latin America/Caribbean
227

179

27

Total international net revenue
1,346

1,112

21

North America
2,160

2,176

(1
)
Total net revenue(a)
$
3,506

$
3,288

7
 %
(a)
Regional revenue is based on the domicile of the client.
 
As of or for the three months
ended March 31,
(in billions)
2018

2017

Change

Assets under management
 
 
 
Europe/Middle East/Africa
$
378

$
323

17
%
Asia/Pacific
171

131

31

Latin America/Caribbean
59

47

26

Total international assets under management
608

501

21

North America
1,408

1,340

5

Total assets under management
$
2,016

$
1,841

10

 
 
 
 
Client assets
 
 
 
Europe/Middle East/Africa
$
435

$
374

16

Asia/Pacific
237

187

27

Latin America/Caribbean
156

118

32

Total international client assets
828

679

22

North America
1,960

1,869

5

Total client assets
$
2,788

$
2,548

9
%

28


CORPORATE
For a discussion of Corporate, see pages 73–74 of JPMorgan Chase’s 2017 Annual Report.
Selected income statement and balance sheet data
 
As of or for the three months
ended March 31,
(in millions, except headcount)
2018

2017

 
Change

Revenue
 
 
 
 
Principal transactions
$
(144
)
$
15

 
NM

Investment securities losses
(245
)
(3
)
 
NM

All other income/(loss)
204

61

 
234
 %
Noninterest revenue
(185
)
73

 
NM

Net interest income
(47
)
(98
)
 
52

Total net revenue(a)
(232
)
(25
)
 
NM

 
 
 
 
 
Provision for credit losses
(4
)

 
NM

 
 
 
 
 
Noninterest expense(b)
87

98

 
(11
)
Income/(loss) before income tax expense/(benefit)
(315
)
(123
)
 
(156
)
Income tax expense/(benefit)
68

(158
)
 
NM

Net income/(loss)
$
(383
)
$
35

 
NM

Total net revenue
 
 
 
 
Treasury and CIO
$
(38
)
$
(7
)
 
(443
)
Other Corporate
(194
)
(18
)
 
NM

Total net revenue
$
(232
)
$
(25
)
 
NM

Net income/(loss)
 
 
 
 
Treasury and CIO
$
(187
)
$
(67
)
 
(179
)
Other Corporate
(196
)
102

 
NM

Total net income/(loss)
$
(383
)
$
35

 
NM

Total assets (period-end)
$
779,962

$
822,819

 
(5
)
Loans (period-end)
1,724

1,483

 
16

Core loans(c)
1,689

1,480

 
14

Headcount(d)
35,368

32,680

 
8
 %
(a)
Included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $98 million and $228 million for the three months ended March 31, 2018 and 2017, respectively. The decrease in taxable-equivalent adjustments reflects the impact of the TCJA.
(b)
Included legal expense/(benefit) of $(42) million and $(228) million for the three months ended March 31, 2018 and 2017, respectively.
(c)
Average core loans were $1.6 billion and $1.6 billion for the three months ended March 31, 2018 and 2017, respectively.
(d)
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, see CB segment results on page 25.

 
Quarterly results
Net loss was $383 million, compared with net income of $35 million in the prior-year quarter.
Net revenue was a loss of $232 million, compared with a loss of $25 million in the prior year, primarily driven by $245 million of investment securities losses and approximately $130 million of losses on legacy private equity investments.
Income tax expense was higher primarily driven by an increase in tax adjustments and changes to certain tax reserves.
Treasury and CIO overview
At March 31, 2018, the average credit rating of the Treasury and CIO investment securities comprising the portfolio in the table below was AA+ (based upon external ratings where available and, where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody’s). See Note 9 for further information on the Firm’s investment securities portfolio.
For further information on liquidity and funding risk, see Liquidity Risk Management on pages 38–42. For information on interest rate, foreign exchange and other risks, see Market Risk Management on pages 61–65.
Selected income statement and balance sheet data
 
As of or for the three months
ended March 31,
(in millions)
2018

 
2017

 
Change

Investment securities losses
$
(245
)
 
$
(15
)
 
NM

Available-for-sale (“AFS”) investment securities (average)
$
204,323

 
$
234,841

 
(13
)%
Held-to-maturity (“HTM”) investment securities (average)
34,020

 
49,362

 
(31
)
Investment securities portfolio (average)
$
238,343

 
$
284,203

 
(16
)
AFS investment securities (period-end)
$
207,703

 
$
230,617

 
(10
)
HTM investment securities (period-end)
29,042

 
48,913

 
(41
)
Investment securities portfolio (period-end)
$
236,745

 
$
279,530

 
(15
)%
As permitted by the new hedge accounting guidance, the Firm elected to transfer certain investment securities from HTM to AFS. For additional information, see Notes 1 and 9.


29


ENTERPRISE-WIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s business activities. When the Firm extends a consumer or wholesale loan, advises customers on their investment decisions, makes markets in securities, or offers other products or services, the Firm takes on some degree of risk. The Firm’s overall objective is to manage its businesses, and the associated risks, in a manner that balances serving the interests of its clients, customers and investors and protects the safety and soundness of the Firm.
The Firm believes that effective risk management requires:
Acceptance of responsibility, including identification and escalation of risk issues, by all individuals within the Firm;
Ownership of risk identification, assessment, data and management by each of the lines of business and corporate functions; and
Firmwide structures for risk governance.
The Firm strives for continual improvement through efforts to enhance controls, ongoing employee training and development, talent retention, and other measures. The Firm follows a disciplined and balanced compensation framework with strong internal governance and independent Board oversight. The impact of risk and control issues are carefully considered in the Firm’s performance evaluation and incentive compensation processes.
 
Firmwide Risk Management is overseen and managed on an enterprise-wide basis. The Firm’s approach to risk management involves understanding drivers of risks, risk types, and impacts of risks.
Drivers of risk include, but are not limited to, the economic environment, regulatory or government policy, competitor or market evolution, business decisions, process or judgment error, deliberate wrongdoing, dysfunctional markets, and natural disasters.
The Firm’s risks are generally categorized in the following four risk types:
Strategic risk is the risk associated with the Firm’s current and future business plans and objectives, including capital risk, liquidity risk, and the impact to the Firm’s reputation.
Credit and investment risk is the risk associated with the default or change in credit profile of a client, counterparty or customer; or loss of principal or a reduction in expected returns on investments, including consumer credit risk, wholesale credit risk, and investment portfolio risk.
Market risk is the risk associated with the effect of changes in market factors, such as interest and foreign exchange rates, equity and commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short and long term.
Operational risk is the risk associated with inadequate or failed internal processes, people and systems, or from external events and includes compliance risk, conduct risk, legal risk, and estimations and model risk.
There may be many consequences of risks manifesting, including quantitative impacts such as reduction in earnings and capital, liquidity outflows, and fines or penalties, or qualitative impacts, such as reputation damage, loss of clients, and regulatory and enforcement actions.


30


The Firm has established Firmwide risk management functions to manage different risk types. The scope of a particular risk management function may include multiple risk types. For example, the Firm’s Country Risk Management function oversees country risk which may be a driver of risk or an aggregation of exposures that could give rise to multiple risk types such as credit or market risk. The following provides an index of where in this Form 10-Q and in JPMorgan Chase’s 2017 Annual Report information about the Firm’s management of its key risks can be found.
Risk disclosures
Form 10-Q page reference
Annual Report page reference
Enterprise-wide risk management
30–31
75–80
Strategic risk management
 
81
Capital risk management
32–37
82–91
Liquidity risk management
38–42
92–97
Reputation risk management
 
98
Consumer credit portfolio

45–49
102–107
Wholesale credit portfolio
50–56
108–116
Investment portfolio risk management
60
120
Market risk management
61–65
121–128
Country risk management
66
129–130
Operational risk management
 
131–133
Compliance risk management

 
134
Conduct risk management
 
135
Legal risk management
 
136
Estimations and Model risk management
 
137

31


CAPITAL RISK MANAGEMENT
Capital risk is the risk the Firm has an insufficient level and composition of capital to support the Firm’s business activities and associated risks during normal economic environments and under stressed conditions.
The Firm’s capital risk management strategy focuses on maintaining long-term stability to enable it to build and invest in market-leading businesses, even in a highly stressed environment. Senior management considers the implications on the Firm’s capital prior to making decisions that could impact future business activities. In addition to considering the Firm’s earnings outlook, senior management evaluates all sources and uses of capital with a view to ensuring the Firm’s capital strength.
The Firm’s capital risk management objectives are achieved through the establishment of minimum capital targets and a strong capital governance framework. Capital risk management is intended to be flexible in order to react to a range of potential events. The Firm’s minimum capital targets are based on the most binding of three pillars: an internal assessment of the Firm’s capital needs; an estimate of required capital under the Comprehensive Capital Analysis and Review (“CCAR”) and Dodd-Frank Act stress testing requirements; and Basel III Fully Phased-In regulatory minimums. Where necessary, each pillar may include a management-established buffer.
For a further discussion of the Firm’s Capital Risk Management, see pages 82–91 of JPMorgan Chase’s 2017 Annual Report, Note 19 of this Form 10-Q, and the Firm’s Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website (http://investor.shareholder.com/jpmorganchase/basel.cfm).
 
The Firm and its insured depository institution (“IDI”) subsidiaries are subject to Basel III capital rules which include minimum capital ratio requirements that are subject to phase-in periods (“transitional period”) through the end of 2018. The capital adequacy of the Firm and its IDI subsidiaries, both during the transitional period and upon full phase-in, is evaluated against the Basel III approach (Standardized or Advanced) which, for each quarter, results in the lower ratio as required by the Collins Amendment of the Dodd-Frank Act (the “Collins Floor”). The Basel III Standardized Fully Phased-In CET1 ratio is the Firm’s current binding constraint, and the Firm expects that this will remain its binding constraint for the foreseeable future.
The Basel III rules require the Firm to maintain a certain level of capital that is subject to phase-in periods through the end of 2018. While this required capital remains subject to the transitional rules during 2018, as of January 1, 2018, the Firm’s capital in the form of CET1 and Tier 1, and the Firm’s risk-weighted assets were equivalent whether calculated on a transitional basis or on a fully phased-in basis.
The Firm is subject to minimum capital ratios under Basel III rules and well capitalized ratios 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, see Note 19.


32


The following tables present the Firm’s Transitional and Fully Phased-In risk-based and leverage-based capital metrics under both the Basel III Standardized and Advanced Approaches. The Firm’s Basel III ratios exceeded both the Transitional and Fully Phased-In regulatory minimums as of March 31, 2018 and December 31, 2017. For a further discussion of these capital metrics, including regulatory minimums, and the Standardized and Advanced Approaches, refer to Strategy and Governance on pages 84–88 of JPMorgan Chase’s 2017 Annual Report.
 
Transitional
 
Fully Phased-In
 
March 31, 2018
(in millions, except ratios)
Standardized
 
Advanced
 
Minimum capital ratios
 
Standardized
 
Advanced
 
Minimum capital ratios
 
Risk-based capital metrics:
 
 
 
 
 
 
 
 
 
 
 
 
CET1 capital
$
183,655

 
$
183,655

 
 
 
$
183,655

 
$
183,655

 
 
 
Tier 1 capital
209,296

 
209,296

 
 
 
209,296

 
209,296

 
 
 
Total capital
238,326

 
228,320

 
 
 
238,052

 
228,045

 
 
 
Risk-weighted assets
1,552,952

 
1,466,095

 
 
 
1,552,952

 
1,466,095

 
 
 
CET1 capital ratio
11.8
%
 
12.5
%
 
9.0
%
 
11.8
%
 
12.5
%
 
10.5
%
 
Tier 1 capital ratio
13.5

 
14.3

 
10.5

 
13.5

 
14.3

 
12.0

 
Total capital ratio
15.3

 
15.6

 
12.5

 
15.3

 
15.6

 
14.0

 
Leverage-based capital metrics:
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted average assets(a)
$
2,539,183

 
$
2,539,183

 
 
 
$
2,539,183

 
$
2,539,183

 
 
 
Tier 1 leverage ratio
8.2
%
 
8.2
%
 
4.0
%
 
8.2
%
 
8.2
%
 
4.0
%
 
Total leverage exposure
NA

 
NA

 
 
 
NA

 
$
3,234,103

 
 
 
SLR(b)
NA

 
NA

 
NA

 
NA

 
6.5
%
 
5.0
%
(b) 
 
Transitional
 
Fully Phased-In
 
December 31, 2017
(in millions, except ratios)
Standardized
 
Advanced
 
Minimum capital ratios
 
Standardized
 
Advanced
 
Minimum capital ratios
 
Risk-based capital metrics:
 
 
 
 
 
 
 
 
 
 
 
 
CET1 capital
$
183,300

 
$
183,300

 
 
 
$
183,244

 
$
183,244

 
 
 
Tier 1 capital
208,644

 
208,644

 
 
 
208,564

 
208,564

 
 
 
Total capital
238,395

 
227,933

 
 
 
237,960

 
227,498

 
 
 
Risk-weighted assets
1,499,506

 
1,435,825

 
 
 
1,509,762

 
1,446,696

 
 
 
CET1 capital ratio
12.2
%
 
12.8
%
 
7.5
%
 
12.1
%
 
12.7
%
 
10.5
%
 
Tier 1 capital ratio
13.9

 
14.5

 
9.0

 
13.8

 
14.4

 
12.0

 
Total capital ratio
15.9

 
15.9

 
11.0

 
15.8

 
15.7

 
14.0

 
Leverage-based capital metrics:
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted average assets(a)
$
2,514,270

 
$
2,514,270

 
 
 
$
2,514,822

 
$
2,514,822

 
 
 
Tier 1 leverage ratio
8.3
%
 
8.3
%
 
4.0
%
 
8.3
%
 
8.3
%
 
4.0
%
 
Total leverage exposure
NA

 
$
3,204,463

 
 
 
NA

 
$
3,205,015

 
 
 
SLR(b)
NA

 
6.5
%
 
NA

 
NA

 
6.5
%
 
5.0
%
(b) 
Note: As of March 31, 2018, and December 31, 2017, the lower of the Standardized or Advanced capital ratios under each of the Transitional and Fully Phased-In approaches in the table above represents the Firm’s Collins Floor.
(a)
Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(b)
Effective January 1, 2018, the SLR was fully phased-in under Basel III.

Recent regulatory updates
On December 7, 2017, the Basel Committee issued the Basel III Reforms. For additional information, refer to Supervision & Regulation on pages 1–8 of JPMorgan Chase’s 2017 Annual Report.
In April 2018, U.S. banking regulators proposed the introduction of a stress capital buffer (“SCB”) and a modification to the regulations regarding enhanced supplementary leverage ratio (“eSLR”) standards for U.S. GSIB holding companies and certain of their IDI subsidiaries. As currently proposed the SCB would modify certain aspects of the Federal Reserve’s CCAR assessment and in part integrate the forward-looking stress test results with the Federal Reserve’s non-stress capital requirements. The proposed eSLR changes would replace the current fixed eSLR measure with a standard that would be tied to the risk-based capital surcharge of the Firm and correspond to recent changes proposed by the Basel Committee on Banking Supervision.


33


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 March 31, 2018 and December 31, 2017.
(in millions)
March 31, 2018

December 31, 2017

Total stockholders’ equity
$
256,201

$
255,693

Less: Preferred stock
26,068

26,068

Common stockholders’ equity
230,133

229,625

Less:
 
 
Goodwill
47,499

47,507

Other intangible assets
832

855

Add:
 
 
Certain deferred tax liabilities(a)
2,216

2,204

Less: Other CET1 capital adjustments
363

223

Standardized/Advanced Fully
Phased-In CET1 capital
183,655

183,244

Preferred stock
26,068

26,068

Less: Other Tier 1 adjustments(b)
427

748

Standardized/Advanced Fully
Phased-In Tier 1 capital
$
209,296

$
208,564

Long-term debt and other instruments qualifying as Tier 2 capital
$
14,365

$
14,827

Qualifying allowance for credit losses
14,482

14,672

Other
(91
)
(103
)
Standardized Fully Phased-In Tier 2 capital
$
28,756

$
29,396

Standardized Fully Phased-In Total capital
$
238,052

$
237,960

Adjustment in qualifying allowance for credit losses for Advanced Tier 2 capital
(10,007
)
(10,462
)
Advanced Fully Phased-In Tier 2 capital
$
18,749

$
18,934

Advanced Fully Phased-In Total capital
$
228,045

$
227,498

 
 
 
(a)
Represents deferred tax liabilities related to tax-deductible goodwill and identifiable intangibles created in nontaxable transactions, which are netted against goodwill and other intangibles when calculating TCE.
(b)
Includes the deduction associated with the permissible holdings of covered funds (as defined by the Volcker Rule). The deduction was not material as of March 31, 2018 and December 31, 2017.
 
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 three months ended March 31, 2018.
Three months ended March 31,
(in millions)
2018

Standardized/Advanced CET1 capital at December 31, 2017
$
183,244

Net income applicable to common equity
8,303

Dividends declared on common stock
(1,941
)
Net purchase of treasury stock
(3,359
)
Changes in additional paid-in capital
(1,368
)
Changes related to AOCI
(887
)
Adjustment related to DVA(a)
(310
)
Changes related to other CET1 capital adjustments
(27
)
Change in Standardized/Advanced CET1 capital
411

Standardized/Advanced CET1 capital at March 31, 2018
$
183,655

 
 
Standardized/Advanced Tier 1 capital at December 31, 2017
$
208,564

Change in CET1 capital
411

Net issuance of noncumulative perpetual preferred stock

Other
321

Change in Standardized/Advanced Tier 1 capital
732

Standardized/Advanced Tier 1 capital at March 31, 2018
$
209,296

 
 
Standardized Tier 2 capital at December 31, 2017
$
29,396

Change in long-term debt and other instruments qualifying as Tier 2
(463
)
Change in qualifying allowance for credit losses
(190
)
Other
13

Change in Standardized Tier 2 capital
(640
)
Standardized Tier 2 capital at March 31, 2018
$
28,756

Standardized Total capital at March 31, 2018
$
238,052

 
 
Advanced Tier 2 capital at December 31, 2017
$
18,934

Change in long-term debt and other instruments qualifying as Tier 2
(463
)
Change in qualifying allowance for credit losses
265

Other
13

Change in Advanced Tier 2 capital
(185
)
Advanced Tier 2 capital at March 31, 2018
$
18,749

Advanced Total capital at March 31, 2018
$
228,045

(a)
Includes DVA related to structured notes recorded in AOCI.

34


RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for the three months ended March 31, 2018. The amounts in the rollforward categories are estimates, based on the predominant driver of the change.
 
Standardized
 
Advanced
Three months ended
March 31, 2018
(in millions)
Credit risk RWA
Market risk RWA
Total RWA
 
Credit risk RWA
Market risk RWA
Operational risk
RWA
Total RWA
At December 31, 2017
$
1,386,060

$
123,702

$
1,509,762

 
$
922,905

$
123,791

$
400,000

$
1,446,696

Model & data changes(a)
2,800

300

3,100

 
(62
)
300


238

Portfolio runoff(b)
(2,792
)

(2,792
)
 
(2,840
)


(2,840
)
Movement in portfolio levels(c)
35,059

7,823

42,882

 
14,019

7,982


22,001

Changes in RWA
35,067

8,123

43,190

 
11,117

8,282


19,399

March 31, 2018
$
1,421,127

$
131,825

$
1,552,952

 
$
934,022

$
132,073

$
400,000

$
1,466,095

(a)
Model & data changes refer to movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule changes).
(b)
Portfolio runoff for credit risk RWA primarily reflects reduced risk from position rolloffs in legacy portfolios in Home Lending.
(c)
Movement in portfolio levels for credit risk RWA refers to changes in book size, composition, credit quality, and market movements; and for market risk RWA refers to changes in position and market movements.
Supplementary leverage ratio
The SLR is defined as Tier 1 capital under Basel III divided by the Firm’s total leverage exposure. For additional information, see Capital Risk Management on page 88 of JPMorgan Chase’s 2017 Annual Report.
The following table presents the components of the Firm’s Fully Phased-In SLR as of March 31, 2018 and December 31, 2017.
(in millions, except ratio)
March 31, 2018

December 31, 2017

Tier 1 capital
$
209,296

$
208,564

Total average assets
2,586,043

2,562,155

Less: Adjustments for deductions from Tier 1 capital
46,860

47,333

Total adjusted average assets(a)
2,539,183

2,514,822

Off-balance sheet exposures(b)
694,920

690,193

Total leverage exposure
$
3,234,103

$
3,205,015

SLR
6.5
%
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 quarter.
As of March 31, 2018, JPMorgan Chase Bank, N.A.’s and Chase Bank USA, N.A.’s Fully Phased-In SLRs were approximately 6.7% and 12.3%, respectively.

 
Line of business equity
Each business segment is allocated capital by taking into consideration stand-alone peer comparisons and regulatory capital requirements. For additional information, see page 88 of JPMorgan Chase’s 2017 Annual Report.
The following table represents the capital allocated to each business segment:

(in billions)
March 31,
2018

 
December 31,
2017

Consumer & Community Banking
$
51.0

 
$
51.0

Corporate & Investment Bank
70.0

 
70.0

Commercial Banking
20.0

 
20.0

Asset & Wealth Management
9.0

 
9.0

Corporate
80.1

 
79.6

Total common stockholders’ equity
$
230.1

 
$
229.6



35


Planning and stress testing
Comprehensive Capital Analysis and Review
The Federal Reserve requires large bank holding companies, including the Firm, to submit a capital plan on an annual basis. Through the CCAR process, the Federal Reserve evaluates each bank holding company’s (“BHC”) capital adequacy and internal capital adequacy assessment processes, as well as its plans to make capital distributions, such as dividend payments or stock repurchases.
On April 5, 2018, the Firm submitted its 2018 Capital Plan to the Federal Reserve under the Federal Reserve’s 2018 CCAR process. The Firm expects the Federal Reserve to respond to its capital plan submissions by June 30, 2018.
Capital actions
Preferred stock
Preferred stock dividends declared were $409 million for the three months ended March 31, 2018.
Common stock dividends
On September 19, 2017, the Firm announced that its Board of Directors increased the quarterly common stock dividend to $0.56 per share, effective with the dividend paid on October 31, 2017. The Firm’s dividends are subject to the Board of Directors’ approval on a quarterly basis.
Common equity
Effective as of June 28, 2017, the Firm’s Board of Directors authorized the repurchase of up to $19.4 billion of common equity (common stock and warrants) between July 1, 2017 and June 30, 2018, as part of its annual capital plan.
There were 13.3 million and 15.0 million warrants outstanding at March 31, 2018 and December 31, 2017, respectively.
The following table sets forth the Firm’s repurchases of common equity for the three months ended March 31, 2018 and 2017. There were no repurchases of warrants during the three months ended March 31, 2018 and 2017.

Three months ended March 31,
(in millions)
2018

2017

Total shares of common stock repurchased
41.4

32.1

Aggregate common stock repurchases
$
4,671

$
2,832

For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 2: Unregistered Sales of Equity Securities and Use of Proceeds and Part II, Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities on page 164 of this Form 10-Q and page 28 of JPMorgan Chase’s 2017 Form 10-K, respectively.

 
Other capital requirements
TLAC
On December 15, 2016, the Federal Reserve issued its final Total Loss Absorbing Capacity (“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.
As of March 31, 2018, the Firm was compliant with the requirements under the current rule to which it will be subject on January 1, 2019. For additional information, see page 90 of JPMorgan Chase’s 2017 Annual Report.

36


Broker-dealer regulatory capital
JPMorgan Securities
JPMorgan Chase’s principal U.S. broker-dealer subsidiary is JPMorgan Securities. JPMorgan Securities is subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Net Capital Rule”). JPMorgan Securities is also registered as a futures commission merchant and subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”). JPMorgan Securities has elected to compute its minimum net capital requirements in accordance with the “Alternative Net Capital Requirements” of the Net Capital Rule.
In accordance with the market and credit risk standards of Appendix E of the Net Capital Rule, JPMorgan Securities is eligible to use the alternative method of computing net capital if, in addition to meeting its minimum net capital requirement, it maintains tentative net capital of at least $1.0 billion and is also required to notify the Securities and Exchange Commission (“SEC”) in the event that tentative net capital is less than $5.0 billion. As of March 31, 2018, JPMorgan Securities maintained tentative net capital in excess of the minimum and notification requirements.
The following table presents JPMorgan Securities’ net capital information:
March 31, 2018
Net Capital
(in millions)
Actual

Minimum

JPMorgan Securities
$
16,407

$
2,831

J.P. Morgan Securities plc
J.P. Morgan Securities plc is a wholly-owned subsidiary of JPMorgan Chase Bank, N.A. and is the Firm’s principal operating subsidiary in the U.K. It has authority to engage in banking, investment banking and broker-dealer activities. J.P. Morgan Securities plc is jointly regulated by the U.K. Prudential Regulatory Authority (“PRA”) and the Financial Conduct Authority (“FCA”). J.P. Morgan Securities plc is subject to the European Union Capital Requirements Regulation and the U.K. PRA capital rules, each of which implemented Basel III and thereby subject J.P. Morgan Securities plc to its requirements.
The following table presents J.P. Morgan Securities plc’s capital information:
March 31, 2018
Total capital
 
CET1 ratio
 
Total capital ratio
(in millions, except ratios)
Estimated
 
Estimated
Minimum
 
Estimated
Minimum
J.P. Morgan Securities plc
$
40,094

 
16.3
4.5
 
16.3
8.0

37


LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meet its contractual and contingent financial obligations as they arise or that it does not have the appropriate amount, composition and tenor of funding and liquidity to support its assets and liabilities. For a further discussion of the Firm’s Liquidity Risk Management, see pages 92–97 of JPMorgan Chase’s 2017 Annual Report and the Firm’s US LCR Disclosure reports, which are available on the Firm’s website at: (https://investor.shareholder.com/jpmorganchase/basel.cfm).
LCR and HQLA
The LCR rule requires the Firm to maintain an amount of unencumbered HQLA that is sufficient to meet its estimated total net cash outflows over a prospective 30 calendar-day period of significant stress. HQLA is the amount of liquid assets that qualify for inclusion in the LCR. HQLA primarily consist of unencumbered cash and certain high quality liquid securities as defined in the LCR rule.
Under the LCR rule, the amount of HQLA held by JPMorgan Chase Bank N.A. and Chase Bank USA, N.A that are in excess of each entity’s standalone 100% minimum LCR requirement, and that are not transferable to non-bank affiliates, must be excluded from the Firm’s reported HQLA. The LCR is required to be a minimum of 100%.
The following table summarizes the Firm’s average LCR for the three months ended March 31, 2018 based on the Firm’s current interpretation of the finalized LCR framework.
Average amount
(in millions)
Three months ended March 31, 2018
HQLA
 
Eligible cash(a)
$
358,257

Eligible securities(b)(c)
180,765

Total HQLA(d)
$
539,022

Net cash outflows
$
467,629

LCR
115
%
Net excess HQLA (d)
$
71,393

(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.
 
For the three months ended March 31, 2018, the Firm’s average LCR was 115%, compared with an average of 119% for the three months ended December 31, 2017. The decrease in the ratio was largely attributable to a decrease in average cash HQLA, driven primarily by long-term debt maturities and client-driven markets activity in CIB. The Firm’s average LCR may fluctuate from period to period, due to changes in its HQLA and estimated net cash outflows under the LCR as a result of ongoing business activity. The Firm’s HQLA are expected to be available to meet its liquidity needs in a time of stress.
Other liquidity sources
As of March 31, 2018, in addition to assets reported in the Firm’s HQLA under the LCR rule, the Firm had approximately $244 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 March 31, 2018, the Firm also had approximately $287 billion of available borrowing capacity at various Federal Home Loan Banks (“FHLBs”), discount windows at Federal Reserve Banks and various other central banks as a result of collateral pledged by the Firm to such banks. This borrowing capacity excludes the benefit of securities reported in the Firm’s HQLA or other unencumbered securities that are currently pledged at Federal Reserve Bank discount windows. Although available, the Firm does not view the borrowing capacity at the Federal Reserve Bank discount windows and the various other central banks as a primary source of liquidity.


38


Funding
Sources of funds
Management believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations.
The Firm funds its global balance sheet through diverse sources of funding including a stable deposit franchise as well as secured and unsecured funding in the capital markets. The Firm’s loan portfolio is funded with a portion of the Firm’s deposits, through securitizations and, with respect to a portion of the Firm’s real estate-related loans, with secured borrowings from the FHLBs. Deposits in excess of the amount utilized to fund loans are primarily invested in the Firm’s investment securities portfolio or deployed in cash or other short-term liquid investments based on their interest rate and liquidity risk characteristics. Securities
 
borrowed or purchased under resale agreements and trading assets-debt and equity instruments are primarily funded by the Firm’s securities loaned or sold under agreements to repurchase, trading liabilities-debt and equity instruments, and a portion of the Firm’s long-term debt and stockholders’ equity. In addition to funding securities borrowed or purchased under resale agreements and trading assets-debt and equity instruments, proceeds from the Firm’s debt and equity issuances are used to fund certain loans and other financial and non-financial assets, or may be invested in the Firm’s investment securities portfolio. See the discussion below for additional information relating to Deposits, Short-term funding, and Long-term funding and issuance.

Deposits
The table below summarizes, by line of business, the deposit balances as of March 31, 2018, and December 31, 2017, and the average deposit balances for the three months ended March 31, 2018 and 2017, respectively.
 
March 31, 2018

December 31, 2017

 
Three months ended March 31,
Deposits
 
Average
(in millions)
 
2018

2017

Consumer & Community Banking
$
685,170

$
659,885

 
$
659,599

$
622,915

Corporate & Investment Bank
479,543

455,883

 
465,822

427,466

Commercial Banking
174,509

181,512

 
175,523

176,624

Asset & Wealth Management
147,238

146,407

 
144,199

158,810

Corporate
501

295

 
865

5,748

Total Firm
$
1,486,961

$
1,443,982

 
$
1,446,008

$
1,391,563

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 March 31, 2018 and December 31, 2017.
(in billions except ratios)
March 31, 2018

December 31, 2017

Deposits
$
1,487.0

$
1,444.0

Deposits as a % of total liabilities
63
%
63
%
Loans
934.4

930.7

Loans-to-deposits ratio
63
%
64
%
 
Deposits increased during the three months ended March 31, 2018, compared to the period ended December 31, 2017, due to both higher consumer and wholesale deposits. The higher consumer deposits reflected the continuation of growth from new and existing customers, low attrition rates, and the impact of seasonality in CCB. The higher wholesale deposits were driven by growth in client activity in CIB’s Treasury Services and Securities Services businesses, partially offset by the impact of seasonality in CB.
The Firm believes average deposit balances are generally more representative of deposit trends than period-end deposit balances. The increase in average deposits for the three months ended March 31, 2018, compared with the three months ended March 31, 2017, was driven by an increase in both consumer and wholesale deposits. For further discussions of deposit and liability balance trends, see the discussion of the Firm’s Business Segment Results and the Consolidated Balance Sheets Analysis on pages 16-29 and pages 10–12, respectively.

39


The following table summarizes short-term and long-term funding, excluding deposits, as of March 31, 2018, and December 31, 2017, and average balances for the three months ended March 31, 2018 and 2017, respectively. For additional information, see the Consolidated Balance Sheets Analysis on pages 10–12 and Note 10.
 
March 31, 2018
December 31, 2017
 
Three months ended March 31,
Sources of funds (excluding deposits)
 
Average
(in millions)
 
2018

2017

Commercial paper
$
27,486

24,186

 
$
25,993

$
13,364

Other borrowed funds
35,181

27,616

 
31,610

23,157

Total short-term borrowings
$
62,667

$
51,802

 
$
57,603

$
36,521

Obligations of Firm-administered multi-seller conduits(a)
$
3,067

$
3,045

 
$
3,116

$
4,373

 
 
 
 
 
 
Securities loaned or sold under agreements to repurchase:
 
 
 
 
 
Securities sold under agreements to repurchase(b)
$
162,480

$
147,713

 
$
184,396

$
174,232

Securities loaned(b)
15,393

9,211

 
10,526

14,451

Total securities loaned or sold under agreements to repurchase(b)(c)(d)
$
177,873

$
156,924

 
$
194,922

$
188,683

 
 
 
 
 
 
Senior notes
$
148,765

$
155,852

 
$
150,218

$
149,403

Trust preferred securities(e)
686

690

 
688

2,344

Subordinated debt(e)
16,116

16,553

 
16,231

21,172

Structured notes
46,978

45,727

 
47,001

38,904

Total long-term unsecured funding
$
212,545

$
218,822

 
$
214,138

$
211,823

 
 
 
 
 
 
Credit card securitization(a)
$
16,819

$
21,278

 
$
18,665

$
29,431

Other securitizations(a)(f)


 

1,524

Federal Home Loan Bank (“FHLB”) advances
56,865

60,617

 
60,385

77,280

Other long-term secured funding(g)
5,039

4,641

 
4,482

3,121

Total long-term secured funding
$
78,723

$
86,536

 
$
83,532

$
111,356

 
 
 
 
 
 
Preferred stock(h)
$
26,068

$
26,068

 
$
26,068

$
26,068

Common stockholders’ equity(h)
$
230,133

$
229,625

 
$
227,615

$
227,703

(a)
Included in beneficial interests issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(b)
The prior period amounts have been revised to conform with the current period presentation.
(c)
Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(d)
Excludes federal funds purchased.
(e)
Subordinated debt includes $1.6 billion of junior subordinated debentures distributed pro rata to the holders of trust preferred securities which were cancelled on December 18, 2017. For further information see Note 19 of JPMorgan Chase’s 2017 Annual Report.
(f)
Other securitizations include securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio. The Firm’s wholesale businesses also securitize loans for client-driven transactions, which are not considered to be a source of funding for the Firm and are not included in the table.
(g)
Includes long-term structured notes which are secured.
(h)
For additional information on preferred stock and common stockholders’ equity see Capital Risk Management on pages 32-37, Consolidated statements of changes in stockholders’ equity, and Note 20 and Note 21 of JPMorgan Chase’s 2017 Annual Report.

Short-term funding
The Firm’s sources of short-term secured funding primarily consist of securities loaned or sold under agreements to repurchase. These instruments are secured predominantly by high-quality securities collateral, including government-issued debt and agency MBS, and constitute a significant portion of the federal funds purchased and securities loaned or sold under repurchase agreements on the Consolidated balance sheets. The increase at March 31, 2018, from December 31, 2017, reflected higher secured financing of trading assets-debt and equity instruments, partially offset by a change in the mix of funding to short-term borrowings 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.

40


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 significant majority of the Firm’s long-term unsecured funding is issued by the Parent Company to provide maximum flexibility in support of both bank and nonbank subsidiary funding needs. The Parent Company advances substantially all net funding proceeds to its subsidiary, the Intermediate Holding Company (“IHC”). The IHC does not issue debt to external counterparties. The following table summarizes long-term unsecured issuance and maturities or redemptions for the three months ended March 31, 2018 and 2017. For additional information on the IHC and long-term debt, see Liquidity Risk Management and Note 19 of JPMorgan Chase’s 2017 Annual Report.
Long-term unsecured funding
 
 
Three months ended March 31,
(in millions)
2018

2017

Issuance
 
 
Senior notes issued in the U.S. market
$
7,981

$
6,465

Senior notes issued in non-U.S. markets


Total senior notes
7,981

6,465

Subordinated debt


Structured notes
7,788

8,434

Total long-term unsecured funding – issuance
$
15,769

$
14,899

 
 
 
Maturities/redemptions
 
 
Senior notes
$
14,124

$
10,427

Trust preferred securities


Subordinated debt

995

Structured notes
5,527

5,330

Total long-term unsecured funding – maturities/redemptions
$
19,651

$
16,752


 
The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBs. The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemptions for the three months ended March 31, 2018 and 2017, respectively.
Long-term secured funding
 
 
 
 
Three months ended March 31,
 
Issuance
 
Maturities/Redemptions
(in millions)
2018
2017
 
2018
2017
Credit card securitization
$

$
1,545

 
$
4,400

$
3,990

Other securitizations(a)


 

55

FHLB advances
4,000


 
7,751

5,202

Other long-term secured funding(b)
121

103

 
16

44

Total long-term secured funding
$
4,121

$
1,648

 
$
12,167

$
9,291

(a)
Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio.
(b)
Includes long-term structured notes which are secured.
The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table above. For further description of the client-driven loan securitizations, see Note 14 of JPMorgan Chase’s 2017 Annual Report.


41


Credit ratings
The cost and availability of financing are influenced by credit ratings. Reductions in these ratings could have an adverse effect on the Firm’s access to liquidity sources, increase the cost of funds, trigger additional collateral or funding requirements and decrease the number of investors and counterparties willing to lend to the Firm.

 
Additionally, the Firm’s funding requirements for VIEs and other third-party commitments may be adversely affected by a decline in credit ratings. For additional information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see SPEs on page 13, and Liquidity risk and credit-related contingent features in Note 4.
The credit ratings of the Parent Company and the Firm’s principal bank and nonbank subsidiaries as of March 31, 2018, were as follows.
 
JPMorgan Chase & Co.
 
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A.
 
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
March 31, 2018
Long-term issuer
Short-term issuer
Outlook
 
Long-term issuer
Short-term issuer
Outlook
 
Long-term issuer
Short-term issuer
Outlook
Moody’s Investors Service
A3
P-2
Stable
 
Aa3
P-1
Stable
 
A1
P-1
Stable
Standard & Poor’s
A-
A-2
Stable
 
A+
A-1
Stable
 
A+
A-1
Stable
Fitch Ratings
A+
F1
Stable
 
AA-
F1+
Stable
 
AA-
F1+
Stable
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 ratios, strong credit quality and risk management controls, diverse funding sources, and disciplined liquidity monitoring procedures. Rating agencies continue to evaluate economic and geopolitical trends, regulatory developments, future profitability, risk management practices, and litigation matters, as well as their broader ratings methodologies. Changes in any of these factors could lead to changes in the Firm’s credit ratings.


42


CREDIT AND INVESTMENT RISK MANAGEMENT
Credit and investment risk is the risk associated with the default or change in credit profile of a client, counterparty or customer; or loss of principal or a reduction in expected returns on investments. For a further discussion of Credit Risk refer to pages 43–60. For a further discussion on Investment Portfolio risk, refer to page 60. For a further discussion of the Firm’s Credit and Investment Risk Management framework and organization, and the identification, monitoring and management, see Credit and Investment Risk Management on pages 99–120 of JPMorgan Chase’s 2017 Annual Report.


43


CREDIT PORTFOLIO
Credit risk is the risk associated with the default or change in credit profile of a client, counterparty or customer.
In the following tables, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale; and certain loans accounted for at fair value. The following tables do not include certain loans which the Firm accounts for at fair value and classifies as trading assets. For further information regarding these loans, see Notes 2 and 3. For additional information on the Firm’s loans, lending-related commitments and derivative receivables, including the Firm’s accounting policies, see Notes 11, 20, and 4, respectively.
For further information regarding the credit risk inherent in the Firm’s cash placed with banks, see Wholesale credit exposure – industry exposures on pages 52–54; for information regarding the credit risk inherent in the
Firm’s investment securities portfolio, see Note 9 of this Form 10-Q, and Note 10 of JPMorgan Chase’s 2017 Annual Report; and for information regarding the credit risk inherent in the securities financing portfolio, see Note 10 of this Form 10-Q, and Note 11 of JPMorgan Chase’s 2017 Annual Report.
For a further discussion of the consumer credit environment and consumer loans, see Consumer Credit Portfolio on pages 102-107 of JPMorgan Chase’s 2017 Annual Report and Note 11 of this Form 10-Q. For a further discussion of the wholesale credit environment and wholesale loans,
see Wholesale Credit Portfolio on pages 108-116 of JPMorgan Chase’s 2017 Annual Report and Note 11 of this Form 10-Q.

 
Total credit portfolio
 
 
 
 
 
Credit exposure
 
Nonperforming(d)(e)
(in millions)
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

Loans retained
$
925,611

$
924,838

 
$
5,820

$
5,943

Loans held-for-sale
5,905

3,351

 
63


Loans at fair value
2,908

2,508

 


Total loans - reported
934,424

930,697

 
5,883

5,943

Derivative receivables
56,914

56,523

 
132

130

Receivables from customers and other(a)
27,996

26,272

 


Total credit-related assets
1,019,334

1,013,492

 
6,015

6,073

Assets acquired in loan satisfactions
 
 
 
 
 
Real estate owned
NA

NA

 
314

311

Other
NA

NA

 
35

42

Total assets acquired in loan satisfactions
NA

NA

 
349

353

Lending-related commitments
1,022,023

991,482

 
746

731

Total credit portfolio
$
2,041,357

$
2,004,974

 
$
7,110

$
7,157

Credit derivatives used
in credit portfolio management activities(b)
$
(16,366
)
$
(17,609
)
 
$

$

Liquid securities and other cash collateral held against derivatives(c)
(14,610
)
(16,108
)
 
NA

NA

(in millions,
except ratios)
Three months ended March 31,
2018

2017

Net charge-offs(f)
$
1,335

$
1,654

Average retained loans
 
 
Loans
920,428

885,577

Loans – excluding residential real estate PCI loans
890,376

850,533

Net charge-off rates(f)
 
 
Loans
0.59
%
0.76
%
Loans – excluding PCI
0.61

0.79

(a)
Receivables from customers and other primarily represents held-for-investment margin loans to brokerage customers.
(b)
Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 56 and Note 4.
(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 March 31, 2018, and December 31, 2017, nonperforming assets excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $4.0 billion and $4.3 billion, respectively, and real estate owned (“REO”) insured by U.S. government agencies of $94 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 three months ended March 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for loans would have been 0.54% and for loans – excluding PCI would have been 0.57%.


44


CONSUMER CREDIT PORTFOLIO
The Firm’s retained consumer portfolio consists primarily of residential real estate loans, credit card loans, auto loans, and business banking loans, as well as associated lending-related commitments. The Firm’s focus is on serving primarily the prime segment of the consumer credit market. For further
 
information on consumer loans, see Note 11 and Consumer Credit Portfolio on pages 102-107 and Note 12 of JPMorgan Chase’s 2017 Annual Report. For further information on lending-related commitments, see Note 20 and Note 27 of JPMorgan Chase’s 2017 Annual Report.
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime mortgage and home equity loans held by AWM, and prime mortgage loans held by Corporate. For further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 12 of JPMorgan Chase’s 2017 Annual Report.
Consumer credit portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31,

(in millions, except ratios)
Credit exposure
 
Nonaccrual
loans
(i)(j)
 
Net
charge-offs
(d)(k)(l)
 
Average annual
net charge-off rate
(d)(k)(l)
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

 
2018

2017

 
2018

2017

Consumer, excluding credit card
 
 
 
 
 
 
 
 
 
 
 
Loans, excluding PCI loans and loans held-for-sale
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
220,048

$
216,496

 
$
2,240

$
2,175

 
$

$
3

 
%
0.01
%
Home equity
31,792

33,450

 
1,585

1,610

 
17

49

 
0.21

0.52

Auto(a)(b)
66,042

66,242

 
127

141

 
76

81

 
0.47

0.50

Consumer & Business Banking(b)(c)
25,856

25,789

 
274

283

 
53

57

 
0.83

0.95

Student(d)


 


 

498

 

NM

Total loans, excluding PCI loans and loans held-for-sale
343,738

341,977

 
4,226

4,209

 
146

688

 
0.17

0.84

Loans – PCI
 
 
 
 
 
 
 
 
 
 
 
Home equity
10,332

10,799

 
NA

NA

 
NA

NA

 
NA

NA

Prime mortgage
6,259

6,479

 
NA

NA

 
NA

NA

 
NA

NA

Subprime mortgage
2,549

2,609

 
NA

NA

 
NA

NA

 
NA

NA

Option ARMs(e)
10,365

10,689

 
NA

NA

 
NA

NA

 
NA

NA

Total loans – PCI
29,505

30,576

 
NA

NA

 
NA

NA

 
NA

NA

Total loans – retained
373,243

372,553

 
4,226

4,209

 
146

688

 
0.16

0.76

Loans held-for-sale
152

128

 
34


 


 


Total consumer, excluding credit card loans
373,395

372,681

 
4,260

4,209

 
146

688

 
0.16

0.76

Lending-related commitments(f)
49,516

48,553

 
 
 
 
 
 
 
 
 
Receivables from customers(g)
141

133

 
 
 
 
 
 
 
 
 
Total consumer exposure, excluding credit card
423,052

421,367

 
 
 
 
 
 
 
 
 
Credit card
 
 
 
 
 
 
 
 
 
 
 
Loans retained(h)
140,348

149,387

 


 
1,170

993

 
3.32

2.94

Loans held-for-sale
66

124

 


 


 


Total credit card loans
140,414

149,511

 


 
1,170

993

 
3.32

2.94

Lending-related commitments(f)
588,232

572,831

 
 
 
 
 
 
 
 
 
Total credit card exposure
728,646

722,342

 
 
 
 
 
 
 
 
 
Total consumer credit portfolio
$
1,151,698

$
1,143,709

 
$
4,260

$
4,209

 
$
1,316

$
1,681

 
1.04
%
1.35
%
Memo: Total consumer credit portfolio, excluding PCI
$
1,122,193

$
1,113,133

 
$
4,260

$
4,209

 
$
1,316

$
1,681

 
1.10
%
1.46
%
(a)
At March 31, 2018, and December 31, 2017, excluded operating lease assets of $18.0 billion and $17.1 billion, respectively. These operating lease assets are included in other assets on the Firm’s Consolidated balance sheets. The risk of loss on these assets relates to the residual value of the leased vehicles, which is managed through projection of the lease residual value at lease origination, periodic review of residual values, and through arrangements with certain auto manufacturers that mitigates this risk.
(b)
Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included within the consumer portfolio.
(c)
Predominantly includes Business Banking loans.
(d)
For the three months ended March 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Total consumer, excluding credit card and PCI loans and loans held-for-sale would have been 0.27%; Total consumer – retained excluding credit card loans would have been 0.24%; Total consumer credit portfolio would have been 0.98%; and Total consumer credit portfolio, excluding PCI loans would have been 1.05%.
(e)
At March 31, 2018, and December 31, 2017, approximately 70% and 68%, respectively, of the PCI option adjustable rate mortgage (“ARM”) portfolio has been modified into fixed-rate, fully amortizing loans.
(f)
Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. For further information, see Note 20.
(g)
Receivables from customers represent held-for-investment margin loans to brokerage customers that are collateralized through assets maintained in the clients’ brokerage accounts. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
(h)
Includes billed interest and fees net of an allowance for uncollectible interest and fees.

45


(i)
At March 31, 2018 and December 31, 2017, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $4.0 billion and $4.3 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance issued by the FFIEC.
(j)
Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(k)
Net charge-offs and the net charge-off rates excluded write-offs in the PCI portfolio of $20 million and $24 million for the three months ended March 31, 2018 and 2017, respectively. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 57–59 for further details.
(l)
Average consumer loans held-for-sale were $234 million and $302 million for the three months ended March 31, 2018 and 2017, respectively. These amounts were excluded when calculating net charge-off rates.

Consumer, excluding credit card
Portfolio analysis
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, see Note 11 of this Form 10-Q.
Residential mortgage: The residential mortgage portfolio predominantly consists of high-quality prime mortgage loans, with a small component consisting of subprime mortgage loans (approximately 1%). These subprime mortgage loans continue to run off and are performing in line with expectations. The residential mortgage portfolio, including loans held-for-sale, increased from December 31, 2017 as the amount of retained originations of primarily high-quality prime mortgage loans exceeded paydowns. Residential mortgage 30+ day delinquencies decreased from December 31, 2017. Nonaccrual loans increased from December 31, 2017 due to the impact of recent hurricanes. Net charge-offs for the three months ended March 31, 2018 declined when compared with the same period of the prior year, reflecting continued improvement in home prices and delinquencies.
At March 31, 2018, and December 31, 2017, the Firm’s residential mortgage portfolio, including loans held-for-sale, included $8.7 billion and $8.6 billion, respectively, of mortgage loans insured and/or guaranteed by U.S. government agencies, of which $5.7 billion and $6.2 billion, respectively, were 30 days or more past due (of these past due loans, $4.0 billion and $4.3 billion, respectively, were 90 days or more past due). The Firm monitors its exposure to certain potential unrecoverable claim payments related to government-insured loans and considers this exposure in estimating the allowance for loan losses.
At both March 31, 2018, and December 31, 2017, the Firm’s residential mortgage portfolio included $20.2 billion of interest-only loans. These loans have an interest-only payment period generally followed by an adjustable-rate or fixed-rate fully amortizing payment period to maturity and are typically originated as higher-balance loans to higher-income borrowers. To date, losses on this portfolio generally have been consistent with the broader residential mortgage portfolio. The Firm continues to monitor the risks associated with these loans.
 
Home equity: The home equity portfolio declined from December 31, 2017 primarily reflecting loan paydowns. The amount of 30+ day delinquencies decreased from December 31, 2017. Nonaccrual loans decreased from December 31, 2017 primarily as a result of loss mitigation activities. Net charge-offs for the three months ended March 31, 2018 declined when compared with the same period of the prior year, as a result of lower loan balances and continued improvement in home prices and delinquencies.
At March 31, 2018, approximately 90% of the Firm’s home equity portfolio consisted of home equity lines of credit (“HELOCs”) and the remainder consisted of home equity loans (“HELOANs”). The carrying value of HELOCs outstanding was $28 billion at March 31, 2018. This amount included $13 billion of HELOCs that have recast from interest-only to fully amortizing payments or have been modified and $5 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. The carrying value of high-risk seconds was not materially different from December 31, 2017.
For further information on the Firm’s home equity portfolio, see Note 11 of this Form 10-Q and Consumer Credit Portfolio on pages 102-107 of JPMorgan Chase’s 2017 Annual Report.
Auto: The auto loan portfolio, which predominantly consists of prime-quality loans, was relatively flat when compared with December 31, 2017, as paydowns and the charge-off or liquidation of delinquent loans were offset by new originations. Nonaccrual loans decreased from December 31, 2017. Net charge-offs for the three months ended March 31, 2018 decreased when compared with the same period in the prior year.

46


Consumer & Business Banking: Consumer & Business Banking loans were relatively flat when compared with December 31, 2017, as growth due to loan originations was offset by paydowns and the charge-off or liquidation of delinquent loans. Nonaccrual loans decreased from December 31, 2017. Net charge-offs for the three months ended March 31, 2018 decreased when compared with the same period in the prior year.
Purchased credit-impaired loans: PCI loans decreased from December 31, 2017 as the portfolio continues to run off. As of March 31, 2018, approximately 11% of the option ARM PCI loans were delinquent and approximately 70% of the portfolio had been modified into fixed-rate, fully amortizing loans. The borrowers for substantially all of the remaining loans are making amortizing payments, although such payments are not necessarily fully amortizing. This latter group of loans is subject to the risk of payment shock due to future payment recast. Default rates generally increase on option ARM loans when payment recast results in a payment increase. The expected increase in default rates is considered in the Firm’s quarterly impairment assessment.
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or the allowance for loan losses.
Summary of PCI loans lifetime principal loss estimates
 
Lifetime loss
 estimates(a)
 
Life-to-date
liquidation losses(b)
(in billions)
Mar 31,
2018

 
Dec 31,
2017

 
Mar 31,
2018

 
Dec 31,
2017

Home equity
$
14.1

 
$
14.2

 
$
12.9

 
$
12.9

Prime mortgage
4.1

 
4.0

 
3.8

 
3.8

Subprime mortgage
3.3

 
3.3

 
3.1

 
3.1

Option ARMs
10.3

 
10.0

 
9.8

 
9.7

Total
$
31.8

 
$
31.5

 
$
29.6

 
$
29.5

(a)
Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $764 million and $842 million at March 31, 2018, and December 31, 2017, respectively.
(b)
Represents both realization of loss upon loan resolution and any principal forgiven upon modification.
 
Geographic composition of residential real estate loans
For information on the geographic composition of the Firm’s residential real estate loans, see Note 11.
Current estimated loan-to-value ratio of residential real estate loans
Average current estimated loan-to-value (“LTV”) ratios
have declined consistent with recent improvements in home prices, customer pay downs, and charge-offs or
liquidations of higher LTV loans. For further information on current estimated LTVs on residential real estate loans, see Note 11.
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. The performance of modifications completed under both the U.S. Government’s Home Affordable Modification Program (“HAMP”) and the Firm’s proprietary modification programs (primarily the Firm’s modification program that was modeled after HAMP), as measured through cumulative redefault rates, was not materially different from December 31, 2017. For further information on the Firm’s cumulative redefault rates see Consumer Credit Portfolio on pages 102-107 of JPMorgan Chase’s 2017 Annual Report.
Certain loans that were modified under HAMP and the Firm’s proprietary modification programs have interest rate reset provisions (“step-rate modifications”). Interest rates on these loans generally began to increase commencing in 2014 by 1% per year, and will continue to do so, until the rate reaches a specified cap. The cap on these loans is typically at a prevailing market interest rate for a fixed-rate mortgage loan as of the modification date. At March 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 $3 billion and $6 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.


47


The following table presents information as of March 31, 2018, and December 31, 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 three months ended March 31, 2018 and 2017, see
Note 11.
Modified residential real estate loans
 
March 31, 2018
 
December 31, 2017
(in millions)
Retained loans
Non-accrual
retained loans
(d)
 
Retained loans
Non-accrual
retained loans
(d)
Modified residential real estate loans, excluding
PCI loans(a)(b)
 
 
 
 
 
Residential mortgage
$
5,545

$
1,796

 
$
5,620

$
1,743

Home equity
2,113

1,057

 
2,118

1,032

Total modified residential real estate loans, excluding PCI loans
$
7,658

$
2,853

 
$
7,738

$
2,775

Modified PCI loans(c)
 
 
 
 
 
Home equity
$
2,236

NA

 
$
2,277

NA

Prime mortgage
4,381

NA

 
4,490

NA

Subprime mortgage
2,628

NA

 
2,678

NA

Option ARMs
8,075

NA

 
8,276

NA

Total modified PCI loans
$
17,320

NA

 
$
17,721

NA

(a)
Amounts represent the carrying value of modified residential real estate loans.
(b)
At March 31, 2018, and December 31, 2017, $4.2 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, see Note 13.
(c)
Amounts represent the unpaid principal balance of modified PCI loans.
(d)
At March 31, 2018, and December 31, 2017, nonaccrual loans included $2.3 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, see Note 11.
 
Nonperforming assets
The following table presents information as of March 31, 2018, and December 31, 2017, about consumer, excluding credit card, nonperforming assets.
Nonperforming assets(a)
 
 
 
(in millions)
March 31,
2018

 
December 31,
2017

Nonaccrual loans(b)
 
 
 
Residential real estate
$
3,859

 
$
3,785

Other consumer
401

 
424

Total nonaccrual loans
4,260

 
4,209

Assets acquired in loan satisfactions
 
 
 
Real estate owned
224

 
225

Other
33

 
40

Total assets acquired in loan satisfactions
257

 
265

Total nonperforming assets
$
4,517

 
$
4,474

(a)
At March 31, 2018, and December 31, 2017, nonperforming assets excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $4.0 billion and $4.3 billion, respectively, and REO insured by U.S. government agencies of $94 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 March 31, 2018 increased to $3.9 billion from $3.8 billion at December 31, 2017, of which 28% 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 35% and 40% to the estimated net realizable value of the collateral at March 31, 2018, and December 31, 2017, respectively.
Nonaccrual loans: The following table presents changes in consumer, excluding credit card, nonaccrual loans for the three months ended March 31, 2018 and 2017.
Nonaccrual loan activity
 
 
Three months ended March 31, (in millions)
 
2018

2017

Beginning balance
 
$
4,209

$
4,820

Additions
 
911

877

Reductions:
 
 


Principal payments and other(a)
 
340

447

Charge-offs
 
140

232

Returned to performing status
 
309

388

Foreclosures and other liquidations
 
71

81

Total reductions
 
860

1,148

Net changes
 
51

(271
)
Ending balance
 
$
4,260

$
4,549

(a)
Other reductions includes loan sales.
Active and suspended foreclosure: For information on loans that were in the process of active or suspended foreclosure, see Note 11.

48


Credit card
Total credit card loans decreased from December 31, 2017 due to seasonality. The March 31, 2018 30+ day delinquency rate increased to 1.82% from 1.80% at December 31, 2017, while the March 31, 2018 90+ day delinquency rate increased to 0.95% from 0.92% at December 31, 2017, in line with expectations. Net charge-offs increased for the three months ended March 31, 2018 when compared with the same period in the prior year primarily due to growth in newer vintages which, as anticipated, have higher loss rates than the more seasoned portion of the portfolio. The credit card portfolio continues to reflect a largely well-seasoned portfolio that has strong U.S. geographic diversification. For further information on the geographic and FICO composition of the Firm’s credit card loans, see Note 11.
Consistent with the Firm’s policy, all credit card loans typically remain on accrual status until charged off. However, the Firm establishes an allowance, which is offset against loans and charged to interest income, for the estimated uncollectible portion of accrued and billed interest and fee income.
Modifications of credit card loans
At both March 31, 2018 and December 31, 2017, the Firm had $1.2 billion of credit card loans outstanding that have been modified in TDRs. These balances included both credit card loans with modified payment terms and credit card loans that reverted back to their pre-modification payment terms because the cardholder did not comply with the modified payment terms.
For additional information about loan modification programs to borrowers, see Note 11.

49


WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit risk primarily through its underwriting, lending, market-making, and hedging activities with and for clients and counterparties, as well as through various operating services (such as cash management and clearing activities), securities financing activities and cash placed with banks. A portion of the loans originated or acquired by the Firm’s wholesale businesses is generally retained on the balance sheet. The Firm distributes a significant percentage of the loans 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 three months ended March 31, 2018, characterized by low levels of criticized exposure, nonaccrual loans and charge-offs. See industry discussion on pages 52–54 for further information. The increase in retained loans was predominantly driven by increased utilization of credit lines and new originations in CIB, and higher loans to Private Banking clients in AWM. Discipline in underwriting across all areas of lending continues to be a key point of focus. The wholesale portfolio is actively managed, in part by conducting ongoing, in-depth reviews of client credit quality and transaction structure inclusive of collateral where applicable, and of industry, product and client concentrations.
 
In the following tables, the Firm’s wholesale credit portfolio includes exposure held in CIB, CB, AWM and Corporate, and excludes all exposure managed by CCB.
Wholesale credit portfolio
 
Credit exposure
 
Nonperforming(c)
(in millions)
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

Loans retained
$
412,020

$
402,898

 
$
1,594

$
1,734

Loans held-for-sale
5,687

3,099

 
29


Loans at fair value
2,908

2,508

 


Loans
420,615

408,505

 
1,623

1,734

Derivative receivables
56,914

56,523

 
132

130

Receivables from customers and other(a)
27,855

26,139

 


Total wholesale credit-related assets
505,384

491,167

 
1,755

1,864

Lending-related commitments
384,275

370,098

 
746

731

Total wholesale credit exposure
$
889,659

$
861,265

 
$
2,501

$
2,595

Credit derivatives used in credit portfolio management activities(b)
$
(16,366
)
$
(17,609
)
 
$

$

Liquid securities and other cash collateral held against derivatives
(14,610
)
(16,108
)
 
NA

NA

(a)
Receivables from customers and other include $27.8 billion and $26.0 billion of held-for-investment margin loans at March 31, 2018, and December 31, 2017, respectively, to prime brokerage customers in CIB Prime Services and in AWM; these are classified in accrued interest and accounts receivable on the Consolidated balance sheets.
(b)
Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 56, and Note 4.
(c)
Excludes assets acquired in loan satisfactions.

50


The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of March 31, 2018, and December 31, 2017. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings assigned by S&P and Moody’s. For additional information on wholesale loan portfolio risk ratings, see Note 12 of JPMorgan Chase’s 2017 Annual Report.
Wholesale credit exposure – maturity and ratings profile
 
 
 
 
 
 
 
Maturity profile(d)
 
Ratings profile
 
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years
Total
 
Investment-grade
 
Noninvestment-grade
Total
Total % of IG
March 31, 2018
(in millions, except ratios)
 
AAA/Aaa to BBB-/Baa3
 
BB+/Ba1 & below
Loans retained
$
128,122

$
180,981

$
102,917

$
412,020

 
$
316,805

 
$
95,215

$
412,020

77
%
Derivative receivables
 
 
 
56,914

 
 
 
 
56,914

 
Less: Liquid securities and other cash collateral held against derivatives
 
 
 
(14,610
)
 
 
 
 
(14,610
)
 
Total derivative receivables, net of all collateral
12,419

10,476

19,409

42,304

 
34,561

 
7,743

42,304

82

Lending-related commitments
87,266

287,962

9,047

384,275

 
284,335

 
99,940

384,275

74

Subtotal
227,807

479,419

131,373

838,599

 
635,701

 
202,898

838,599

76

Loans held-for-sale and loans at fair value(a)
 
 
 
8,595

 
 
 
 
8,595

 
Receivables from customers and other
 
 
 
27,855

 
 
 
 
27,855

 
Total exposure – net of liquid securities and other cash collateral held against derivatives
 
 
 
$
875,049

 
 
 
 
$
875,049

 
Credit derivatives used in credit portfolio management activities(b)(c)
$
(2,020
)
$
(7,610
)
$
(6,736
)
$
(16,366
)
 
$
(13,743
)
 
$
(2,623
)
$
(16,366
)
84
%
 
Maturity profile(d)
 
Ratings profile
 
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years
Total
 
Investment-grade
 
Noninvestment-grade
Total
Total % of IG
December 31, 2017
(in millions, except ratios)
 
AAA/Aaa to BBB-/Baa3
 
BB+/Ba1 & below
Loans retained
$
121,643

$
177,033

$
104,222

$
402,898

 
$
311,681

 
$
91,217

$
402,898

77
%
Derivative receivables
 
 
 
56,523

 
 
 
 
56,523

 
Less: Liquid securities and other cash collateral held against derivatives
 
 
 
(16,108
)
 
 
 
 
(16,108
)
 
Total derivative receivables, net of all collateral
9,882

10,463

20,070

40,415

 
32,373

 
8,042

40,415

80

Lending-related commitments
80,273

275,317

14,508

370,098

 
274,127

 
95,971

370,098

74

Subtotal
211,798

462,813

138,800

813,411

 
618,181

 
195,230

813,411

76

Loans held-for-sale and loans at fair value(a)
 
 
 
5,607

 
 
 
 
5,607

 
Receivables from customers and other
 
 
 
26,139

 
 
 
 
26,139

 
Total exposure – net of liquid securities and other cash collateral held against derivatives
 
 
 
$
845,157

 
 
 
 
$
845,157

 
Credit derivatives used in credit portfolio management activities(b)(c)
$
(1,807
)
$
(11,011
)
$
(4,791
)
$
(17,609
)
 
$
(14,984
)
 
$
(2,625
)
$
(17,609
)
85
%
(a)
Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b)
These derivatives do not qualify for hedge accounting under U.S. GAAP.
(c)
The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used in credit portfolio management activities are executed with investment-grade counterparties.
(d)
The maturity profile of retained loans, lending-related commitments and derivative receivables is based on the remaining contractual maturity. Derivative contracts that are in a receivable position at March 31, 2018, may become payable prior to maturity based on their cash flow profile or changes in market conditions.


51


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 $12.7 billion at March 31, 2018, compared with $15.6 billion at December 31, 2017. The decrease was largely driven by select names within Oil & Gas.
Below are summaries of the Firm’s exposures as of March 31, 2018, and December 31, 2017. For additional information on industry concentrations, see Note 4 of JPMorgan Chase’s 2017 Annual Report.
Wholesale credit exposure  industries(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selected metrics
 
 
 
 
 
 
 
 
30 days or more past due and accruing
loans
Net
charge-offs/
(recoveries)
Credit derivative hedges(f)
Liquid securities
and other cash collateral held against derivative
receivables
 
 
 
 
Noninvestment-grade
As of or for the three months ended
Credit exposure(e)
Investment- grade
 
Noncriticized
 
Criticized performing
Criticized nonperforming
March 31, 2018
(in millions)
Real Estate
$
139,287

$
116,914

 
$
21,445

 
$
783

$
145

$
139

$
(13
)
$

$
(4
)
Consumer & Retail
86,949

56,364

 
28,130

 
2,026

429

29

42

(281
)
(7
)
Technology, Media &
Telecommunications
67,592

38,532

 
27,665

 
1,362

33

12


(941
)
(17
)
Industrials
60,856

40,339

 
18,946

 
1,371

200

113


(154
)
(11
)
Healthcare
55,630

41,483

 
13,476

 
642

29

15

(1
)

(191
)
Banks & Finance Cos
47,823

33,255

 
14,079

 
485

4

20


(1,027
)
(2,297
)
Oil & Gas
40,860

21,628

 
16,275

 
1,979

978


7

(636
)
(3
)
Asset Managers
35,800

30,955

 
4,826

 
4

15

11



(5,587
)
Utilities
29,231

24,711

 
4,157

 
143

220


(1
)
(141
)
(32
)
State & Municipal Govt (b)
26,774

26,186

 
588

 


13


(110
)
(19
)
Central Govt
19,115

18,676

 
367

 
72


2


(9,292
)
(1,595
)
Chemicals & Plastics
17,523

11,015

 
6,444

 
64


1




Transportation
16,413

10,486

 
5,301

 
543

83

24

(6
)
(32
)
(100
)
Automotive
15,576

9,844

 
5,445

 
287


7


(236
)

Insurance
14,402

11,702

 
2,633

 

67

2


(37
)
(2,559
)
Metals & Mining
14,075

7,209

 
6,461

 
342

63

1


(283
)

Financial Markets Infrastructure
7,186

6,978

 
208

 





(75
)
Securities Firms
4,108

2,704

 
1,402

 
2


3


(272
)
(402
)
All other(c)
154,009

139,570

 
14,093

 
140

206

1,220

(9
)
(2,924
)
(1,711
)
Subtotal
$
853,209

$
648,551

 
$
191,941

 
$
10,245

$
2,472

$
1,612

$
19

$
(16,366
)
$
(14,610
)
Loans held-for-sale and loans at fair value
8,595

 
 
 
 
 
 
 
 
 
 
Receivables from customers and other
27,855

 
 
 
 
 
 
 
 
 
 
Total(d)
$
889,659

 
 
 
 
 
 
 
 
 
 

52










(continued from previous page)
 
 
 
 
 
 
 
 
 
 








Selected metrics








30 days or more past due and accruing
loans
Net
charge-offs/
(recoveries)
Credit derivative hedges(f)
Liquid securities
and other cash collateral held against derivative
receivables




Noninvestment-grade
As of or for the year ended
Credit exposure(e)
Investment- grade

Noncriticized

Criticized performing
Criticized nonperforming
December 31, 2017
(in millions)
Real Estate
$
139,409

$
115,401


$
23,012


$
859

$
137

$
254

$
(4
)
$

$
(2
)
Consumer & Retail
87,679

55,737


29,619


1,791

532

30

34

(275
)
(9
)
Technology, Media & Telecommunications
59,274

36,510

 
20,453

 
2,258

53

14

(12
)
(910
)
(19
)
Industrials
55,272

37,198


16,770


1,159

145

150

(1
)
(196
)
(21
)
Healthcare
55,997

42,643

 
12,731

 
585

38

82

(1
)

(207
)
Banks & Finance Cos
49,037

34,654


13,767


612

4

1

6

(1,216
)
(3,174
)
Oil & Gas
41,317

21,430


14,854


4,046

987

22

71

(747
)
(1
)
Asset Managers
32,531

28,029


4,484


4

14

27



(5,290
)
Utilities
29,317

24,486


4,383


227

221


11

(160
)
(56
)
State & Municipal Govt(b)
28,633

27,977


656




12

5

(130
)
(524
)
Central Govt
19,182

18,741


376


65


4


(10,095
)
(2,520
)
Chemicals & Plastics
15,945

11,107

 
4,764

 
74


4




Transportation
15,797

9,870


5,302


527

98

9

14

(32
)
(131
)
Automotive
14,820

9,321


5,278


221


10

1

(284
)

Insurance
14,089

11,028


2,981



80

1


(157
)
(2,195
)
Metals & Mining
14,171

6,989


6,822


321

39

3

(13
)
(316
)
(1
)
Financial Markets Infrastructure
5,036

4,775


261







(23
)
Securities Firms
4,113

2,559


1,553


1




(274
)
(335
)
All other(c)
147,900

134,110


13,283


260

247

901

8

(2,817
)
(1,600
)
Subtotal
$
829,519

$
632,565


$
181,349


$
13,010

$
2,595

$
1,524

$
119

$
(17,609
)
$
(16,108
)
Loans held-for-sale and loans at fair value
5,607


















Receivables from customers and other
26,139



















Total(d)
$
861,265

 
 
 
 
 
 
 
 
 
 
(a)
The industry rankings presented in the table as of December 31, 2017, are based on the industry rankings of the corresponding exposures at March 31, 2018, not actual rankings of such exposures at December 31, 2017.
(b)
In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at March 31, 2018, and December 31, 2017, noted above, the Firm held: $9.7 billion and $9.8 billion, respectively, of trading securities; $39.5 billion and $32.3 billion, respectively, of AFS securities; and $4.8 billion and 14.4 billion, respectively, of held-to-maturity (“HTM”) securities, issued by U.S. state and municipal governments. For further information, see Note 2 and Note 9.
(c)
All other includes: individuals; SPEs; and private education and civic organizations;  representing approximately 60%, 36%, and 4%, respectively, at March 31, 2018, and 59%, 37%, and 4%, respectively, at December 31, 2017.
(d)
Excludes cash placed with banks of $405.4 billion and $421.0 billion, at March 31, 2018, and December 31, 2017, respectively, which is predominantly placed with various central banks, primarily Federal Reserve Banks.
(e)
Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(f)
Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.


53


Real Estate
Presented below is additional information on the Real Estate industry to which the Firm has significant exposure.
Real Estate exposure remained flat during the three months ended March 31, 2018 at $139.3 billion. For the three months ended March 31, 2018, the investment-grade percentage of the portfolio was 84%, up from 83% for the year ended December 31, 2017. For further information on Real Estate loans, see Note 11.
 
March 31, 2018
 
(in millions, except ratios)
Loans and Lending-related Commitments
 
Derivative Receivables
 
Credit exposure
 
% Investment-grade
% Drawn(c)
Multifamily(a)
$
85,077

 
$
45

 
$
85,122

 
89
%
 
91
%
 
Other
54,034

 
131

 
54,165

 
75

 
67

 
Total Real Estate Exposure(b)
139,111

 
176

 
139,287

 
84

 
82

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
(in millions, except ratios)
Loans and Lending-related Commitments
 
Derivative
Receivables
 
Credit exposure
 
% Investment-
grade
% Drawn(c)
Multifamily(a)
$
84,635

 
$
34

 
$
84,669

 
89
%
 
92
%
 
Other
54,620

 
120

 
54,740

 
74

 
66

 
Total Real Estate Exposure(b)
139,255

 
154

 
139,409

 
83

 
82

 
(a)
Multifamily exposure is largely in California.
(b)
Real Estate exposure is predominantly secured; unsecured exposure is predominantly investment-grade.
(c)
Represents drawn exposure as a percentage of credit exposure.

54


Loans
In the normal course of its wholesale business, the Firm provides loans to a variety of customers, 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, see Note 11.
The following table presents the change in the nonaccrual loan portfolio for the three months ended March 31, 2018 and 2017.
Wholesale nonaccrual loan activity
Three months ended March 31,
(in millions)

 
2018

2017

Beginning balance
 
$
1,734

$
2,063

Additions
 
313

290

Reductions:
 
 
 
Paydowns and other
 
182

481

Gross charge-offs
 
55

24

Returned to performing status
 
117

103

Sales
 
70

65

Total reductions
 
424

673

Net changes
 
(111
)
(383
)
Ending balance
 
$
1,623

$
1,680

The following table presents net charge-offs/recoveries, which are defined as gross charge-offs less recoveries, for the three months ended March 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)
(in millions, except ratios)
Three months ended
March 31,
2018

2017

Loans – reported
 
 
Average loans retained
$
404,859

$
382,367

Gross charge-offs
65

26

Gross recoveries
(46
)
(53
)
Net charge-offs/(recoveries)
19

(27
)
Net charge-off/(recovery) rate
0.02
%
(0.03
)%
 
Lending-related commitments
The Firm uses lending-related financial instruments, such as commitments (including revolving credit facilities) and guarantees, to meet the financing needs of its customers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligations under these guarantees, and the counterparties subsequently fail to perform according to the terms of these contracts. Most of these commitments and guarantees are refinanced, extended, cancelled, or expire without being drawn upon or a default occurring. In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s expected future credit exposure or funding requirements. For further information on wholesale lending-related commitments, see Note 20 .
Derivative contracts
In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable clients to manage exposures to fluctuations in interest rates, currencies and other markets. The Firm also uses derivative instruments to manage its own credit and other market risk exposure. For a further discussion of derivative contracts, see Note 4.
The following table summarizes the net derivative receivables for the periods presented.
Derivative receivables
 
 
(in millions)
Derivative receivables
March 31,
2018

December 31,
2017

Interest rate
$
23,778

$
24,673

Credit derivatives
1,062

869

Foreign exchange
16,603

16,151

Equity
8,803

7,882

Commodity
6,668

6,948

Total, net of cash collateral
56,914

56,523

Liquid securities and other cash collateral held against derivative receivables(a)
(14,610
)
(16,108
)
Total, net of collateral
$
42,304

$
40,415

(a)
Includes collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained.
The fair value of derivative receivables reported on the Consolidated balance sheets were $56.9 billion and $56.5 billion at March 31, 2018, and December 31, 2017, respectively. 

55


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 $14.6 billion and $16.1 billion at March 31, 2018, and December 31, 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 transactions move in the Firm’s favor.
The derivative receivables fair value, net of all collateral, also does not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, see Note 4.
The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit derivatives, net of all collateral, at the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally correspond to the ratings as assigned by S&P and Moody’s.
Ratings profile of derivative receivables
 
 
 
 
 
 
March 31, 2018
 
December 31, 2017
Rating equivalent
(in millions, except ratios)
Exposure net of collateral
% of exposure net of collateral
 
Exposure net of collateral
% of exposure net of collateral
AAA/Aaa to AA-/Aa3
$
11,879

28
%
 
$
11,529

29
%
A+/A1 to A-/A3
7,665

18

 
6,919

17

BBB+/Baa1 to BBB-/Baa3
15,017

36

 
13,925

34

BB+/Ba1 to B-/B3
7,148

17

 
7,397

18

CCC+/Caa1 and below
595

1

 
645

2

Total
$
42,304

100
%
 
$
40,415

100
%
As previously noted, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm’s over-the-counter derivatives transactions subject to collateral agreements — excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity, and centrally cleared trades that are settled daily — was 88% and 90% at March 31, 2018 and December 31, 2017, respectively.
Credit derivatives
The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker, and second, as an end-user, to manage the Firm’s own credit risk associated with various exposures.
Credit portfolio management activities
Included in the Firm’s end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm’s wholesale businesses (collectively, “credit portfolio management” activities). Information on credit portfolio management activities is provided in the table below.
 
Credit derivatives used in credit portfolio management activities
 
Notional amount of protection
purchased and sold(a)
(in millions)
March 31,
2018

 
December 31,
2017

Credit derivatives used to manage:
 
 
 
Loans and lending-related commitments
$
1,723

 
$
1,867

Derivative receivables
14,643

 
15,742

Credit derivatives used in credit portfolio management activities
$
16,366

 
$
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.
For further information on credit derivatives and derivatives used in credit portfolio management activities, see Credit derivatives in Note 4 of this Form 10-Q, and Note 5 of JPMorgan Chase’s 2017 Annual Report.

56


ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase’s allowance for credit losses covers the retained consumer and wholesale loan portfolios, as well as the Firm’s wholesale and certain consumer lending-related commitments.
For a further discussion of the components of the allowance for credit losses and related management judgments, see Critical Accounting Estimates Used by the Firm on pages 67–69 and Note 12 of this Form 10-Q, and Critical Accounting Estimates Used by the Firm on pages 138–140 and Note 13 of JPMorgan Chase’s 2017 Annual Report.
At least quarterly, the allowance for credit losses is reviewed by the CRO, the CFO and the Controller of the Firm, and reported to the Board of Directors’ Risk Policy Committee (“DRPC”) and Audit Committee. As of March 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 wholesale allowance for credit losses decreased from December 31, 2017, primarily as a result of a reduction in the allowance for the Oil & Gas portfolio driven by a single name.
The consumer allowance for credit losses was relatively unchanged from December 31, 2017, reflecting stable credit quality trends.
For additional information on the wholesale and consumer credit portfolios, see Wholesale Credit Portfolio on pages 50–56, and Consumer Credit Portfolio on pages 45–49 and Note 11.




57


Summary of changes in the allowance for credit losses
 
 
 
 
 
 
2018
 
2017
Three months ended March 31,
Consumer, excluding
credit card
Credit card
Wholesale
Total
 
Consumer, excluding
credit card
Credit card
Wholesale
Total
(in millions, except ratios)
 
Allowance for loan losses
 
 
 
 
 
 
 
 
 
Beginning balance at January 1,
$
4,579

$
4,884

$
4,141

$
13,604

 
$
5,198

$
4,034

$
4,544

$
13,776

Gross charge-offs
284

1,291

65

1,640

 
847

1,086

26

1,959

Gross recoveries
(138
)
(121
)
(46
)
(305
)
 
(159
)
(93
)
(53
)
(305
)
Net charge-offs(a)
146

1,170

19

1,335

 
688

993

(27
)
1,654

Write-offs of PCI loans(b)
20



20

 
24



24

Provision for loan losses
146

1,170

(189
)
1,127

 
442

993

(119
)
1,316

Other
1


(2
)
(1
)
 
(2
)

1

(1
)
Ending balance at March 31,
$
4,560

$
4,884

$
3,931

$
13,375

 
$
4,926

$
4,034

$
4,453

$
13,413

Impairment methodology
 
 
 
 
 
 
 
 
 
Asset-specific(c)
$
266

$
393

$
474

$
1,133

 
$
300

$
373

$
249

$
922

Formula-based
2,089

4,491

3,457

10,037

 
2,339

3,661

4,204

10,204

PCI
2,205



2,205

 
2,287



2,287

Total allowance for loan losses
$
4,560

$
4,884

$
3,931

$
13,375

 
$
4,926

$
4,034

$
4,453

$
13,413

Allowance for lending-related commitments
 
 
 
 
 
 
 
 
 
Beginning balance at January 1,
$
33

$

$
1,035

$
1,068

 
$
26

$

$
1,052

$
1,078

Provision for lending-related commitments


38

38

 


(1
)
(1
)
Other


1

1

 




Ending balance at March 31,
$
33

$

$
1,074

$
1,107

 
$
26

$

$
1,051

$
1,077

Impairment methodology
 
 
 
 
 
 
 
 
 
Asset-specific
$

$

$
167

$
167

 
$

$

$
228

$
228

Formula-based
33


907

940

 
26


823

849

Total allowance for lending-related commitments(d)
$
33

$

$
1,074

$
1,107

 
$
26

$

$
1,051

$
1,077

Total allowance for credit losses
$
4,593

$
4,884

$
5,005

$
14,482

 
$
4,952

$
4,034

$
5,504

$
14,490

Memo:
 
 
 
 
 
 
 
 
 
Retained loans, end of period
$
373,243

$
140,348

$
412,020

$
925,611

 
$
360,583

$
134,917

$
386,370

$
881,870

Retained loans, average
372,739

142,830

404,859

920,428

 
366,098

137,112

382,367

885,577

PCI loans, end of period
29,505


3

29,508

 
34,385


3

34,388

Credit ratios
 
 
 
 
 
 
 
 
 
Allowance for loan losses to retained loans
1.22
%
3.48
%
0.95
%
1.44
%
 
1.37
%
2.99
%
1.15
 %
1.52
%
Allowance for loan losses to retained nonaccrual loans(e)
108

NM

247

230

 
112

NM

283

225

Allowance for loan losses to retained nonaccrual loans excluding credit card
108

NM

247

146

 
112

NM

283

157

Net charge-off rates(a)
0.16

3.32

0.02

0.59

 
0.76

2.94

(0.03
)
0.76

Credit ratios, excluding residential real estate PCI loans
 
 
 
 
 
 
 
 
 
Allowance for loan losses to retained loans
0.69

3.48

0.95

1.25

 
0.81

2.99

1.15

1.31

Allowance for loan losses to retained nonaccrual loans(e)
56

NM

247

192

 
60

NM

283

187

Allowance for loan losses to retained nonaccrual loans excluding credit card
56

NM

247

108

 
60

NM

283

119

Net charge-off rates(a)
0.17
%
3.32
%
0.02
%
0.61
%
 
0.84
%
2.94
%
(0.03
)%
0.79
%
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a)
For the three months ended March 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Consumer, excluding credit card would have been 0.24%; total Firm would have been 0.54%; Consumer, excluding credit card and PCI loans would have been 0.27%; and total Firm, excluding PCI would have been 0.57%.
(b)
Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(c)
Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance for loan losses modified in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.
(d)
The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(e)
The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.


58


Provision for credit losses
The following table presents the components of the Firm’s provision for credit losses:
 
Three months ended March 31,
 
Provision for loan losses
 
Provision for lending-related commitments
 
Total provision for
credit losses
(in millions)
2018

2017

 
2018

2017

 
2018

2017

Consumer, excluding credit card
$
146

$
442

 
$

$

 
$
146

$
442

Credit card
1,170

993

 


 
1,170

993

Total consumer
1,316

1,435

 


 
1,316

1,435

Wholesale
(189
)
(119
)
 
38

(1
)
 
(151
)
(120
)
Total
$
1,127

$
1,316

 
$
38

$
(1
)
 
$
1,165

$
1,315

Quarterly discussion
The provision for credit losses decreased as a result of:
a net $170 million reduction in the wholesale allowance for credit losses, primarily in the Oil & Gas portfolio driven by a single name, compared with a reduction of $93 million in the prior year primarily for Oil & Gas
and in consumer
$102 million of higher net charge-offs primarily in the credit card portfolio due to seasoning of newer vintages, in line with expectations, partially offset by a decrease in net charge-offs in the residential real estate portfolio, reflecting continued improvement in home prices and delinquencies, and
the absence of a $218 million write-down recorded in the prior year in connection with the sale of the student loan portfolio.





59


INVESTMENT PORTFOLIO RISK MANAGEMENT
Investment portfolio risk is the risk associated with the loss of principal or a reduction in expected returns on investments arising from the investment securities portfolio held by Treasury and CIO in connection with the Firm’s balance sheet or asset-liability management objectives or from principal investments managed in various LOBs in predominantly privately-held financial assets and instruments. Investments are typically intended to be held over extended periods and, accordingly, the Firm has no expectation for short-term realized gains with respect to these investments.
Investment securities risk
Investment securities risk includes the exposure associated with a default in the payment of principal and interest. This risk is minimized given that Treasury and CIO generally invest in high-quality securities. At March 31, 2018, the investment securities portfolio was $236.7 billion, and the average credit rating of the securities comprising the portfolio was AA+ (based upon external ratings where available and where not available, based primarily upon internal ratings that correspond to ratings as defined by S&P and Moody’s). For further information on the investment securities portfolio, see Corporate segment results on page 29 and Note 9. For further information on the market risk inherent in the portfolio, see Market Risk Management on pages 61–65. For further information on related liquidity risk, see Liquidity Risk on pages 38–42.

 
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. Increasingly, new principal investments are made to enhance or accelerate LOB strategic business initiatives. The Firm’s principal investments are managed by the various LOBs and are reflected within the respective LOB financial results. Effective January 1, 2018, the Firm adopted new accounting guidance related to the recognition and measurement of financial assets. The adoption of the guidance resulted in $505 million of fair value gains on certain equity investments previously held at cost in the principal investment portfolios. For additional information, see Note 1.
As of March 31, 2018 and December 31, 2017, the aggregate carrying values of the principal investment portfolios were $20.4 billion and $19.5 billion, respectively, which included tax-oriented investments (e.g., affordable housing and alternative energy investments) of $13.6 billion and $14.0 billion, respectively, and private equity, various debt and equity instruments, and real assets of $6.8 billion and $5.5 billion, respectively.
For a discussion of the Firm’s Investment Portfolio Risk Management governance and oversight, see page 120 of JPMorgan Chase’s 2017 Annual Report.


60


MARKET RISK MANAGEMENT
Market risk is the risk associated with the effect of changes in market factors such as interest and foreign exchange rates, equity and commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short and long term. For a discussion of the Firm’s Market Risk Management organization, tools used to measure risk, risk monitoring and control and risk identification and classification, see Market Risk Management on pages 121-128 of JPMorgan Chase’s 2017 Annual Report.
Value-at-risk
JPMorgan Chase utilizes value-at-risk (“VaR”), a statistical risk measure, to estimate the potential loss from adverse market moves in a normal market environment. The Firm has a single VaR framework used as a basis for calculating Risk Management VaR and Regulatory VaR.
As VaR is based on historical data, it is an imperfect measure of market risk exposure and potential losses, and it is not used to estimate the impact of stressed market conditions or to manage any impact from potential stress events. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions.
For certain products, specific risk parameters are not captured in VaR due to the lack of inherent liquidity and availability of appropriate historical data. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented. The Firm therefore considers other measures such as stress testing and nonstatistical measures, in addition to VaR, to capture and manage its market risk positions. For further information, see Other risk measures on pages 126-128 of JPMorgan Chase’s 2017 Annual Report.
 
The Firm’s VaR model calculations are periodically evaluated and enhanced in response to changes in the composition of the Firm’s portfolios, changes in market conditions, improvements in the Firm’s modeling techniques and measurements, and other factors. Such changes may affect historical comparisons of VaR results. For information regarding model reviews and approvals, see Estimations and Model Risk Management on page 137 of JPMorgan Chase’s 2017 Annual Report.
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. For risk management purposes, the Firm believes this methodology provides a stable measure of VaR that closely aligns to the day-to-day risk management decisions made by the lines of business, and provides the necessary and appropriate information to respond to risk events on a daily basis. 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. For further information regarding the key differences between Risk Management VaR and Regulatory VaR, see page 123 of JPMorgan Chase’s 2017 Annual Report. For additional information on Regulatory VaR and the other components of market risk regulatory capital for the Firm (e.g., VaR-based measure, stressed VaR-based measure and the respective backtesting), see JPMorgan Chase’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm’s website at:
(http://investor.shareholder.com/jpmorganchase/basel.cfm).


61


The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
Total VaR
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
 
March 31, 2018
 
December 31, 2017
 
March 31, 2017
 
(in millions)
 Avg.
Min
Max
 
 Avg.
Min
Max
 
 Avg.
Min
Max

 
CIB trading VaR by risk type
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed income
$
34

 
$
30

 
$
39

 
 
$
28

 
$
23

 
$
32

 
 
$
28

 
$
20

 
$
40

 
Foreign exchange
9

 
6

 
15

 
 
7

 
4

 
12

 
 
10

 
6

 
16

 
Equities
17

 
15

 
22

 
 
14

 
12

 
19

 
 
11

 
8

 
14

 
Commodities and other
5

 
4

 
6

 
 
6

 
5

 
7

 
 
8

 
5

 
10

 
Diversification benefit to CIB trading VaR
(25
)
(a) 
 NM

(b) 
 NM

(b) 
 
(24
)
(a) 
 NM

(b) 
 NM

(b) 
 
(34
)
(a) 
NM

(b) 
NM

(b) 
CIB trading VaR
40

 
35

(b) 
49

(b) 
 
31

 
25

(b) 
38

(b) 
 
23

 
14

(b) 
34

(b) 
Credit portfolio VaR
3

 
3

 
4

 
 
4

 
3

 
6

 
 
10

 
9

 
12

 
Diversification benefit to CIB VaR
(3
)
(a) 
 NM

(b) 
 NM

(b) 
 
(3
)
(a) 
 NM

(b) 
 NM

(b) 
 
(8
)
(a) 
NM

(b) 
NM

(b) 
CIB VaR
40

 
35

(b) 
51

(b) 
 
32

 
26

(b) 
39

(b) 
 
25

 
17

(b) 
38

(b) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CCB VaR
1

 
1

 
2

 
 
2

 
1

 
4

 
 
2

 
1

 
3

 
Corporate VaR
12

 
10

 
14

 
 
9

 
1

 
16

 
 
2

 
2

 
3

 
Diversification benefit to other VaR
(1
)
(a) 
 NM

(b) 
 NM

(b) 
 
(1
)
(a) 
 NM

(b) 
 NM

(b) 
 
(1
)
(a) 
NM

(b) 
NM

(b) 
Other VaR
12

 
10

(b) 
14

(b) 
 
10

 
2

(b) 
16

(b) 
 
3

 
3

(b) 
4

(b) 
Diversification benefit to CIB and other VaR
(9
)
(a) 
 NM

(b) 
 NM

(b) 
 
(8
)
(a) 
 NM

(b) 
 NM

(b) 
 
(3
)
(a) 
NM

(b) 
NM

(b) 
Total VaR
$
43

 
$
37

(b) 
$
53

(b) 
 
$
34

 
$
26

(b) 
$
42

(b) 
 
$
25

 
$
17

(b) 
$
37

(b) 
(a)
Average portfolio VaR is less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflects that the risks are not perfectly correlated.
(b)
Diversification benefit represents the difference between the total VaR and each reported level and the sum of its individual components. Diversification benefit reflects the non-additive nature of VaR due to imperfect correlation across lines of business and risk types. The maximum and minimum VaR for each portfolio may have occurred on different trading days than the components and consequently diversification benefit is not meaningful.
Quarter over Quarter results
Average total VaR increased by $9 million for the three months ended March 31, 2018 as compared with the prior quarter. The increase reflects higher volatility in the one-year historical look-back period, changes in the exposure profile for the Equities and Fixed Income risk types, and the inclusion of certain equity investments previously held at cost, related to the adoption of the new recognition and measurement accounting guidance. For additional information, see Note 1.
 
Year over Year results
Average total VaR increased by $18 million for the three months ended March 31, 2018, compared with the same period in the prior year. The increase in average total VaR is primarily due to a change in the exposure profile for the Equities and Fixed Income risk types, the inclusion of a Corporate private equity position that became publicly traded in the fourth quarter of 2017 and certain investments in CIB VaR.
VaR can vary significantly as positions change, market volatility fluctuates, and diversification benefits change.

62


VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology by back-testing, which compares the daily Risk Management VaR results with the daily gains and losses actually recognized on market-risk related revenue.
The Firm’s definition of market risk-related gains and losses is consistent with the definition used by the banking regulators under Basel III. Under this definition market risk-related gains and losses are defined as: gains and losses on the positions included in the Firm’s Risk Management VaR excluding fees, commissions, certain valuation adjustments (e.g., liquidity and FVA), net interest income, and gains and losses arising from intraday trading.
The following chart compares actual daily market risk-related gains and losses with the Firm’s Risk Management VaR for the three months ended March 31, 2018. As the chart presents market risk-related gains and losses related to those positions included in the Firm’s Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market Risk section of the Firm’s Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to covered positions. The chart shows that for the three months ended March 31, 2018, the Firm observed four VaR back-testing exceptions and posted gains on 40 of the 64 days.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Three months ended March 31, 2018
 
Market Risk-Related Gains and Losses
 
Risk Management VaR
chart-c4bbdb36ef11523dbf9.jpg
January
February
March


63


Earnings-at-risk
The VaR and sensitivity measures illustrate the economic sensitivity of the Firm’s Consolidated balance sheets to changes in market variables. The effect of interest rate exposure on the Firm’s reported net income is also important as interest rate risk represents one of the Firm’s significant market risks. Interest rate risk arises not only from trading activities but also from the Firm’s traditional banking activities, which include extension of loans and credit facilities, taking deposits and issuing debt. The Firm evaluates its structural interest rate risk exposure through earnings-at-risk, which measures the extent to which changes in interest rates will affect the Firm’s net interest income and interest rate-sensitive fees. For a summary by line of business, identifying positions included in earnings-at-risk, see the table on page 122 of JPMorgan Chase’s 2017 Annual Report.
The Firm generates a baseline for net interest income and certain interest rate-sensitive fees, and then conducts simulations of changes for interest rate-sensitive assets and liabilities denominated in U.S. dollars and other currencies (“non-U.S. dollar” currencies). This simulation primarily includes retained loans, deposits, deposits with banks, investment securities, long term debt and any related interest rate hedges, and excludes other positions in risk management VaR and other sensitivity-based measures as described on page 122 of JPMorgan Chase’s 2017 Annual Report.
Earnings-at-risk scenarios estimate the potential change in this baseline, over the following 12 months utilizing multiple assumptions. These scenarios consider the impact on exposures as a result of changes in interest rates from baseline rates, as well as pricing sensitivities of deposits, optionality and changes in product mix. The scenarios include forecasted balance sheet changes, as well as modeled prepayment and reinvestment behavior, but do not include assumptions about actions that could be taken by the Firm in response to any such instantaneous rate changes. Mortgage prepayment assumptions are based on scenario interest rates compared with underlying contractual rates, the time since origination, and other factors which are updated periodically based on historical experience. The pricing sensitivity of deposits in the baseline and scenarios use assumed rates paid which may differ from actual rates paid due to timing lags and other factors. The Firm’s earnings-at-risk scenarios are periodically evaluated and enhanced in response to changes in the composition of the Firm’s balance sheet, changes in market conditions, improvements in the Firm’s simulation and other factors.
 
The Firm’s U.S. dollar sensitivities are presented in the table below.
JPMorgan Chase’s 12-month earnings-at-risk sensitivity profiles
U.S. dollar
Instantaneous change in rates
 
(in billions)
+200 bps
+100 bps
-100 bps
-200 bps
March 31, 2018
$
2.0

 
$
1.3

 
$
(2.6
)
 
NM
(a) 
December 31, 2017
$
2.4

 
$
1.7

 
$
(3.6
)
 
NM
(a) 
(a)
Given the level of market interest rates, these downward parallel earnings-at-risk scenarios are not considered to be meaningful.
The Firm’s sensitivity to rates is largely a result of assets re-pricing at a faster pace than deposits.
The Firm’s net U.S. dollar sensitivities to 200 and 100 basis points instantaneous rate increases each decreased by approximately $400 million, while the Firm’s net U.S. dollar sensitivity to 100 basis points instantaneous decrease in rates decreased by $1 billion when compared to December 31, 2017. The primary driver of these decreases was the updating of the Firm’s baseline to reflect higher interest rates. As higher interest rates are reflected in the Firm’s baselines, our sensitivities to changes in rates are expected to be less significant.
The non-U.S. dollar sensitivities for an instantaneous increase in rates by 200 and 100 basis points results in a 12-month benefit to net interest income of approximately $800 million and $500 million, respectively, at both March 31, 2018 and December 31, 2017. The non-U.S. dollar sensitivity for an instantaneous decrease in rates by 200 and 100 basis points is not material to the Firm’s earnings-at-risk at March 31, 2018 and December 31, 2017.
Separately, another U.S. dollar interest rate scenario used by the Firm — involving a steeper yield curve with long-term rates rising by 100 basis points and short-term rates staying at current levels — results in a 12-month benefit to net interest income of approximately $600 million and $700 million at March 31, 2018 and December 31, 2017, respectively. The increase in net interest income under this scenario reflects the Firm reinvesting at the higher long-term rates, with funding costs remaining unchanged. The results of the comparable non-U.S. dollar scenarios are not material to the Firm at March 31, 2018 and December 31, 2017.


64


Other sensitivity-based measures
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net revenue and OCI due to changes in relevant market variables. For additional information on the positions
 
captured in other sensitivity-based measures, please refer to the Risk identification and classification table on page 122 of JPMorgan Chase’s 2017 Annual Report.

The table below represents the potential impact to net revenue or OCI for market risk-sensitive instruments that are not included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with the positions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss that would have been realized at March 31, 2018 and December 31, 2017, as the movement in market parameters across maturities may vary and are not intended to imply management’s expectation of future deterioration in these sensitivities.
Gain/(loss) (in millions)
 
 
 
 
 
March 31, 2018

 
December 31, 2017

Activity
 
Description
 
Sensitivity measure
 
 
 
 
 
 
 
 
 
 
 
Investment activities
 
 
 
 
 
 
 
 
Investment management activities
 
Consists of seed capital and related hedges; and fund co-investments
 
10% decline in market value
 
$
(117
)
 
$
(110
)
Other investments
 
Consists of private equity and other investments held at fair value
 
10% decline in market value
 
(342
)
 
(338
)
 
 
 
 
 
 
 
 
 
Funding activities
 
 
 
 
 
 
 
 
Non-USD LTD cross-currency basis
 
Represents the basis risk on derivatives used to hedge the foreign exchange risk on the non-USD LTD(a)
 
1 basis point parallel tightening of cross currency basis
 
(9
)
 
(10
)
Non-USD LTD hedges foreign currency (“FX”) exposure
 
Primarily represents the foreign exchange revaluation on the fair value of the derivative hedges(a)
 
10% depreciation of currency
 
1

 
(13
)
Derivatives – funding spread risk
 
Impact of changes in the spread related to derivatives FVA
 
1 basis point parallel increase in spread
 
(6
)
 
(6
)
Fair value option elected liabilities – funding spread risk
 
Impact of changes in the spread related to fair value option elected liabilities DVA(a)
 
1 basis point parallel increase in spread
 
26

 
22

Fair value option elected liabilities – interest rate sensitivity
 
Interest rate sensitivity on fair value option liabilities resulting from a change in the Firm’s own credit spread(a)
 
1 basis point parallel increase in spread
 
(1
)
 
(1
)
(a)
Impact recognized through OCI.


65


COUNTRY RISK MANAGEMENT
The Firm has a country risk management framework for monitoring and assessing how financial, economic, political or other significant developments adversely affect the value of the Firm’s exposures related to a particular country or set of countries. The Country Risk Management group actively monitors the various portfolios giving rise to country risk to ensure the Firm’s country risk exposures are diversified and that exposure levels are appropriate given the Firm’s strategy and risk tolerance relative to a country.
Country Risk Management periodically designs and runs tailored stress scenarios to test vulnerabilities to individual countries or groups of countries in response to specific or potential market events, sector performance concerns and geopolitical risks. These tailored stress results are used to inform potential risk reduction across the firm, as necessary.
For a further discussion of the Firm’s Country Risk Management organization; identification and measurement; stress testing; monitoring and control; and reporting, see pages 129–130 of JPMorgan Chase’s 2017 Annual Report.
 
The following table presents the Firm’s top 20 exposures by country (excluding the U.S.) as of March 31, 2018. The selection of countries represents the Firm’s largest total exposures by country, based on the Firm’s internal country risk management approach, and does not represent the Firm’s view of any actual or potentially adverse credit conditions. Country exposures may fluctuate from period to period due to client activity and market flows.
Top 20 country exposures (excluding the U.S.)(a)
 
 
 
March 31, 2018

(in billions)
 
Lending and deposits(b)
Trading and investing(c)(d)
Other(e)
Total exposure
Germany
 
$
49.1

$
12.8

$
0.3

$
62.2

United Kingdom
 
28.3

10.9

8.0

47.2

Japan
 
17.7

5.0

0.3

23.0

France
 
14.4

5.4

0.3

20.1

China
 
10.2

7.7

1.1

19.0

Canada
 
12.8

3.8

0.2

16.8

Switzerland
 
11.1

1.1

3.4

15.6

India
 
5.8

7.2

1.3

14.3

Australia
 
6.0

5.6

0.3

11.9

Luxembourg
 
9.5

0.8


10.3

Netherlands
 
7.7

1.8

0.6

10.1

Spain
 
6.4

2.1

0.1

8.6

South Korea
 
4.3

3.0

0.1

7.4

Brazil
 
4.6

2.8


7.4

Hong Kong
 
3.6

1.0

1.8

6.4

Singapore
 
3.3

1.2

1.9

6.4

Mexico
 
4.3

1.0


5.3

Italy
 
2.8

2.3

0.1

5.2

Saudi Arabia
 
4.0

0.9


4.9

Belgium
 
2.6

1.8


4.4

(a)
Country exposures above reflect 85% of total firmwide non-U.S. exposure.
(b)
Lending and deposits includes loans and accrued interest receivable (net of collateral and the allowance for loan losses), deposits with banks (including central banks), acceptances, other monetary assets, issued letters of credit net of participations, and unused commitments to extend credit. Excludes intra-day and operating exposures, such as from settlement and clearing activities.
(c)
Includes market-making inventory, AFS securities, counterparty exposure on derivative and securities financings net of collateral and hedging.
(d)
Includes single reference entity (“single-name”), index and other multiple reference entity transactions for which one or more of the underlying reference entities is in a country listed in the above table.
(e)
Includes capital invested in local entities and physical commodity inventory.




66


CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase’s accounting policies and use of estimates are integral to understanding its reported results. The Firm’s most complex accounting estimates require management’s judgment to ascertain the appropriate carrying value of assets and liabilities. The Firm has established policies and control procedures intended to ensure that estimation methods, including any judgments made as part of such methods, are well-controlled, independently reviewed and applied consistently from period to period. The methods used and judgments made reflect, among other factors, the nature of the assets or liabilities and the related business and risk management strategies, which may vary across the Firm’s businesses and portfolios. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The Firm believes its estimates for determining the carrying value of its assets and liabilities are appropriate. The following is a brief description of the Firm’s critical accounting estimates involving significant judgments.
Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers the retained consumer and wholesale loan portfolios, as well as the Firm’s wholesale and certain consumer lending-related commitments. The allowance for loan losses is intended to adjust the carrying value of the Firm’s loan assets to reflect probable credit losses inherent in the loan portfolio as of the balance sheet date. Similarly, the allowance for lending-related commitments is established to cover probable credit losses inherent in the lending-related commitments portfolio as of the balance sheet date.
The allowance for credit losses includes a formula-based component, an asset-specific component, and a component related to PCI loans. The determination of each of these components involves significant judgment on a number of matters. For a further discussion of these components, areas of judgment and methodologies used in establishing the Firm’s allowance for credit losses, see pages 117–119, page 138 and Note 13 of JPMorgan Chase’s 2017 Annual Report; and see Allowance for credit losses on pages 57–59 and Note 12 of this Form 10-Q.
As noted in the discussion on page 138 of JPMorgan Chase’s 2017 Annual Report, 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. See Note 12 of this Form 10-Q 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 March 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 $525 million for PCI loans.
an increase to modeled annual credit loss estimates of approximately $100 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 $850 million.
An increase in probability of default (“PD”) factors consistent with a one-notch downgrade in the Firm’s internal risk ratings for its entire wholesale loan portfolio could imply an increase in the Firm’s modeled credit loss estimates of approximately $1.5 billion.
A 100 basis point increase in estimated loss given default (“LGD”) for the Firm’s entire wholesale loan portfolio could imply an increase in the Firm’s modeled credit loss estimates of approximately $200 million.
The purpose of these sensitivity analyses is to provide an indication of the isolated impacts of hypothetical alternative assumptions on modeled loss estimates. The changes in the inputs presented above are not intended to imply management’s expectation of future deterioration of those risk factors. In addition, these analyses are not intended to estimate changes in the overall allowance for loan losses, which would also be influenced by the judgment management applies to the modeled loss estimates to reflect the uncertainty and imprecision of these modeled loss estimates based on then-current circumstances and conditions.
It is difficult to estimate how potential changes in specific factors might affect the overall allowance for credit losses because management considers a variety of factors and inputs in estimating the allowance for credit losses. Changes in these factors and inputs may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors may be directionally inconsistent, such that improvement in one factor may offset deterioration in other factors. In addition, it is difficult to predict how changes in specific economic conditions or assumptions could affect borrower behavior or other factors considered by management in estimating the allowance for credit losses. Given the process the Firm follows and the judgments made in evaluating the risk factors related to its loss estimates, management believes that its current estimate of the allowance for credit losses is appropriate.

67


Fair value of financial instruments, MSRs and commodities inventory
Assets measured at fair value
The following table includes the Firm’s assets measured at fair value and the portion of such assets that are classified within level 3 of the valuation hierarchy. For further information, see Note 2.
March 31, 2018
(in billions, except ratios)
Total assets at fair value
 
Total level 3 assets
Trading–debt and equity instruments
$
355.3

 
 
$
5.3

Derivative receivables(a)
56.9

 
 
6.2

Trading assets
412.2

 
 
11.5

AFS debt securities
209.1

 
 
0.2

Loans
2.9

 
 
0.4

MSRs
6.2

 
 
6.2

Other
33.0

 
 
1.2

Total assets measured at fair value on a recurring basis
$
663.4

 
 
$
19.5

Total assets measured at fair value on a nonrecurring basis
1.7

 
 
0.7

Total assets measured at fair value
$
665.1

 
 
$
20.2

Total Firm assets
$
2,609.8

 
 
 
Level 3 assets as a percentage of total Firm assets(a)
 
 
 
0.8
%
Level 3 assets as a percentage of total Firm assets at fair value(a)
 
 
 
3.0
%
(a)
For purposes of the table above, the derivative receivables total reflects the impact of netting adjustments; however, the $6.2 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
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 a further discussion of the valuation of level 3 instruments, including unobservable inputs used, see Note 2.
 
For instruments classified in levels 2 and 3, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the Firm’s creditworthiness, market funding rates, liquidity considerations, unobservable parameters, and for portfolios that meet specified criteria, the size of the net open risk position. The judgments made are typically affected by the type of product and its specific contractual terms, and the level of liquidity for the product or within the market as a whole. For a further discussion of valuation adjustments applied by the Firm see Note 2.
Imprecision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.
The Firm uses various methodologies and assumptions in the determination of fair value. The use of methodologies or assumptions different than those used by the Firm could result in a different estimate of fair value at the reporting date. For a detailed discussion of the Firm’s valuation process and hierarchy, and its determination of fair value for individual financial instruments, see Note 2.
Goodwill impairment
Management applies significant judgment when testing goodwill for impairment. The goodwill and other intangible assets associated with each business combination are allocated to the related reporting units for goodwill impairment testing. For a description of the significant valuation judgments associated with goodwill impairment, see Goodwill impairment on pages 139–140 of JPMorgan Chase’s 2017 Annual Report.
For the three months ended March 31, 2018, the Firm reviewed current economic conditions, business performance, the current estimated market cost of equity, and prior 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 March 31, 2018.
Declines in business performance, increases in credit losses, increases in equity 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, see Note 14.

68


Credit card rewards liability
JPMorgan Chase offers credit cards with various reward programs which allow cardholders to earn reward points based on their account activity and the terms and conditions of the reward program. Generally, there are no limits on the points that an eligible cardholder can earn, nor do the points expire, and the points can be redeemed for a variety of rewards, including cash (predominantly in the form of account credits), gift cards and travel. The Firm maintains a rewards liability which represents the estimated cost of reward points earned and expected to be redeemed by cardholders. The rewards liability is sensitive to various assumptions, including cost per point and redemption rates for each of the various reward programs, which are evaluated periodically. The liability is accrued as the cardholder earns the benefit and is reduced when the cardholder redeems points. This liability was $4.9 billion at both March 31, 2018 and December 31, 2017 and is recorded in accounts payable and other liabilities on the Consolidated balance sheets.
Income taxes
For a description of the significant assumptions, judgments and interpretations associated with the accounting for income taxes, see Note 1, and Income taxes on page 140 of JPMorgan Chase’s 2017 Annual Report.
Litigation reserves
For a description of the significant estimates and judgments associated with establishing litigation reserves, see Note 22 of this Form 10-Q, and Note 29 of JPMorgan Chase’s 2017 Annual Report.

69


ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board (“FASB”) Standards Adopted since January 1, 2018
 
 
 
 
 
Standard
 
Summary of guidance
 
Effects on financial statements
 
 
 
 
 
Revenue recognition – revenue from contracts with customers
Issued May 2014

 
 •  Requires that revenue from contracts with customers be recognized upon transfer of control of a good or service in the amount of consideration expected to be received.
 • Changes the accounting for certain contract costs, including whether they may be offset against revenue in the Consolidated statements of income, and requires additional disclosures about revenue and contract costs.

 
 • Adopted January 1, 2018.
 • For further information, see Note 1.
Recognition and
measurement of financial assets and financial liabilities
Issued January 2016
 
 • Requires that certain equity instruments be measured at fair value, with changes in fair value recognized in earnings.
 • Provides a measurement alternative for equity securities without readily determinable fair values to be measured at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer. Any such price changes are reflected in earnings beginning in the period of adoption.

 
 • Adopted January 1, 2018.
 • For further information, see Note 1.


Classification of certain cash receipts and cash payments in the statement of cash flows
Issued August 2016

 
 • Provides targeted amendments to the classification of certain cash flows, including the treatment of settlement payments for zero coupon debt instruments and distributions received from equity method investments.

 
 • Adopted January 1, 2018.
 • The adoption of the guidance had no material impact as the Firm was either in compliance with the amendments or the amounts to which it was applied were immaterial.
Treatment of restricted cash on the statement of cash flows
Issued November 2016
 
 • Requires restricted cash to be combined with unrestricted cash when reconciling the beginning and ending cash balances on the Consolidated statements of cash flows.
 • Requires additional disclosures to supplement the Consolidated statements of cash flows.

 
 • Adopted January 1, 2018.
 • For further information, see Note 1.




70


 
FASB Standards Adopted since January 1, 2018 (continued)
 
 
 
 
 
Standard
 
Summary of guidance
 
Effects on financial statements
 
 
 
 
 
Definition of a business
Issued January 2017
 
 • Narrows the definition of a business and clarifies that, to be considered a business, substantially all of the fair value of the gross assets acquired (or disposed of) may not be concentrated in a single identifiable asset or a group of similar assets.
 • In addition, the definition now requires that a set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.
 
 • Adopted January 1, 2018.
 • The adoption of the guidance had no impact because it is to be applied prospectively. Subsequent to adoption, fewer transactions will be treated as acquisitions or dispositions of a business.
Presentation of net periodic pension cost and net periodic postretirement benefit cost
Issued March 2017

 
 • Requires the service cost component of net periodic pension and postretirement benefit cost to be reported separately in the Consolidated statements of income from the other components (e.g., expected return on assets, interest costs, amortization of gains/losses and prior service costs).


 
 • Adopted January 1, 2018.
 • For further information, see Note 1.

Premium amortization on purchased callable debt securities
Issued March 2017

 
 • Requires amortization of premiums to the earliest call date on debt securities with call features that are explicit, noncontingent and callable at fixed prices and on preset dates.
 • Does not impact debt securities held at a discount; the discount continues to be amortized to the contractual maturity date.


 
 • Adopted January 1, 2018.
 • For further information, see Note 1.

Hedge accounting
Issued August 2017
 
 • Aligns the accounting with the economics of the risk management activities.
 • Expands the ability for certain hedges of interest rate risk to qualify for hedge accounting.
 • Allows recognition of ineffectiveness in cash flow hedges and net investment hedges in OCI.
 • Permits an election at adoption to transfer certain investment securities classified as held-to-maturity to available-for-sale.
 • Simplifies hedge documentation requirements.
 
 • Adopted January 1, 2018.
 • For further information, see Note 1.
Reclassification of certain tax effects from AOCI
Issued February 2018 
 
 • Permits reclassification of the income tax effects of the TCJA on items within AOCI to retained earnings so that the tax effects of items within AOCI reflect the appropriate tax rate.


 
 • Adopted January 1, 2018.
 • For further information, see Note 1.


71


FASB Standards Issued but not yet Adopted
 
 
 
 
 
Standard
 
Summary of guidance
 
Effects on financial statements
 
 
 
 
 
Leases
Issued February 2016
 
 • Requires lessees to recognize all leases longer than twelve months on the Consolidated balance sheets as lease liabilities with corresponding right-of-use assets.
 • Requires lessees and lessors to classify most leases using principles similar to existing lease accounting, but eliminates the “bright line” classification tests.
 • Permits the Firm to generally account for its existing leases consistent with current guidance, except for the incremental balance sheet recognition.
 • Expands qualitative and quantitative leasing disclosures.
 • May be adopted using a modified cumulative effect approach wherein the guidance is applied only to existing contracts as of the date of initial application, and to new contracts transacted after that date [, or a cumulative-effect adjustment to retained earnings at the effective date].
 
 • Required effective date: January 1, 2019.(a)
 • The Firm is in the process of its implementation which includes an evaluation of its leasing activities and certain contracts for embedded leases. As a lessee, the Firm is developing its methodology to estimate the right-of-use assets and lease liabilities, which is based on the present value of lease payments. The Firm expects to recognize lease liabilities and corresponding right-of-use assets (at their present value) related to predominantly all of the $10 billion of future minimum payments required under operating leases as disclosed in Note 28 of JPMorgan Chase’s 2017 Annual Report. However, the population of contracts subject to balance sheet recognition and their initial measurement remains under evaluation. The Firm does not expect material changes to the recognition of operating lease expense in its Consolidated statements of income.
 • The Firm plans to adopt the new guidance on January 1, 2019.




Financial instruments – credit losses
Issued June 2016
 
 • Replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost, which will reflect management’s estimate of credit losses over the full remaining expected life of the financial assets.
 • Eliminates existing guidance for PCI loans, and requires recognition of an allowance for expected credit losses on financial assets purchased with more than insignificant credit deterioration since origination.
 • Amends existing impairment guidance for AFS securities to incorporate an allowance, which will allow for reversals of impairment losses in the event that the credit of an issuer improves.
 • Requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption.
 
 • Required effective date: January 1, 2020.(a) 
 • The Firm has established a Firmwide, cross-discipline governance structure, which provides implementation oversight.  The Firm continues to identify key interpretive issues, and is in the process of developing and implementing current expected credit loss models that satisfy the requirements of the new standard.
 • The Firm expects that the new guidance will result in an increase in its allowance for credit losses due to several factors, including:
1. The allowance related to the Firm’s loans and commitments will increase to cover credit losses over the full remaining expected life of the portfolio, and will consider expected future changes in macroeconomic conditions
2. The nonaccretable difference on PCI loans will be recognized as an allowance, which will be offset by an increase in the carrying value of the related loans
3. An allowance will be established for estimated credit losses on non-agency HTM securities
 • The extent of the increase in the allowance is under evaluation, but will depend upon the nature and characteristics of the Firm’s portfolio at the adoption date, and the macroeconomic conditions and forecasts at that date.
 • The Firm plans to adopt the new guidance on January 1, 2020.
Goodwill
Issued January 2017
 
 • Requires an impairment loss to be recognized when the estimated fair value of a reporting unit falls below its carrying value.
 • Eliminates the second condition in the current guidance that requires an impairment loss to be recognized only if the estimated implied fair value of the goodwill is below its carrying value.
 
 • Required effective date: January 1, 2020.(a)
 • Based on current impairment test results, the Firm does not expect a material effect on the Consolidated Financial Statements.
 • After adoption, the guidance may result in more frequent goodwill impairment losses due to the removal of the second condition.
 • The Firm is evaluating the timing of adoption.
(a)
Early adoption is permitted.


72


FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” or other words of similar meaning. Forward-looking statements provide JPMorgan Chase’s current expectations or forecasts of future events, circumstances, results or aspirations. JPMorgan Chase’s disclosures in this Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Firm also may make forward-looking statements in its other documents filed or furnished with the SEC. In addition, the Firm’s senior management may make forward-looking statements orally to investors, analysts, representatives of the media and others.
All forward-looking statements are, by their nature, subject to risks and uncertainties, many of which are beyond the Firm’s control. JPMorgan Chase’s actual future results may differ materially from those set forth in its forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ from those in the forward-looking statements:
Local, regional and global business, economic and political conditions and geopolitical events;
Changes in laws and regulatory requirements, including capital and liquidity requirements affecting the Firm’s businesses, and the ability of the Firm to address those requirements;
Heightened regulatory and governmental oversight and scrutiny of JPMorgan Chase’s business practices, including dealings with retail customers;
Changes in trade, monetary and fiscal policies and laws;
Changes in income tax laws and regulations;
Securities and capital markets behavior, including changes in market liquidity and volatility;
Changes in investor sentiment or consumer spending or savings behavior;
Ability of the Firm to manage effectively its capital and liquidity, including approval of its capital plans by banking regulators;
Changes in credit ratings assigned to the Firm or its subsidiaries;
Damage to the Firm’s reputation;
Ability of the Firm to deal effectively with an economic slowdown or other economic or market disruption;
Technology changes instituted by the Firm, its counterparties or competitors;
 
The success of the Firm’s business simplification initiatives and the effectiveness of its control agenda;
Ability of the Firm to develop new products and services, and the extent to which products or services previously sold by the Firm (including but not limited to mortgages and asset-backed securities) require the Firm to incur liabilities or absorb losses not contemplated at their initiation or origination;
Acceptance of the Firm’s new and existing products and services by the marketplace and the ability of the Firm to innovate and to increase market share;
Ability of the Firm to attract and retain qualified employees;
Ability of the Firm to control expenses;
Competitive pressures;
Changes in the credit quality of the Firm’s customers and counterparties;
Adequacy of the Firm’s risk management framework, disclosure controls and procedures and internal control over financial reporting;
Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies, including the introduction of new accounting standards;
Ability of the Firm to determine accurate values of certain assets and liabilities;
Occurrence of natural or man-made disasters or calamities or conflicts and the Firm’s ability to deal effectively with disruptions caused by the foregoing;
Ability of the Firm to maintain the security of its financial, accounting, technology, data processing and other operational systems and facilities;
Ability of the Firm to withstand disruptions that may be caused by any failure of its operational systems or those of third parties;
Ability of the Firm to effectively defend itself against cyberattacks and other attempts by unauthorized parties to access information of the Firm or its customers or to disrupt the Firm’s systems; and
The other risks and uncertainties detailed in Part I,
Item 1A: Risk Factors in JPMorgan Chase’s 2017 Annual Report on Form 10-K for the year ended December 31, 2017.
Any forward-looking statements made by or on behalf of the Firm speak only as of the date they are made, and JPMorgan Chase does not undertake to update any 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.


73


JPMorgan Chase & Co.
Consolidated statements of income (unaudited)
 
 
Three months ended
March 31,
(in millions, except per share data)
 
2018

 
2017

Revenue
 
 
 
 
Investment banking fees
 
$
1,736

 
$
1,880

Principal transactions
 
3,952

 
3,582

Lending- and deposit-related fees
 
1,477

 
1,448

Asset management, administration and commissions
 
4,309

 
3,877

Investment securities losses
 
(245
)
 
(3
)
Mortgage fees and related income
 
465

 
406

Card income
 
1,275

 
914

Other income
 
1,626

 
771

Noninterest revenue
 
14,595

 
12,875

Interest income
 
17,695

 
15,042

Interest expense
 
4,383

 
2,978

Net interest income
 
13,312

 
12,064

Total net revenue
 
27,907

 
24,939

 
 
 
 
 
Provision for credit losses
 
1,165

 
1,315

 
 
 
 
 
Noninterest expense
 
 
 
 
Compensation expense
 
8,862

 
8,256

Occupancy expense
 
888

 
961

Technology, communications and equipment expense
 
2,054

 
1,834

Professional and outside services
 
2,121

 
1,792

Marketing
 
800

 
713

Other expense
 
1,355

 
1,727

Total noninterest expense
 
16,080

 
15,283

Income before income tax expense
 
10,662

 
8,341

Income tax expense
 
1,950

 
1,893

Net income
 
$
8,712

 
$
6,448

Net income applicable to common stockholders
 
$
8,238

 
$
5,975

Net income per common share data
 
 
 
 
Basic earnings per share
 
$
2.38

 
$
1.66

Diluted earnings per share
 
2.37

 
1.65

 
 
 
 
 
Weighted-average basic shares
 
3,458.3

 
3,601.7

Weighted-average diluted shares
 
3,479.5

 
3,630.4

Cash dividends declared per common share
 
$
0.56

 
$
0.50

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, see Note 1.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.


 
 
 
 
 


74


JPMorgan Chase & Co.
Consolidated statements of comprehensive income (unaudited)
 
 
Three months ended
March 31,
(in millions)
 
2018

 
2017

Net income
 
$
8,712

 
$
6,448

Other comprehensive income/(loss), after–tax
 
 
 
 
Unrealized gains/(losses) on investment securities
 
(1,234
)
 
238

Translation adjustments, net of hedges
 
27

 
7

Fair value hedges
 
(40
)
 
NA

Cash flow hedges
 
(73
)
 
91

Defined benefit pension and OPEB plans
 
21

 
(15
)
DVA on fair value option elected liabilities
 
267

 
(69
)
Total other comprehensive income/(loss), after–tax
 
(1,032
)
 
252

Comprehensive income
 
$
7,680

 
$
6,700

Effective January 1, 2018, the Firm adopted several new accounting standards. For additional information, see Note 1.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.


75


JPMorgan Chase & Co.
Consolidated balance sheets (unaudited)
(in millions, except share data)
Mar 31, 2018
 
Dec 31, 2017
Assets
 
 
 
Cash and due from banks
$
24,834

 
$
25,898

Deposits with banks
389,978

 
405,406

Federal funds sold and securities purchased under resale agreements (included $13,523 and $14,732 at fair value)
247,608

 
198,422

Securities borrowed (included $3,023 and $3,049 at fair value)
116,132

 
105,112

Trading assets (included assets pledged of $125,957 and $110,061)
412,282

 
381,844

Investment securities (included $209,146 and $202,225 at fair value and assets pledged of $16,414 and $17,969)
238,188

 
249,958

Loans (included $2,908 and $2,508 at fair value)
934,424

 
930,697

Allowance for loan losses
(13,375
)
 
(13,604
)
Loans, net of allowance for loan losses
921,049

 
917,093

Accrued interest and accounts receivable
72,659

 
67,729

Premises and equipment
14,382

 
14,159

Goodwill, MSRs and other intangible assets
54,533

 
54,392

Other assets (included $17,124 and $16,128 at fair value and assets pledged of $1,314 and $1,526)
118,140

 
113,587

Total assets(a)
$
2,609,785

 
$
2,533,600

Liabilities
 
 
 
Deposits (included $20,170 and $21,321 at fair value)
$
1,486,961

 
$
1,443,982

Federal funds purchased and securities loaned or sold under repurchase agreements (included $735 and $697 at fair value)
179,091

 
158,916

Short-term borrowings (included $8,823 and $9,191 at fair value)
62,667

 
51,802

Trading liabilities
136,537

 
123,663

Accounts payable and other liabilities (included $9,968 and $9,208 at fair value)
192,295

 
189,383

Beneficial interests issued by consolidated VIEs (included $7 and $45 at fair value)
21,584

 
26,081

Long-term debt (included $49,152 and $47,519 at fair value)
274,449

 
284,080

Total liabilities(a)
2,353,584

 
2,277,907

Commitments and contingencies (see Notes 20, 21 and 22)


 


Stockholders’ equity
 
 
 
Preferred stock ($1 par value; authorized 200,000,000 shares; issued 2,606,750 shares)
26,068

 
26,068

Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
4,105

 
4,105

Additional paid-in capital
89,211

 
90,579

Retained earnings
183,855

 
177,676

Accumulated other comprehensive loss
(1,063
)
 
(119
)
Shares held in restricted stock units (“RSU”) Trust, at cost (472,953 shares)
(21
)
 
(21
)
Treasury stock, at cost (700,156,973 and 679,635,064 shares)
(45,954
)
 
(42,595
)
Total stockholders’ equity
256,201

 
255,693

Total liabilities and stockholders’ equity
$
2,609,785

 
$
2,533,600

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, see Note 1.
(a)
The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at March 31, 2018, and December 31, 2017. The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests generally do not have recourse to the general credit of JPMorgan Chase. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs and exclude intercompany balances that eliminate in consolidation. For a further discussion, see Note 13.
(in millions)
Mar 31, 2018
 
Dec 31, 2017
Assets
 
 
 
Trading assets
$
1,222

 
$
1,449

Loans
57,416

 
68,995

All other assets
2,410

 
2,674

Total assets
$
61,048

 
$
73,118

Liabilities
 
 
 
Beneficial interests issued by consolidated VIEs
$
21,584

 
$
26,081

All other liabilities
348

 
349

Total liabilities
$
21,932

 
$
26,430

The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

76


JPMorgan Chase & Co.
Consolidated statements of changes in stockholders’ equity (unaudited)
 
 
Three months ended March 31,
(in millions, except per share data)
 
2018

 
2017

Preferred stock
 
 
 
 
Balance at January 1 and March 31
 
$
26,068

 
$
26,068

Common stock
 
 
 
 
Balance at January 1 and March 31
 
4,105

 
4,105

Additional paid-in capital
 
 
 
 
Balance at January 1
 
90,579

 
91,627

Shares issued and commitments to issue common stock for employee shared-based compensation awards, and related tax effects
 
(1,307
)
 
(1,087
)
Other
 
(61
)
 
(145
)
Balance at March 31
 
89,211

 
90,395

Retained earnings
 
 
 
 
Balance at January 1
 
177,676

 
162,440

Cumulative effect of changes in accounting principles
 
(183
)
 

Net income
 
8,712

 
6,448

Dividends declared:
 
 
 
 
Preferred stock
 
(409
)
 
(412
)
Common stock ($0.56 and $0.50 per share)
 
(1,941
)
 
(1,813
)
Balance at March 31
 
183,855

 
166,663

Accumulated other comprehensive income/(loss)
 
 
 
 
Balance at January 1
 
(119
)
 
(1,175
)
Cumulative effect of changes in accounting principles
 
88

 

Other comprehensive income/(loss)
 
(1,032
)
 
252

Balance at March 31
 
(1,063
)
 
(923
)
Shares held in RSU Trust, at cost
 
 
 
 
Balance at January 1 and March 31
 
(21
)
 
(21
)
Treasury stock, at cost
 
 
 
 
Balance at January 1
 
(42,595
)
 
(28,854
)
Repurchase
 
(4,671
)
 
(2,832
)
Reissuance
 
1,312

 
1,262

Balance at March 31
 
(45,954
)
 
(30,424
)
Total stockholders’ equity
 
$
256,201

 
$
255,863

Effective January 1, 2018, the Firm adopted several new accounting standards. For additional information, see Note 1.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.


77


JPMorgan Chase & Co.
Consolidated statements of cash flows (unaudited)
 
Three months ended March 31,
(in millions)
2018

 
2017

Operating activities
 
 
 
Net income
$
8,712

 
$
6,448

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Provision for credit losses
1,165

 
1,315

Depreciation and amortization
1,797

 
1,464

Deferred tax (benefit)/expense
(175
)
 
629

Other
951

 
604

Originations and purchases of loans held-for-sale
(20,010
)
 
(24,594
)
Proceeds from sales, securitizations and paydowns of loans held-for-sale
18,300

 
21,262

Net change in:
 
 
 
Trading assets
(37,231
)
 
(17,654
)
Securities borrowed
(11,047
)
 
4,177

Accrued interest and accounts receivable
(5,009
)
 
(7,767
)
Other assets
(3,929
)
 
11,826

Trading liabilities
11,855

 
(11,518
)
Accounts payable and other liabilities
(90
)
 
(11,543
)
Other operating adjustments
(398
)
 
2,792

Net cash used in operating activities
(35,109
)
 
(22,559
)
Investing activities
 
 
 
Net change in:
 
 
 
Federal funds sold and securities purchased under resale agreements
(49,179
)
 
39,380

Held-to-maturity securities:
 
 
 
Proceeds from paydowns and maturities
698

 
1,193

Purchases
(4,686
)
 

Available-for-sale debt securities:
 
 
 
Proceeds from paydowns and maturities
10,785

 
14,522

Proceeds from sales
16,697

 
12,751

Purchases
(14,680
)
 
(20,416
)
Proceeds from sales and securitizations of loans held-for-investment
4,219

 
2,251

Other changes in loans, net
(8,226
)
 
(2,545
)
All other investing activities, net
(649
)
 
(24
)
Net cash provided by/(used in) investing activities
(45,021
)
 
47,112

Financing activities
 
 
 
Net change in:
 
 
 
Deposits
49,429

 
35,930

Federal funds purchased and securities loaned or sold under repurchase agreements
20,185

 
17,655

Short-term borrowings
11,029

 
4,308

Beneficial interests issued by consolidated VIEs
(93
)
 
146

Proceeds from long-term borrowings
19,916

 
16,538

Payments of long-term borrowings
(31,887
)
 
(26,049
)
Treasury stock repurchased
(4,671
)
 
(2,832
)
Dividends paid
(2,236
)
 
(2,045
)
All other financing activities, net
(1,083
)
 
(46
)
Net cash provided by financing activities
60,589

 
43,605

Effect of exchange rate changes on cash and due from banks and deposits with banks
3,049

 
2,574

Net (decrease)/increase in cash and due from banks and deposits with banks
(16,492
)
 
70,732

Cash and due from banks and deposits with banks at the beginning of the period
431,304

 
391,154

Cash and due from banks and deposits with banks at the end of the period
$
414,812

 
$
461,886

Cash interest paid
$
4,431

 
$
3,195

Cash income taxes paid, net
429

 
356

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, see Note 1.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

78



See the Glossary of Terms and Acronyms on pages 156–163 for definitions of terms and acronyms used throughout the Notes to Consolidated Financial Statements.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or “the Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the U.S., with operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. For a further discussion of the Firm’s business segments, see Note 23.
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.
The unaudited Consolidated Financial Statements prepared in conformity with U.S. GAAP require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense, and the disclosures of contingent assets and liabilities. Actual results could be different from these estimates. In the opinion of management, all normal, recurring adjustments have been included such that this interim financial information is fairly presented.
These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements, and related notes thereto, included in JPMorgan Chase’s 2017 Annual Report.
Certain amounts reported in prior periods have been reclassified to conform with the current presentation.
Consolidation
The Consolidated Financial Statements include the accounts of JPMorgan Chase and other entities in which the Firm has a controlling financial interest. All material intercompany balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by the Firm are not assets of JPMorgan Chase and are not included on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity.
For a further description of JPMorgan Chase’s accounting policies regarding consolidation, see Notes 1 and 14 of JPMorgan Chase’s 2017 Annual Report.
 
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables and derivative payables with the same counterparty and the related cash collateral receivables and payables on a net basis on the Consolidated balance sheets when a legally enforceable master netting agreement exists. U.S. GAAP also permits securities financing activities to be presented on a net basis 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. For further information on offsetting assets and liabilities, see Note 1 of JPMorgan Chase’s 2017 Annual Report.
Application of U.S. GAAP related to the Tax Cuts and Jobs Act (“TCJA”) SEC Staff Accounting Bulletin No. 118
On December 22, 2017, the TCJA was signed into law and the Firm recorded the estimated impact of the deemed repatriation of the Firm’s unremitted non-U.S. earnings and the remeasurement of deferred taxes under the TCJA. These provisional amounts represent estimates under SEC guidance, which provides a one-year measurement period in which to refine the estimates based on new information or the issuance of interpretative guidance. The Firm anticipates refinements to both calculations as a result of the issuance of future legislative and accounting guidance as well as those in the normal course of business, including true-ups to the tax liability on the tax return as filed and the resolution of tax audits. The Firm considers any legislative or accounting guidance issued as of the balance sheet date when evaluating potential refinements to these estimates. There were no material changes to these estimates as of March 31, 2018.
Accounting standards adopted January 1, 2018
Revenue recognition – revenues 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. For additional information, see the table on page 80 of this Note, and Note 5.
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

79


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 $505 million in other income in the first quarter of 2018. For additional information, see Notes 2 and 9.
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, see the table below, and Notes 9 and 17.
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, see the table below, and Notes 4, 9
and 17.
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, see the table below, and Note 18.
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 to be reported separately in the Consolidated statements of income from the other components of pension cost. 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, see the table below, and Note 7.

 
Reclassification of certain tax effects from AOCI
The adoption of this guidance permitted the Firm to reclassify the income tax effects of the TCJA on items within AOCI to retained earnings so that the tax effects of items within AOCI reflect the appropriate tax rate. The adoption of this guidance resulted in a cumulative-effect adjustment to retained earnings and AOCI. For additional information, see the table below, and Note 17.
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
Three months ended
March 31, 2017 (in millions)
Reported
Revisions(a)
Revised
Revenue
 
 
 
Investment banking fees
$
1,817

$
63

$
1,880

Asset management, administration and commissions
3,677

200

3,877

Other income
770

1

771

Total net revenue
24,675

264

24,939

 
 
 
 
Noninterest expense
 
 
 
Compensation expense
8,201

55

8,256

Technology, communication and equipment expense
1,828

6

1,834

Professional and outside services
1,543

249

1,792

Other expense
1,773

(46
)
1,727

Total noninterest expense
$
15,019

$
264

$
15,283

(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
$
25,827

$
71

$
25,898

Deposits with banks
404,294

1,112

405,406

Other assets
114,770

(1,183
)
113,587

Total assets
$
2,533,600

$

$
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 new accounting standards in the first quarter of 2018:
Increase/(decrease) (in millions)
Retained earnings

AOCI
Premium amortization on purchased callable debt securities
$
(505
)
$
261

Hedge accounting
34

115

Reclassification of certain tax effects from AOCI
288

(288
)
Total
$
(183
)
$
88



80


Note 2 – Fair value measurement
For a discussion of the Firm’s valuation methodologies for assets, liabilities and lending-related commitments measured at fair value and the fair value hierarchy, see Note 2 of JPMorgan Chase’s 2017 Annual Report.




81


The following table presents the assets and liabilities reported at fair value as of March 31, 2018, and December 31, 2017, by major product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis







Fair value hierarchy

Derivative
netting
adjustments

 
 
 
 
 
 
 
March 31, 2018 (in millions)
Level 1
Level 2

Level 3

Total fair value

Federal funds sold and securities purchased under resale agreements
$

$
13,523


$


$

$
13,523

Securities borrowed

3,023





3,023

Trading assets:












Debt instruments:












Mortgage-backed securities:












U.S. government agencies(a)

34,849


508



35,357

Residential – nonagency

1,906


55



1,961

Commercial – nonagency

1,825


14



1,839

Total mortgage-backed securities

38,580


577



39,157

U.S. Treasury and government agencies(a)
35,122

7,350





42,472

Obligations of U.S. states and municipalities

9,004


704



9,708

Certificates of deposit, bankers’ acceptances and commercial paper

2,281

 

 

2,281

Non-U.S. government debt securities
30,555

34,174

 
197

 

64,926

Corporate debt securities

25,563

 
306

 

25,869

Loans(b)

38,908

 
2,368

 

41,276

Asset-backed securities

3,129

 
63

 

3,192

Total debt instruments
65,677

158,989

 
4,215

 

228,881

Equity securities
104,905

429

 
300

 

105,634

Physical commodities(c)
3,893

1,585

 

 

5,478

Other

14,626

 
698

 

15,324

Total debt and equity instruments(d)
174,475

175,629

 
5,213

 

355,317

Derivative receivables:
 
 
 
 
 
 
 
Interest rate
562

301,549

 
1,761

 
(280,094
)
23,778

Credit

22,609

 
1,118

 
(22,665
)
1,062

Foreign exchange
1,106

164,190

 
639

 
(149,332
)
16,603

Equity

41,424

 
2,564

 
(35,185
)
8,803

Commodity

16,955

 
165

 
(10,452
)
6,668

Total derivative receivables(e)(f)
1,668

546,727

 
6,247

 
(497,728
)
56,914

Total trading assets(g)
176,143

722,356

 
11,460

 
(497,728
)
412,231

Available-for-sale debt securities:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. government agencies(a)

67,209

 

 

67,209

Residential – nonagency

10,602

 
1

 

10,603

Commercial – nonagency

9,140

 

 

9,140

Total mortgage-backed securities

86,951

 
1

 

86,952

U.S. Treasury and government agencies
25,450


 

 

25,450

Obligations of U.S. states and municipalities

39,491

 

 

39,491

Certificates of deposit

60

 

 

60

Non-U.S. government debt securities
18,148

8,546

 

 

26,694

Corporate debt securities

2,268

 

 

2,268

Asset-backed securities:
 
 
 
 
 
 
 
Collateralized loan obligations

19,835

 
204

 

20,039

Other

8,192

 

 

8,192

Total available-for-sale securities
43,598

165,343

 
205

 

209,146

Loans

2,512

 
396

 

2,908

Mortgage servicing rights


 
6,202

 

6,202

Other assets(g)(h)
14,718

441

 
1,220

 

16,379

Total assets measured at fair value on a recurring basis
$
234,459

$
907,198

 
$
19,483

 
$
(497,728
)
$
663,412

Deposits
$

$
16,153

 
$
4,017

 
$

$
20,170

Federal funds purchased and securities loaned or sold under repurchase agreements

735

 

 

735

Short-term borrowings

6,698

 
2,125

 

8,823

Trading liabilities:
 
 
 
 
 
 


Debt and equity instruments(d)
75,154

24,384

 
50

 

99,588

Derivative payables:
 
 
 
 
 
 


Interest rate
579

271,996

 
1,289

 
(266,694
)
7,170

Credit

22,583

 
1,113

 
(21,983
)
1,713

Foreign exchange
1,176

151,705

 
927

 
(143,011
)
10,797

Equity

43,162

 
5,076

 
(37,913
)
10,325

Commodity

17,544

 
684

 
(11,284
)
6,944

Total derivative payables(e)(f)
1,755

506,990

 
9,089

 
(480,885
)
36,949

Total trading liabilities
76,909

531,374

 
9,139

 
(480,885
)
136,537

Accounts payable and other liabilities
9,770

191

 
7

 

9,968

Beneficial interests issued by consolidated VIEs

6

 
1

 

7

Long-term debt

32,202

 
16,950

 

49,152

Total liabilities measured at fair value on a recurring basis
$
86,679

$
587,359

 
$
32,239

 
$
(480,885
)
$
225,392



82



Fair value hierarchy

Derivative
netting
adjustments
 

 
 
 
 
 
 
 
 
December 31, 2017 (in millions)
Level 1

Level 2


Level 3


 
Total fair value

Federal funds sold and securities purchased under resale agreements
$

$
14,732


$


$

 
$
14,732

Securities borrowed

3,049





 
3,049

Trading assets:
 
 

 

 
 
 
Debt instruments:
 
 

 

 
 
 
Mortgage-backed securities:
 
 

 

 
 
 
U.S. government agencies(a)

41,515


307



 
41,822

Residential – nonagency

1,835


60



 
1,895

Commercial – nonagency

1,645


11



 
1,656

Total mortgage-backed securities

44,995


378



 
45,373

U.S. Treasury and government agencies(a)
30,758

6,475


1



 
37,234

Obligations of U.S. states and municipalities

9,067


744



 
9,811

Certificates of deposit, bankers’ acceptances and commercial paper

226





 
226

Non-U.S. government debt securities
28,887

28,831


78



 
57,796

Corporate debt securities

24,146


312



 
24,458

Loans(b)

35,242


2,719



 
37,961

Asset-backed securities

3,284


153



 
3,437

Total debt instruments
59,645

152,266


4,385



 
216,296

Equity securities
87,346

197


295



 
87,838

Physical commodities(c)
4,924

1,322





 
6,246

Other

14,197


690



 
14,887

Total debt and equity instruments(d)
151,915

167,982


5,370



 
325,267

Derivative receivables:
 








 


Interest rate
181

314,107


1,704


(291,319
)
 
24,673

Credit

21,995


1,209


(22,335
)
 
869

Foreign exchange
841

158,834


557


(144,081
)
 
16,151

Equity

37,722


2,318


(32,158
)
 
7,882

Commodity

19,875


210


(13,137
)
 
6,948

Total derivative receivables(e)(f)
1,022

552,533


5,998


(503,030
)
 
56,523

Total trading assets(g)
152,937

720,515


11,368


(503,030
)
 
381,790

Available-for-sale debt securities:
 








 


Mortgage-backed securities:
 








 


U.S. government agencies(a)

70,280





 
70,280

Residential – nonagency

11,366


1



 
11,367

Commercial – nonagency

5,025





 
5,025

Total mortgage-backed securities

86,671


1



 
86,672

U.S. Treasury and government agencies
22,745






 
22,745

Obligations of U.S. states and municipalities

32,338





 
32,338

Certificates of deposit

59





 
59

Non-U.S. government debt securities
18,140

9,154





 
27,294

Corporate debt securities

2,757





 
2,757

Asset-backed securities:
 








 


Collateralized loan obligations

20,720


276



 
20,996

Other

8,817





 
8,817

Equity securities(h)
547






 
547

Total available-for-sale securities
41,432

160,516


277



 
202,225

Loans

2,232


276



 
2,508

Mortgage servicing rights



6,030



 
6,030

Other assets(g)(h)
13,795

343


1,265



 
15,403

Total assets measured at fair value on a recurring basis
$
208,164

$
901,387


$
19,216


$
(503,030
)
 
$
625,737

Deposits
$

$
17,179


$
4,142


$

 
$
21,321

Federal funds purchased and securities loaned or sold under repurchase agreements

697





 
697

Short-term borrowings

7,526


1,665



 
9,191

Trading liabilities:
 
 

 



 


Debt and equity instruments(d)
64,664

21,183


39



 
85,886

Derivative payables:
 
 




 
 
 
Interest rate
170

282,825


1,440


(277,306
)
 
7,129

Credit

22,009


1,244


(21,954
)
 
1,299

Foreign exchange
794

154,075


953


(143,349
)
 
12,473

Equity

39,668


5,727


(36,203
)
 
9,192

Commodity

21,017


884


(14,217
)
 
7,684

Total derivative payables(e)(f)
964

519,594


10,248


(493,029
)
 
37,777

Total trading liabilities
65,628

540,777


10,287


(493,029
)
 
123,663

Accounts payable and other liabilities
9,074

121


13



 
9,208

Beneficial interests issued by consolidated VIEs

6


39



 
45

Long-term debt

31,394


16,125



 
47,519

Total liabilities measured at fair value on a recurring basis
$
74,702

$
597,700


$
32,271


$
(493,029
)
 
$
211,644

(a)
At March 31, 2018, and December 31, 2017, included total U.S. government-sponsored enterprise obligations of $74.1 billion and $78.0 billion, respectively, which were predominantly mortgage-related.
(b)
At March 31, 2018, and December 31, 2017, included within trading loans were $12.9 billion and $11.4 billion, respectively, of residential first-lien mortgages, and $2.4 billion and $4.2 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government agencies of $7.9 billion and $5.7 billion, respectively, and reverse mortgages of $324 million and $836 million respectively.
(c)
Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. “Net realizable value” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying

83


value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge accounting relationships, see Note 4. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
(d)
Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e)
As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset or liability. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral.
(f)
Reflects the Firm’s adoption of rulebook changes made by two CCPs that require or allow the Firm to treat certain OTC-cleared derivative transactions as daily settled. For
further information, see Note 5 of JPMorgan Chase's 2017 Annual Report.
(g)
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. At March 31, 2018, and December 31, 2017, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds, were $796 million and $779 million, respectively. Included in these balances at March 31, 2018, and December 31, 2017, were trading assets of $51 million and $54 million, respectively, and other assets of $745 million and $725 million, respectively.
(h)
Effective January 1, 2018, the Firm adopted the recognition and measurement guidance. Equity securities that were previously reported as AFS securities were reclassified to other assets upon adoption.

Transfers between levels for instruments carried at fair
value on a recurring basis
For the three months ended March 31, 2018 and 2017 there were no individually significant transfers.
All transfers are based on changes in the observability of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.
Level 3 valuations
For further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments, see Note 2 of JPMorgan Chase’s 2017 Annual Report.
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 March 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 concentrated towards the lower end of the range. In addition, the interest rate spread volatility inputs used in estimating fair value were distributed across the range; equity volatilities and commodity volatilities were concentrated towards the lower end of the range; and forward commodity prices used in estimating the fair value of commodity derivatives were concentrated towards the lower end of the range. Recovery rate, yield and prepayment speed inputs used in estimating 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.

84


Level 3 inputs(a)
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
 
Product/Instrument
Fair value
(in millions)
 
Principal valuation technique
Unobservable inputs(g)
Range of input values
Weighted average
 
Residential mortgage-backed securities and loans(b)
$
1,122

 
Discounted cash flows
Yield
1
 %
32
%
 
7
%
 
 
 
Prepayment speed
0
 %
27
%
 
8
%
 
 
 
 
Conditional default rate
0
 %
41
%
 
1
%
 
 
 
 
Loss severity
0
 %
60
%
 
3
%
Commercial mortgage-backed securities and loans(c)
766

 
Market comparables
Price
$
12

$
100

 
$
94

Obligations of U.S. states and municipalities
704

 
Market comparables
Price
$
59

$
100

 
$
98

Corporate debt securities
306

 
Market comparables
Price
$
3

$
110

 
$
83

Loans(d)
1,454

 
Market comparables
Price
$
4

$
106

 
$
86

Asset-backed securities
204

 
Discounted cash flows
Credit spread
201
 bps
 
201
 bps
 
 
 
 
Prepayment speed
20
%
 
20
%
 
 
 
 
Conditional default rate
2
%
 
2
%
 
 
 
 
Loss severity
30
%
 
30
%
 
63

 
Market comparables
Price
$
1

$
104

 
$
80

Net interest rate derivatives
257

 
Option pricing
Interest rate spread volatility
27
 bps
38
 bps
 
 
 
 
 
Interest rate correlation
(50
)%
98
%
 
 
 
 
 
 
IR-FX correlation
60
 %
70
%
 
 
 
215

 
Discounted cash flows
Prepayment speed
0
 %
30
%
 
 
Net credit derivatives
1

 
Discounted cash flows
Credit correlation
35
 %
70
%
 
 
 
 
 
 
Credit spread
5
 bps
1,463
 bps
 
 
 
 
 
 
Recovery rate
20
 %
70
%
 
 
 
 
 
 
Yield
1
 %
36
%
 
 
 
 
 
 
Prepayment speed
3
 %
20
%
 
 
 
 
 
 
Conditional default rate
1
 %
86
%
 
 
 
 
 
 
Loss severity
11
 %
100
%
 
 
 
4

 
Market comparables
Price
$
10

$
98

 
 
Net foreign exchange derivatives
(106
)
 
Option pricing
IR-FX correlation
(50
)%
70
%
 
 
 
(182
)
 
Discounted cash flows
Prepayment speed
8
 %
9
%
 
 
Net equity derivatives
(2,512
)
 
Option pricing
Equity volatility
20
 %
60
%
 
 
 
 
 
 
Equity correlation
0
 %
85
%
 
 
 
 
 
 
Equity-FX correlation
(70
)%
30
%
 
 
 
 
 
 
Equity-IR correlation
20
 %
40
%
 
 
Net commodity derivatives
(519
)
 
Option pricing
Forward commodity price
$
52

$ 71 per barrel
 
 
 
 
Commodity volatility
5
 %
45
%
 
 
 
 
 
 
Commodity correlation
(52
)%
88
%
 
 
MSRs
6,202

 
Discounted cash flows
Refer to Note 14
 
 
Other assets
417

 
Discounted cash flows
Credit spread
70
 bps
 
70
 bps
 
 
 
 
Yield
8
 %
10
%
 
8
%
 
1,501

 
Market comparables
Price
$
70

$
71

 
$
71

 
 
 
 
EBITDA multiple

4.1x

8.2x

 
7.8
 x
Long-term debt, short-term borrowings, and deposits(e)
23,092

 
Option pricing
Interest rate spread volatility
27
 bps
38
 bps
 
 
 
 
Interest rate correlation
(50
)%
98
%
 
 
 
 
 
IR-FX correlation
(50
)%
70
%
 
 
 
 
 
Equity correlation
0
 %
85
%
 
 
 
 
 
Equity-FX correlation
(70
)%
30
%
 
 
 
 
 
Equity-IR correlation
20
 %
40
%
 
 
Other level 3 assets and liabilities, net(f)
439

 
 
 
 
 
 
 
 
(a)
The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued using the technique as the characteristics of the instruments can differ.
(b)
Includes U.S. government agency securities of $504 million, nonagency securities of $56 million and trading loans of $562 million.
(c)
Includes U.S. government agency securities of $4 million, nonagency securities of $14 million, trading loans of $352 million and non-trading loans of $396 million.
(d)
Includes trading loans of $1.5 billion.
(e)
Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are predominantly financial instruments containing embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.
(f)
Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.
(g)
Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-based internal valuation techniques. The price input is expressed assuming a par value of $100.

85


Changes in and ranges of unobservable inputs
For a discussion of the impact on fair value of changes in unobservable inputs and the relationships between unobservable inputs as well as 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 see Note 2 of JPMorgan Chase’s 2017 Annual Report.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated balance sheets amounts (including changes in fair value) for financial instruments classified by the Firm within level 3 of the fair value hierarchy for the three months ended March 31, 2018 and 2017. When a determination is made to classify a financial instrument within level 3, the determination is based on the significance of the unobservable parameters to the overall
 
fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Also, the Firm risk-manages the observable components of level 3 financial instruments using securities and derivative positions that are classified within level 1 or 2 of the fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains or losses in the following tables do not reflect the effect of the Firm’s risk management activities related to such level 3 instruments.


86


 
Fair value measurements using significant unobservable inputs
 
 
Three months ended
March 31, 2018
(in millions)
Fair
value at
Jan 1, 2018
Total realized/unrealized gains/(losses)
 
 
 
 
Transfers into
level 3
(h)
Transfers (out of) level 3(h)
Fair value at
March 31, 2018
Change in unrealized gains/(losses) related
to financial instruments held at March 31, 2018
Purchases(f)
Sales
 
Settlements(g)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government agencies
$
307

 
$
3

 
$
329

$
(87
)
 
$
(20
)
$
4

$
(28
)
 
$
508

 
$
1

 
Residential – nonagency
60

 
(2
)
 

(2
)
 
(2
)
29

(28
)
 
55

 

 
Commercial – nonagency
11

 
1

 
6

(7
)
 
(1
)
4


 
14

 

 
Total mortgage-backed securities
378

 
2

 
335

(96
)
 
(23
)
37

(56
)
 
577

 
1

 
U.S. Treasury and government agencies

1

 

 


 


(1
)
 

 

 
Obligations of U.S. states and municipalities
744

 
(2
)
 
39


 
(77
)


 
704

 
(2
)
 
Non-U.S. government debt securities
78

 
2

 
225

(92
)
 

17

(33
)
 
197

 
3

 
Corporate debt securities
312

 
(1
)
 
81

(100
)
 
(1
)
131

(116
)
 
306

 
(1
)
 
Loans
2,719

 
62

 
470

(728
)
 
(137
)
123

(141
)
 
2,368

 
30

 
Asset-backed securities
153

 
5

 
14

(13
)
 
(34
)
11

(73
)
 
63

 

 
Total debt instruments
4,385

 
68

 
1,164

(1,029
)
 
(272
)
319

(420
)
 
4,215

 
31

 
Equity securities
295

 
(8
)
 
28

(10
)
 

4

(9
)
 
300

 
(7
)
 
Other
690

 
15

 
18

(6
)
 
(20
)
1


 
698

 
15

 
Total trading assets – debt and equity instruments
5,370

 
75

(c) 
1,210

(1,045
)
 
(292
)
324

(429
)
 
5,213

 
39

(c) 
Net derivative receivables:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
264

 
53

 
17

(4
)
 
46

26

70

 
472

 
131

 
Credit
(35
)
 
17

 
1

(2
)
 
4

3

17

 
5

 
11

 
Foreign exchange
(396
)
 
146

 

(5
)
 
11

(38
)
(6
)
 
(288
)
 
156

 
Equity
(3,409
)
 
639

 
218

(242
)
 
434

(111
)
(41
)
 
(2,512
)
 
448

 
Commodity
(674
)
 
185

 


 
12

1

(43
)
 
(519
)
 
227

 
Total net derivative receivables
(4,250
)
 
1,040

(c) 
236

(253
)
 
507

(119
)
(3
)
 
(2,842
)
 
973

(c) 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
276

 
1

 


 
(73
)


 
204

 
1

 
Other
1

 

 


 



 
1

 

 
Total available-for-sale securities
277

 
1

(d) 


 
(73
)


 
205

 
1

(d) 
Loans
276

 
5

(c) 
122


 
(7
)


 
396

 
5

(c) 
Mortgage servicing rights
6,030

 
384

(e) 
243

(295
)
 
(160
)


 
6,202

 
384

(e) 
Other assets
1,265

 
(37
)
(c) 
23

(14
)
 
(16
)

(1
)
 
1,220

 
(38
)
(c) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value measurements using significant unobservable inputs
 
 
Three months ended
March 31, 2018
(in millions)
Fair
value at
Jan 1, 2018
Total realized/unrealized (gains)/losses
 
 
 
 
Transfers into
level 3
(h)
Transfers (out of) level 3(h)
Fair value at
March 31, 2018
Change in unrealized (gains)/
losses related
to financial instruments held at March 31, 2018
Purchases
Sales
Issuances
Settlements(g)
Liabilities:(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
4,142

 
$
(90
)
(c)(i) 
$

$

$
321

$
(198
)
$

$
(158
)
 
$
4,017

 
$
(125
)
(c)(i) 
Federal funds purchased and securities loaned or sold under repurchase agreements

 

 






 

 

 
Short-term borrowings
1,665

 
15

(c)(i) 


1,208

(746
)
12

(29
)
 
2,125

 
43

(c)(i) 
Trading liabilities – debt and equity instruments
39

 
3

(c) 
(37
)
43


1

2

(1
)
 
50

 
5

(c) 
Accounts payable and other liabilities
13

 

 
(6
)





 
7

 

 
Beneficial interests issued by consolidated VIEs
39

 





(38
)


 
1

 


Long-term debt
16,125

 
(246
)
(c)(i) 


3,091

(2,263
)
375

(132
)
 
16,950

 
(354
)
(c)(i) 

87



Fair value measurements using significant unobservable inputs


 
Three months ended
March 31, 2017
(in millions)
Fair
value
at Jan 1, 2017
Total realized/unrealized gains/(losses)



 

Transfers into
level 3(h)
Transfers (out of) level 3(h)
Fair value at
March 31, 2017
Change in unrealized gains/(losses) related
to financial instruments held at March 31, 2017
Purchases(f)
Sales

 
Settlements(g)
Assets:






 


 









Trading assets:






 


 









Debt instruments:






 


 









Mortgage-backed securities:






 


 









U.S. government agencies
$
392

$
4


$
79

$
(97
)

 
$
(16
)
$
7

$
(16
)

$
353


$
(1
)

Residential – nonagency
83

9


5

(17
)

 
(4
)
15

(56
)

35


1


Commercial – nonagency
17

3


7

(8
)

 
(3
)
30

(1
)

45


(1
)

Total mortgage-backed securities
492

16


91

(122
)

 
(23
)
52

(73
)

433


(1
)

Obligations of U.S. states and municipalities
649

8


85

(69
)

 
(5
)



668


8


Non-U.S. government debt securities
46



72

(83
)

 

26

(14
)

47




Corporate debt securities
576

(9
)

423

(108
)

 
(122
)
33

(55
)

738


(9
)

Loans
4,837

110


762

(744
)

 
(375
)
196

(198
)

4,588


61


Asset-backed securities
302

14


98

(138
)

 
(11
)
8

(28
)

245


5


Total debt instruments
6,902

139


1,531

(1,264
)

 
(536
)
315

(368
)

6,719


64


Equity securities
231

13


56

(6
)

 

1

(24
)

271


12


Other
761

22


19



 
(47
)
8



763


31


Total trading assets – debt and equity instruments
7,894

174

(c) 
1,606

(1,270
)

 
(583
)
324

(392
)

7,753


107

(c) 
Net derivative receivables:(a)










 


 









Interest rate
1,263

44


16

(23
)

 
(303
)
4

8


1,009


6


Credit
98

(46
)


(2
)

 
(42
)
11

(2
)

17


(43
)

Foreign exchange
(1,384
)
(24
)


(2
)

 
(91
)
11



(1,490
)

(18
)

Equity
(2,252
)
69


336

(45
)

 
(24
)
(73
)
93


(1,896
)

(89
)

Commodity
(85
)
18





 
2

6

3


(56
)

26


Total net derivative receivables
(2,360
)
61

(c) 
352

(72
)

 
(458
)
(41
)
102


(2,416
)

(118
)
(c) 
Available-for-sale securities:
 
 

 
 

 
 
 
 

 

 

Asset-backed securities
663

10



(50
)

 
(1
)



622


8


Other
1






 




1




Total available-for-sale securities
664

10

(d) 

(50
)

 
(1
)



623


8

(d) 
Loans
570

6

(c) 



 
(172
)



404


6

(c) 
Mortgage servicing rights
6,096

43

(e) 
217

(71
)

 
(206
)



6,079


43

(e) 
Other assets
2,223

37

(c) 
3

(77
)
 
 
(109
)


 
2,077

 
33

(c) 

Fair value measurements using significant unobservable inputs


Three months ended
March 31, 2017
(in millions)
Fair
value
at Jan 1, 2017
Total realized/unrealized (gains)/losses



 

Transfers into
level 3(h)
Transfers (out of) level 3(h)
Fair value at
March 31, 2017
Change in unrealized (gains)/losses related
to financial instruments held at March 31, 2017
Purchases
Sales
Issuances
Settlements(g)
Liabilities:(b)






 


 








Deposits
$
2,117

$
(24
)
(c) 
$

$

$
309

 
$
(80
)
$

$
(189
)

$
2,133


$
(25
)
(c) 
Federal funds purchased and securities loaned or sold under repurchase agreements


 



 



 

 

 
Short-term borrowings
1,134

1

(c) 


707

 
(585
)
17

(13
)

1,261


2

(c) 
Trading liabilities – debt and equity instruments
43



(1
)
2


 
1

2

(2
)

45




Accounts payable and other liabilities
13






 
(2
)



11




Beneficial interests issued by consolidated VIEs
48

3

(c) 



 




51


3

(c) 
Long-term debt
12,850

529

(c)(j) 


3,792

(j) 
(2,811
)
35

(301
)

14,094

(j) 
524

(c)(j) 
(a)
All level 3 derivatives are presented on a net basis, irrespective of the underlying counterparty.
(b)
Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 14% and 15% at March 31, 2018 and December 31, 2017, respectively.

88


(c)
Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans and lending-related commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d)
Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in investment securities losses. Unrealized gains/(losses) are reported in OCI. There were no realized gains/(losses) or foreign exchange hedge accounting adjustments recorded in income on AFS securities for the three months ended March 31, 2018 and 2017, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $1 million and $10 million for the three months ended March 31, 2018 and 2017, respectively.
(e)
Changes in fair value for CCB MSRs are reported in mortgage fees and related income.
(f)
Loan originations are included in purchases.
(g)
Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidation associated with beneficial interests in VIEs and other items.
(h)
All transfers into and/or out of level 3 are based on changes in the observability of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.
(i)
Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue. Unrealized (gains)/losses are reported in OCI. Unrealized losses were $52 million for the three months ended March 31, 2018. There were no realized gains for three months ended March 31, 2018.
(j)
The prior period amounts have been revised to conform with the current period presentation.
Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 0.8% of total Firm assets at March 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, see Assets and liabilities measured at fair value on a nonrecurring basis on page 90.
Three months ended March 31, 2018
Level 3 assets were $19.5 billion at March 31, 2018, reflecting an increase of $267 million from December 31, 2017 with no movements that were individually significant.

 
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 periods indicated. For further information on these instruments, see Changes in level 3 recurring fair value measurements rollforward tables on pages 86–89.
Three months ended March 31, 2018
$1.5 billion of net gains on assets and $318 million of net gains on liabilities, none of which were individually significant.
Three months ended March 31, 2017
$331 million of net gains on assets and $509 million of net losses on liabilities, none of which were individually significant.
Credit and funding adjustments — derivatives
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.
 
Three months ended March 31, 2017
(in millions)
2018

 
2017

Credit and funding adjustments:
 
 
 
Derivatives CVA
$
84

 
$
221

Derivatives FVA
(83
)
 
(7
)
For further information about both credit and funding adjustments, as well as information about valuation adjustments on fair value option elected liabilities, see Note 2 of JPMorgan Chase’s 2017 Annual Report.

89


Assets and liabilities measured at fair value on a nonrecurring basis
The following tables present the assets still held as of the reporting date for which a nonrecurring fair value adjustment was recorded during the three months ended 2018 and 2017, respectively, by major product category and fair value hierarchy.
 
Fair value hierarchy
 
Total fair value
March 31, 2018 (in millions)
Level 1

Level 2

 
Level 3

 
Loans
$

$
690


$
165

(a) 
$
855

Other assets(b)

236

 
572

 
808

Total assets measured at fair value on a nonrecurring basis
$

$
926

 
$
737


$
1,663

 
Fair value hierarchy
 
Total fair value
March 31, 2017 (in millions)
Level 1

Level 2

 
Level 3

 
Loans
$

$
6,530

 
$
221

 
$
6,751

Other assets

4

 
243

 
247

Total assets measured at fair value on a nonrecurring basis
$

$
6,534

 
$
464

 
$
6,998

(a)
Of the $165 million in level 3 assets measured at fair value on a nonrecurring basis as of March 31, 2018, $89 million related to residential real estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans and other loans charged off in accordance with regulatory guidance). These amounts are classified as level 3 as they are valued using a broker’s price opinion and discounted based upon the Firm’s experience with actual liquidation values. These discounts to the broker price opinions ranged from 13% to 38% with a weighted average of 21%.
(b)
Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions from an identical or similar investment of the same issuer (measurement alternative) as a result of the adoption of the recognition and measurement guidance. Of the $572 million in level 3 assets measured at fair value on a nonrecurring basis as of March 31, 2018, $406 million related to such equity securities. These equity securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
There were no material liabilities measured at fair value on a nonrecurring basis at March 31, 2018 and March 31, 2017.
Nonrecurring fair value changes
The following table presents the total change in value of assets and liabilities for which a fair value adjustment has been recognized for the three months ended March 31, 2018 and 2017, related to financial instruments held at those dates.
 
Three months ended
March 31,
 
2018

 
2017

Loans
$
(15
)
 
$
(322
)
Other assets
496

(a) 
(31
)
Total nonrecurring fair value gains/(losses)
$
481

 
$
(353
)
(a)
Included $505 million of fair value gains as a result of the measurement alternative. For additional information, see Note 1.

For further information about the measurement of impaired collateral-dependent loans, and other loans where the carrying value is based on the fair value of the underlying collateral (e.g., residential mortgage loans charged off in accordance with regulatory guidance), see Note 12 of JPMorgan Chase’s 2017 Annual Report.


90


Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated balance sheets at fair value
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at March 31, 2018, and December 31, 2017, of financial assets and liabilities, excluding financial instruments that are carried at fair value on a recurring basis, and their classification within the fair value hierarchy. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value, see Note 2 of JPMorgan Chase’s 2017 Annual Report.
 
March 31, 2018
 
December 31, 2017
 
 
Estimated fair value hierarchy
 
 
 
Estimated fair value hierarchy
 
(in billions)
Carrying
value
Level 1
Level 2
Level 3
Total estimated
fair value
 
Carrying
value
Level 1
Level 2
Level 3
Total estimated
fair value
Financial assets
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
$
24.8

$
24.8

$

$

$
24.8

 
$
25.9

$
25.9

$

$

$
25.9

Deposits with banks
390.0

387.0

3.0


390.0

 
405.4

401.8

3.6


405.4

Accrued interest and accounts receivable
72.0


71.9

0.1

72.0

 
67.0


67.0


67.0

Federal funds sold and securities purchased under resale agreements
234.1


234.1


234.1

 
183.7


183.7


183.7

Securities borrowed
113.1


113.1


113.1

 
102.1


102.1


102.1

Securities, held-to-maturity
29.0


29.1


29.1

 
47.7


48.7


48.7

Loans, net of allowance for loan losses(a)
918.1


217.0

703.5

920.5

 
914.6


213.2

707.1

920.3

Other(b)
55.5


54.6

1.0

55.6

 
53.9


52.1

9.2

61.3

Financial liabilities
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
1,466.8

$

$
1,466.9

$

$
1,466.9

 
$
1,422.7

$

$
1,422.7

$

$
1,422.7

Federal funds purchased and securities loaned or sold under repurchase agreements
178.4


178.4


178.4

 
158.2


158.2


158.2

Short-term borrowings
53.9


53.6

0.2

53.8

 
42.6


42.4

0.2

42.6

Accounts payable and other liabilities
156.1


153.4

2.7

156.1

 
152.0


148.9

2.9

151.8

Beneficial interests issued by consolidated VIEs
21.6


21.6


21.6

 
26.0


26.0


26.0

Long-term debt and junior subordinated deferrable interest debentures
225.3


227.1

3.1

230.2

 
236.6


240.3

3.2

243.5

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, see Note 1.
(a)
Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm’s methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 156–159 of JPMorgan Chase’s 2017 Annual Report.
(b)
The prior period amounts have been revised to conform with the current period presentation.

The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated balance sheets. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value of these wholesale lending-related commitments were as follows for the periods indicated.
 
March 31, 2018
 
December 31, 2017
 
 
Estimated fair value hierarchy
 
 
 
Estimated fair value hierarchy
 
(in billions)
Carrying value(a)
Level 1
Level 2
Level 3
Total estimated fair value
 
Carrying value(a)
Level 1
Level 2
Level 3
Total estimated fair value
Wholesale lending-related commitments
$
1.1

$

$

$
1.5

$
1.5

 
$
1.1

$

$

$
1.6

$
1.6

(a)
Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the guarantees.

91


The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further discussion of the valuation of lending-related commitments, see page 157 of JPMorgan Chase’s 2017 Annual Report.
Equity securities without readily determinable fair values
As a result of the adoption of the recognition and measurement guidance and the election of the measurement alternative, the Firm measures equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in earnings.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed necessary to arrive at the Firm’s estimated fair values. Such adjustments may include adjustments to reflect the different rights and obligations of similar securities, and other adjustments that are consistent with the Firm’s valuation techniques for private equity direct investments.
The following table presents equity securities without readily determinable fair values that are measured under the measurement alternative and the related adjustments recorded during the period for those securities with observable price changes. These securities are included in the nonrecurring fair value tables when applicable price changes are observable.
As of or for three months ended March 31, 2018
(in millions)
Carrying value(a)
 
Upward carrying
value changes
Other assets
$1,429
 
$505
(a) The amount of downward carrying value changes and impairment was immaterial.
Included in other assets above is the Firm’s interest in approximately 40 million Visa Class B shares, recorded at a nominal carrying value. These shares are subject to certain transfer restrictions currently and will be converted into Visa Class A shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B shares into Visa Class A shares is 1.6483 at March 31, 2018, and may be adjusted by Visa depending on developments related to the litigation matters.


92


Note 3 – Fair value option
For a discussion of the primary financial instruments for which the fair value option was elected, including the basis for those elections and the determination of instrument-specific credit risk, where relevant, see Note 3 of JPMorgan Chase’s 2017 Annual Report.
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the three months ended March 31, 2018 and 2017, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.
 
Three months ended March 31,

2018
 
2017
(in millions)
Principal transactions

All other income
Total changes in fair
value recorded
(e)
 
Principal transactions
 
All other income
Total changes in fair value recorded (e)
Federal funds sold and securities purchased under resale agreements
$
7


$


$
7


 
$
(21
)
 
$

 
$
(21
)
Securities borrowed
(27
)



(27
)

 
77

 

 
77

Trading assets:
 

 




 
 
 
 
 
 
Debt and equity instruments, excluding loans
(186
)



(186
)

 
361

 

 
361

Loans reported as trading assets:
 

 




 
 
 
 
 
 
Changes in instrument-specific credit risk
122


5

(c) 
127


 
174

 
6

(c) 
180

Other changes in fair value
41


(90
)
(c) 
(49
)

 
34

 
123

(c) 
157

Loans:
 

 




 
 
 
 
 
 
Changes in instrument-specific credit risk






 
(1
)
 

 
(1
)
Other changes in fair value
(1
)



(1
)

 

 

 

Other assets
2


(7
)
(d) 
(5
)

 
4

 
(6
)
(d) 
(2
)
Deposits(a)
210




210


 
(159
)
 

 
(159
)
Federal funds purchased and securities loaned or sold under repurchase agreements
10




10


 
5

 

 
5

Short-term borrowings(a)
273




273


 
(474
)
 

 
(474
)
Trading liabilities
(7
)



(7
)

 
(1
)
 

 
(1
)
Beneficial interests issued by consolidated VIEs






 

 

 

Long-term debt(a)(b)
1,031




1,031


 
(753
)
 

 
(753
)
(a)
Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in OCI, while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded in principal transaction revenue were not material for the three months ended March 31, 2018 and 2017, respectively.
(b)
Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk.
(c)
Reported in mortgage fees and related income.
(d)
Reported in other income.
(e)
Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than hybrid financial instruments.  For further information regarding interest income and interest expense, see Note 6.


93


Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of March 31, 2018, and December 31, 2017, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.
 
March 31, 2018
 
December 31, 2017
(in millions)
Contractual principal outstanding

Fair value
Fair value over/(under) contractual principal outstanding
 
Contractual principal outstanding
 
Fair value
Fair value over/(under) contractual principal outstanding
Loans(a)







 
 
 
 
 
Nonaccrual loans







 
 
 
 
 
Loans reported as trading assets
$
4,368


$
1,585

$
(2,783
)
 
$
4,219

 
$
1,371

$
(2,848
)
Loans




 
39

 

(39
)
Subtotal
4,368


1,585

(2,783
)
 
4,258

 
1,371

(2,887
)
All other performing loans







 
 
 
 
 
Loans reported as trading assets
41,599


39,691

(1,908
)
 
38,157

 
36,590

(1,567
)
Loans
2,995


2,908

(87
)
 
2,539

 
2,508

(31
)
Total loans
$
48,962


$
44,184

$
(4,778
)
 
$
44,954

 
$
40,469

$
(4,485
)
Long-term debt







 
 
 
 
 
Principal-protected debt
$
28,378

(c) 
$
24,923

$
(3,455
)
 
$
26,297

(c) 
$
23,848

$
(2,449
)
Nonprincipal-protected debt(b)
NA


24,229

NA

 
NA

 
23,671

NA

Total long-term debt
NA


$
49,152

NA

 
NA

 
$
47,519

NA

Long-term beneficial interests
 
 
 


 
 
 
 
 
Nonprincipal-protected debt
NA


$
7

NA

 
NA

 
$
45

NA

Total long-term beneficial interests
NA


$
7

NA

 
NA

 
$
45

NA

(a)
There were no performing loans that were ninety days or more past due as of March 31, 2018, and December 31, 2017, respectively.
(b)
Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
(c)
Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if applicable, the contractual principal payment at the Firm’s next call date.
At March 31, 2018, and December 31, 2017, the contractual amount of lending-related commitments for which the fair value option was elected was $9.8 billion and $7.4 billion, respectively, with a corresponding fair value of $(584) million and $(76) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 27 of JPMorgan Chase’s 2017 Annual Report, and Note 20 of this Form 10-Q.
Structured note products by balance sheet classification and risk component
The following table presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the primary risk type.

March 31, 2018

December 31, 2017
(in millions)
Long-term debt
Short-term borrowings
Deposits
Total

Long-term debt
Short-term borrowings
Deposits
Total
Risk exposure

















Interest rate
$
22,793

$
149

$
7,961

$
30,903


$
22,056

$
69

$
8,058

$
30,183

Credit
4,811

1,503


6,314


4,329

1,312


5,641

Foreign exchange
2,790

122

39

2,951


2,841

147

38

3,026

Equity
18,147

6,797

6,470

31,414


17,581

7,106

6,548

31,235

Commodity
215

14

3,530

3,759


230

15

4,468

4,713

Total structured notes
$
48,756

$
8,585

$
18,000

$
75,341


$
47,037

$
8,649

$
19,112

$
74,798




94


Note 4 – Derivative instruments
JPMorgan Chase makes markets in derivatives for clients and also uses derivatives to hedge or manage its own risk exposures. For a further discussion of the Firm’s use of and accounting policies regarding derivative instruments, see Note 5 of JPMorgan Chase’s 2017 Annual Report.
The Firm’s disclosures are based on the accounting treatment and purpose of these derivatives. A limited number of the Firm’s derivatives are designated in hedge accounting relationships and are disclosed according to the type of hedge (fair value hedge, cash flow hedge, or net investment hedge). Derivatives not designated in hedge accounting relationships include certain derivatives that are used to manage certain risks associated with specified assets or liabilities (“specified risk management” positions) as well as derivatives used in the Firm’s market-making businesses or for other purposes.
Derivatives designated as hedges
The adoption of the new hedge accounting guidance better aligns hedge accounting with the economics of the Firm’s risk management activities. For additional information, see Notes 1 and 17.
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.
For qualifying fair value hedges, 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 through an amortization approach 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.
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.
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.


95


The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category.
Type of Derivative
Use of Derivative
Designation and disclosure
Affected
segment or unit
10-Q page reference
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
 
 
 
◦ Interest rate
Hedge fixed rate assets and liabilities
Fair value hedge
Corporate
102
◦ Interest rate
Hedge floating-rate assets and liabilities
Cash flow hedge
Corporate
103
 Foreign exchange
Hedge foreign currency-denominated assets and liabilities
Fair value hedge
Corporate
102
 Foreign exchange
Hedge foreign currency-denominated forecasted revenue and expense
Cash flow hedge
Corporate
103
 Foreign exchange
Hedge the value of the Firm’s investments in non-U.S. dollar functional currency entities
Net investment hedge
Corporate
104
 Commodity
Hedge commodity inventory
Fair value hedge
CIB
102
Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships:
 
 
 
 Interest rate
Manage the risk of the mortgage pipeline, warehouse loans and MSRs
Specified risk management
CCB
104
 Credit
Manage the credit risk of wholesale lending exposures
Specified risk management
CIB
104
 Interest rate and foreign exchange
Manage the risk of certain other specified assets and liabilities
Specified risk management
Corporate
104
Market-making derivatives and other activities:
 
 
 
 Various
Market-making and related risk management
Market-making and other
CIB
104
 Various
Other derivatives
Market-making and other
CIB, Corporate
104

96


Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of March 31, 2018, and December 31, 2017.
 
Notional amounts(b)
(in billions)
March 31, 2018

December 31, 2017

Interest rate contracts
 
 
Swaps
$
23,090

$
21,043

Futures and forwards
7,216

4,904

Written options
4,058

3,576

Purchased options
4,380

3,987

Total interest rate contracts
38,744

33,510

Credit derivatives(a)
1,605

1,522

Foreign exchange contracts
 
 
Cross-currency swaps
4,195

3,953

Spot, futures and forwards
7,016

5,923

Written options
873

786

Purchased options
878

776

Total foreign exchange contracts
12,962

11,438

Equity contracts
 
 
Swaps
377

367

Futures and forwards
97

90

Written options
594

531

Purchased options
516

453

Total equity contracts
1,584

1,441

Commodity contracts
 
 
Swaps
130

116

Spot, futures and forwards
179

168

Written options
112

98

Purchased options
102

93

Total commodity contracts
523

475

Total derivative notional amounts
$
55,418

$
48,386

(a)
For more information on volumes and types of credit derivative contracts, see the Credit derivatives discussion on page 105.
(b)
Represents the sum of gross long and gross short third-party notional derivative contracts.
While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative transactions, the notional amount is not exchanged; it is used simply as a reference to calculate payments.

97


Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated balance sheets as of March 31, 2018, and December 31, 2017, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables(a)
 
 
 
 
 
 
 
 
 
 
Gross derivative receivables
 
 
 
Gross derivative payables
 
 
March 31, 2018
(in millions)
Not designated as hedges
 
Designated as hedges
Total derivative receivables
 
Net derivative receivables(b)
 
Not designated as hedges
 
Designated
as hedges
Total derivative payables
 
Net derivative payables(b)
Trading assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
$
301,480

 
$
2,391

$
303,871

 
$
23,778

 
$
271,093

 
$
2,770

$
273,863

 
$
7,170

Credit
23,727

 

23,727

 
1,062

 
23,697

 

23,697

 
1,713

Foreign exchange
165,482

 
453

165,935

 
16,603

 
152,846

 
963

153,809

 
10,797

Equity
43,989

 

43,989

 
8,803

 
48,239

 

48,239

 
10,325

Commodity
16,927

 
193

17,120

 
6,668

 
18,144

 
82

18,226

 
6,944

Total fair value of trading assets and liabilities
$
551,605

 
$
3,037

$
554,642

 
$
56,914

 
$
514,019

 
$
3,815

$
517,834

 
$
36,949

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross derivative receivables
 
 
 
Gross derivative payables
 
 
December 31, 2017
(in millions)
Not designated as hedges
 
Designated as hedges
Total derivative receivables
 
Net derivative receivables(b)
 
Not designated as hedges
 
Designated
as hedges
Total derivative payables
 
Net derivative payables(b)
Trading assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
$
313,276

 
$
2,716

$
315,992

 
$
24,673

 
$
283,092

 
$
1,344

$
284,436

 
$
7,129

Credit
23,205

 

23,205

 
869

 
23,252

 

23,252

 
1,299

Foreign exchange
159,740

 
491

160,231

 
16,151

 
154,601

 
1,221

155,822

 
12,473

Equity
40,040

 

40,040

 
7,882

 
45,395

 

45,395

 
9,192

Commodity
20,066

 
19

20,085

 
6,948

 
21,498

 
403

21,901

 
7,684

Total fair value of trading assets and liabilities
$
556,327

 
$
3,226

$
559,553

 
$
56,523

 
$
527,838

 
$
2,968

$
530,806

 
$
37,777

(a)
Balances exclude structured notes for which the fair value option has been elected. See Note 3 for further information.
(b)
As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists.


98


Derivatives netting
The following tables present, as of March 31, 2018, and December 31, 2017, gross and net derivative receivables and payables by contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same counterparty have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately in the tables below.
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate counterparty credit risk associated with the Firm’s derivative instruments, but are not eligible for net presentation:
collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7 government securities) and cash collateral held at third party custodians, which are shown separately as “Collateral not nettable on the Consolidated balance sheets” in the tables below, up to the fair value exposure amount.
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of the date presented, which is excluded from the tables below; and
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
 
March 31, 2018
 
December 31, 2017
(in millions)
Gross derivative receivables
Amounts netted on the Consolidated balance sheets
Net derivative receivables
 
Gross derivative receivables
 
Amounts netted
on the Consolidated balance sheets
Net derivative receivables
U.S. GAAP nettable derivative receivables
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
Over-the-counter (“OTC”)
$
291,712

$
(272,007
)
 
$
19,705

 
$
305,569

 
$
(284,917
)
 
$
20,652

OTC–cleared
8,080

(7,930
)
 
150

 
6,531

 
(6,318
)
 
213

Exchange-traded(a)
321

(157
)
 
164

 
185

 
(84
)
 
101

Total interest rate contracts
300,113

(280,094
)
 
20,019

 
312,285

 
(291,319
)
 
20,966

Credit contracts:
 
 
 
 
 
 
 
 
 
 
OTC
14,755

(14,520
)
 
235

 
15,390

 
(15,165
)
 
225

OTC–cleared
8,366

(8,145
)
 
221

 
7,225

 
(7,170
)
 
55

Total credit contracts
23,121

(22,665
)
 
456

 
22,615

 
(22,335
)
 
280

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
OTC
161,340

(148,205
)
 
13,135

 
155,289

 
(142,420
)
 
12,869

OTC–cleared
1,104

(1,097
)
 
7

 
1,696

 
(1,654
)
 
42

Exchange-traded(a)
131

(30
)
 
101

 
141

 
(7
)
 
134

Total foreign exchange contracts
162,575

(149,332
)
 
13,243

 
157,126

 
(144,081
)
 
13,045

Equity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
23,957

(21,172
)
 
2,785

 
22,024

 
(19,917
)
 
2,107

Exchange-traded(a)
16,443

(14,013
)
 
2,430

 
14,188

 
(12,241
)
 
1,947

Total equity contracts
40,400

(35,185
)
 
5,215

 
36,212

 
(32,158
)
 
4,054

Commodity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
9,701

(3,686
)
 
6,015

 
10,903

 
(4,436
)
 
6,467

Exchange-traded(a)
7,063

(6,766
)
 
297

 
8,854

 
(8,701
)
 
153

Total commodity contracts
16,764

(10,452
)
 
6,312

 
19,757

 
(13,137
)
 
6,620

Derivative receivables with appropriate legal opinion
542,973

(497,728
)
(b) 
45,245

 
547,995

 
(503,030
)
(b) 
44,965

Derivative receivables where an appropriate legal opinion has not been either sought or obtained
11,669

 
 
11,669

 
11,558

 
 
 
11,558

Total derivative receivables recognized on the Consolidated balance sheets
$
554,642

 
 
$
56,914

 
$
559,553

 
 
 
$
56,523

Collateral not nettable on the Consolidated balance sheets(c)(d)
 
 
 
(13,101
)
 
 
 
 
 
(13,363
)
Net amounts
 
 
 
$
43,813

 
 
 
 
 
$
43,160


99


 
March 31, 2018
 
December 31, 2017
(in millions)
Gross derivative payables
Amounts netted on the Consolidated balance sheets
Net derivative payables
 
Gross derivative payables
 
Amounts netted
on the Consolidated balance sheets
Net derivative payables
U.S. GAAP nettable derivative payables
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
OTC
$
264,684

$
(259,233
)
 
$
5,451

 
$
276,960

 
$
(271,294
)
 
$
5,666

OTC–cleared
7,315

(7,305
)
 
10

 
6,004

 
(5,928
)
 
76

Exchange-traded(a)
186

(156
)
 
30

 
127

 
(84
)
 
43

Total interest rate contracts
272,185

(266,694
)
 
5,491

 
283,091

 
(277,306
)
 
5,785

Credit contracts:
 
 
 
 
 
 
 
 
 
 
OTC
15,423

(14,247
)
 
1,176

 
16,194

 
(15,170
)
 
1,024

OTC–cleared
7,797

(7,736
)
 
61

 
6,801

 
(6,784
)
 
17

Total credit contracts
23,220

(21,983
)
 
1,237

 
22,995

 
(21,954
)
 
1,041

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
OTC
149,559

(142,008
)
 
7,551

 
150,966

 
(141,789
)
 
9,177

OTC–cleared
1,005

(997
)
 
8

 
1,555

 
(1,553
)
 
2

Exchange-traded(a)
115

(6
)
 
109

 
98

 
(7
)
 
91

Total foreign exchange contracts
150,679

(143,011
)
 
7,668

 
152,619

 
(143,349
)
 
9,270

Equity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
28,082

(23,802
)
 
4,280

 
28,193

 
(23,969
)
 
4,224

Exchange-traded(a)
14,693

(14,111
)
 
582

 
12,720

 
(12,234
)
 
486

Total equity contracts
42,775

(37,913
)
 
4,862

 
40,913

 
(36,203
)
 
4,710

Commodity contracts:
 
 
 
 
 
 
 
 
 
 
OTC
10,661

(4,592
)
 
6,069

 
12,645

 
(5,508
)
 
7,137

Exchange-traded(a)
6,796

(6,692
)
 
104

 
8,870

 
(8,709
)
 
161

Total commodity contracts
17,457

(11,284
)
 
6,173

 
21,515

 
(14,217
)
 
7,298

Derivative payables with appropriate legal opinion
506,316

(480,885
)
(b) 
25,431

 
521,133

 
(493,029
)
(b) 
28,104

Derivative payables where an appropriate legal opinion has not been either sought or obtained
11,518

 
 
11,518

 
9,673

 
 
 
9,673

Total derivative payables recognized on the Consolidated balance sheets
$
517,834

 
 
$
36,949

 
$
530,806

 
 
 
$
37,777

Collateral not nettable on the Consolidated balance sheets(c)(d)
 
 
 
(3,711
)
 
 
 
 
 
(4,180
)
Net amounts
 
 
 
$
33,238

 
 
 
 
 
$
33,597

(a)
Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b)
Net derivatives receivable included cash collateral netted of $61.9 billion and $55.5 billion at March 31, 2018, and December 31, 2017, respectively. Net derivatives payable included cash collateral netted of $45.1 billion and $45.5 billion related to OTC and OTC-cleared derivatives at March 31, 2018, and December 31, 2017, respectively.
(c)
Represents liquid security collateral as well as cash collateral held at third party custodians related to derivative instruments where an appropriate legal opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that counterparty.
(d)
Derivative collateral relates only to OTC and OTC-cleared derivative instruments.


100


Liquidity risk and credit-related contingent features
For a more detailed discussion of liquidity risk and credit-related contingent features related to the Firm’s derivative contracts, see Note 5 of JPMorgan Chase’s 2017 Annual Report.
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 March 31, 2018, and December 31, 2017.
 
OTC and OTC-cleared derivative payables containing downgrade triggers
(in millions)
March 31, 2018

December 31, 2017

Aggregate fair value of net derivative payables
$
11,022

$
11,916

Collateral posted
9,836

9,973





The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”),
at March 31, 2018, and December 31, 2017, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral, (except in certain instances in which additional initial margin may be required upon a ratings downgrade), nor in termination payments requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
 
 
 
 
 
March 31, 2018
 
December 31, 2017
(in millions)
Single-notch downgrade
Two-notch downgrade
 
Single-notch downgrade
Two-notch downgrade
Amount of additional collateral to be posted upon downgrade(a)
$
80

$
1,929

 
$
79

$
1,989

Amount required to settle contracts with termination triggers upon downgrade(b)
344

679

 
320

650

(a)
Includes the additional collateral to be posted for initial margin.
(b)
Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The Firm generally accounts for such transfers as collateralized financing transactions as described in Note 10, but in limited circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers accounted for as a sale where the associated derivative was outstanding at March 31, 2018 was not material, and there were no such transfers at December 31, 2017.


101


Impact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the three months ended March 31, 2018 and 2017, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the Consolidated statements of income as the related hedged item.
 
Gains/(losses) recorded in income
 
Income statement impact of
excluded components
(f)
 
OCI impact
Three months ended March 31, 2018
(in millions)
Derivatives
Hedged items
Income statement impact
 
Amortization approach
Changes in fair value
 
Derivatives - Gains/(losses) recorded in OCI(g)
Contract type
 
 
 
 
 
 
 
 
Interest rate(a)(b)
$
(1,477
)
$
1,629

$
152

 
$

$
147

 
$

Foreign exchange(c)
144

(33
)
111

 
(122
)
111

 
(52
)
Commodity(d)
184

(147
)
37

 

18

 

Total
$
(1,149
)
$
1,449

$
300

 
$
(122
)
$
276

 
$
(52
)
 
Gains/(losses) recorded in income
 
Income statement impact due to:
 
 
Three months ended March 31, 2017
(in millions)
Derivatives
Hedged items
Income statement impact
 
Hedge ineffectiveness(e)
Excluded components(f)
 
 
Contract type
 
 
 
 
 
 
 
 
Interest rate(a)(b)
$
(281
)
$
531

$
250

 
$
(1
)
$
251

 
 
Foreign exchange(c)
(775
)
740

(35
)
 

(35
)
 
 
Commodity(d)
(463
)
464

1

 
16

(15
)
 
 
Total
$
(1,519
)
$
1,735

$
216

 
$
15

$
201

 
 
(a)
Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income.
(b)
Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net interest income and substantially offsets the income statement impact of the excluded components. Also excludes the accrual of interest on interest rate swaps and the related hedged items.
(c)
Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components were recorded primarily in principal transactions revenue and net interest income.
(d)
Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(e)
Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk.
(f)
The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward points on foreign exchange forward contracts, time values and cross-currency basis spreads. Under the new hedge accounting guidance, the initial amount of the excluded components may be amortized into income over the life of the derivative, or changes in fair value may be recognized in current period earnings.
(g)
Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-currency basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.

As of March 31, 2018, the following amounts were recorded on the Consolidated balance sheets related to certain cumulative fair value hedge basis adjustments that are expected to impact the income statement in future periods (e.g., as adjustments to yield or to securities gains/losses).
 
 
Carrying amount of the hedged items(a)(b)
 
Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged items:

March 31, 2018
(in millions)
 
 
Active hedging relationships
Discontinued hedging relationships(d)
Total
Assets
 
 
 
 
 
 
Available-for-sale debt securities

 
47,977

(c) 
(1,557
)
555

(1,002
)
Liabilities
 
 
 
 
 
 
Long-term debt
 
131,268

 
(851
)
85

(766
)
Beneficial interests issued by consolidated VIEs
 
8,752

 
(2
)
(61
)
(63
)
(a)
Excludes physical commodities with a carrying value of $5.2 billion to which the Firm applies fair value hedge accounting. As a result of the application of hedge accounting, these inventories are carried at fair value, thus recognizing unrealized gains and losses in current periods. Given the Firm exits these positions at fair value, there is no incremental impact to net income in future periods.
(b)
Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges generally will not impact the income statement in future periods. The carrying amount excluded for available-for-sale debt securities is $15.8 billion and for long-term debt is $5.5 billion.
(c)
Carrying amount represents the amortized cost.
(d)
Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet date.

102


Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pre-tax gains/(losses) recorded on such derivatives, for the three months ended March 31, 2018 and 2017, respectively. The Firm includes the gain/(loss) on the hedging derivative in the same line item in the Consolidated statements of income as the change in cash flows on the related hedged item.
 
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Three months ended March 31, 2018
(in millions)
Amounts reclassified from AOCI to income
Amounts recorded in OCI
Total change
in OCI
for period
Contract type
 
 
 
Interest rate(a)
$
13

$
(78
)
$
(91
)
Foreign exchange(b)
39

34

(5
)
Total
$
52

$
(44
)
$
(96
)
 
 
 
 
 
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Three months ended March 31, 2017
(in millions)
Amounts reclassified from AOCI to income
Amounts recorded in OCI(c)
Total change
in OCI
for period
Contract type
 
 
 
Interest rate(a)
$
(11
)
$
11

$
22

Foreign exchange(b)
(74
)
48

122

Total
$
(85
)
$
59

$
144

(a)
Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income.
(b)
Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily noninterest revenue and compensation expense.
(c)
Represents the effective portion of changes in value of the related hedging derivative. Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk. The Firm did not recognize any ineffectiveness on cash flow hedges during the three months ended March 31, 2017.
The Firm did not experience any forecasted transactions that failed to occur for the three months ended March 31, 2018 and 2017.
Over the next 12 months, the Firm expects that approximately $88 million (after-tax) of net gains recorded in AOCI at March 31, 2018, related to cash flow hedges will be recognized in income. For terminated cash flow hedges, the maximum length of time over which forecasted transactions are remaining is approximately five years.
 
For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm’s longer-dated forecasted transactions relate to core lending and borrowing activities.

103


Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the pre-tax gains/(losses) recorded on such instruments for the three months ended March 31, 2018 and 2017.
 
2018
 
2017
Three months ended March 31, (in millions)
Amounts recorded in income(a)
Amounts recorded in OCI
 
Amounts recorded in income(a)
Amounts recorded in OCI(b)
Foreign exchange derivatives
 
$
(11
)
 
$
(389
)
 
 
$
(62
)
 
$
(556
)
(a)
Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. The Firm elects to record changes in fair value of these amounts directly in other income.
(b)
Represents the effective portion of changes in value of the related hedging derivative. The Firm did not recognize any ineffectiveness on net investment hedges directly in income during the three months ended March 31, 2017.
Gains and losses on derivatives used for specified risk management purposes
The following table presents pre-tax gains/(losses) recorded on a limited number of derivatives, not designated in hedge accounting relationships, that are used to manage risks associated with certain specified assets and liabilities, including certain risks arising from the mortgage pipeline, warehouse loans, MSRs, wholesale lending exposures, and foreign currency-denominated assets and liabilities.
 
Derivatives gains/(losses)
recorded in income
 
Three months ended March 31,
(in millions)
2018
2017
Contract type
 
 
Interest rate(a)
$
(210
)
$
(17
)
Credit(b)
(7
)
(45
)
Foreign exchange(c)
(30
)
(20
)
Total
$
(247
)
$
(82
)
(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.
 
Gains and losses on derivatives related to market-making activities and other derivatives
The Firm makes markets in derivatives in order to meet the needs of customers and uses derivatives to manage certain risks associated with net open risk positions from its market-making activities, including the counterparty credit risk arising from derivative receivables. All derivatives not included in the hedge accounting or specified risk management categories above are included in this category. Gains and losses on these derivatives are primarily recorded in principal transactions revenue. See Note 5 for information on principal transactions revenue.

104


Credit derivatives
For a more detailed discussion of credit derivatives, see Note 5 of JPMorgan Chase’s 2017 Annual Report. The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives, because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives.
Total credit derivatives and credit-related notes
 
Maximum payout/Notional amount
March 31, 2018 (in millions)
Protection sold
Protection
purchased with
identical underlyings(b)
Net protection (sold)/purchased(c)
 
Other protection purchased(d)
Credit derivatives
 
 
 
 
 
 
Credit default swaps
$
(731,898
)
 
$
739,263

$
7,365

 
$
6,024

Other credit derivatives(a)
(58,210
)
 
58,466

256

 
11,409

Total credit derivatives
(790,108
)
 
797,729

7,621

 
17,433

Credit-related notes
(18
)
 

(18
)
 
9,098

Total
$
(790,126
)
 
$
797,729

$
7,603

 
$
26,531

 
 
 
 
 
 
 
 
Maximum payout/Notional amount
December 31, 2017 (in millions)
Protection sold
Protection
purchased with
identical underlyings(b)
Net protection (sold)/purchased(c)
 
Other protection purchased(d)
Credit derivatives
 
 
 
 
 
 
Credit default swaps
$
(690,224
)
 
$
702,098

$
11,874

 
$
5,045

Other credit derivatives(a)
(54,157
)
 
59,158

5,001

 
11,747

Total credit derivatives
(744,381
)
 
761,256

16,875

 
16,792

Credit-related notes
(18
)
 

(18
)
 
7,915

Total
$
(744,399
)
 
$
761,256

$
16,857

 
$
24,707

(a)
Other credit derivatives largely consists of credit swap options.
(b)
Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(c)
Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value.
(d)
Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference instrument.
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives and credit-related notes as of March 31, 2018, and December 31, 2017, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold — credit derivatives and credit-related notes ratings(a)/maturity profile
 
 
 
March 31, 2018
(in millions)
<1 year
 
1–5 years
 
>5 years
 
Total
notional amount
 
Fair value of receivables(b)
 
Fair value of payables(b)
 
Net fair value
Risk rating of reference entity
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment-grade
$
(160,144
)
 
$
(305,679
)
 
$
(71,789
)
 
$
(537,612
)
 
$
8,231

 
$
(1,022
)
 
$
7,209

Noninvestment-grade
(75,170
)
 
(142,517
)
 
(34,827
)
 
(252,514
)
 
8,160

 
(5,384
)
 
2,776

Total
$
(235,314
)
 
$
(448,196
)
 
$
(106,616
)
 
$
(790,126
)
 
$
16,391

 
$
(6,406
)
 
$
9,985

December 31, 2017
(in millions)
<1 year
 
1–5 years
 
>5 years
 
Total
notional amount
 
Fair value of receivables(b)
 
Fair value of payables(b)
 
Net fair value
Risk rating of reference entity
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment-grade
$
(159,286
)
 
$
(319,726
)
 
$
(39,429
)
 
$
(518,441
)
 
$
8,516

 
$
(1,134
)
 
$
7,382

Noninvestment-grade
(73,394
)
 
(134,125
)
 
(18,439
)
 
(225,958
)
 
7,407

 
(5,313
)
 
2,094

Total
$
(232,680
)
 
$
(453,851
)
 
$
(57,868
)
 
$
(744,399
)
 
$
15,923

 
$
(6,447
)
 
$
9,476

(a)
The ratings scale is primarily based on external credit ratings defined by S&P and Moody’s.
(b)
Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.

105


Note 5 – Noninterest revenue and noninterest
expense
Noninterest revenue
For a discussion of the components of and accounting policies for the Firm’s noninterest revenue, see Note 6 of JPMorgan Chase’s 2017 Annual Report.
The adoption of the revenue recognition guidance requires 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. For additional information, see Note 1.
Investment banking fees
The following table presents the components of investment banking fees.

Three months ended March 31,
(in millions)
2018

 
2017

Underwriting



Equity
$
352


$
424

Debt
796


960

Total underwriting
1,148


1,384

Advisory
588


496

Total investment banking fees
$
1,736


$
1,880

Principal transactions
The following table presents all realized and unrealized gains and losses recorded in principal transactions revenue. This table excludes interest income and interest expense on trading assets and liabilities, which are an integral part of the overall performance of the Firm’s client-driven market-making activities. See Note 6 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.
 
Three months ended March 31,
(in millions)
2018

 
2017

Trading revenue by instrument type
 
 
 
Interest rate
$
774

 
$
795

Credit
380

 
680

Foreign exchange
1,024

 
781

Equity
1,627

 
1,120

Commodity
277

 
185

Total trading revenue
4,082

 
3,561

Private equity gains/(losses)
(130
)
 
21

Principal transactions
$
3,952

 
$
3,582

 
Lending- and deposit-related fees
The following table presents the components of lending- and deposit-related fees.
 
Three months ended March 31,
(in millions)
2018

 
2017

Lending-related fees
$
274

 
$
275

Deposit-related fees
1,203

 
1,173

Total lending- and deposit-related fees
$
1,477

 
$
1,448

Asset management, administration and commissions
The following table presents the components of Firmwide asset management, administration and commissions.
 
Three months ended March 31,
(in millions)
2018

 
2017

Asset management fees
 
 
 
Investment management fees(a)
$
2,694

 
$
2,416

All other asset management fees(b)
66

 
79

Total asset management fees
2,760

 
2,495

 
 
 
 
Total administration fees(c)
561

 
482

 
 
 
 
Commission and other fees
 
 
 
Brokerage commissions
652

 
578

All other commissions and fees
336

 
322

Total commissions and fees
988

 
900

Total asset management, administration and commissions(a)
$
4,309

 
$
3,877

(a)
Represents fees earned from managing assets on behalf of the Firm’s clients, including investors in Firm-sponsored funds and owners of separately managed investment accounts.
(b)
Represents fees for services that are ancillary to investment management services, such as commissions earned on the sales or distribution of mutual funds to clients.
(c)
Predominantly includes fees for custody, securities lending, funds services and securities clearance.

106


Card income
The following table presents the components of card income:
 
Three months ended March 31,
(in millions)
2018

 
2017

Interchange and merchant processing income
$
4,359

 
$
3,906

Reward costs and partner payments
(2,884
)
 
(2,525
)
Other card income(a)
(200
)
 
(467
)
Total card income
$
1,275

 
$
914

(a)
Predominantly represents annual and other lending fees and costs (including new account origination costs), which are deferred and recognized on a straight-line basis over a 12-month period.
Other income    
Other income on the Firm’s Consolidated statements of income included the following:
 
Three months ended March 31,
(in millions)
2018

 
2017

Operating lease income
$
1,047

 
$
824

Noninterest expense
Other expense
Other expense on the Firm’s Consolidated statements of income included the following:
 
Three months ended March 31,
(in millions)
2018

 
2017

Legal expense
$
70

 
$
218

FDIC-related expense
383

 
381


 
Note 6 – Interest income and Interest expense
For a description of JPMorgan Chase’s accounting policies regarding interest income and interest expense, see Note 7 of JPMorgan Chase’s 2017 Annual Report.
The following table presents the components of interest income and interest expense.

Three months ended
March 31,
(in millions)
2018


2017

Interest income





Loans(a)
$
11,074


$
9,751

Taxable securities
1,313


1,430

Non-taxable securities(b)
410


458

Total investment securities(a)
1,723


1,888

Trading assets
2,103


1,858

Federal funds sold and securities purchased under resale agreements
731


526

Securities borrowed(c) 
62


(44
)
Deposits with banks
1,321


725

All other interest-earning assets(d)
681


338

Total interest income
17,695


15,042

Interest expense





Interest-bearing deposits
1,060


483

Federal funds purchased and securities loaned or sold under repurchase agreements
578


293

Short-term borrowings(e)
209


73

Trading liabilities – debt and all other interest-bearing liabilities(f)
660


405

Long-term debt
1,753

 
1,589

Beneficial interest issued by consolidated VIEs
123


135

Total interest expense
4,383


2,978

Net interest income
13,312


12,064

Provision for credit losses
1,165


1,315

Net interest income after provision for credit losses
$
12,147


$
10,749

(a)
Includes the amortization/accretion of unearned income (e.g., purchase premiums/discounts, net deferred fees/costs, etc.).
(b)
Represents securities which 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 included in other assets on the Consolidated balance sheets.
(e)
Includes commercial paper.
(f)
Other interest-bearing liabilities include brokerage customer payables.


107


Note 7 – Pension and other postretirement employee benefit plans
For a discussion of JPMorgan Chase’s pension and OPEB plans, see Note 8 of JPMorgan Chase’s 2017 Annual Report.
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans.
 
 Defined benefit pension plans
 
OPEB plans
 
Three months ended March 31, (in millions)
2018

2017

2018

2017

Components of net periodic benefit cost
 
 
 
 
 
Benefits earned during the period
$
90

$
82

 
$

$

Interest cost on benefit obligations
139

149

 
6

7

Expected return on plan assets
(248
)
(241
)
 
(26
)
(24
)
Amortization:
 
 
 
 
 
Net (gain)/loss
26

62

 


Prior service cost/(credit)
(6
)
(9
)
 


Settlement

(3
)
 


Net periodic defined benefit cost(a)
1

40

 
(20
)
(17
)
Other defined benefit pension plans(b)
6

4

 
NA

NA

Total defined benefit plans
7

44

 
(20
)
(17
)
Total defined contribution plans
210

186

 
NA

NA

Total pension and OPEB cost included in noninterest expense
$
217

$
230

 
$
(20
)
$
(17
)
(a)
Effective January 1, 2018, benefits earned during the period are reported in compensation expense; all other components of net periodic defined benefit costs are reported within other expense in the Consolidated statements of income. For additional information, see Note 1.
(b)
Includes various defined benefit pension plans which are individually immaterial.
The following table presents the fair values of plan assets for the U.S. defined benefit pension and OPEB plans and for the material non-U.S. defined benefit pension plans:
(in billions)
March 31, 2018

 
December 31, 2017

Fair value of plan assets
 
 
 
Defined benefit pension plans
$
19.5

 
$
19.6

OPEB plans
2.7

 
2.8

There are no expected contributions to the U.S. defined benefit pension plan for 2018.

108


Note 8 – Employee share-based incentives
For a discussion of the accounting policies and other information relating to employee share-based incentives, see Note 9 of JPMorgan Chase’s 2017 Annual Report.
The Firm recognized the following noncash compensation expense related to its various employee share-based incentive plans in its Consolidated statements of income.
 
Three months ended
March 31,
(in millions)
2018

 
2017

Cost of prior grants of RSUs, stock appreciation rights (“SARs”) and performance share units (“PSUs”) that are amortized over their applicable vesting periods
$
398

 
$
310

Accrual of estimated costs of share-based awards to be granted in future periods including those to full-career eligible employees
308

 
291

Total noncash compensation expense related to employee share-based incentive plans
$
706

 
$
601

In the first quarter of 2018, in connection with its annual incentive grant for the 2017 performance year, the Firm granted 17 million RSUs and 516 thousand PSUs with weighted-average grant date fair value of $111.17 per RSU and $110.46 per PSU.

109


Note 9 – Investment securities
Investment securities consist of debt securities that are classified as AFS or HTM. Debt securities classified as trading assets are discussed in Note 2. Predominantly all of the Firm’s AFS and HTM securities are held by Treasury and CIO in connection with its asset-liability management activities. At March 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). For additional information regarding the investment securities portfolio, see Note 10 of JPMorgan Chase’s 2017 Annual Report.
As a result of the adoption of the premium amortization accounting guidance, 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, see Notes 1 and 17.
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 $22.4 billion from HTM to AFS. The transfer of these investment securities resulted in the recognition of a net pre-tax unrealized
gain of $221 million within AOCI. This transfer was a non-cash transaction. For additional information, see Notes 1 and 17.
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
 
March 31, 2018
 
December 31, 2017
(in millions)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
 
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Available-for-sale debt securities
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. government agencies(a) 
$
67,614

$
633

$
1,038

 
$
67,209

 
$
69,879

$
736

$
335

 
$
70,280

Residential:
 
 
 
 
 
 
 
 
 
 
 
U.S.
7,659

166

26

 
7,799

 
8,193

185

14

 
8,364

Non-U.S.
2,686

118


 
2,804

 
2,882

122

1

 
3,003

Commercial
9,262

84

206

 
9,140

 
4,932

98

5

 
5,025

Total mortgage-backed securities
87,221

1,001

1,270

 
86,952

 
85,886

1,141

355

 
86,672

U.S. Treasury and government agencies
25,164

408

122

 
25,450

 
22,510

266

31

 
22,745

Obligations of U.S. states and municipalities
37,573

1,982

64

 
39,491

 
30,490

1,881

33

 
32,338

Certificates of deposit
60



 
60

 
59



 
59

Non-U.S. government debt securities
26,348

380

34

 
26,694

 
26,900

426

32

 
27,294

Corporate debt securities
2,191

79

2

 
2,268

 
2,657

101

1

 
2,757

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligations
19,989

51

1

 
20,039

 
20,928

69

1

 
20,996

Other
8,149

75

32

 
8,192

 
8,764

77

24

 
8,817

Total available-for-sale debt securities
206,695

3,976

1,525

 
209,146

 
198,194

3,961

477

 
201,678

Available-for-sale equity securities(b)



 

 
547



 
547

Total available-for-sale securities
206,695

3,976

1,525

 
209,146

 
198,741

3,961

477

 
202,225

Held-to-maturity debt securities
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. government agencies(c)
24,197

124

189

 
24,132

 
27,577

558

40

 
28,095

Commercial



 

 
5,783

1

74

 
5,710

Total mortgage-backed securities
24,197

124

189

 
24,132

 
33,360

559

114

 
33,805

Obligations of U.S. states and municipalities
4,845

102

21

 
4,926

 
14,373

554

80

 
14,847

Total held-to-maturity debt securities
29,042

226

210

 
29,058

 
47,733

1,113

194

 
48,652

Total investment securities
$
235,737

$
4,202

$
1,735

 
$
238,204

 
$
246,474

$
5,074

$
671

 
$
250,877

(a)
Includes total U.S. government-sponsored enterprise obligations with fair values of $45.9 billion and $45.8 billion at March 31, 2018, and December 31, 2017, respectively.
(b)
Effective January 1, 2018, the Firm adopted the recognition and measurement guidance. Equity securities that were previously reported as AFS securities were reclassified to other assets upon adoption.
(c)
Included total U.S. government-sponsored enterprise obligations with amortized cost of $18.1 billion and $22.0 billion at March 31, 2018, and December 31, 2017, respectively.


110


Investment securities impairment
The following tables present the fair value and gross unrealized losses for investment securities by aging category at March 31, 2018, and December 31, 2017.
 
Investment securities with gross unrealized losses
 
Less than 12 months
 
12 months or more
 
 
March 31, 2018 (in millions)
Fair value
Gross
unrealized losses
 
Fair value
Gross
unrealized losses
Total fair value
Total gross unrealized losses
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. government agencies
$
34,422

$
711

 
$
7,033

$
327

$
41,455

$
1,038

Residential:
 
 
 
 
 
 
 
U.S. 
1,527

17

 
545

9

2,072

26

Non-U.S.


 




Commercial
3,457

123

 
1,712

83

5,169

206

Total mortgage-backed securities
39,406

851

 
9,290

419

48,696

1,270

U.S. Treasury and government agencies
4,129

94

 
364

28

4,493

122

Obligations of U.S. states and municipalities
2,244

24

 
1,276

40

3,520

64

Certificates of deposit


 




Non-U.S. government debt securities
4,953

12

 
1,196

22

6,149

34

Corporate debt securities
98

1

 
41

1

139

2

Asset-backed securities:
 
 
 
 
 
 
 
Collateralized loan obligations
907

1

 


907

1

Other
3,904

28

 
479

4

4,383

32

Total available-for-sale debt securities
55,641

1,011

 
12,646

514

68,287

1,525

Held-to-maturity securities
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
U.S. government agencies
10,193

182

 
192

7

10,385

189

Commercial


 




Total mortgage-backed securities
10,193

182

 
192

7

10,385

189

Obligations of U.S. states and municipalities
489

4

 
683

17

1,172

21

Total held-to-maturity securities
10,682

186

 
875

24

11,557

210

Total investment securities
 with gross unrealized losses
$
66,323

$
1,197

 
$
13,521

$
538

$
79,844

$
1,735



111


 
Investment securities with gross unrealized losses
 
Less than 12 months
 
12 months or more
 
 
December 31, 2017 (in millions)
Fair value
Gross
unrealized losses
 
Fair value
Gross
unrealized losses
Total fair value
Total gross unrealized losses
Available-for-sale debt securities
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. government agencies
$
36,037

$
139

 
$
7,711

$
196

$
43,748

$
335

Residential:
 
 
 
 
 
 
 
U.S.
1,112

5

 
596

9

$
1,708

14

Non-U.S.


 
266

1

266

1

Commercial
528

4

 
335

1

863

5

Total mortgage-backed securities
37,677

148

 
8,908

207

46,585

355

U.S. Treasury and government agencies
1,834

11

 
373

20

2,207

31

Obligations of U.S. states and municipalities
949

7

 
1,652

26

2,601

33

Certificates of deposit


 




Non-U.S. government debt securities
6,500

15

 
811

17

7,311

32

Corporate debt securities


 
52

1

52

1

Asset-backed securities:
 
 
 
 
 
 
 
Collateralized loan obligations


 
276

1

276

1

Other
3,521

20

 
720

4

4,241

24

Total available-for-sale debt securities
50,481

201

 
12,792

276

63,273

477

Held-to-maturity debt securities
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
U.S. government agencies
4,070

38

 
205

2

4,275

40

Commercial
3,706

41

 
1,882

33

5,588

74

Total mortgage-backed securities
7,776

79

 
2,087

35

9,863

114

Obligations of U.S. states and municipalities
584

9

 
2,131

71

2,715

80

Total held-to-maturity securities
8,360

88

 
4,218

106

12,578

194

Total investment securities with gross unrealized losses
$
58,841

$
289

 
$
17,010

$
382

$
75,851

$
671

Gross unrealized losses
The Firm has recognized unrealized losses on investment securities that it intends to sell as OTTI. The Firm does not intend to sell any of the remaining investment securities with an unrealized loss in AOCI as of March 31, 2018, and it is not likely that the Firm will be required to sell these securities before recovery of their amortized cost basis. Except for the securities for which credit losses have been recognized in income, the Firm believes that the investment securities with an unrealized loss in AOCI as of March 31, 2018, are not other-than-temporarily impaired. For additional information on other-than-temporary impairment, see Note 10 of the JPMorgan Chase’s 2017 Annual Report.
 
Investment securities gains and losses
The following table presents realized gains and losses and OTTI from AFS securities that were recognized in income.
 
Three months ended March 31,
(in millions)
2018

2017

Realized gains
$
70

$
149

Realized losses
(295
)
(140
)
OTTI losses
(20
)
(12
)
Net investment securities gains/(losses)
$
(245
)
$
(3
)
 
 
 
OTTI losses
 
 
Credit-related losses recognized in income
$

$

Investment securities the Firm intends to sell
(20
)
(12
)
Total OTTI losses recognized in income
$
(20
)
$
(12
)
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 that the Firm does not intend to sell was not material as of and during the three month periods ended March 31, 2018 and 2017.

112


Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at March 31, 2018, of JPMorgan Chase’s investment securities portfolio by contractual maturity.
By remaining maturity
March 31, 2018 (in millions)
Due in one
year or less
Due after one year through five years
Due after five years through 10 years
Due after
10 years(c)
 
Total
Available-for-sale debt securities
 
 
 
 
 
 
Mortgage-backed securities(a)
 
 
 
 
 
 
Amortized cost
276

431

5,837

80,677

 
$
87,221

Fair value
281

436

5,953

80,282

 
$
86,952

Average yield(b)
1.79
%
2.28
%
3.27
%
3.40
%
 
3.38
%
U.S. Treasury and government agencies








 
 
Amortized cost
55


19,552

5,557

 
$
25,164

Fair value
55


19,631

5,764

 
$
25,450

Average yield(b)
1.46
%
%
2.34
%
2.26
%
 
2.32
%
Obligations of U.S. states and municipalities








 
 
Amortized cost
64

801

2,474

34,234

 
$
37,573

Fair value
64

816

2,576

36,035

 
$
39,491

Average yield(b)
1.85
%
3.46
%
4.94
%
4.94
%
 
4.91
%
Certificates of deposit








 
 
Amortized cost
60




 
$
60

Fair value
60




 
$
60

Average yield(b)
0.50
%
%
%
%
 
0.50
%
Non-U.S. government debt securities








 
 
Amortized cost
4,853

13,831

7,664


 
$
26,348

Fair value
4,855

13,999

7,840


 
$
26,694

Average yield(b)
2.84
%
1.63
%
1.24
%
%
 
1.74
%
Corporate debt securities








 
 
Amortized cost
110

882

1,056

143

 
$
2,191

Fair value
110

909

1,098

151

 
$
2,268

Average yield(b)
4.16
%
4.04
%
4.01
%
3.39
%
 
3.99
%
Asset-backed securities








 
 
Amortized cost

3,109

10,038

14,991

 
$
28,138

Fair value

3,083

10,048

15,100

 
$
28,231

Average yield(b)
%
2.12
%
2.79
%
2.53
%
 
2.58
%
Total available-for-sale debt securities








 
 
Amortized cost
$
5,418

$
19,054

$
46,621

$
135,602

 
$
206,695

Fair value
$
5,425

$
19,243

$
47,146

$
137,332

 
$
209,146

Average yield(b)
2.76
%
1.92
%
2.55
%
3.65
%
 
3.22
%
Held-to-maturity debt securities








 
 
Mortgage-backed securities(a)








 
 
Amortized cost


282

23,915

 
$
24,197

Fair value


281

23,851

 
$
24,132

Average yield(b)
%
%
3.30
%
3.32
%
 
3.32
%
Obligations of U.S. states and municipalities








 
 
Amortized cost



4,845

 
$
4,845

Fair value



4,926

 
$
4,926

Average yield(b)
%
%
%
4.11
%
 
4.11
%
Total held-to-maturity securities








 
 
Amortized cost
$

$

$
282

$
28,760

 
$
29,042

Fair value
$

$

$
281

$
28,777

 
$
29,058

Average yield(b)
%
%
3.30
%
3.45
%
 
3.45
%
(a)
As of March 31, 2018, mortgage-backed securities issued by Fannie Mae exceeded 10% of JPMorgan Chase’s total stockholders’ equity; the amortized cost and fair value of such securities was $51.7 billion and $51.8 billion, respectively.
(b)
Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
(c)
Includes investment securities with no stated maturity. Substantially all of the Firm’s U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated weighted-average life, which reflects anticipated future prepayments, is approximately 7 years for agency residential MBS, 3 years for agency residential collateralized mortgage obligations and 3 years for nonagency residential collateralized mortgage obligations.

113


Note 10 – Securities financing activities
For a discussion of accounting policies relating to securities financing activities, see Note 11 of JPMorgan Chase’s 2017 Annual Report. For further information regarding securities borrowed and securities lending agreements for which the fair value option has been elected, see Note 3. For further information regarding assets pledged and collateral received in securities financing agreements, see Note 21.
The table below summarizes the gross and net amounts of the Firm’s securities financing agreements as of March 31, 2018 and December 31, 2017. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with a counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm exchanges securities and/or cash collateral with its counterparties; this collateral also reduces the economic exposure with the counterparty. Such collateral, along with securities financing balances that do not meet all these relevant netting criteria under U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets,” and reduces the “Net amounts” presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with the counterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are presented gross in the “Net amounts” below, and related collateral does not reduce the amounts presented.
 
March 31, 2018
(in millions)
Gross amounts
Amounts netted on the Consolidated balance sheets
Amounts presented on the Consolidated balance sheets(b)
Amounts not nettable on the Consolidated balance sheets(c)
Net
amounts(d)
Assets
 
 
 
 
 
 
Securities purchased under resale agreements
$
529,164

$
(281,634
)
$
247,530

$
(238,149
)
 
$
9,381

Securities borrowed
131,750

(15,618
)
116,132

(85,976
)
 
30,156

Liabilities
 
 
 
 
 
 
Securities sold under repurchase agreements
$
444,114

$
(281,634
)
$
162,480

$
(147,387
)
 
$
15,093

Securities loaned and other(a)
40,974

(15,618
)
25,356

(25,028
)
 
328

 
December 31, 2017
(in millions)
Gross amounts
Amounts netted on the Consolidated balance sheets
Amounts presented on the Consolidated balance sheets(b)
Amounts not nettable on the Consolidated balance sheets(c)
Net
amounts(d)
Assets
 
 
 
 
 
 
Securities purchased under resale agreements
$
448,608

$
(250,505
)
$
198,103

$
(188,502
)

$
9,601

Securities borrowed
113,926

(8,814
)
105,112

(76,805
)
 
28,307

Liabilities
 
 
 
 
 
 
Securities sold under repurchase agreements
$
398,218

$
(250,505
)
$
147,713

$
(129,178
)

$
18,535

Securities loaned and other(a)
27,228

(8,814
)
18,414

(18,151
)
 
263

(a)
Includes securities-for-securities lending transactions of $10.0 billion and $9.2 billion at March 31, 2018 and December 31, 2017, respectively, accounted for at fair value, where the Firm is acting as lender. These amounts are presented within other liabilities in the Consolidated balance sheets.
(b)
Includes securities financing agreements accounted for at fair value. At March 31, 2018 and December 31, 2017, included securities purchased under resale agreements of $13.5 billion and $14.7 billion, respectively and securities sold under agreements to repurchase of $735 million and $697 million, respectively. There were $3.0 billion of securities borrowed at both March 31, 2018 and December 31, 2017. There were no securities loaned accounted for at fair value in either period.
(c)
In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts reported in this column are limited to the related asset or liability with that counterparty.
(d)
Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting agreement has not been either sought or obtained. At March 31, 2018 and December 31, 2017, included $7.3 billion and $7.5 billion, respectively, of securities purchased under resale agreements; $28.2 billion and $25.5 billion, respectively, of securities borrowed; $13.6 billion and $16.5 billion, respectively, of securities sold under agreements to repurchase; and $19 million and $29 million, respectively, of securities loaned and other.

114


The tables below present as of March 31, 2018, and December 31, 2017 the types of financial assets pledged in securities financing agreements and the remaining contractual maturity of the securities financing agreements.
 
Gross liability balance
 
March 31, 2018
 
December 31, 2017
 (in millions)
Securities sold under repurchase agreements
Securities loaned and other(a)
 
Securities sold under repurchase agreements
Securities loaned and other(a)
Mortgage-backed securities
 
 
 
 
 
U.S. government agencies
10,608


 
13,100


Residential - nonagency
1,932


 
2,972


Commercial - nonagency
1,224


 
1,594


U.S. Treasury and government agencies
200,550

46

 
177,581

14

Obligations of U.S. states and municipalities
1,397


 
1,557


Non-U.S. government debt
193,011

3,638

 
170,196

2,485

Corporate debt securities
14,847

418

 
14,231

287

Asset-backed securities
3,016

1

 
3,508


Equity securities
17,529

36,871

 
13,479

24,442

Total
$
444,114

$
40,974

 
$
398,218

$
27,228

 
Remaining contractual maturity of the agreements
 
Overnight and continuous
 
 
Greater than
90 days
 
March 31, 2018 (in millions)
Up to 30 days
30 – 90 days
Total
Total securities sold under repurchase agreements
$
210,365

$
154,243

$
38,400

$
41,106

$
444,114

Total securities loaned and other(a)
31,051

765

2,773

6,385

40,974

 
Remaining contractual maturity of the agreements
 
Overnight and continuous
 
 
Greater than
90 days
 
December 31, 2017 (in millions)
Up to 30 days
30 – 90 days
Total
Total securities sold under repurchase agreements
$
166,425

$
156,434

$
41,611

$
33,748

$
398,218

Total securities loaned and other(a)
22,876

375

2,328

1,649

27,228

(a)
Includes securities-for-securities lending transactions of $10.0 billion and $9.2 billion at March 31, 2018 and December 31, 2017, respectively, accounted for at fair value, where the Firm is acting as lender. These amounts are presented within other liabilities on the Consolidated balance sheets.
Transfers not qualifying for sale accounting
At both March 31, 2018, and December 31, 2017, the Firm held $1.5 billion of financial assets for which the rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP. These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidated balance sheets.

115


Note 11 – Loans
Loan accounting framework
The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. The Firm accounts for loans based on the following categories:
Originated or purchased loans held-for-investment (i.e., “retained”), other than PCI loans
Loans held-for-sale
Loans at fair value
PCI loans held-for-investment
 
For a detailed discussion of loans, including accounting policies, see Note 12 of JPMorgan Chase’s 2017 Annual Report. See Note 3 of this Form 10-Q for further information on the Firm’s elections of fair value accounting under the fair value option. See Note 2 of this Form 10-Q for information on loans carried at fair value and classified as trading assets.

Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Consumer, excluding
credit card(a)
 
Credit card
 
Wholesale(f)
Residential real estate – excluding PCI
• Residential mortgage(b)
• Home equity(c)
Other consumer loans(d)
• Auto
• Consumer & Business Banking(e)
Residential real estate – PCI
• Home equity
• Prime mortgage
• Subprime mortgage
• Option ARMs
 
• Credit card loans
 
• Commercial and industrial
• Real estate
• Financial institutions
• Government agencies
• Other(g)
(a)
Includes loans held in CCB, prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate.
(b)
Predominantly includes prime (including option ARMs) and subprime loans.
(c)
Includes senior and junior lien home equity loans.
(d)
Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(e)
Predominantly includes Business Banking loans.
(f)
Includes loans held in CIB, CB, AWM and Corporate. Excludes prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate. Classes are internally defined and may not align with regulatory definitions.
(g)
Includes loans to: individuals; SPEs; and private education and civic organizations. For more information on SPEs, see Note 14 of JPMorgan Chase’s 2017 Annual Report.
The following tables summarize the Firm’s loan balances by portfolio segment.
March 31, 2018
Consumer, excluding credit card
 
Credit card(a)
 
Wholesale
 
Total
 
(in millions)
 
Retained
$
373,243

 
$
140,348

 
$
412,020

 
$
925,611

(b) 
Held-for-sale
152

 
66

 
5,687

 
5,905

 
At fair value

 

 
2,908

 
2,908

 
Total
$
373,395

 
$
140,414

 
$
420,615

 
$
934,424

 
 
 
 
 
 
 
 
 
 
December 31, 2017
Consumer, excluding credit card
 
Credit card(a)
 
Wholesale
 
Total
 
(in millions)
 
Retained
$
372,553

 
$
149,387

 
$
402,898

 
$
924,838

(b) 
Held-for-sale
128

 
124

 
3,099

 
3,351

 
At fair value

 

 
2,508

 
2,508

 
Total
$
372,681

 
$
149,511

 
$
408,505

 
$
930,697

 
(a)
Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(b)
Loans (other than PCI loans and loans for which the fair value option has been elected) are presented net of unamortized discounts and premiums, and net deferred loan fees or costs. These amounts were not material as of March 31, 2018, and December 31, 2017.


116


The following table provides information about the carrying value of retained loans purchased, sold and reclassified to held-for-sale during the periods indicated. Loans reclassified to held-for sale are non-cash transactions. The Firm manages its exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures. Loans sold out of the held-for-sale portfolio are excluded from this table.


2018
 
2017
Three months ended March 31, (in millions)

Consumer, excluding
credit card
Credit card
Wholesale
Total
 
Consumer, excluding
credit card
Credit card
Wholesale
Total
Purchases

$
1,071

(a)(b) 
$

$
1,098

$
2,169

 
$
940

(a)(b) 
$

$
284

$
1,224

Sales

481



3,689

4,170

 
590

 

2,447

3,037

Retained loans reclassified to held-for-sale

36

 

868

904

 
6,309

(c) 

461

6,770

(a)
Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National Mortgage Association (“Ginnie Mae”) guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, FHA, RHS, and/or VA.
(b)
Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm’s standards. Such purchases were $3.6 billion and $5.4 billion for the three months ended March 31, 2018 and 2017, respectively.
(c)
Includes the Firm’s student loan portfolio which was sold in 2017.
The following table provides information about gains and losses on loan sales, including lower of cost or fair value adjustments, by portfolio segment.
 
Three months ended
March 31,
 
(in millions)
2018
2017
 
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
 
 
 
Consumer, excluding credit card
$
9

$
(226
)
(b) 
Credit card
19

1

 
Wholesale
(2
)
5

 
Total net gains on sales of loans (including lower of cost or fair value adjustments)
$
26

$
(220
)
 
(a)
Excludes sales related to loans accounted for at fair value.
(b)
Includes the amounts related to the Firm’s student loan portfolio which was sold in 2017.
Consumer, excluding credit card loan portfolio
Consumer loans, excluding credit card loans, consist primarily of residential mortgages, home equity loans and lines of credit, auto loans and consumer and business banking loans, with a focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by junior liens, prime mortgage loans with an interest-only payment period, and certain payment-option loans that may result in negative amortization.

 
The accompanying table provides information about retained consumer loans, excluding credit card, by class. In 2017, the Firm sold its student loan portfolio.
(in millions)
March 31,
2018

December 31,
2017

Residential real estate – excluding PCI
 
 
Residential mortgage
$
220,048

$
216,496

Home equity
31,792

33,450

Other consumer loans
 
 
Auto
66,042

66,242

Consumer & Business Banking
25,856

25,789

Residential real estate – PCI
 
 
Home equity
10,332

10,799

Prime mortgage
6,259

6,479

Subprime mortgage
2,549

2,609

Option ARMs
10,365

10,689

Total retained loans
$
373,243

$
372,553

For further information on consumer credit quality indicators, see Note 12 of JPMorgan Chase’s 2017 Annual Report.

117


Residential real estate – excluding PCI loans
The following table provides information by class for residential real estate – excluding retained PCI loans.
Residential real estate – excluding PCI loans
 
 
 
 
 
 
(in millions, except ratios)
Residential mortgage
 
 
Home equity
 
 
Total residential real estate – excluding PCI
Mar 31,
2018

Dec 31,
2017

 
 
Mar 31,
2018

Dec 31,
2017

 
 
Mar 31,
2018

Dec 31,
2017

Loan delinquency(a)
 
 
 
 
 
 
 
 
 
 
Current
$
213,081

$
208,713

 
 
$
30,894

$
32,391

 
 
$
243,975

$
241,104

30–149 days past due
3,176

4,234

 
 
498

671

 
 
3,674

4,905

150 or more days past due
3,791

3,549

 
 
400

388

 
 
4,191

3,937

Total retained loans
$
220,048

$
216,496

 
 
$
31,792

$
33,450

 
 
$
251,840

$
249,946

% of 30+ days past due to total retained loans(b)
0.62
%
0.77
%
 
 
2.82
%
3.17
%
 
 
0.90
%
1.09
%
90 or more days past due and government guaranteed(c)
$
3,873

$
4,172

 
 
$

$

 
 
$
3,873

$
4,172

Nonaccrual loans
2,240

2,175

 
 
1,585

1,610

 
 
3,825

3,785

Current estimated LTV ratios(d)(e)
 
 
 
 
 
 
 
 
 


Greater than 125% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 


Equal to or greater than 660
$
65

$
37

 
 
$
7

$
10

 
 
$
72

$
47

Less than 660
18

19

 
 
2

3

 
 
20

22

101% to 125% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 


Equal to or greater than 660
38

36

 
 
219

296

 
 
257

332

Less than 660
76

88

 
 
69

95

 
 
145

183

80% to 100% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 


Equal to or greater than 660
3,477

4,369

 
 
1,410

1,676

 
 
4,887

6,045

Less than 660
410

483

 
 
476

569

 
 
886

1,052

Less than 80% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 


Equal to or greater than 660
199,245

194,758

 
 
24,260

25,262

 
 
223,505

220,020

Less than 660
6,861

6,952

 
 
3,785

3,850

 
 
10,646

10,802

No FICO/LTV available
1,248

1,259

 
 
1,564

1,689

 
 
2,812

2,948

U.S. government-guaranteed
8,610

8,495

 
 


 
 
8,610

8,495

Total retained loans
$
220,048

$
216,496

 
 
$
31,792

$
33,450

 
 
$
251,840

$
249,946

Geographic region
 
 
 
 
 
 
 
 
 
 
California
$
70,090

$
68,855

 
 
$
6,307

$
6,582

 
 
$
76,397

$
75,437

New York
27,877

27,473

 
 
6,528

6,866

 
 
34,405

34,339

Illinois
14,644

14,501

 
 
2,396

2,521

 
 
17,040

17,022

Texas
12,848

12,508

 
 
1,946

2,021

 
 
14,794

14,529

Florida
9,797

9,598

 
 
1,750

1,847

 
 
11,547

11,445

New Jersey
7,166

7,142

 
 
1,850

1,957

 
 
9,016

9,099

Washington
7,175

6,962

 
 
975

1,026

 
 
8,150

7,988

Colorado
7,533

7,335

 
 
567

632

 
 
8,100

7,967

Massachusetts
6,310

6,323

 
 
279

295

 
 
6,589

6,618

Arizona
4,210

4,109

 
 
1,352

1,439

 
 
5,562

5,548

All other(f)
52,398

51,690

 
 
7,842

8,264

 
 
60,240

59,954

Total retained loans
$
220,048

$
216,496

 
 
$
31,792

$
33,450

 
 
$
251,840

$
249,946

(a)
Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $3.0 billion and $2.4 billion; 30149 days past due included $2.5 billion and $3.2 billion; and 150 or more days past due included $3.1 billion and $2.9 billion at March 31, 2018, and December 31, 2017, respectively.
(b)
At March 31, 2018 and December 31, 2017, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $5.6 billion and $6.1 billion, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(c)
These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At March 31, 2018, and December 31, 2017, these balances included $1.4 billion and $1.5 billion, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not guaranteed by U.S. government agencies that are 90 or more days past due and still accruing interest at March 31, 2018, and December 31, 2017.
(d)
Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property.
(e)
Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f)
At March 31, 2018, and December 31, 2017, included mortgage loans insured by U.S. government agencies of $8.6 billion and $8.5 billion, respectively.


118


The following table represents the Firm’s delinquency statistics for junior lien home equity loans and lines as of March 31, 2018, and December 31, 2017.
 
Total loans
 
Total 30+ day delinquency rate
(in millions, except ratios)
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

 
HELOCs:(a)
 
 
 
 
 
Within the revolving period(b)
$
5,645

$
6,363

 
0.32
%
0.50
%
Beyond the revolving period
13,207

13,532

 
3.04

3.56

HELOANs
1,280

1,371

 
2.89

3.50

Total
$
20,132

$
21,266

 
2.27
%
2.64
%
(a)
These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also include HELOCs that allow interest-only payments beyond the revolving period.
(b)
The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty.
 
HELOCs beyond the revolving period and HELOANs have higher delinquency rates than HELOCs within the revolving period. That is primarily because the fully-amortizing payment that is generally required for those products is higher than the minimum payment options available for HELOCs within the revolving period. The higher delinquency rates associated with amortizing HELOCs and HELOANs are factored into the Firm’s allowance for loan losses.

Impaired loans
The table below sets forth information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 13 of JPMorgan Chase’s 2017 Annual Report.

(in millions)
Residential mortgage
 
Home equity
 
Total residential real estate – excluding PCI
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

Impaired loans
 
 
 
 
 
 
 
 
With an allowance
$
4,324

$
4,407

 
$
1,236

$
1,236

 
$
5,560

$
5,643

Without an allowance(a)
1,221

1,213

 
877

882

 
2,098

2,095

Total impaired loans(b)(c)
$
5,545

$
5,620

 
$
2,113

$
2,118

 
$
7,658

$
7,738

Allowance for loan losses related to impaired loans
$
77

$
62

 
$
118

$
111

 
$
195

$
173

Unpaid principal balance of impaired loans(d)
7,618

7,741

 
3,656

3,701

 
11,274

11,442

Impaired loans on nonaccrual status(e)
1,796

1,743

 
1,057

1,032

 
2,853

2,775

(a)
Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At March 31, 2018, Chapter 7 residential real estate loans included approximately 14% of residential mortgages and 11% of home equity that were 30 days or more past due.
(b)
At March 31, 2018, and December 31, 2017, $4.2 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., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure.
(c)
Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(d)
Represents the contractual amount of principal owed at March 31, 2018, and December 31, 2017. The unpaid principal balance differs from the impaired loan balances due to various factors including charge-offs, net deferred loan fees or costs, and unamortized discounts or premiums on purchased loans.
(e)
As of March 31, 2018 and December 31, 2017, nonaccrual loans included $2.3 billion and $2.2 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework in Note 12 of JPMorgan Chase’s 2017 Annual Report.

119


The following table presents average impaired loans and the related interest income reported by the Firm.
Three months ended March 31,
(in millions)
Average impaired loans
 
Interest income on
impaired loans(a)
 
Interest income on impaired
loans on a cash basis
(a)
2018

2017

 
2018

2017

 
2018

2017

Residential mortgage
$
5,608

$
5,977

 
$
70

$
73

 
$
19

$
19

Home equity
2,123

2,250

 
32

31

 
21

20

Total residential real estate – excluding PCI
$
7,731

$
8,227

 
$
102

$
104

 
$
40

$
39

(a)
Generally, interest income on loans modified in TDRs is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms, unless the loan is deemed to be collateral-dependent.

Loan modifications
Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There were no additional commitments to lend to borrowers whose residential real estate loans, excluding PCI loans, have been modified in TDRs.
 
The following table presents new TDRs reported by the Firm.
 
Three months ended March 31,
(in millions)
2018

2017

Residential mortgage
$
147

$
72

Home equity
103

81

Total residential real estate – excluding PCI
$
250

$
153

Nature and extent of modifications
The U.S. Treasury’s Making Home Affordable programs, as well as the Firm’s proprietary modification programs, generally provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of the original agreement.
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the Firm’s loss mitigation programs described above during the periods presented. These tables exclude Chapter 7 loans where the sole concession granted is the discharge of debt.
Three months ended March 31,
 
 
Total residential
real estate –
excluding PCI
Residential mortgage
 
Home equity
 
2018

2017

 
2018

2017

 
2018

2017

Number of loans approved for a trial modification
299

456

 
460

743

 
759

1,199

Number of loans permanently modified
969

783

 
1,798

1,217

 
2,767

2,000

Concession granted:(a)
 
 
 
 
 
 
 
 
Interest rate reduction
20
%
82
%
 
49
%
85
%
 
39
%
84
%
Term or payment extension
28

89

 
51

90

 
43

90

Principal and/or interest deferred
57

10

 
25

18

 
36

15

Principal forgiveness
6

19

 
5

9

 
5

13

Other(b)
49

30

 
60

11

 
56

19

(a)
Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or payment extensions.
(b)
Predominantly represents variable interest rate to fixed interest rate modifications.

120


Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications of residential real estate loans, excluding PCI loans, under the loss mitigation programs described above and about redefaults of certain loans modified in TDRs for the periods presented. The following table presents only the financial effects of permanent modifications and does not include temporary concessions offered through trial modifications. This table also excludes Chapter 7 loans where the sole concession granted is the discharge of debt.
Three months ended March 31,
(in millions, except weighted-average data)
Residential mortgage
 
Home equity
 
Total residential real estate – excluding PCI
2018
2017
 
2018
2017
 
2018
2017
Weighted-average interest rate of loans with interest rate reductions – before TDR
5.11
%
5.36
%
 
5.11
%
4.63
%
 
5.11
%
5.03
%
Weighted-average interest rate of loans with interest rate reductions – after TDR
3.45

2.90

 
3.05

2.45

 
3.19

2.70

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR
24

24

 
19

20

 
21

22

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR
36

38

 
38

39

 
37

38

Charge-offs recognized upon permanent modification
$

$
1

 
$
1

$
1

 
$
1

$
2

Principal deferred
6

3

 
2

5

 
8

8

Principal forgiven
3

5

 
2

2

 
5

7

Balance of loans that redefaulted within one year of permanent modification(a)
$
23

$
32

 
$
15

$
11

 
$
38

$
43

(a)
Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels.

At March 31, 2018, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were 9 years for residential mortgage and 8 years for home equity. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and involuntary (i.e., foreclosures and other forced liquidations).
 

Active and suspended foreclosure
At March 31, 2018, and December 31, 2017, the Firm had non-PCI residential real estate loans, excluding those insured by U.S. government agencies, with a carrying value of $822 million and $787 million, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.

121


Other consumer loans
The table below provides information for other consumer retained loan classes, including auto and business banking loans.
(in millions, except ratios)
Auto
 
Consumer &
Business Banking
 
Total other consumer
Mar 31, 2018

Dec 31, 2017

 
Mar 31, 2018

Dec 31, 2017

 
Mar 31, 2018

Dec 31, 2017

Loan delinquency
 
 
 
 
 
 
 
 
Current
$
65,574

$
65,651

 
$
25,570

$
25,454

 
$
91,144

$
91,105

30–119 days past due
462

584

 
165

213

 
627

797

120 or more days past due
6

7

 
121

122

 
127

129

Total retained loans
$
66,042

$
66,242

 
$
25,856

$
25,789

 
$
91,898

$
92,031

% of 30+ days past due to total retained loans
0.71
%
0.89
%
 
1.11
%
1.30
%
 
0.82
%
1.01
%
Nonaccrual loans(a)
127

141

 
274

283

 
401

424

Geographic region
 
 
 
 
 
 
 
 
California
$
8,540

$
8,445

 
$
5,088

$
5,032

 
$
13,628

$
13,477

Texas
6,866

7,013

 
2,955

2,916

 
9,821

9,929

New York
4,070

4,023

 
4,174

4,195

 
8,244

8,218

Illinois
3,888

3,916

 
2,014

2,017

 
5,902

5,933

Florida
3,386

3,350

 
1,391

1,424

 
4,777

4,774

Arizona
2,155

2,221

 
1,415

1,383

 
3,570

3,604

Ohio
2,095

2,105

 
1,357

1,380

 
3,452

3,485

Michigan
1,458

1,418

 
1,348

1,357

 
2,806

2,775

New Jersey
2,044

2,044

 
721

721

 
2,765

2,765

Louisiana
1,628

1,656

 
877

849

 
2,505

2,505

All other
29,912

30,051

 
4,516

4,515

 
34,428

34,566

Total retained loans
$
66,042

$
66,242

 
$
25,856

$
25,789

 
$
91,898

$
92,031

Loans by risk ratings(b)
 
 
 
 
 
 
 
 
Noncriticized
$
15,691

$
15,604

 
$
18,060

$
17,938

 
$
33,751

$
33,542

Criticized performing
225

93

 
800

791

 
1,025

884

Criticized nonaccrual
8

9

 
210

213

 
218

222

(a)
There were no loans that were 90 or more days past due and still accruing interest at March 31, 2018, and December 31, 2017.
(b)
For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or nonaccrual.


122


Other consumer impaired loans and loan
modifications
The table below sets forth information about the Firm’s other consumer impaired loans, including risk-rated business banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
(in millions)
March 31,
2018

 
December 31,
2017

Impaired loans
 
 
 
With an allowance
$
269

 
$
272

Without an allowance(a)
26

 
26

Total impaired loans(b)(c)
$
295

 
$
298

Allowance for loan losses related to impaired loans
$
71

 
$
73

Unpaid principal balance of impaired loans(d)
401

 
402

Impaired loans on nonaccrual status
266

 
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 $298 million and $650 million for the three months ended March 31, 2018 and 2017, respectively. The related interest income on impaired loans, including those on a cash basis, was not material for the three months ended March 31, 2018 and 2017.
(d)
Represents the contractual amount of principal owed at March 31, 2018, and December 31, 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. See Note 12 of JPMorgan Chase’s 2017 Annual Report for further information on other consumer loans modified in TDRs.
Other consumer loans modified in TDRs were $100 million and $102 million for the three months ended March 31, 2018 and December 31, 2017, respectively. New TDRs, as well as the impact of these modifications were not material to the Firm for the three months ended March 31, 2018 and 2017. Additional commitments to lend to borrowers whose loans have been modified in TDRs as of March 31, 2018 and December 31, 2017 were not material. TDRs on nonaccrual status were $71 million and $72 million for the three months ended March 31, 2018 and December 31, 2017, respectively.


123


Purchased credit-impaired loans
For a detailed discussion of PCI loans, including the related accounting policies, see Note 12 of JPMorgan Chase’s 2017 Annual Report.
Residential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.

(in millions, except ratios)
Home equity

Prime mortgage

Subprime mortgage

Option ARMs

Total PCI
Mar 31,
2018

Dec 31,
2017


Mar 31,
2018

Dec 31,
2017


Mar 31,
2018

Dec 31,
2017


Mar 31,
2018

Dec 31,
2017


Mar 31,
2018

Dec 31,
2017

Carrying value(a)
$
10,332

$
10,799


$
6,259

$
6,479


$
2,549

$
2,609


$
10,365

$
10,689


$
29,505

$
30,576

Loan delinquency (based on unpaid principal balance)




















Current
$
9,882

$
10,272


$
5,662

$
5,839


$
2,630

$
2,640


$
9,409

$
9,662


$
27,583

$
28,413

30–149 days past due
271

356


293

336


298

381


447

547


1,309

1,620

150 or more days past due
368

392


328

327


195

176


693

689


1,584

1,584

Total loans
$
10,521

$
11,020


$
6,283

$
6,502


$
3,123

$
3,197


$
10,549

$
10,898


$
30,476

$
31,617

% of 30+ days past due to total loans
6.07
%
6.79
%

9.88
%
10.20
%

15.79
%
17.42
%

10.81
%
11.34
%

9.49
%
10.13
%
Current estimated LTV ratios (based on unpaid principal balance)(b)(c)

















Greater than 125% and refreshed FICO scores:
























Equal to or greater than 660
$
28

$
33


$
3

$
4


$
3

$
2


$
5

$
6


$
39

$
45

Less than 660
16

21


12

16


18

20


8

9


54

66

101% to 125% and refreshed FICO scores:
























Equal to or greater than 660
230

274


13

16


14

20


41

43


298

353

Less than 660
104

132


40

42


64

75


61

71


269

320

80% to 100% and refreshed FICO scores:
























Equal to or greater than 660
1,065

1,195


177

221


106

119


249

316


1,597

1,851

Less than 660
493

559


193

230


273

309


323

371


1,282

1,469

Lower than 80% and refreshed FICO scores:
























Equal to or greater than 660
5,980

6,134


3,478

3,551


893

895


6,027

6,113


16,378

16,693

Less than 660
2,054

2,095


2,063

2,103


1,608

1,608


3,391

3,499


9,116

9,305

No FICO/LTV available
551

577


304

319


144

149


444

470


1,443

1,515

Total unpaid principal balance
$
10,521

$
11,020


$
6,283

$
6,502


$
3,123

$
3,197


$
10,549

$
10,898


$
30,476

$
31,617

Geographic region (based on unpaid principal balance)




















California
$
6,256

$
6,555


$
3,599

$
3,716


$
778

$
797


$
6,022

$
6,225


$
16,655

$
17,293

Florida
1,092

1,137


409

428


291

296


850

878


2,642

2,739

New York
586

607


445

457


326

330


609

628


1,966

2,022

Washington
500

532


128

135


59

61


229

238


916

966

Illinois
262

273


196

200


158

161


243

249


859

883

New Jersey
233

242


174

178


108

110


325

336


840

866

Massachusetts
74

79


143

149


95

98


300

307


612

633

Maryland
55

57


125

129


128

132


225

232


533

550

Virginia
63

66


118

123


50

51


273

280


504

520

Arizona
193

203


100

106


58

60


151

156


502

525

All other
1,207

1,269


846

881


1,072

1,101


1,322

1,369


4,447

4,620

Total unpaid principal balance
$
10,521

$
11,020


$
6,283

$
6,502


$
3,123

$
3,197


$
10,549

$
10,898


$
30,476

$
31,617

(a)
Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b)
Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property.
(c)
Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.

124


Approximately 25% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or HELOCs. The following table sets forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on the unpaid principal balance as of March 31, 2018, and December 31, 2017.
 
Total loans
 
Total 30+ day delinquency rate
(in millions, except ratios)
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

 
HELOCs:(a)
 
 
 
 
 
Within the revolving period(b)
$
10

$
51

 
10.00
%
1.96
%
Beyond the revolving period(c)
7,542

7,875

 
4.00

4.63

HELOANs
338

360

 
4.14

5.28

Total
$
7,890

$
8,286

 
4.02
%
4.65
%
(a)
In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of the loan’s term.
(b)
Substantially all undrawn HELOCs within the revolving period have been closed.
(c)
Includes loans modified into fixed rate amortizing loans.
The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the three months ended March 31, 2018 and 2017, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not represent net interest income expected to be earned on these portfolios.
 
Total PCI
(in millions, except ratios)
Three months ended March 31,
2018
2017
Beginning balance
$
11,159

$
11,768

Accretion into interest income
(328
)
(359
)
Changes in interest rates on variable-rate loans
280

116

Other changes in expected cash flows(a)
(861
)
1,597

Balance at March 31
$
10,250

$
13,122

Accretable yield percentage
4.78
%
4.36
%
(a)
Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected to be collected due to the impact of modifications and changes in prepayment assumptions.
Active and suspended foreclosure
At both March 31, 2018, and December 31, 2017, the Firm had PCI residential real estate loans with an unpaid principal balance of $1.3 billion that were not included in REO, but were in the process of active or suspended foreclosure.


 
Credit card loan portfolio
For further information on the credit card loan portfolio, including credit quality indicators, see Note 12 of JPMorgan Chase’s 2017 Annual Report.
The table below sets forth information about the Firm’s credit card loans.
(in millions, except ratios)
March 31,
2018

December 31,
2017

Loan delinquency
 
 
Current and less than 30 days
past due and still accruing
$
137,799

$
146,704

30–89 days past due and still accruing
1,211

1,305

90 or more days past due and still accruing
1,338

1,378

Total retained credit card loans
$
140,348

$
149,387

Loan delinquency ratios
 
 
% of 30+ days past due to total retained loans
1.82
%
1.80
%
% of 90+ days past due to total retained loans
0.95

0.92

Credit card loans by geographic region
 
 
California
$
20,974

$
22,245

Texas
13,541

14,200

New York
12,258

13,021

Florida
8,674

9,138

Illinois
8,057

8,585

New Jersey
6,036

6,506

Ohio
4,631

4,997

Pennsylvania
4,511

4,883

Colorado
3,793

4,006

Michigan
3,546

3,826

All other
54,327

57,980

Total retained credit card loans
$
140,348

$
149,387

Percentage of portfolio based on carrying value with estimated refreshed FICO scores
 
 
Equal to or greater than 660
83.5
%
84.0
%
Less than 660
15.6

14.6

No FICO available
0.9

1.4




125


Credit card impaired loans and loan modifications
For a detailed discussion of impaired credit card loans, including credit card loan modifications, see Note 12 of JPMorgan Chase’s 2017 Annual Report.
The table below sets forth information about the Firm’s impaired credit card loans. All of these loans are considered to be impaired as they have been modified in TDRs.
(in millions)
March 31,
2018

December 31,
2017

Impaired credit card loans with an allowance(a)(b)
 
 
Credit card loans with modified payment terms(c)
$
1,173

$
1,135

Modified credit card loans that have reverted to pre-modification payment terms(d)
68

80

Total impaired credit card loans(e)
$
1,241

$
1,215

Allowance for loan losses related to impaired credit card loans
$
393

$
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)
Represents credit card loans outstanding to borrowers enrolled in a credit card modification program as of the date presented.
(d)
Represents credit card loans that were modified in TDRs but that have subsequently reverted back to the loans’ pre-modification payment terms.
At March 31, 2018, and December 31, 2017, $34 million and $43 million, respectively, of loans have reverted back to the pre-modification payment terms of the loans due to noncompliance with the terms of the modified loans. The remaining $34 million and $37 million at March 31, 2018, and December 31, 2017, respectively, of these loans are to borrowers who have successfully completed a short-term modification program. The Firm continues to report these loans as TDRs since the borrowers’ credit lines remain closed.
(e)
Predominantly all impaired credit card loans are in the U.S.
The following table presents average balances of impaired credit card loans and interest income recognized on those loans.
 
Three months ended March 31,
(in millions)
2018

2017

Average impaired credit card loans
$
1,224

$
1,228

Interest income on impaired credit card loans
15

14

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 these loans have been modified under long-term programs for borrowers who are experiencing financial difficulties. Modifications under long-term programs involve placing the customer on a fixed payment plan, generally for 60 months. Substantially all modifications are considered to be TDRs. New enrollments in these loan modification programs were $223 million and $185 million for the three months ended March 31, 2018 and 2017, respectively. For additional information about credit card loan modifications, see Note 12 of JPMorgan Chase’s 2017 Annual Report.
 
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.
(in millions, except
weighted-average data)
Three months ended March 31,
2018

2017

Weighted-average interest rate of loans –
before TDR
17.25
%
16.16
%
Weighted-average interest rate of loans –
after TDR
5.20

4.77

Loans that redefaulted within one year of modification(a)
$
2

$
21

(a)
Represents loans modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The amounts presented represent the balance of such loans as of the end of the quarter in which they defaulted.
For credit card loans modified in TDRs, a substantial portion of these loans are expected to be charged-off in accordance with the Firm’s standard charge-off policy. Based on historical experience, the estimated weighted-average default rate for modified credit card loans was expected to be 31.67% and 31.54% as of March 31, 2018, and December 31, 2017, respectively.

126


Wholesale loan portfolio
Wholesale loans include loans made to a variety of clients, ranging from large corporate and institutional clients to high-net-worth individuals. The primary credit quality indicator for wholesale loans is the risk rating assigned to
 
each loan. For further information on these risk ratings, see Note 12 and Note 13 of JPMorgan Chase’s 2017 Annual Report.

The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
 
Commercial
 and industrial
 
Real estate
 
Financial
institutions
Government agencies
 
Other(d)
Total
retained loans
(in millions,
 except ratios)
Mar 31,
2018
Dec 31,
2017
 
Mar 31,
2018
Dec 31,
2017
 
Mar 31,
2018
Dec 31,
2017
Mar 31,
2018
Dec 31,
2017
 
Mar 31,
2018
Dec 31,
2017
Mar 31,
2018
Dec 31,
2017
Loans by risk ratings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment-grade
$
68,705

$
68,071

 
$
99,185

$
98,467

 
$
27,424

$
26,791

$
15,135

$
15,140

 
$
106,356

$
103,212

$
316,805

$
311,681

Noninvestment-grade:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncriticized
49,917

46,558

 
14,094

14,335

 
13,781

13,071

332

369

 
11,360

9,988

89,484

84,321

Criticized performing
3,283

3,983

 
620

710

 
98

210



 
136

259

4,137

5,162

Criticized nonaccrual
1,249

1,357

 
144

136

 
2

2



 
199

239

1,594

1,734

Total noninvestment-
grade
54,449

51,898

 
14,858

15,181

 
13,881

13,283

332

369

 
11,695

10,486

95,215

91,217

Total retained loans
$
123,154

$
119,969

 
$
114,043

$
113,648

 
$
41,305

$
40,074

$
15,467

$
15,509

 
$
118,051

$
113,698

$
412,020

$
402,898

% of total criticized exposure to
total retained loans
3.68
%
4.45
%
 
0.67
%
0.74
%
 
0.24
%
0.53
%
%
%
 
0.28
%
0.44
%
1.39
%
1.71
%
% of criticized nonaccrual
to total retained loans
1.01

1.13

 
0.13

0.12

 




 
0.17

0.21

0.39

0.43

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans by geographic
distribution(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total non-U.S.
$
30,538

$
28,470

 
$
3,127

$
3,101

 
$
17,842

$
16,790

$
3,119

$
2,906

 
$
47,352

$
44,112

$
101,978

$
95,379

Total U.S.
92,616

91,499

 
110,916

110,547

 
23,463

23,284

12,348

12,603

 
70,699

69,586

310,042

307,519

Total retained loans
$
123,154

$
119,969

 
$
114,043

$
113,648

 
$
41,305

$
40,074

$
15,467

$
15,509

 
$
118,051

$
113,698

$
412,020

$
402,898

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan
 delinquency(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current and less than 30 days past due and still accruing
$
121,703

$
118,288

 
$
113,761

$
113,258

 
$
41,267

$
40,042

$
15,451

$
15,493

 
$
116,632

$
112,559

$
408,814

$
399,640

30–89 days past due
and still accruing
178

216

 
131

242

 
32

15

13

12

 
1,220

898

1,574

1,383

90 or more days
past due and
still accruing(c)
24

108

 
7

12

 
4

15

3

4

 

2

38

141

Criticized nonaccrual
1,249

1,357

 
144

136

 
2

2



 
199

239

1,594

1,734

Total
 retained loans
$
123,154

$
119,969

 
$
114,043

$
113,648

 
$
41,305

$
40,074

$
15,467

$
15,509

 
$
118,051

$
113,698

$
412,020

$
402,898

(a)
The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b)
The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations rather than relying on the past due status, which is generally a lagging indicator of credit quality. For a further discussion, see Note 12 of JPMorgan Chase’s 2017 Annual Report.
(c)
Represents loans that are considered well-collateralized and therefore still accruing interest.
(d)
Other includes individuals, SPEs, holding companies, private education and civic organizations. For more information on SPEs, see Note 14 of JPMorgan Chase’s 2017 Annual Report.

127


The following table presents additional information on the real estate class of loans within the Wholesale portfolio for the periods indicated. For further information on real estate loans, see Note 12 of JPMorgan Chase’s 2017 Annual Report.

(in millions, except ratios)
Multifamily
 
Other commercial
 
Total real estate loans
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

Real estate retained loans
$
77,846

$
77,597

 
$
36,197

$
36,051

 
$
114,043

$
113,648

Criticized exposure
433

491

 
331

355

 
764

846

% of total criticized exposure to total real estate retained loans
0.56
%
0.63
%
 
0.91
%
0.98
%
 
0.67
%
0.74
%
Criticized nonaccrual
$
47

$
44

 
$
97

$
92

 
$
144

$
136

% of criticized nonaccrual loans to total real estate retained loans
0.06
%
0.06
%
 
0.27
%
0.26
%
 
0.13
%
0.12
%
Wholesale impaired loans and loan modifications
Wholesale impaired loans consist of loans that have been placed on nonaccrual status and/or that have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 13 of JPMorgan Chase’s 2017 Annual Report.
The table below sets forth information about the Firm’s wholesale impaired loans.

(in millions)
Commercial
and industrial
 
Real estate
 
Financial
institutions
 
Government
 agencies
 
Other
 
Total
retained loans
 
Mar 31,
2018
Dec 31,
2017
 
Mar 31,
2018
Dec 31,
2017
 
Mar 31,
2018
Dec 31,
2017
 
Mar 31,
2018
Dec 31,
2017
 
Mar 31,
2018
Dec 31,
2017
 
Mar 31,
2018
 
Dec 31,
2017
 
Impaired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance
$
1,051

$
1,170

 
$
87

$
78

 
$
92

$
93

 
$

$

 
$
129

$
168

 
$
1,359

 
$
1,509

 
Without an allowance(a)
240

228

 
59

60

 


 


 
69

70

 
368

 
358

 
Total impaired loans
$
1,291

$
1,398

 
$
146

$
138

 
$
92

$
93

 
$

$

 
$
198

$
238

 
$
1,727

(c) 
$
1,867

(c) 
Allowance for loan losses related to impaired loans
$
407

$
404

 
$
16

$
11

 
$
4

$
4

 
$

$

 
$
47

$
42

 
$
474

 
$
461

 
Unpaid principal balance of impaired loans(b)
1,468

1,604

 
218

201

 
92

94

 


 
439

255

 
2,217

 
2,154

 
(a)
When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
(b)
Represents the contractual amount of principal owed at March 31, 2018, and December 31, 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 carrying value; net deferred loan fees or costs; and unamortized discount or premiums on purchased loans.
(c)
Based upon the domicile of the borrower, largely consists of loans in the U.S.
The following table presents the Firm’s average impaired loans for the periods indicated.
 
Three months ended March 31,
(in millions)
2018

2017

Commercial and industrial
$
1,050

$
1,097

Real estate
135

172

Financial institutions
17

4

Government agencies


Other
211

202

Total(a)
$
1,413

$
1,475

(a)
The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the three months ended March 31, 2018 and 2017.
 
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All TDRs are reported as impaired loans in the tables above. TDRs were $913 million and $614 million as of March 31, 2018, and December 31, 2017, respectively.


128


Note 12 – Allowance for credit losses
For a detailed discussion of the allowance for credit losses and the related accounting policies, see Note 13 of JPMorgan Chase’s 2017 Annual Report. During the second quarter of 2017, the Firm refined its loss estimates relating to the wholesale portfolio by incorporating the use of internal historical data versus external credit rating agency default statistics to estimate PD. In addition, an adjustment to the modeled loss estimates for wholesale lending-related commitments was incorporated similar to the adjustment applied for wholesale loans. The impacts of these refinements were not material to the allowance for credit losses.
Allowance for credit losses and related information
The table below summarizes information about the allowances for loan losses and lending-related commitments, and includes a breakdown of loans and lending-related commitments by impairment methodology.
 
2018
 
2017
 
Three months ended March 31,
(in millions)
Consumer, excluding
credit card
Credit card
 
Wholesale
Total
 
Consumer, excluding credit card
 
Credit card
 
Wholesale
Total
 
Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance at January 1,
$
4,579

$
4,884

 
$
4,141

$
13,604

 
5,198

 
$
4,034

 
$
4,544

$
13,776

 
Gross charge-offs
284

1,291

 
65

1,640

 
847

 
1,086

 
26

1,959

 
Gross recoveries
(138
)
(121
)
 
(46
)
(305
)
 
(159
)
 
(93
)
 
(53
)
(305
)
 
Net charge-offs
146

1,170

 
19

1,335

 
688

 
993

 
(27
)
1,654

 
Write-offs of PCI loans(a)
20


 

20

 
24

 

 

24

 
Provision for loan losses
146

1,170

 
(189
)
1,127

 
442

 
993

 
(119
)
1,316

 
Other
1


 
(2
)
(1
)
 
(2
)
 

 
1

(1
)
 
Ending balance at March 31,
$
4,560

$
4,884

 
$
3,931

$
13,375

 
$
4,926

 
$
4,034

 
$
4,453

$
13,413

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses by impairment methodology
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-specific(b)
$
266

$
393

(c) 
$
474

$
1,133

 
$
300

 
$
373

(c) 
$
249

$
922

 
Formula-based
2,089

4,491

 
3,457

10,037

 
2,339

 
3,661

 
4,204

10,204

 
PCI
2,205


 

2,205

 
2,287

 

 

2,287

 
Total allowance for loan losses
$
4,560

$
4,884

 
$
3,931

$
13,375

 
$
4,926

 
$
4,034

 
$
4,453

$
13,413

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans by impairment methodology
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-specific
$
7,953

$
1,241

 
$
1,727

$
10,921

 
$
8,604

 
$
1,219

 
$
1,681

$
11,504

 
Formula-based
335,785

139,107

 
410,290

885,182

 
317,594

 
133,698

 
384,686

835,978

 
PCI
29,505


 
3

29,508

 
34,385

 

 
3

34,388

 
Total retained loans
$
373,243

$
140,348

 
$
412,020

$
925,611

 
$
360,583

 
$
134,917

 
$
386,370

$
881,870

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impaired collateral-dependent loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Net charge-offs
$
12

$

 
$

$
12

 
$
31

 
$

 
$
1

$
32

 
Loans measured at fair value of collateral less cost to sell
2,135


 
262

2,397

 
2,345

 

 
264

2,609

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for lending-related commitments
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance at January 1,
$
33

$

 
$
1,035

$
1,068

 
$
26

 
$

 
$
1,052

$
1,078

 
Provision for lending-related commitments


 
38

38

 

 

 
(1
)
(1
)
 
Other


 
1

1

 

 

 


 
Ending balance at March 31,
$
33

$

 
$
1,074

$
1,107

 
$
26

 
$

 
$
1,051

$
1,077

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for lending-related commitments by impairment methodology
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-specific
$

$

 
$
167

$
167

 
$

 
$

 
$
228

$
228

 
Formula-based
33


 
907

940

 
26

 

 
823

849

 
Total allowance for lending-related commitments
$
33

$

 
$
1,074

$
1,107

 
$
26

 
$

 
$
1,051

$
1,077

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lending-related commitments by impairment methodology
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-specific
$

$

 
$
746

$
746

 
$

 
$

 
$
882

$
882

 
Formula-based
49,516

588,232

 
383,529

1,021,277

 
51,806

(d) 
577,096

 
363,638

992,540

(d) 
Total lending-related commitments
$
49,516

$
588,232

 
$
384,275

$
1,022,023

 
$
51,806

(d) 
$
577,096

 
$
364,520

$
993,422

(d) 
(a)
Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(b)
Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c)
The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.
(d)
The prior period amounts have been revised to conform with the current period presentation.

129


Note 13 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs, see Note 1 of JPMorgan Chase’s 2017 Annual Report.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment.
Line of Business
Transaction Type
Activity
Form 10-Q page reference
CCB
Credit card securitization trusts
Securitization of originated credit card receivables
130
 
Mortgage securitization trusts
Servicing and securitization of both originated and purchased residential mortgages
130–132
CIB
Mortgage and other securitization trusts
Securitization of both originated and purchased residential and commercial mortgages, and other consumer loans
130–132
 
Multi-seller conduits
Assist clients in accessing the financial markets in a cost-efficient manner and structures transactions to meet investor needs
132
 
Municipal bond vehicles
Financing of municipal bond investments
132
The Firm also invests in and provides financing and other services to VIEs sponsored by third parties. See page 133 of this Note for more information on the VIEs sponsored by third parties.
Significant Firm-sponsored VIEs
Credit card securitizations
For a more detailed discussion of JPMorgan Chase’s involvement with credit card securitizations, see Note 14 of JPMorgan Chase’s 2017 Annual Report.
As a result of the Firm’s continuing involvement, the Firm is considered to be the primary beneficiary of its Firm-sponsored credit card securitization trusts, including its primary vehicle, the Chase Issuance Trust. See the table on page 133 of this Note for further information on consolidated VIE assets and liabilities.
 
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.
For a detailed discussion of the Firm’s involvement with Firm-sponsored mortgage and other securitization trusts, as well as the accounting treatment relating to such trusts, see Note 14 of JPMorgan Chase’s 2017 Annual Report.

130


The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to be held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative transactions. In certain instances, the Firm’s only continuing involvement is servicing the loans. See Securitization activity on page 134 of this Note for further information regarding the Firm’s cash flows with and interests retained in nonconsolidated VIEs, and page 134 of this Note for information on the Firm’s loan sales to U.S. government agencies.
 
Principal amount outstanding
 
JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e)
March 31, 2018 (in millions)
Total assets held by securitization VIEs
Assets
held in consolidated securitization VIEs
Assets held in nonconsolidated securitization VIEs with continuing involvement
 
Trading assets
 Investment securities
Other financial assets
Total interests held by JPMorgan
Chase
Securitization-related(a)
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
Prime/Alt-A and option ARMs
$
67,150

$
3,514

$
51,840

 
$
412

$
876

$

$
1,288

Subprime
18,512

17

17,074

 
57



57

Commercial and other(b)
99,298


69,192

 
766

1,079

207

2,052

Total
$
184,960

$
3,531

$
138,106

 
$
1,235

$
1,955

$
207

$
3,397

 
Principal amount outstanding
 
JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(c)(d)(e)
December 31, 2017 (in millions)
Total assets held by securitization VIEs
Assets
held in consolidated securitization VIEs
Assets held in nonconsolidated securitization VIEs with continuing involvement
 
Trading assets
 Investment securities
Other financial assets
Total interests held by
JPMorgan
Chase
Securitization-related(a)
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
Prime/Alt-A and option ARMs
$
68,874

$
3,615

$
52,280

 
$
410

$
943

$

$
1,353

Subprime
18,984

7

17,612

 
93



93

Commercial and other(b)
94,905

63

63,411

 
745

1,133

157

2,035

Total
$
182,763

$
3,685

$
133,303

 
$
1,248

$
2,076

$
157

$
3,481

(a)
Excludes U.S. government agency securitizations and re-securitizations, which are not Firm-sponsored. See page 134 of this Note for information on the Firm’s loan sales to U.S. government agencies.
(b)
Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third parties.
(c)
Excludes the following: retained servicing (see Note 14 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 4 for further information on derivatives); senior and subordinated securities of $306 million and $31 million, respectively, at March 31, 2018, and $88 million and $48 million, respectively, at December 31, 2017, which the Firm purchased in connection with CIB’s secondary market-making activities.
(d)
Includes interests held in re-securitization transactions.
(e)
As of March 31, 2018, and December 31, 2017, 68% and 61%, respectively, of the Firm’s retained securitization interests, which are predominantly carried at fair value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $1.3 billion of investment-grade for both periods, and $16 million and $48 million of noninvestment-grade retained interests at March 31, 2018, and December 31, 2017, respectively. The retained interests in commercial and other securitizations trusts consisted of $1.7 billion and $1.6 billion of investment-grade and $362 million and $412 million of noninvestment-grade retained interests at March 31, 2018, and December 31, 2017, respectively.

131


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. For a more detailed description of the Firm’s involvement with residential mortgage securitizations, see Note 14 of JPMorgan Chase’s 2017 Annual Report. See the table on page 133 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. For a more detailed description of the Firm’s involvement with commercial mortgage and other consumer securitizations, see Note 14 of JPMorgan Chase’s 2017 Annual Report. See the table on page 133 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
For a more detailed description of JPMorgan Chase’s participation in certain re-securitization transactions, see Note 14 of JPMorgan Chase’s 2017 Annual Report.
The following table presents the principal amount of securities transferred to re-securitization VIEs.
 
Three months ended
March 31,
(in millions)
2018

 
2017

Transfers of securities to VIEs
 
 
 
Agency
$
4,786

 
$
3,224

The following table presents information on nonconsolidated re-securitization VIEs.
 
Nonconsolidated
re-securitization VIEs
(in millions)
March 31, 2018

 
December 31, 2017

Firm-sponsored private-label
 
 
 
Assets held in VIEs with continuing involvement(a)
$
722

 
$
783

Interest in VIEs
15

 
29

Agency
 
 
 
Interest in VIEs
1,804

 
2,250

(a)
represents the principal amount and includes the notional amount of interest-only securities.
As of March 31, 2018, and December 31, 2017, the Firm did not consolidate any agency re-securitizations or any Firm-sponsored private-label re-securitizations.
 
Multi-seller conduits
For a more detailed description of JPMorgan Chase’s principal involvement with Firm-administered multi-seller conduits, see Note 14 of JPMorgan Chase’s 2017 Annual Report.
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 $19.1 billion and $20.4 billion of the commercial paper issued by the Firm-administered multi-seller conduits at March 31, 2018, and December 31, 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 $10.0 billion and $8.8 billion at March 31, 2018, and December 31, 2017, respectively, and are reported as off-balance sheet lending-related commitments. For more information on off-balance sheet lending-related commitments, see Note 20.
Municipal bond vehicles
Municipal bond vehicles or tender option bond (“TOB”) trusts allow institutions to finance their municipal bond investments at short-term rates. TOB transactions are known as Customer TOB trusts and Non-Customer TOB trusts. Customer TOB trusts are sponsored by a third party; see page 133 on this Note for further information.
The Firm serves as sponsor for all Non-Customer TOB transactions. For a more detailed description of JPMorgan Chase’s Municipal bond vehicles, see Note 14 of JPMorgan Chase’s 2017 Annual Report. The Firm had no exposure to nonconsolidated Firm-sponsored municipal bond vehicles at March 31, 2018 and December 31, 2017, respectively.
See page 133 of this Note for further information on consolidated municipal bond vehicles.


132


Consolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of March 31, 2018, and December 31, 2017.
 
Assets
 
Liabilities
March 31, 2018 (in millions)
Trading assets
Loans

Other(c) 

 Total
assets(d)
 
Beneficial interests in
VIE assets(e)
Other(f)

Total
liabilities
VIE program type(a)
 
 
 
 
 
 
 
 
Firm-sponsored credit card trusts
$

$
31,773

$
543

$
32,316

 
$
16,819

$
14

$
16,833

Firm-administered multi-seller conduits

22,081

51

22,132

 
3,067

30

3,097

Municipal bond vehicles
1,203


3

1,206

 
1,247

2

1,249

Mortgage securitization entities(b)
16

3,562

50

3,628

 
310

191

501

Other
3


1,763

1,766

 
141

111

252

Total
$
1,222

$
57,416

$
2,410

$
61,048

 
$
21,584

$
348

$
21,932

 
 
 
 
 
 
 
 
 
 
Assets
 
Liabilities
December 31, 2017 (in millions)
Trading assets
Loans

Other(c) 

 Total
assets(d)
 
Beneficial interests in
VIE assets(e)
Other(f)

Total
liabilities
VIE program type(a)
 
 
 
 
 
 
 
 
Firm-sponsored credit card trusts
$

$
41,923

$
652

$
42,575

 
$
21,278

$
16

$
21,294

Firm-administered multi-seller conduits

23,411

48

23,459

 
3,045

28

3,073

Municipal bond vehicles
1,278


3

1,281

 
1,265

2

1,267

Mortgage securitization entities(b)
66

3,661

55

3,782

 
359

199

558

Other
105


1,916

2,021

 
134

104

238

Total
$
1,449

$
68,995

$
2,674

$
73,118

 
$
26,081

$
349

$
26,430

(a)
Excludes intercompany transactions which are eliminated in consolidation.
(b)
Includes residential and commercial mortgage securitizations.
(c)
Includes assets classified as cash and other assets on the Consolidated balance sheets.
(d)
The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include third-party assets and liabilities of consolidated VIEs and exclude intercompany balances that eliminate in consolidation.
(e)
The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled, “Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests generally do not have recourse to the general credit of JPMorgan Chase. For conduits program-wide credit enhancements, see note 14 of JPMorgan Chase’s 2017 Annual Report. Included in beneficial interests in VIE assets are long-term beneficial interests of $17.3 billion and $21.8 billion at March 31, 2018, and December 31, 2017, respectively.
(f)
Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured by other parties. These include, for example, acting as a derivative counterparty, liquidity provider, investor, underwriter, placement agent, remarketing agent, trustee or custodian. These transactions are conducted at arm’s-length, and individual credit decisions are based on the analysis of the specific VIE, taking into consideration the quality of the underlying assets. Where the Firm does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, or a variable interest that could potentially be significant, the Firm generally does not consolidate the VIE, but it records and reports these positions on its Consolidated balance sheets in the same manner it would record and report positions in respect of any other third-party transaction.
Tax credit vehicles
The Firm holds investments in unconsolidated tax credit vehicles, which are limited partnerships and similar entities that construct, own and operate affordable housing, wind, solar and other alternative energy projects. These entities are primarily considered VIEs. A third party is typically the
 
general partner or managing member and has control over the significant activities of the tax credit vehicles, and accordingly the Firm does not consolidate tax credit vehicles. The Firm generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits allocated to the projects. The maximum loss exposure, represented by equity investments and funding commitments, was $12.9 billion and $13.4 billion, of which $2.9 billion and $3.2 billion was unfunded at March 31, 2018 and December 31, 2017 respectively. In order to reduce the risk of loss, the Firm assesses each project and withholds varying amounts of its capital investment until qualification of the project for tax credits. For further information on affordable housing tax credits, see Note 24 of JPMorgan Chase’s 2017 Annual Report. For more information on off-balance sheet lending-related commitments, see Note 20 of this Form 10-Q.
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

133


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 both March 31, 2018 and
 
December 31, 2017 was $5.3 billion. The fair value of assets held by such VIEs at March 31, 2018 and December 31, 2017, was $9.0 billion and $9.2 billion, respectively. For more information on off-balance sheet lending-related commitments, see Note 20.
Loan securitizations
The Firm has securitized and sold a variety of loans, including residential mortgage, credit card, and commercial mortgage. For a further description of the Firm’s accounting policies regarding securitizations, see Note 14 of JPMorgan Chase’s 2017 Annual Report.
Securitization activity
The following table provides information related to the Firm’s securitization activities for the three months ended March 31, 2018 and 2017, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and where sale accounting was achieved at the time of the securitization.
 
Three months ended March 31,
 
2018
 
2017
(in millions)
Residential mortgage(d)
Commercial and other(e)
 
Residential mortgage(d)
Commercial and other(e)
Principal securitized
$
1,330

$
2,991

 
$
1,029

$
1,315

All cash flows during the period(a):
 
 
 
 
 
Proceeds received from loan sales as financial instruments(b)
$
1,338

$
2,991

 
$
1,035

$
1,348

Servicing fees collected
126

1

 
133

1

Purchases of previously transferred financial assets (or the underlying collateral)(c)


 


Cash flows received on interests
92

47

 
131

335

(a)
Excludes re-securitization transactions.
(b)
predominantly includes Level 2 assets.
(c)
Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation and warranties and servicer “clean-up” calls.
(d)
Includes prime, Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac.
(e)
Includes commercial mortgage and other consumer loans.
Loans and excess MSRs sold to U.S. government-sponsored enterprises, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities
In addition to the amounts reported in the securitization activity tables above, the Firm, in the normal course of business, sells originated and purchased mortgage loans and certain originated excess MSRs on a nonrecourse basis, predominantly to U.S. government-sponsored enterprises (“U.S. GSEs”). These loans and excess MSRs are sold primarily for the purpose of securitization by the U.S. GSEs, who provide certain guarantee provisions (e.g., credit enhancement of the loans). The Firm also sells loans into securitization transactions pursuant to Ginnie Mae guidelines; these loans are typically insured or guaranteed by another U.S. government agency. The Firm does not consolidate the securitization vehicles underlying these transactions as it is not the primary beneficiary. For a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans with the purchaser. See Note 20 of this Form 10-Q, and Note 27 of JPMorgan Chase’s 2017 Annual Report for additional information about the Firm’s loan sales- and securitization-related indemnifications. See Note 14 for additional information about the impact of the Firm’s sale of
 
certain excess MSRs. The following table summarizes the activities related to loans sold to the U.S. GSEs, loans in securitization transactions pursuant to Ginnie Mae guidelines, and other third-party-sponsored securitization entities.
 
Three months ended March 31,
(in millions)
2018

2017

Carrying value of loans sold
$
8,760

$
17,169

Proceeds received from loan sales as cash

9

Proceeds from loan sales as securities(a)
8,619

16,987

Total proceeds received from loan sales(b)
$
8,619

$
16,996

Gains on loan sales(c)(d)
$
14

$
31

(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 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.


134


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 20, the Firm also has the option to repurchase delinquent loans that it services for Ginnie Mae loan pools, as well as for other U.S. government agencies under certain arrangements. The Firm typically elects to repurchase delinquent loans from Ginnie Mae loan pools as it continues to service them and/or manage the foreclosure process in accordance with the applicable requirements, and such loans continue to be insured or guaranteed. When the Firm’s repurchase option becomes exercisable, such loans must be reported on the Consolidated balance sheets as a loan with a corresponding liability. For additional information, refer to Note 11.
 
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 March 31, 2018 and December 31, 2017. Substantially all of these loans and real estate are insured or guaranteed by U.S. government agencies.
(in millions)
March 31, 2018

Dec 31,
2017

Loans repurchased or option to repurchase(a)
$
8,735

$
8,629

Real estate owned
94

95

Foreclosed government-guaranteed residential mortgage loans(b)
490

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.

Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of March 31, 2018, and December 31, 2017.
 
 
 
 
 
Net liquidation losses(a)
 
Securitized assets
 
90 days past due
 
Three months ended March 31,
(in millions)
Mar 31,
2018

Dec 31,
2017

 
Mar 31,
2018

Dec 31,
2017

 
2018

2017

Securitized loans
 
 
 
 
 
 
 
 
Residential mortgage:
 
 
 
 
 
 
 
 
Prime / Alt-A & option ARMs
$
51,840

$
52,280

 
$
4,562

$
4,870

 
$
102

$
212

Subprime
17,074

17,612

 
3,181

3,276

 
(602
)
175

Commercial and other
69,192

63,411

 
736

957

 
27

52

Total loans securitized
$
138,106

$
133,303

 
$
8,479

$
9,103

 
$
(473
)
$
439

(a)
Includes liquidation gains as a result of private label mortgage settlement payments during the first quarter of 2018, which were reflected as asset recoveries by trustees.



135


Note 14 – Goodwill and Mortgage servicing rights
For a discussion of the accounting policies related to goodwill and mortgage servicing rights, see Note 15 of JPMorgan Chase’s 2017 Annual Report.
Goodwill
The following table presents goodwill attributed to the business segments.
(in millions)
March 31,
2018

December 31,
2017

Consumer & Community Banking
$
31,006

$
31,013

Corporate & Investment Bank
6,775

6,776

Commercial Banking
2,860

2,860

Asset & Wealth Management
6,858

6,858

Total goodwill
$
47,499

$
47,507

The following table presents changes in the carrying amount of goodwill.
 
Three months ended March 31,
(in millions)
2018

 
2017

Balance at beginning
of period
$
47,507

 
$
47,288

Changes during the period from:
 
 
 
Business combinations
(1
)
 

Dispositions

 

Other(a)
(7
)
 
4

Balance at March 31,
$
47,499

 
$
47,292

(a)
Includes foreign currency remeasurement and other adjustments.
 
Goodwill Impairment testing
For a further description of the Firm’s goodwill impairment testing, including the primary method used to estimate the fair value of the reporting units, and the assumptions used in the goodwill impairment test, see Impairment testing on pages 244–245 of JPMorgan Chase’s 2017 Annual Report.
Goodwill was not impaired at March 31, 2018, or December 31, 2017, nor was goodwill written off due to impairment during the three months ended March 31, 2018 or 2017.
Declines in business performance, increases in credit losses, increases in equity 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.

136


Mortgage servicing rights
MSRs represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained. For a further description of the MSR asset, interest rate risk management, and the valuation of MSRs, see Notes 2 and 15 of JPMorgan Chase’s 2017 Annual Report.
The following table summarizes MSR activity for the three months ended March 31, 2018 and 2017.
 
As of or for the three months
ended March 31,
(in millions, except where otherwise noted)
2018

 
2017

Fair value at beginning of period
$
6,030

 
$
6,096

MSR activity:
 
 
 
Originations of MSRs
176

 
217

Purchase of MSRs
67

 

Disposition of MSRs(a)
(295
)
 
(71
)
Net additions/(dispositions)
(52
)
 
146

 
 
 
 
Changes due to collection/realization of expected cash flows
(160
)
 
(206
)
 
 
 
 
Changes in valuation due to inputs and assumptions:
 
 
 
Changes due to market interest rates and other(b)
382

 
57

Changes in valuation due to other inputs and assumptions:
 
 
 
Projected cash flows (e.g., cost to service)

 
12

Discount rates
24

 
(12
)
Prepayment model changes and other(c)
(22
)
 
(14
)
Total changes in valuation due to other inputs and assumptions
2

 
(14
)
Total changes in valuation due to inputs and assumptions
384

 
43

Fair value at March 31,
$
6,202

 
$
6,079

 
 
 
 
Change in unrealized gains/(losses) included in income related to MSRs held at March 31,
$
384

 
$
43

Contractual service fees, late fees and other ancillary fees included in income
465

 
487

Third-party mortgage loans serviced at March 31, (in billions)
540

 
584

Net servicer advances at March 31, (in billions)(d)
3.6

 
4.4

(a)
Includes excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities (“SMBS”). In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b)
Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected prepayments.
(c)
Represents changes in prepayments other than those attributable to changes in market interest rates.
(d)
Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these servicer advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in accordance with applicable rules and agreements.

137


The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the three months ended March 31, 2018 and 2017.
 
 
Three months ended March 31,
(in millions)
 
2018

 
2017

CCB mortgage fees and related income
 
 
 
 
 
 
 
 
 
Net production revenue
 
$
95

 
$
141

 
 
 
 
 
Net mortgage servicing revenue:
 
 
 
 
Operating revenue:
 
 
 
 
Loan servicing revenue
 
513

 
522

Changes in MSR asset fair value due to collection/realization of expected cash flows
 
(160
)
 
(205
)
Total operating revenue
 
353

 
317

Risk management:
 
 
 
 
Changes in MSR asset fair value due to market interest rates and other(a)
 
382

 
57

Other changes in MSR asset fair value due to other inputs and assumptions
in model(b)
 
2

 
(14
)
Change in derivative fair value and other
 
(367
)
 
(95
)
Total risk management
 
17

 
(52
)
Total net mortgage servicing revenue
 
370

 
265

 
 
 
 
 
Total CCB mortgage fees and related income
 
465

 
406

 
 
 
 
 
All other
 

 

Mortgage fees and related income
 
$
465

 
$
406

(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).
The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at March 31, 2018, and December 31, 2017, and outlines hypothetical sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
(in millions, except rates)
Mar 31,
2018

 
Dec 31,
2017

Weighted-average prepayment speed assumption (“CPR”)
8.56
%
 
9.35
%
Impact on fair value of 10% adverse change
$
(202
)
 
$
(221
)
Impact on fair value of 20% adverse change
(392
)
 
(427
)
Weighted-average option adjusted spread
8.77
%
 
9.04
%
Impact on fair value of a 100 basis point adverse change
$
(246
)
 
$
(250
)
Impact on fair value of a 200 basis point adverse change
(473
)
 
(481
)
CPR: Constant prepayment rate.
 
Changes in fair value based on variation in assumptions generally cannot be easily extrapolated, because the relationship of the change in the assumptions to the change in fair value are often highly interrelated and may not be linear. In this table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which would either magnify or counteract the impact of the initial change.


138


Note 15 – Deposits
For a detailed discussion on deposits, see Note 17 of JPMorgan Chase’s 2017 Annual Report.
At March 31, 2018, and December 31, 2017, noninterest-bearing and interest-bearing deposits were as follows.
(in millions)
March 31,
2018

 
December 31, 2017

U.S. offices
 
 
 
Noninterest-bearing
$
397,856

 
$
393,645

Interest-bearing (included $14,765 and $14,947 at fair value)(a)
825,223

 
793,618

Total deposits in U.S. offices
1,223,079

 
1,187,263

Non-U.S. offices
 
 
 
Noninterest-bearing
17,019

 
15,576

Interest-bearing (included $5,405 and $6,374 at fair value)(a)
246,863

 
241,143

Total deposits in non-U.S. offices
263,882

 
256,719

Total deposits
$
1,486,961

 
$
1,443,982

(a)
Includes structured notes classified as deposits for which the fair value option has been elected. For a further discussion, see Note 3 of JPMorgan Chase’s 2017 Annual Report.

 
Note 16 – Earnings per share
For a discussion of the computation of basic and diluted earnings per share (“EPS”), see Note 22 of JPMorgan Chase’s 2017 Annual Report. The following table presents the calculation of basic and diluted EPS for the three months ended March 31, 2018 and 2017.
(in millions, except per share amounts)
Three months ended
March 31,
2018

2017

Basic earnings per share
 
 
Net income
$
8,712

$
6,448

Less: Preferred stock dividends
409

412

Net income applicable to common equity
8,303

6,036

Less: Dividends and undistributed earnings allocated to participating securities
65

61

Net income applicable to common stockholders
$
8,238

$
5,975

 
 
 
Total weighted-average basic shares
  outstanding
3,458.3

3,601.7

Net income per share
$
2.38

$
1.66

 
 
 
Diluted earnings per share
 
 
Net income applicable to common stockholders
$
8,238

$
5,975

Total weighted-average basic shares
  outstanding
3,458.3

3,601.7

Add: Employee stock options, SARs, warrants and unvested PSUs
21.2

28.7

Total weighted-average diluted shares outstanding
3,479.5

3,630.4

Net income per share
$
2.37

$
1.65



139


Note 17 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges, cash flow hedging activities, net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans.
 
As of or for the three months ended
March 31, 2018
(in millions)
Unrealized
gains/(losses)
on investment securities
 
Translation adjustments, net of hedges
 
Fair value hedges(b)
Cash flow hedges
 
Defined benefit
pension and
OPEB plans
DVA on fair value option elected liabilities
Accumulated other comprehensive income/(loss)
 
 
Balance at January 1, 2018
 
$
2,164

 
 
 
$
(470
)
 
 
$

 
$
76

 
 
 
$
(1,521
)
 
 
$
(368
)
 
 
$
(119
)
 
 
Cumulative effect of changes in accounting principles:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premium amortization on purchased callable debt securities
 
261

 
 
 

 
 

 

 
 
 

 
 

 
 
261

 
 
Hedge accounting
 
169

 
 
 

 
 
(54
)
 

 
 
 

 
 

 
 
115

 
 
Reclassification of certain tax effects from AOCI
 
466

 
 
 
(277
)
 
 

 
16

 
 
 
(414
)
 
 
(79
)
 
 
(288
)
 
 
Net change
 
(1,234
)
 
 
 
27

 
 
(40
)
 
(73
)
 
 
 
21

 
 
267

 
 
(1,032
)
 
 
Balance at March 31, 2018
 
$
1,826

 
 
 
$
(720
)
 
 
$
(94
)
 
$
19

 
 
 
$
(1,914
)
 
 
$
(180
)
 
 
$
(1,063
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of or for the three months ended
March 31, 2017
(in millions)
Unrealized
gains/(losses)
on investment securities
 
Translation adjustments, net of hedges
 
Fair value hedges
Cash flow hedges
 
Defined benefit pension and
OPEB plans
DVA on fair value option elected liabilities
Accumulated other comprehensive income/(loss)
 
 
Balance at January 1, 2017
 
$
1,524

 
 
 
$
(164
)
 
 
NA

 
$
(100
)
 
 
 
$
(2,259
)
 
 
$
(176
)
 
 
$
(1,175
)
 
 
Net change
 
238

 
 
 
7

 
 
NA

 
91

 
 
 
(15
)
 
 
(69
)
 
 
252

 
 
Balance at March 31, 2017
 
$
1,762

 
 
 
$
(157
)
 
 
NA

 
$
(9
)
 
 
 
$
(2,274
)
 
 
$
(245
)
 
 
$
(923
)
 
(a)
Represents the adjustment to AOCI as a result of the new accounting standards in the first quarter of 2018. For additional information, see Note 1.
(b)
Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of the accrual of interest on the cross currency swap.


140


The following table presents the pre-tax and after-tax changes in the components of OCI.
 
2018
 
2017
Three months ended March 31, (in millions)
Pre-tax
 
Tax effect
 
After-tax
 
Pre-tax
 
Tax effect
 
After-tax
Unrealized gains/(losses) on debt investment securities:
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains/(losses) arising during the period
$
(1,858
)
 
$
437

 
$
(1,421
)
 
$
367

 
$
(131
)
 
$
236

Reclassification adjustment for realized (gains)/losses included in
net income(a)
245

 
(58
)
 
187

 
3

 
(1
)
 
2

Net change
(1,613
)
 
379

 
(1,234
)
 
370

 
(132
)
 
238

Translation adjustments(b):
 
 
 
 
 
 
 
 
 
 
 
Translation
389

 
(65
)
 
324

 
582

 
(225
)
 
357

Hedges
(389
)
 
92

 
(297
)
 
(556
)
 
206

 
(350
)
Net change

 
27

 
27

 
26

 
(19
)
 
7

Fair value hedges, net change(c):

(52
)
 
12

 
(40
)
 
NA

 
NA

 
NA

Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains/(losses) arising during the period
(44
)
 
11

 
(33
)
 
59

 
(21
)
 
38

Reclassification adjustment for realized (gains)/losses included in
net income(d)
(52
)
 
12

 
(40
)
 
85

 
(32
)
 
53

Net change
(96
)
 
23

 
(73
)
 
144

 
(53
)
 
91

Defined benefit pension and OPEB plans:
 
 
 
 
 
 
 
 
 
 
 
Net gains/(losses) arising during the period
23

 
(6
)
 
17

 
(58
)
 
21

 
(37
)
Reclassification adjustments included in net income(e):
 
 
 
 
 
 
 
 
 
 
 
Amortization of net loss
26

 
(6
)
 
20

 
62

 
(23
)
 
39

Prior service costs/(credits)
(6
)
 
1

 
(5
)
 
(9
)
 
3

 
(6
)
Settlement (gain)/loss

 

 

 
(3
)
 
1

 
(2
)
Foreign exchange and other
(19
)
 
8

 
(11
)
 
(7
)
 
(2
)
 
(9
)
Net change
24

 
(3
)
 
21

 
(15
)
 

 
(15
)
DVA on fair value option elected liabilities, net change:
350

 
(83
)
 
267

 
(107
)
 
38

 
(69
)
Total other comprehensive income/(loss)
$
(1,387
)
 
$
355

 
$
(1,032
)
 
$
418

 
$
(166
)
 
$
252

(a)
The pre-tax amount is reported in investment securities losses in the Consolidated statements of income.
(b)
Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated statements of income. The amounts were not material for the periods presented.
(c)
Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of the accrual of interest on the cross currency swap.
(d)
The pre-tax amounts are predominantly recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of income.
(e)
The pre-tax amount is reported in other expense in the Consolidated statements of income.



141


Note 18 – Restricted cash and other restricted
assets
For a detailed discussion of the Firm’s restricted cash and other restricted assets, see Note 25 of JPMorgan Chase’s 2017 Annual Report.
As a result of the adoption of the restricted cash accounting guidance, restricted cash is included with unrestricted cash when reconciling the beginning and ending cash balances on the Consolidated statements of cash flows.
The following table presents the components of the Firm’s restricted cash:
(in billions)
March 31,
2018

December 31, 2017

Cash reserves – Federal Reserve Banks(a)
$
22.6

$
25.7

Segregated for the benefit of securities and futures brokerage customers
18.7

16.8

Cash reserves at non-U.S. central banks and held for other general purposes
3.1

3.3

Total restricted cash(b)
$
44.4

$
45.8

(a)
Average cash reserves were $24.5 billion and $26.2 billion for the three months ended March 31, 2018 and December 31, 2017, respectively.
(b)
Comprises $43.1 billion and $44.8 billion in deposits with banks, and $1.3 billion and $1.0 billion in cash and due from banks on the Consolidated balance sheets as of March 31, 2018 and December 31, 2017, respectively.


 
Also, as of March 31, 2018 and December 31, 2017, the Firm had:
Cash and securities pledged with clearing organizations for the benefit of customers of $17.6 billion and $18.0 billion, respectively.
Securities with a fair value of $5.8 billion and $3.5 billion, respectively, were also restricted in relation to customer activity.



142


Note 19 – Regulatory capital
For a detailed discussion on regulatory capital, see Note 26 of JPMorgan Chase’s 2017 Annual Report.
The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The Office of the Comptroller of the Currency (“OCC”) establishes similar minimum capital requirements and standards for the Firm’s insured depository institutions (“IDI”), including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.
Under the risk-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.
 
The following table represents the minimum and well-capitalized ratios to which the Firm and its IDI subsidiaries were subject as of March 31, 2018.
 
Minimum capital ratios
 
Well-capitalized ratios
 
BHC(a)(e)

IDI(b)(e)

 
BHC(c) 

IDI(d)

Capital ratios
 
 
 
 
 
CET1
9.0
%
6.375
%
 
%
6.5
%
Tier 1
10.5

7.875

 
6.0

8.0

Total
12.5

9.875

 
10.0

10.0

Tier 1 leverage
4.0

4.0

 
5.0

5.0

SLR
5.0

6.0

 

6.0

Note: The table above is as defined by the regulations issued by the Federal Reserve, OCC and FDIC and to which the Firm and its IDI subsidiaries are subject.
(a)
Represents the Transitional minimum capital ratios applicable to the Firm under Basel III at March 31, 2018. At March 31, 2018, the CET1 minimum capital ratio includes 1.875% resulting from the phase in of the Firm’s 2.5% capital conservation buffer and 2.625%, resulting from the phase in of the Firm’s 3.5% GSIB surcharge.
(b)
Represents requirements for JPMorgan Chase’s IDI subsidiaries. The CET1 minimum capital ratio includes 1.875% resulting from the phase in of the 2.5% capital conservation buffer that is applicable to the IDI subsidiaries. The IDI subsidiaries are not subject to the GSIB surcharge.
(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 7.5%, 9.0%, 11.0% and 4.0%, and the CET1, Tier 1, Total and Tier 1 leverage minimum capital ratios applicable to the Firm’s IDI subsidiaries were 5.75%, 7.25%, 9.25% and 4.0%, respectively.




143


The following tables present the risk-based and leverage-based capital metrics for JPMorgan Chase and its significant IDI subsidiaries under both the Basel III Standardized and Basel III Advanced Approaches. As of March 31, 2018, and December 31, 2017, JPMorgan Chase and all of its IDI subsidiaries were well-capitalized and met all capital requirements to which each was subject.
March 31, 2018
(in millions, except ratios)
Basel III Standardized Transitional
 
Basel III Advanced Transitional
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
 
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
Regulatory capital
 
 
 
 
 
 
 
CET1 capital
$
183,655

$
187,903

$
21,905

 
$
183,655

$
187,903

$
21,905

Tier 1 capital(a)
209,296

187,903

21,905

 
209,296

187,903

21,905

Total capital
238,326

199,271

27,850

 
228,320

193,099

26,505

 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Risk-weighted
1,552,952

1,382,770

105,610

 
1,466,095

1,260,775

185,468

Adjusted average(b)
2,539,183

2,136,238

120,490

 
2,539,183

2,136,238

120,490

 
 
 
 
 
 
 
 
Capital ratios(c)
 
 
 
 
 
 
 
CET1
11.8
%
13.6
%
20.7
%
 
12.5
%
14.9
%
11.8
%
Tier 1(a)
13.5

13.6

20.7

 
14.3

14.9

11.8

Total
15.3

14.4

26.4

 
15.6

15.3

14.3

Tier 1 leverage(d)
8.2

8.8

18.2

 
8.2

8.8

18.2

December 31, 2017
(in millions, except ratios)
Basel III Standardized Transitional
 
Basel III Advanced Transitional
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
 
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
Regulatory capital
 
 
 
 
 
 
 
 
 
CET1 capital
$
183,300

$
184,375

 
$
21,600

 
$
183,300

$
184,375

 
$
21,600

Tier 1 capital(a)
208,644

184,375

 
21,600

 
208,644

184,375

 
21,600

Total capital
238,395

195,839

 
27,691

 
227,933

189,510

(e) 
26,250

 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Risk-weighted
1,499,506

1,338,970

(e) 
113,108

 
1,435,825

1,241,916

(e) 
190,523

Adjusted average(b)
2,514,270

2,116,031

 
126,517

 
2,514,270

2,116,031

 
126,517

 
 
 
 
 
 
 
 
 
 
Capital ratios(c)
 
 
 
 
 
 
 
 
 
CET1
12.2
%
13.8
%
 
19.1
%
 
12.8
%
14.8
%
(e) 
11.3
%
Tier 1(a)
13.9

13.8

 
19.1

 
14.5

14.8

(e) 
11.3

Total
15.9

14.6

(e) 
24.5

 
15.9

15.3

(e) 
13.8

Tier 1 leverage(d)
8.3

8.7

 
17.1

 
8.3

8.7

 
17.1

(a)
Includes the deduction associated with the permissible holdings of covered funds (as defined by the Volcker Rule) for JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A. The deduction was not material as of March 31, 2018 and December 31, 2017.
(b)
Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(c)
For each of the risk-based capital ratios, the capital adequacy of the Firm and its IDI subsidiaries is evaluated against the lower of the two ratios as calculated under Basel III approaches (Standardized or Advanced) as required by the Collins Amendment of the Dodd-Frank Act (the “Collins Floor”).
(d)
The Tier 1 leverage ratio is not a risk-based measure of capital.
(e)
The prior period amounts have been revised to conform with the current period presentation.
 
March 31, 2018
 
December 31, 2017
 
Basel III Advanced Fully Phased-In
Basel III Advanced Transitional
(in millions, except ratios)
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
 
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
Total leverage exposure(a)
$
3,234,103

$
2,799,403

$
177,666

 
$
3,204,463

$
2,775,041

$
182,803

SLR(a)
6.5
%
6.7
%
12.3
%
 
6.5
%
6.6
%
11.8
%
(a)
Effective January 1, 2018, the SLR was fully phased-in under Basel III. Prior period amounts were calculated under the Basel III Transitional rules.

144


Note 20 – Off–balance sheet lending-related financial instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees are refinanced, extended, cancelled, or expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its expected future credit exposure or funding requirements. For a further discussion of lending-related commitments and guarantees, and the Firm’s related accounting policies, see Note 27 of JPMorgan Chase’s 2017 Annual Report.
 
To provide for probable credit losses inherent in wholesale and certain consumer lending-related commitments, an allowance for credit losses on lending-related commitments is maintained. See Note 12 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 March 31, 2018, and December 31, 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 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.

145


Off–balance sheet lending-related financial instruments, guarantees and other commitments


Contractual amount

Carrying value(g)

March 31, 2018

Dec 31,
2017


Mar 31,
2018

Dec 31,
2017

By remaining maturity
(in millions)
Expires in 1 year or less
Expires after
1 year through
3 years
Expires after
3 years through
5 years
Expires after 5 years
Total

Total



Lending-related
 
 
 
 
 
 
 
 
 
 
Consumer, excluding credit card:
 
 
 
 
 
 
 
 
 
 
Home equity
$
1,712

$
1,245

$
1,439

$
16,177

$
20,573


$
20,360


$
12

$
12

Residential mortgage(a)
6,661



13

6,674


5,736




Auto
7,652

848

219

65

8,784


9,255


2

2

Consumer & Business Banking
11,957

903

106

519

13,485


13,202


19

19

Total consumer, excluding credit card
27,982

2,996

1,764

16,774

49,516


48,553


33

33

Credit card
588,232




588,232


572,831




Total consumer(b)
616,214

2,996

1,764

16,774

637,748


621,384


33

33

Wholesale:
 
 
 
 
 
 
 
 
 
 
Other unfunded commitments to extend credit(c)
68,984

130,836

139,583

7,115

346,518


331,160


870

840

Standby letters of credit and other financial guarantees(c)
15,543

10,086

7,241

1,932

34,802


35,226


719

636

Other letters of credit(c)
2,739

82

134


2,955


3,712


4

3

Total wholesale(d)
87,266

141,004

146,958

9,047

384,275


370,098


1,593

1,479

Total lending-related
$
703,480

$
144,000

$
148,722

$
25,821

$
1,022,023


$
991,482


$
1,626

$
1,512

Other guarantees and commitments


















Securities lending indemnification agreements and guarantees(e)
$
216,863

$

$

$

$
216,863


$
179,490


$

$

Derivatives qualifying as guarantees
2,391

326

12,421

40,178

55,316


57,174


427

304

Unsettled reverse repurchase and securities borrowing agreements
128,774




128,774


76,859




Unsettled repurchase and securities lending agreements
90,034




90,034


44,205




Loan sale and securitization-related indemnifications:


















Mortgage repurchase liability
NA

NA

NA

NA

NA


NA


111

111

Loans sold with recourse
NA

NA

NA

NA

1,136


1,169


36

38

Other guarantees and commitments(f)
9,791

1,118

166

3,174

14,249


11,867


(584
)
(76
)
(a)
Includes certain commitments to purchase loans from correspondents.
(b)
Predominantly all consumer lending-related commitments are in the U.S.
(c)
At March 31, 2018, and December 31, 2017, reflected the contractual amount net of risk participations totaling $334 million for both periods, for other unfunded commitments to extend credit; $10.8 billion and $10.4 billion, respectively, for standby letters of credit and other financial guarantees; and $330 million and $405 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
(d)
At March 31, 2018, and December 31, 2017, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 76% and 77%, respectively.
(e)
At March 31, 2018, and December 31, 2017, collateral held by the Firm in support of securities lending indemnification agreements was $226.5 billion and $188.7 billion, respectively. Securities lending collateral primarily consists of cash and securities issued by governments that are members of G7 and U.S. government agencies.
(f)
At March 31, 2018, and December 31, 2017, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, unfunded commitments related to institutional lending and commitments associated with the Firm’s membership in certain clearing houses. Additionally, includes unfunded commitments predominantly related to certain tax-oriented equity investments.
(g)
For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the carrying value represents the fair value.


146


Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally consist of commitments for working capital and general corporate purposes, extensions of credit to support commercial paper facilities and bond financings in the event that those obligations cannot be remarketed to new investors, as well as committed liquidity facilities to clearing organizations. The Firm also issues commitments under multipurpose facilities which could be drawn upon in several forms, including the issuance of a standby letter of credit.
The Firm acts as a settlement and custody bank in the U.S. tri-party repurchase transaction market. In its role as settlement and custody bank, the Firm is exposed to the intra-day credit risk of its cash borrower clients, usually broker-dealers. This exposure arises under secured
 
clearance advance facilities that the Firm extends to its clients (i.e., cash borrowers); these facilities contractually limit the Firm’s intra-day credit risk to the facility amount
and must be repaid by the end of the day. As of both March 31, 2018, and December 31, 2017, the secured clearance advance facility maximum outstanding commitment amount was $1.5 billion.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are conditional lending commitments issued by the Firm to guarantee the performance of a client or customer to a third party under certain arrangements, such as commercial paper facilities, bond financings, acquisition financings, trade and similar transactions.

The following table summarizes the standby letters of credit and other letters of credit arrangements as of March 31, 2018, and December 31, 2017.
Standby letters of credit, other financial guarantees and other letters of credit
 
March 31, 2018
 
December 31, 2017
(in millions)
Standby letters of
credit and other financial guarantees
 
Other letters
of credit
 
Standby letters of
credit and other financial guarantees
 
Other letters
of credit
Investment-grade(a)
$
28,048

 
$
2,101

 
$
28,492

 
$
2,646

Noninvestment-grade(a)
6,754

 
854

 
6,734

 
1,066

Total contractual amount
$
34,802

 
$
2,955

 
$
35,226

 
$
3,712

 
 
 
 
 
 
 
 
Allowance for lending-related commitments
$
200

 
$
4

 
$
192

 
$
3

Guarantee liability
519

 

 
444

 

Total carrying value
$
719

 
$
4

 
$
636

 
$
3

 
 
 
 
 
 
 
 
Commitments with collateral
$
16,766

 
$
681

 
$
17,421

 
$
878

(a)
The ratings scale is based on the Firm’s internal ratings which generally correspond to ratings as defined by S&P and Moody’s.
Derivatives qualifying as guarantees
The Firm transacts certain derivative contracts that have the characteristics of a guarantee under U.S. GAAP. For further information on these derivatives, see Note 27 of JPMorgan Chase’s 2017 Annual Report.
The following table summarizes the derivatives qualifying as guarantees as of March 31, 2018, and December 31, 2017.
(in millions)
March 31, 2018

 
December 31, 2017

Notional amounts
 
 
 
Derivative guarantees
55,316

 
57,174

Stable value contracts with contractually limited exposure
28,453

 
29,104

Maximum exposure of stable value contracts with contractually limited exposure
2,945

 
3,053

 
 
 
 
Fair value
 
 
 
Derivative payables
427

 
304

Derivative receivables

 


 
In addition to derivative contracts that meet the characteristics of a guarantee, the Firm is both a purchaser and seller of credit protection in the credit derivatives market. For a further discussion of credit derivatives, see Note 4.

147


Loan sales- and securitization-related indemnifications
In connection with the Firm’s mortgage loan sale and securitization activities with GSEs and in certain private label transactions, 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. For additional information, see Note 27 of JPMorgan Chase’s 2017 Annual Report.
The liability related to repurchase demands associated with private label securitizations is separately evaluated by the Firm in establishing its litigation reserves. For additional information regarding litigation, see Note 22 of this Form 10-Q and Note 29 of JPMorgan Chase’s 2017 Annual Report.
Guarantees of subsidiary
The Parent Company has guaranteed certain long-term debt and structured notes of its subsidiaries, including JPMorgan Chase Financial Company LLC (“JPMFC”), a 100%-owned finance subsidiary. All securities issued by JPMFC are fully and unconditionally guaranteed by the Parent Company, and these guarantees rank on a parity with the Firm’s unsecured and unsubordinated indebtedness.






















 
Note 21 – Pledged assets and collateral
For a discussion of the Firm’s pledged assets and collateral, see Note 28 of JPMorgan Chase’s 2017 Annual Report.
Pledged assets
The Firm may pledge financial assets that it owns to maintain potential borrowing capacity with central banks and for other purposes, including to secure borrowings and public deposits, collateralize repurchase and other securities financing agreements, and cover customer short sales. Certain of these pledged assets may be sold or repledged or otherwise used by the secured parties and are identified as financial instruments owned (pledged to various parties) on the Consolidated balance sheets.
The following table presents the Firm’s pledged assets.
(in billions)
March 31, 2018

 
December 31,
2017

Assets that may be sold or repledged or otherwise used by secured parties
$
143.7

 
$
129.6

Assets that may not be sold or repledged or otherwise used by secured parties
72.4

 
67.9

Assets pledged at Federal Reserve banks and FHLBs
487.9

 
493.7

Total assets pledged
$
704.0

 
$
691.2

Total assets pledged do not include assets of consolidated VIEs; these assets are used to settle the liabilities of those entities. See Note 13 for additional information on assets and liabilities of consolidated VIEs. For additional information on the Firm’s securities financing activities, see Note 10. For additional information on the Firm’s long-term debt, see Note 19 of JPMorgan Chase’s 2017 Annual Report.
Collateral
The Firm accepts financial assets as collateral that it is permitted to sell or repledge, deliver or otherwise use. This collateral is generally obtained under resale agreements, securities borrowing agreements, customer margin loans and derivative agreements. Collateral is generally used under repurchase agreements, securities lending agreements or to cover customer short sales and to collateralize deposits and derivative agreements.
The following table presents the fair value of collateral accepted.
(in billions)
March 31, 2018

 
December 31,
2017

Collateral permitted to be sold or repledged, delivered, or otherwise used
$
1,093.6

 
$
968.8

Collateral sold, repledged, delivered or otherwise used
873.5

 
775.3



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Note 22 – Litigation
Contingencies
As of March 31, 2018, the Firm and its subsidiaries and affiliates are defendants or putative defendants in numerous legal proceedings, including private, civil litigations and regulatory/government investigations. The litigations range from individual actions involving a single plaintiff to class action lawsuits with potentially millions of class members. Investigations involve both formal and informal proceedings, by both governmental agencies and self-regulatory organizations. These legal proceedings are at varying stages of adjudication, arbitration or investigation, and involve each of the Firm’s lines of business and geographies and a wide variety of claims (including common law tort and contract claims and statutory antitrust, securities and consumer protection claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for its legal proceedings is from $0 to approximately $1.7 billion at March 31, 2018. This estimated aggregate range of reasonably possible losses was based upon currently available information for those proceedings in which the Firm believes that an estimate of reasonably possible loss can be made. For certain matters, the Firm does not believe that such an estimate can be made, as of that date. The Firm’s estimate of the aggregate range of reasonably possible losses involves significant judgment, given:
the number, variety and varying stages of the proceedings, including the fact that many are in preliminary stages,
the existence in many such proceedings of multiple defendants, including the Firm, whose share of liability (if any) has yet to be determined,
the numerous yet-unresolved issues in many of the proceedings, including issues regarding class certification and the scope of many of the claims, and
the attendant uncertainty of the various potential outcomes of such proceedings, including where the Firm has made assumptions concerning future rulings by the court or other adjudicator, or about the behavior or incentives of adverse parties or regulatory authorities, and those assumptions prove to be incorrect.
In addition, the outcome of a particular proceeding may be a result which the Firm did not take into account in its estimate because the Firm had deemed the likelihood of that outcome to be remote. Accordingly, the Firm’s estimate of the aggregate range of reasonably possible losses will change from time to time, and actual losses may vary significantly.
Set forth below are descriptions of the Firm’s material legal proceedings.
 
Foreign Exchange Investigations and Litigation. The Firm previously reported settlements with certain government authorities relating to its foreign exchange (“FX”) sales and trading activities and controls related to those activities. FX-related investigations and inquiries by government authorities, including competition authorities, are ongoing, and the Firm is cooperating with and working to resolve those matters. In May 2015, the Firm pleaded guilty to a single violation of federal antitrust law. In January 2017, the Firm was sentenced, with judgment entered thereafter and a term of probation ending in January 2020. The Department of Labor has granted the Firm a five-year exemption of disqualification that allows the Firm and its affiliates to continue to rely on the Qualified Professional Asset Manager exemption under the Employee Retirement Income Security Act (“ERISA”) until January 2023. The Firm will need to reapply in due course for a further exemption to cover the remainder of the ten-year disqualification period. Separately, in February 2017 the South Africa Competition Commission referred its FX investigation of the Firm and other banks to the South Africa Competition Tribunal, which is conducting civil proceedings concerning that matter.
The Firm is also one of a number of foreign exchange dealers defending a class action filed in the United States District Court for the Southern District of New York by U.S.-based plaintiffs, principally alleging violations of federal antitrust laws based on an alleged conspiracy to manipulate foreign exchange rates (the “U.S. class action”). In January 2015, the Firm entered into a settlement agreement in the U.S. class action. Following this settlement, a number of additional putative class actions were filed seeking damages for persons who transacted FX futures and options on futures (the “exchanged-based actions”), consumers who purchased foreign currencies at allegedly inflated rates (the “consumer action”), participants or beneficiaries of qualified ERISA plans (the “ERISA actions”), and purported indirect purchasers of FX instruments (the “indirect purchaser action”). Since then, the Firm has entered into a revised settlement agreement to resolve the consolidated U.S. class action, including the exchange-based actions. That agreement has been preliminarily approved by the Court and a final approval hearing is scheduled for May 2018. Certain members of the settlement class have filed requests to the Court to be excluded from the class. The District Court has dismissed one of the ERISA actions, and the plaintiffs have filed an appeal. The District Court has also dismissed the indirect purchaser action, and the plaintiffs have sought leave to replead their complaint. The consumer action and a second ERISA action remain pending in the District Court.
General Motors Litigation. JPMorgan Chase Bank, N.A. participated in, and was the Administrative Agent on behalf of a syndicate of lenders on, a $1.5 billion syndicated Term Loan facility (“Term Loan”) for General Motors Corporation

149


(“GM”). In July 2009, in connection with the GM bankruptcy proceedings, the Official Committee of Unsecured Creditors of Motors Liquidation Company (“Creditors Committee”) filed a lawsuit against JPMorgan Chase Bank, N.A., in its individual capacity and as Administrative Agent for other lenders on the Term Loan, seeking to hold the underlying lien invalid based on the filing of a UCC-3 termination statement relating to the Term Loan. In January 2015, following several court proceedings, the United States Court of Appeals for the Second Circuit reversed the Bankruptcy Court’s dismissal of the Creditors Committee’s claim and remanded the case to the Bankruptcy Court with instructions to enter partial summary judgment for the Creditors Committee as to the termination statement. The proceedings in the Bankruptcy Court continue with respect to, among other things, additional defenses asserted by JPMorgan Chase Bank, N.A. and the value of additional collateral on the Term Loan that was unaffected by the filing of the termination statement at issue. In connection with that additional collateral, a trial in the Bankruptcy Court regarding the value of certain representative assets concluded in May 2017, and a ruling was issued in September 2017. The Bankruptcy Court found that 33 of the 40 representative assets are fixtures and that these fixtures generally should be valued on a “going concern” basis. The Creditors Committee is seeking leave to appeal the Bankruptcy Court’s ruling that the fixtures should be valued on a “going concern” basis rather than on a liquidation basis. In addition, certain Term Loan lenders filed cross-claims in the Bankruptcy Court against JPMorgan Chase Bank, N.A. seeking indemnification and asserting various claims. The parties are engaged in mediation concerning, among other things, the characterization and value of the remaining additional collateral, in light of the Bankruptcy Court’s ruling regarding the representative assets, as well as other issues, including the cross-claims.
Hopper Estate Litigation. The Firm is a defendant in an action in connection with its role as an independent administrator of an estate. The plaintiffs sought in excess of $7 million in compensatory damages, primarily relating to attorneys’ fees incurred by the plaintiffs. After a trial in probate court in Dallas, Texas that ended in September 2017, the jury returned a verdict against the Firm, awarding plaintiffs their full compensatory damages and multiple billions in punitive damages. In light of legal limitations on the availability of damages, the plaintiffs moved for judgment in the total amount of approximately $91 million, including punitive damages. The Firm has entered into a settlement in principle with two of the plaintiffs. Pending before the Court is the remaining plaintiff’s request that the Court enter judgment for up to $14 million and the Firm’s request that the court enter judgment wholly in its favor or, alternatively, that it limit the award to less than $8 million.
Interchange Litigation. A group of merchants and retail associations filed a series of class action complaints alleging that Visa and MasterCard, as well as certain banks, conspired to set the price of credit and debit card interchange fees and enacted respective rules in violation of
 
antitrust laws. The parties settled the cases for a cash payment of $6.1 billion to the class plaintiffs (of which the Firm’s share is approximately 20%) and an amount equal to ten basis points of credit card interchange for a period of 8 months to be measured from a date within 60 days of the end of the opt-out period. The settlement also provided for modifications to each credit card network’s rules, including those that prohibit surcharging credit card transactions. In December 2013, the District Court granted final approval of the settlement.
A number of merchants appealed to the United States Court of Appeals for the Second Circuit, which, in June 2016, vacated the District Court’s certification of the class action and reversed the approval of the class settlement. In March 2017, the U.S. Supreme Court declined petitions seeking review of the decision of the Court of Appeals. The case has been remanded to the District Court for further proceedings consistent with the appellate decision. The parties are engaged in an ongoing mediation process.
In addition, certain merchants have filed individual actions raising similar allegations against Visa and MasterCard, as well as against the Firm and other banks, and those actions are proceeding.
LIBOR and Other Benchmark Rate Investigations and Litigation. JPMorgan Chase has received subpoenas and requests for documents and, in some cases, interviews, from federal and state agencies and entities, including the U.S. Commodity Futures Trading Commission (“CFTC”) and various state attorneys general, as well as the European Commission (“EC”), the Swiss Competition Commission (“ComCo”) and other regulatory authorities and banking associations around the world relating primarily to the process by which interest rates were submitted to the British Bankers Association (“BBA”) in connection with the setting of the BBA’s London Interbank Offered Rate (“LIBOR”) for various currencies, principally in 2007 and 2008. Some of the inquiries also relate to similar processes by which information on rates was submitted to the European Banking Federation (“EBF”) in connection with the setting of the EBF’s Euro Interbank Offered Rates (“EURIBOR”) and to the Japanese Bankers’ Association for the setting of Tokyo Interbank Offered Rates (“TIBOR”) during similar time periods, as well as processes for the setting of U.S. dollar ISDAFIX rates and other reference rates in various parts of the world during similar time periods, including through 2012. The Firm continues to cooperate with these ongoing investigations, and is currently engaged in discussions with the CFTC about resolving its U.S. dollar ISDAFIX-related investigation with respect to the Firm. There is no assurance that such discussions will result in a settlement. As previously reported, the Firm has resolved EC inquiries relating to Yen LIBOR and Swiss Franc LIBOR. In December 2016, the Firm resolved ComCo inquiries relating to these same rates. ComCo’s investigation relating to EURIBOR, to which the Firm and other banks are subject, continues. In December 2016, the EC issued a decision against the Firm and other banks finding an infringement of European antitrust rules

150


relating to EURIBOR. The Firm has filed an appeal with the European General Court.
In addition, the Firm has been named as a defendant along with other banks in a series of individual and putative class actions filed in various United States District Courts. These actions have been filed, or consolidated for pre-trial purposes, in the United States District Court for the Southern District of New York. In these actions, plaintiffs make varying allegations that in various periods, starting in 2000 or later, defendants either individually or collectively manipulated various benchmark rates by submitting rates that were artificially low or high. Plaintiffs allege that they transacted in loans, derivatives or other financial instruments whose values are affected by changes in these rates and assert a variety of claims including antitrust claims seeking treble damages. These matters are in various stages of litigation.
The Firm has agreed to settle a putative class action related to Swiss franc LIBOR, and that settlement remains subject to final court approval.   
In an action related to EURIBOR, the District Court dismissed all claims except a single antitrust claim and two common law claims, and dismissed all defendants except the Firm and Citibank.
In actions related to U.S. dollar LIBOR, the District Court dismissed certain claims, including antitrust claims brought by some plaintiffs whom the District Court found did not have standing to assert such claims, and permitted antitrust claims, claims under the Commodity Exchange Act and common law claims to proceed. The plaintiffs whose antitrust claims were dismissed for lack of standing have filed an appeal. In January 2018, the Firm agreed to settle a putative class action related to exchange-traded Eurodollar futures contracts. This settlement is subject to further documentation and court approval. In February 2018, the District Court (i) granted class certification with respect to certain antitrust claims related to bonds and interest rate swaps sold directly by the defendants, (ii) denied class certification with respect to state common law claims brought by the holders of those bonds and swaps and (iii) denied class certification with respect to two other putative class actions related to exchange-traded Eurodollar futures contracts and LIBOR-based loans held by plaintiff lending institutions. The Firm and another defendant have petitioned for leave to appeal the class certification of the antitrust claims related to bonds and swaps, and the two class plaintiffs whose class certification motions were denied have also petitioned for leave to appeal.
In an action related to the Singapore Interbank Offered Rate and the Singapore Swap Offer Rate, the District Court dismissed without prejudice all claims except a single antitrust claim, and dismissed without prejudice all defendants except the Firm, Bank of America and Citibank. The plaintiffs filed an amended complaint in September 2017, which the Firm and other defendants have moved to dismiss.
 
The Firm is one of the defendants in a number of putative class actions alleging that defendant banks and ICAP conspired to manipulate the U.S. dollar ISDAFIX rates. In April 2016, the Firm settled this litigation, along with certain other banks. Those settlements have been preliminarily approved by the Court.
Mortgage-Backed Securities and Repurchase Litigation and Related Regulatory Investigations. The Firm and affiliates (together, “JPMC”), Bear Stearns and affiliates (together, “Bear Stearns”) and certain Washington Mutual affiliates (together, “Washington Mutual”) have been named as defendants in a number of cases in their various roles in offerings of MBS.
Issuer Litigation – Individual Purchaser Actions. The Firm has resolved all of the individual actions brought against JPMC, Bear Stearns and Washington Mutual as MBS issuers (and, in some cases, also as underwriters of their own MBS offerings).
Repurchase Litigation. The Firm has resolved all of the actions brought by trustees and/or securities administrators of various MBS trusts on behalf of purchasers of securities issued by those trusts, and those settlements have been approved by the relevant courts.
Additional actions have been filed against third-party trustees that relate to loan repurchase and servicing claims involving trusts sponsored by JPMC, Bear Stearns and Washington Mutual.
In actions against the Firm involving offerings of MBS issued by the Firm, the Firm has contractual rights to indemnification from sellers of mortgage loans that were securitized in such offerings. However, certain of those indemnity rights may prove effectively unenforceable in various situations, such as where the loan sellers are now defunct.
The Firm has entered into agreements with a number of MBS trustees or entities that purchased MBS that toll applicable statute of limitations periods with respect to their claims, and has settled, and in the future may settle, tolled claims. There is no assurance that the Firm will not be named as a defendant in additional MBS-related litigation.
Derivative Action. A shareholder derivative action against the Firm, as nominal defendant, and certain of its current and former officers and members of its Board of Directors relating to the Firm’s MBS activities was filed in California federal court in 2013. In June 2017, the court granted defendants’ motion to dismiss the cause of action that alleged material misrepresentations and omissions in the Firm’s proxy statement, found that the court did not have personal jurisdiction over the individual defendants with respect to the remaining causes of action, and transferred that remaining portion of the case to the United States District Court for the Southern District of New York without ruling on the merits. The motion by the defendants to dismiss is pending.
Municipal Derivatives Litigation. Several civil actions were commenced in New York and Alabama courts against the Firm relating to certain Jefferson County, Alabama (the

151


“County”) warrant underwritings and swap transactions. The claims in the civil actions generally alleged that the Firm made payments to certain third parties in exchange for being chosen to underwrite more than $3.0 billion in warrants issued by the County and to act as the counterparty for certain swaps executed by the County. The County filed for bankruptcy in November 2011. In June 2013, the County filed a Chapter 9 Plan of Adjustment, as amended (the “Plan of Adjustment”), which provided that all the above-described actions against the Firm would be released and dismissed with prejudice. In November 2013, the Bankruptcy Court confirmed the Plan of Adjustment, and in December 2013, certain sewer rate payers filed an appeal challenging the confirmation of the Plan of Adjustment. All conditions to the Plan of Adjustment’s effectiveness, including the dismissal of the actions against the Firm, were satisfied or waived and the transactions contemplated by the Plan of Adjustment occurred in December 2013. Accordingly, all the above-described actions against the Firm have been dismissed pursuant to the terms of the Plan of Adjustment. The appeal of the Bankruptcy Court’s order confirming the Plan of Adjustment remains pending.
Petters Bankruptcy and Related Matters. JPMorgan Chase and certain of its affiliates, including One Equity Partners (“OEP”), were named as defendants in several actions filed in connection with the receivership and bankruptcy proceedings pertaining to Thomas J. Petters and certain affiliated entities (collectively, “Petters”) and the Polaroid Corporation. The principal actions against JPMorgan Chase and its affiliates were brought by a court-appointed receiver for Petters and the trustees in bankruptcy proceedings for three Petters entities. These actions generally sought to avoid certain putative transfers in connection with (i) the 2005 acquisition by Petters of Polaroid, which at the time was majority-owned by OEP; (ii) two credit facilities that JPMorgan Chase and other financial institutions entered into with Polaroid; and (iii) a credit line and investment accounts held by Petters. In January 2017, the Court substantially denied the defendants’ motion to dismiss an amended complaint filed by the plaintiffs. In October 2017, JPMorgan Chase and its affiliates reached an agreement to settle the litigation brought by the Petters bankruptcy trustees, or their successors, and the receiver for Thomas J. Petters. The settlement is subject to Court approval, which is pending.
Wendel. Since 2012, the French criminal authorities have been investigating a series of transactions entered into by senior managers of Wendel Investissement (“Wendel”) during the period from 2004 through 2007 to restructure their shareholdings in Wendel. JPMorgan Chase Bank, N.A., Paris branch provided financing for the transactions to a number of managers of Wendel in 2007. JPMorgan Chase has cooperated with the investigation. The investigating judges issued an ordonnance de renvoi in November 2016, referring JPMorgan Chase Bank, N.A. to the French tribunal correctionnel for alleged complicity in tax fraud. No date for trial has been set by the court. The Firm has been successful in legal challenges made to the Court of
 
Cassation, France’s highest court, with respect to the criminal proceedings. In January 2018, the Paris Court of Appeal issued a decision cancelling the mise en examen of JPMorgan Chase Bank, N.A. The Firm is requesting clarification from the Court of Cassation concerning the Court of Appeal’s decision before seeking direction on next steps in the criminal proceedings. In addition, a number of the managers have commenced civil proceedings against JPMorgan Chase Bank, N.A. The claims are separate, involve different allegations and are at various stages of proceedings.
* * *
In addition to the various legal proceedings discussed above, JPMorgan Chase and its subsidiaries are named as defendants or are otherwise involved in a substantial number of other legal proceedings. The Firm believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and it intends to defend itself vigorously. Additional legal proceedings may be initiated from time to time in the future.
The Firm has established reserves for several hundred of its currently outstanding legal proceedings. In accordance with the provisions of U.S. GAAP for contingencies, the Firm accrues for a litigation-related liability when it is probable that such a liability has been incurred and the amount of the loss can be reasonably estimated. The Firm evaluates its outstanding legal proceedings each quarter to assess its litigation reserves, and makes adjustments in such reserves, upwards or downward, as appropriate, based on management’s best judgment after consultation with counsel. The Firm’s legal expense was $70 million and $218 million for the three months ended March 31, 2018 and 2017, respectively. There is no assurance that the Firm’s litigation reserves will not need to be adjusted in the future.
In view of the inherent difficulty of predicting the outcome of legal proceedings, particularly where the claimants seek very large or indeterminate damages, or where the matters present novel legal theories, involve a large number of parties or are in early stages of discovery, the Firm cannot state with confidence what will be the eventual outcomes of the currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or consequences related to those matters. JPMorgan Chase believes, based upon its current knowledge, after consultation with counsel and after taking into account its current litigation reserves, that the legal proceedings currently pending against it should not have a material adverse effect on the Firm’s consolidated financial condition. The Firm notes, however, that in light of the uncertainties involved in such proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves it has currently accrued or that a matter will not have material reputational consequences. As a result, the outcome of a particular matter may be material to JPMorgan Chase’s operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of JPMorgan Chase’s income for that period.

152


Note 23 – Business segments
The Firm is managed on a line of business basis. There are four major reportable business segments - Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset & Wealth Management. In addition, there is a Corporate segment.
The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a further discussion concerning JPMorgan Chase’s business segments, see Segment results below, and Note 31 of JPMorgan Chase’s 2017 Annual Report.
Segment results
The following table provides a summary of the Firm’s segment results as of or for the three months ended March 31, 2018 and 2017, on a managed basis. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the
 
reportable business segments) on an FTE basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable investments and securities. This allows management to assess the comparability of revenue from year-to-year arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Business segment capital allocation
The amount of capital assigned to each business is referred to as equity. On at least an annual basis, the Firm assesses the level of capital required for each line of business as well as the assumptions and methodologies used to allocate capital. For additional information on business segment capital allocation, see Line of business equity on page 88 of JPMorgan Chase’s 2017 Annual Report.
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, see Note 1.
Net income in the first quarter of 2018 for the business segments reflects the favorable impact of the reduction in the U.S. federal statutory income tax rate as a result of the TCJA.
Segment results and reconciliation(a)
As of or for the three months ended March 31,
(in millions, except ratios)
Consumer &
Community Banking
 
Corporate &
Investment Bank
 
Commercial Banking
 
Asset & Wealth Management
2018

2017

 
2018

2017

 
2018

2017

 
2018

2017

Noninterest revenue
$
4,139

$
3,317

 
$
7,917

$
6,999

 
$
549

$
599

 
$
2,630

$
2,469

Net interest income
8,458

7,653

 
2,566

2,600

 
1,617

1,419

 
876

819

Total net revenue
12,597

10,970

 
10,483

9,599

 
2,166

2,018

 
3,506

3,288

Provision for credit losses
1,317

1,430

 
(158
)
(96
)
 
(5
)
(37
)
 
15

18

Noninterest expense
6,909

6,395

 
5,659

5,184

 
844

825

 
2,581

2,781

Income before income tax expense
4,371

3,145

 
4,982

4,511

 
1,327

1,230

 
910

489

Income tax expense
1,045

1,157

 
1,008

1,270

 
302

431

 
140

104

Net income
$
3,326

$
1,988

 
$
3,974

$
3,241

 
$
1,025

$
799

 
$
770

$
385

Average equity
$
51,000

$
51,000

 
$
70,000

$
70,000

 
$
20,000

$
20,000

 
$
9,000

$
9,000

Total assets
540,659

524,770

 
909,845

840,304

 
220,880

217,348

 
158,439

141,049

Return on equity
25
%
15
%
 
22
%
18
%
 
20
%
15
%
 
34
%
16
%
Overhead ratio
55

58

 
54

54

 
39

41

 
74

85

As of or for the three months ended March 31,
(in millions, except ratios)
Corporate
 
Reconciling Items(a)
 
Total
2018

2017

 
2018

2017

 
2018

2017

Noninterest revenue
$
(185
)
$
73

 
$
(455
)
$
(582
)
 
$
14,595

$
12,875

Net interest income
(47
)
(98
)
 
(158
)
$
(329
)
 
13,312

12,064

Total net revenue
(232
)
(25
)
 
(613
)
$
(911
)
 
27,907

24,939

Provision for credit losses
(4
)

 


 
1,165

1,315

Noninterest expense
87

98

 


 
16,080

15,283

Income/(loss) before income tax expense/(benefit)
(315
)
(123
)
 
(613
)
(911
)
 
10,662

8,341

Income tax expense/(benefit)
68

(158
)
 
(613
)
(911
)
 
1,950

1,893

Net income/(loss)
$
(383
)
$
35

 
$

$

 
$
8,712

$
6,448

Average equity
$
77,615

$
77,703

 
$

$

 
$
227,615

$
227,703

Total assets
779,962

822,819

 
NA

NA

 
2,609,785

2,546,290

Return on equity
NM

NM

 
NM

NM

 
15
%
11
%
Overhead ratio
NM

NM

 
NM

NM

 
58

61

(a)
Segment managed results reflect revenue on an FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results.

153


pwclogobwa12.jpg
Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders of JPMorgan Chase & Co.:
Results of Review of Financial Statements
We have reviewed the accompanying consolidated balance sheet of JPMorgan Chase & Co. and its subsidiaries (the “Firm”) as of March 31, 2018, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the three-month periods ended March 31, 2018 and 2017, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Firm as of December 31, 2017, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 27, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 
Basis for Review Results
These interim financial statements are the responsibility of the Firm’s management. 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 review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

pwcsig1q2016a08.jpg

May 2, 2018






















PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017

154


JPMorgan Chase & Co.
Consolidated average balance sheets, interest and rates
(Taxable-equivalent interest and rates; in millions, except rates)
 
 
 
 
 
Three months ended March 31, 2018
 
Three months ended March 31, 2017
 
Average
balance
Interest(f)
 
Rate
(annualized)
 
Average
balance
Interest(f)
 
Rate
(annualized)
Assets
 
 
 
 
 
 
 
 
 
 
 
Deposits with banks
$
423,807

$
1,321

 
1.26
%
 
 
$
423,746

$
725

 
0.69
 %
 
Federal funds sold and securities purchased under resale agreements
198,362

731

 
1.49

 
 
196,965

526

 
1.08

 
Securities borrowed
109,733

62


0.23

 
 
95,372

(44
)
(g) 
(0.19
)
 
Trading assets – debt instruments
256,040

2,118

 
3.35

 
 
225,801

1,883

 
3.38

 
Taxable securities
195,641

1,313

 
2.72

 
 
240,803

1,430

 
2.41

 
Nontaxable securities(a)
44,113

510

 
4.69

 
 
44,762

690

 
6.25

 
Total investment securities
239,754

1,823

 
3.08

(h) 
 
285,565

2,120

 
3.01

(h) 
Loans
926,548

11,117

 
4.87

 
 
891,904

9,823

 
4.47

 
All other interest-earning assets(b)
49,169

681

 
5.61

 
 
41,559

338

 
3.30

 
Total interest-earning assets
2,203,413

17,853

 
3.29

 
 
2,160,912

15,371

 
2.88

 
Allowance for loan losses
(13,482
)
 
 
 
 
 
(13,723
)
 
 
 
 
Cash and due from banks
22,173

 
 
 
 
 
19,920

 
 
 
 
Trading assets – equity instruments
107,688

 
 
 
 
 
115,284

 
 
 
 
Trading assets – derivative receivables
60,492

 
 
 
 
 
61,400

 
 
 
 
Goodwill, MSRs and other intangible assets
54,702

 
 
 
 
 
54,249

 
 
 
 
Other assets
151,057

 
 
 
 
 
135,120

 
 
 
 
Total assets
$
2,586,043

 
 
 
 
 
$
2,533,162

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits
$
1,046,521

$
1,060

 
0.41
%
 
 
$
986,015

$
483

 
0.20
 %
 
Federal funds purchased and securities loaned or sold under repurchase agreements
196,112

578

 
1.20

 
 
189,611

293

 
0.63

 
Short-term borrowings(c)
57,603

209

 
1.47

 
 
36,521

73

 
0.79

 
Trading liabilities – debt and other interest-bearing
liabilities
(d)(e)
171,488

660

 
1.56

 
 
176,824

405

 
0.93

 
Beneficial interests issued by consolidated VIEs
23,561

123

 
2.11

 
 
38,775

135

 
1.41

 
Long-term debt
279,005

1,753

 
2.55

 
 
292,224

1,589

 
2.21

 
Total interest-bearing liabilities
1,774,290

4,383

 
1.00

 
 
1,719,970

2,978

 
0.70

 
Noninterest-bearing deposits
399,487

 
 
 
 
 
405,548

 
 
 
 
Trading liabilities – equity instruments(e)
28,631

 
 
 
 
 
21,072

 
 
 
 
Trading liabilities – derivative payables
41,745

 
 
 
 
 
48,373

 
 
 
 
All other liabilities, including the allowance for lending-related commitments
88,207

 
 
 
 
 
84,428

 
 
 
 
Total liabilities
2,332,360

 
 
 
 
 
2,279,391

 
 
 
 
Stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
26,068

 
 
 
 
 
26,068

 
 
 
 
Common stockholders’ equity
227,615

 
 
 
 
 
227,703

 
 
 
 
Total stockholders’ equity
253,683

 
 
 
 
 
253,771

 
 
 
 
Total liabilities and stockholders’ equity
$
2,586,043

 
 
 
 
 
$
2,533,162

 
 
 
 
Interest rate spread
 
 
 
2.29
%
 
 
 
 
 
2.18
 %
 
Net interest income and net yield on interest-earning assets
 
$
13,470

 
2.48

 
 
 
$
12,393

 
2.33

 
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, see Note 1.
(a) Represents securities which are tax-exempt for U.S. federal income tax purposes.
(b) Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets included in other assets on the Consolidated balance sheets.
(c) Includes commercial paper.
(d) Other interest-bearing liabilities include brokerage customer payables.
(e) The combined balance of trading liabilities – debt and equity instruments were $98.0 billion and $94.1 billion for the three months ended March 31, 2018 and 2017, respectively.
(f) Interest includes the effect of certain related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(g) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt and other interest-bearing liabilities.
(h) For the three months ended March 31, 2018 and 2017, the annualized rates for securities, based on amortized cost, were 3.12% and 3.04%, respectively; this does not give effect to changes in fair value that are reflected in AOCI.

155


GLOSSARY OF TERMS AND ACRONYMS
2017 Annual Report or 2017 Form 10-K: Annual report on Form 10-K for year ended December 31, 2017, filed with the U.S. Securities and Exchange Commission.
ABS: Asset-backed securities
Active foreclosures: Loans referred to foreclosure where formal foreclosure proceedings are ongoing. Includes both judicial and non-judicial states.
AFS: Available-for-sale
Allowance for loan losses to total loans: represents period-end allowance for loan losses divided by retained loans.
AOCI: Accumulated other comprehensive income/(loss)
ARM(s): Adjustable rate mortgage(s)
AWM: Asset & Wealth Management
Beneficial interests issued by consolidated VIEs: represents the interest of third-party holders of debt, equity securities, or other obligations, issued by VIEs that JPMorgan Chase consolidates.
Benefit obligation: refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
BHC: Bank holding company
CB: Commercial Banking
CBB: Consumer & Business Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCP: “Central counterparty” is a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. A CCP becomes counterparty to trades with market participants through novation, an open offer system, or another legally binding arrangement.
CDS: Credit default swaps
CEO: Chief Executive Officer
CET1 Capital: Common equity Tier 1 Capital
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
Chase Bank USA, N.A.: Chase Bank USA, National Association
CIB: Corporate & Investment Bank
CIO: Chief Investment Office
Client deposits and other third party liabilities: Deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements) as part of client cash management programs.
CLO: Collateralized loan obligations
CLTV: Combined loan-to-value
 
Collateral-dependent: A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by the underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources.
Commercial Card: provides a wide range of payment services to corporate and public sector clients worldwide through the commercial card products. Services include procurement, corporate travel and entertainment, expense management services, and business-to-business payment solutions.
Core loans: represents loans considered central to the Firm’s ongoing businesses; core loans exclude loans classified as trading assets, runoff portfolios, discontinued portfolios and portfolios the Firm has an intent to exit.
Credit derivatives: Financial instruments whose value is derived from the credit risk associated with the debt of a third party issuer (the reference entity) which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Upon the occurrence of a credit event by the reference entity, which may include, among other events, the bankruptcy or failure to pay its obligations, or certain restructurings of the debt of the reference entity, neither party has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value at the time of settling the credit derivative contract. The determination as to whether a credit event has occurred is generally made by the relevant International Swaps and Derivatives Association (“ISDA”) Determinations Committee.
Criticized: Criticized loans, lending-related commitments and derivative receivables that are classified as special mention, substandard and doubtful categories for regulatory purposes and are generally consistent with a rating of CCC+/Caa1 and below, as defined by S&P and Moody’s.
CRO: Chief Risk Officer
CVA: Credit valuation adjustments
DFAST: Dodd-Frank Act Stress Test
Dodd-Frank Act: Wall Street Reform and Consumer Protection Act
DOJ: U.S. Department of Justice
DOL: U.S. Department of Labor
DVA: Debit valuation adjustment
E&P: Exploration & Production
EC: European Commission
Eligible LTD: Long-term debt satisfying certain eligibility criteria
Embedded derivatives: are implicit or explicit terms or features of a financial instrument that affect some or all of the cash flows or the value of the instrument in a manner similar to a derivative. An instrument containing such terms or features is referred to as a “hybrid.” The component of

156


the hybrid that is the non-derivative instrument is referred to as the “host.” For example, callable debt is a hybrid instrument that contains a plain vanilla debt instrument (i.e., the host) and an embedded option that allows the issuer to redeem the debt issue at a specified date for a specified amount (i.e., the embedded derivative). However, a floating rate instrument is not a hybrid composed of a fixed-rate instrument and an interest rate swap.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
Exchange-traded derivatives: Derivative contracts that are executed on an exchange and settled via a central clearing house.
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
FCC: Firmwide Control Committee
FDIA: Federal Depository Insurance Act
FDIC: Federal Deposit Insurance Corporation
Federal Reserve: The Board of the Governors of the Federal Reserve System
Fee share: Proportion of fee revenue based on estimates of investment banking fees generated across the industry from investment banking transactions in M&A, equity and debt underwriting, and loan syndications. Source: Dealogic, a third party provider of investment banking fee competitive analysis and volume-based league tables for the above noted industry products.
FFELP: Federal Family Education Loan Program
FFIEC: Federal Financial Institutions Examination Council
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FICO score: A measure of consumer credit risk based on information in consumer credit reports produced by Fair Isaac Corporation. Because certain aged data is excluded from credit reports based on rules in the Fair Credit Reporting Act, FICO scores may not reflect all historical information about a consumer.
Firm: JPMorgan Chase & Co.
Forward points: represents the interest rate differential between two currencies, which is either added to or subtracted from the current exchange rate (i.e., “spot rate”) to determine the forward exchange rate.
Freddie Mac: Federal Home Loan Mortgage Corporation
Free-standing derivatives: is a derivative contract entered into either separate and apart from any of the Firm’s other financial instruments or equity transactions. Or, in conjunction with some other transaction and is legally detachable and separately exercisable.
FSB: Financial Stability Board
FTE: Fully taxable-equivalent
FVA: Funding valuation adjustment
FX: Foreign exchange
 
G7: “Group of Seven nations”: Countries in the G7 are Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government securities: Securities issued by the government of one of the G7 nations.
Ginnie Mae: Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
GSIB: Globally systemically important banks
HAMP: Home affordable modification program
Headcount-related expense: Includes salary and benefits (excluding performance-based incentives), and other     noncompensation costs related to employees.
HELOAN: Home equity loan
HELOC: Home equity line of credit
Home equity – senior lien: represents loans and commitments where JPMorgan Chase holds the first security interest on the property.
Home equity – junior lien: represents loans and commitments where JPMorgan Chase holds a security interest that is subordinate in rank to other liens.
HQLA: High quality liquid assets
HTM: Held-to-maturity
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding company
Impaired loan: Impaired loans are loans measured at amortized cost, for which it is probable that the Firm will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Impaired loans include the following:
All wholesale nonaccrual loans
All TDRs (both wholesale and consumer), including ones that have returned to accrual status
Investment-grade: An indication of credit quality based on JPMorgan Chase’s internal risk assessment system. “Investment grade” generally represents a risk profile similar to a rating of a “BBB-”/“Baa3” or better, as defined by independent rating agencies.
IR: Interest rate
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank, National Association
JPMorgan Securities: J.P. Morgan Securities LLC
LCR: Liquidity coverage ratio
LGD: Loss given default
LIBOR: London Interbank Offered Rate
LLC: Limited Liability Company
LOB: Line of business
Loss emergence period: represents the time period between the date at which the loss is estimated to have been incurred and the ultimate realization of that loss.

157


LTIP: Long-term incentive plan
LTV: “Loan-to-value ratio”: For residential real estate loans, the relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination date LTV ratios are calculated based on the actual appraised values of collateral (i.e., loan-level data) at the origination date.
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current estimated LTV ratios are calculated using estimated collateral values derived from a nationally recognized home price index measured at the metropolitan statistical area (“MSA”) level. These MSA-level home price indices consist of actual data to the extent available and forecasted data where actual data is not available. As a result, the estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting LTV ratios are necessarily imprecise and should therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as well as unused lines, related to the property. Combined LTV ratios are used for junior lien home equity products.
Master netting agreement: A single agreement with a counterparty that permits multiple transactions governed by that agreement to be terminated or accelerated and settled through a single payment in a single currency in the event of a default (e.g., bankruptcy, failure to make a required payment or securities transfer or deliver collateral or margin when due).
Measurement alternative: Measures equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer.
MBS: Mortgage-backed securities
MD&A: Management’s discussion and analysis
MMDA: Money Market Deposit Accounts
Moody’s: Moody’s Investor Services
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than subprime loans but have characteristics that would disqualify the borrower from a traditional prime loan. Alt-A lending characteristics may include one or more of the following: (i) limited documentation; (ii) a high CLTV ratio; (iii) loans secured by non-owner occupied properties; or (iv) a debt-to-income ratio above normal limits. A substantial proportion of the Firm’s Alt-A loans are those where a borrower does not provide complete documentation of his or her assets or the amount or source of his or her income.
 
Option ARMs
The option ARM real estate loan product is an adjustable-rate mortgage loan that provides the borrower with the option each month to make a fully amortizing, interest-only or minimum payment. The minimum payment on an option ARM loan is based on the interest rate charged during the introductory period. This introductory rate is usually significantly below the fully indexed rate. The fully indexed rate is calculated using an index rate plus a margin. Once the introductory period ends, the contractual interest rate charged on the loan increases to the fully indexed rate and adjusts monthly to reflect movements in the index. The minimum payment is typically insufficient to cover interest accrued in the prior month, and any unpaid interest is deferred and added to the principal balance of the loan. Option ARM loans are subject to payment recast, which converts the loan to a variable-rate fully amortizing loan upon meeting specified loan balance and anniversary date triggers.
Prime
Prime mortgage loans are made to borrowers with good credit records who meet specific underwriting requirements, including prescriptive requirements related to income and overall debt levels. New prime mortgage borrowers provide full documentation and generally have reliable payment histories.
Subprime
Subprime loans are loans that, prior to mid-2008, were offered to certain customers with one or more high risk characteristics, including but not limited to: (i) unreliable or poor payment histories; (ii) a high LTV ratio of greater than 80% (without borrower-paid mortgage insurance); (iii) a high debt-to-income ratio; (iv) an occupancy type for the loan is other than the borrower’s primary residence; or (v) a history of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
MSR: Mortgage servicing rights
NA: Data is not applicable or available for the period presented.
Net Capital Rule: Rule 15c3-1 under the Securities Exchange Act of 1934.
Net charge-off/(recovery) rate: represents net charge-offs/(recoveries) (annualized) divided by average retained loans for the reporting period.
Net interchange income includes the following components:
Interchange income: A fee paid to a credit card issuer in the clearing and settlement of a sales or cash advance transaction.
Reward costs: The cost to the Firm for points earned by cardholders enrolled in credit card reward programs.
Partner payments: Payments to co-brand credit card partners based on the cost of loyalty program rewards earned by cardholders on credit card transactions.

158


Net yield on interest-earning assets: The average rate for interest-earning assets less the average rate paid for all sources of funds.
NM: Not meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is not recognized on an accrual basis. Loans (other than credit card loans and certain consumer loans insured by U.S. government agencies) are placed on nonaccrual status when full payment of principal and interest is not expected, regardless of delinquency status, or when principal and interest has been in default for a period of 90 days or more unless the loan is both well-secured and in the process of collection. Collateral-dependent loans are typically maintained on nonaccrual status.
Nonperforming assets: Nonperforming assets include nonaccrual loans, nonperforming derivatives and certain assets acquired in loan satisfactions, predominantly real estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
NSFR: Net stable funding ratio
OAS: Option-adjusted spread
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OEP: One Equity Partners
OIS: Overnight index swap
OPEB: Other postretirement employee benefit
OTC: “Over-the-counter derivatives”: Derivative contracts that are negotiated, executed and settled bilaterally between two derivative counterparties, where one or both counterparties is a derivatives dealer.
OTC cleared: “Over-the-counter cleared derivatives”: Derivative contracts that are negotiated and executed bilaterally, but subsequently settled via a central clearing house, such that each derivative counterparty is only exposed to the default of that clearing house.
OTTI: Other-than-temporary impairment
Overhead ratio: Noninterest expense as a percentage of total net revenue.
Parent Company: JPMorgan Chase & Co.
Participating securities: represents unvested share-based compensation awards containing nonforfeitable rights to dividends or dividend equivalents (collectively, “dividends”), which are included in the earnings per share calculation using the two-class method. JPMorgan Chase grants restricted stock and RSUs to certain employees under its share-based compensation programs, which entitle the recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities. Under the two-class method, all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities, based on their respective rights to receive dividends.
 
PCA: Prompt corrective action
PCI: “Purchased credit-impaired” loans represents certain loans that were acquired and deemed to be credit-impaired on the acquisition date in accordance with the guidance of the FASB. The guidance allows purchasers to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics (e.g., product type, LTV ratios, FICO scores, past due status, geographic location). A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
PD: Probability of default
PRA: Prudential Regulatory Authority
Pre-provision profit/(loss): represents total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses.
Principal transactions revenue: Principal transactions revenue is driven by many factors, including the bid-offer spread, which is the difference between the price at which the Firm is willing to buy a financial or other instrument and the price at which the Firm is willing to sell that instrument. It also consists of realized (as a result of closing out or termination of transactions, or interim cash payments) and unrealized (as a result of changes in valuation) gains and losses on financial and other instruments (including those accounted for under the fair value option) primarily used in client-driven market-making activities and on private equity investments. In connection with its client-driven market-making activities, the Firm transacts in debt and equity instruments, derivatives and commodities (including physical commodities inventories and financial instruments that reference commodities). Principal transactions revenue also includes certain realized and unrealized gains and losses related to hedge accounting and specified risk-management activities, including: (a) 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.
PSU(s): Performance share units
Receivables from customers: primarily represents margin loans to brokerage customers that are collateralized through assets maintained in the clients’ brokerage accounts, as such no allowance is held against these receivables. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
Regulatory VaR: Daily aggregated VaR calculated in accordance with regulatory rules.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S. GAAP, which excludes the impact of taxable-equivalent adjustments.
Retained loans: Loans that are held-for-investment (i.e. excludes loans held-for-sale and loans at fair value).

159


Revenue wallet: Total fee revenue based on estimates of investment banking fees generated across the industry (i.e., the revenue wallet) from investment banking transactions in M&A, equity and debt underwriting, and loan syndications. Source: Dealogic, a third-party provider of investment banking competitive analysis and volume based league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department of Agriculture
ROE: Return on equity
ROTCE: Return on tangible common equity
RSU(s): Restricted stock units
RWA: “Risk-weighted assets”: Basel III establishes two comprehensive approaches for calculating RWA (a Standardized approach and an Advanced approach) which include capital requirements for credit risk, market risk, and in the case of Basel III Advanced, also operational risk. Key differences in the calculation of credit risk RWA between the Standardized and Advanced approaches are that for Basel III Advanced, credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas for Basel III Standardized, credit risk RWA is generally based on supervisory risk-weightings which vary primarily by counterparty type and asset class. Market risk RWA is calculated on a generally consistent basis between Basel III Standardized and Basel III Advanced.
S&P: Standard and Poor’s 500 Index
SAR(s): Stock appreciation rights
SCCL: Single-counterparty credit limits
Scored portfolio: The scored portfolio predominantly includes residential real estate loans, credit card loans and certain auto and business banking loans where credit loss estimates are based on statistical analysis of credit losses over discrete periods of time. The statistical analysis uses portfolio modeling, credit scoring and decision-support tools.
SEC: Securities and Exchange Commission
Seed capital: Initial JPMorgan capital invested in products, such as mutual funds, with the intention of ensuring the fund is of sufficient size to represent a viable offering to clients, enabling pricing of its shares, and allowing the manager to develop a track record. After these goals are achieved, the intent is to remove the Firm’s capital from the investment.
Short sale: is a sale of real estate in which proceeds from selling the underlying property are less than the amount owed the Firm under the terms of the related mortgage and the related lien is released upon receipt of such proceeds.
Single-name: Single reference-entities
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SOA: Society of Actuaries
SPEs: Special purpose entities
Structural interest rate risk: represents interest rate risk of the non-trading assets and liabilities of the Firm.
 
Structured notes: Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk.
Suspended foreclosures: Loans referred to foreclosure where formal foreclosure proceedings have started but are currently on hold, which could be due to bankruptcy or loss mitigation. Includes both judicial and non-judicial states.
Taxable-equivalent basis: In presenting managed results, the total net revenue for each of the business segments and the Firm is presented on a tax-equivalent basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable investments and securities; the corresponding income tax impact related to tax-exempt items is recorded within income tax expense.
TBVPS: Tangible book value per share
TCE: Tangible common equity
TDR: “Troubled debt restructuring” is deemed to occur when the Firm modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
TLAC: Total Loss Absorbing Capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
U.S.: United States of America
U.S. GAAP: Accounting principles generally accepted in the United States of America.
U.S. GSE(s): “U.S. government-sponsored enterprises”: In the U.S., GSEs are quasi-governmental, privately-held entities established by Congress to improve the flow of credit to specific sectors of the economy and provide certain essential services to the public. U.S. GSEs include Fannie Mae and Freddie Mac, but do not include Ginnie Mae, which is directly owned by the U.S. Department of Housing and Urban Development. U.S. GSE obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
U.S. Treasury: U.S. Department of the Treasury
VA: U.S. Department of Veterans Affairs
VaR: “Value-at-risk” is a measure of the dollar amount of potential loss from adverse market moves in an ordinary market environment.
VIEs: Variable interest entities
Warehouse loans: consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets.
Washington Mutual transaction: On September 25, 2008, JPMorgan Chase acquired certain of the assets of the banking operations of Washington Mutual Bank (“Washington Mutual”) from the FDIC.

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LINE OF BUSINESS METRICS
CONSUMER & COMMUNITY BANKING (“CCB”)
Debit and credit card sales volume: Dollar amount of cardmember purchases, net of returns.
Deposit margin/deposit spread: represents net interest income expressed as a percentage of average deposits.
Home Lending Production and Home Lending Servicing revenue comprises the following:
Net production revenue: includes net gains or losses on originations and sales of mortgage loans, other production-related fees and losses related to the repurchase of previously-sold loans.
Net mortgage servicing revenue: includes the following components:
a) Operating revenue predominantly represents the return on Home Lending Servicing’s MSR asset and includes:
Actual gross income earned from servicing third-party mortgage loans, such as contractually specified servicing fees and ancillary income; and
The change in the fair value of the MSR asset due to the collection or realization of expected cash flows.
b) Risk management represents the components of Home Lending Servicing’s MSR asset that are subject to ongoing risk management activities, together with derivatives and other instruments used in those risk management activities.
Mortgage origination channels comprise the following:
Retail: Borrowers who buy or refinance a home through direct contact with a mortgage banker employed by the Firm using a branch office, the Internet or by phone. Borrowers are frequently referred to a mortgage banker by a banker in a Chase branch, real estate brokers, home builders or other third parties.
Correspondent: Banks, thrifts, other mortgage banks and other financial institutions that sell closed loans to the Firm.
Card Services: includes the Card and Merchant Services businesses.
Card: is a business that primarily issues credit cards to consumers and small businesses.
Merchant Services: is a business that primarily processes transactions for merchants.
Net revenue rate: represents Card Services net revenue (annualized) expressed as a percentage of average loans for the period.
Auto loan and lease origination volume: Dollar amount of auto loans and leases originated.
 
CORPORATE & INVESTMENT BANK (“CIB”)
Definition of selected CIB revenue:
Investment Banking: incorporates all revenue associated with investment banking activities, and is reported net of investment banking revenue shared with other lines of business.
Treasury Services: offers a broad range of products and services that enable clients to manage payments and receipts, as well as invest and manage funds. Products include U.S. dollar and multi-currency clearing, ACH, lockbox, disbursement and reconciliation services, check deposits, and currency-related services.
Lending: includes net interest income, fees, gains or losses on loan sale activity, gains or losses on securities received as part of a loan restructuring, and the risk management results related to the credit portfolio. Lending also includes Trade Finance, which includes loans tied directly to goods crossing borders, export/import loans, commercial letters of credit, standby letters of credit, and supply chain finance.
Fixed Income Markets: primarily includes revenue related to market-making across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets.
Equity Markets: primarily includes revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services.
Securities Services: primarily includes custody, fund accounting and administration, and securities lending products sold principally to asset managers, insurance companies and public and private investment funds. Also includes clearance, collateral management and depositary receipts business which provides broker-dealer clearing and custody services, including tri-party repo transactions, collateral management products, and depositary bank services for American and global depositary receipt programs.
Description of certain business metrics:
Assets under custody (“AUC”): represents activities associated with the safekeeping and servicing of assets on which Securities Services earns fees.
Investment banking fees: represents advisory, equity underwriting, bond underwriting and loan syndication fees.

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COMMERCIAL BANKING (“CB”)
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.
CB product revenue comprises 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 market products used by CB clients is also included.
Other: product revenue primarily includes tax-equivalent adjustments generated from Community Development Banking activity and certain income derived from principal transactions.
 
ASSET & WEALTH MANAGEMENT (“AWM”)
Assets under management (“AUM”): represent assets managed by AWM on behalf of its Private Banking, Institutional and Retail clients.
Client assets: represent assets under management, as well as custody, brokerage, administration and deposit accounts.
Multi-asset: Any fund or account that allocates assets under management to more than one asset class.
Alternative assets: The following types of assets constitute alternative investments – hedge funds, currency, real estate, private equity and other investment funds designed to focus on nontraditional strategies.
AWM’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.

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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. 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. 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.


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Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of the quantitative and qualitative disclosures about market risk, see the Market Risk Management section of Management’s discussion and analysis and pages 121-128 of JPMorgan Chase’s 2017 Annual Report.
Item 4.    Controls and Procedures.
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. See Exhibits 31.1 and 31.2 for the Certification statements issued by the Chairman and Chief Executive Officer and Chief Financial Officer.
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 do 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 controls in the future. For further information, see “Management’s report on internal control over financial reporting” on page 146 of JPMorgan Chase’s 2017 Annual Report. 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 March 31, 2018, that has materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
Part II – Other Information
Item 1. Legal Proceedings.
For information that updates the disclosures set forth under Part I, Item 3: Legal Proceedings, in JPMorgan Chase’s 2017 Annual Report on Form 10-K, see the discussion of the Firm’s material legal proceedings in Note 22 of this Form 10-Q.
Item 1A. Risk Factors.
For a discussion of certain risk factors affecting the Firm, see Part I, Item 1A: Risk Factors on pages 8–26 of JPMorgan Chase’s 2017 Annual Report on Form 10-K and Forward-Looking Statements on page 73 of this Form 10-Q.
 
Supervision and regulation
For information on Supervision and Regulation, see Recent regulatory updates on page 33 of this Form 10-Q and the Supervision and regulation section on pages 1–8 of JPMorgan Chase’s 2017 Form 10-K.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended March 31, 2018, no shares of common stock of JPMorgan Chase & Co. were issued in transactions exempt from registration under the Securities Act of 1933, pursuant to Section 4(2) thereof.
Repurchases under the common equity repurchase program
Following receipt in June 2017 of the Federal Reserve’s non-objection to the Firm’s 2017 capital plan, the Firm’s Board of Directors authorized the repurchase of up to $19.4 billion of common equity (common stock and warrants) between July 1, 2017 and June 30, 2018. This authorization includes shares repurchased to offset issuances under the Firm’s equity-based compensation plans. The following table sets forth the Firm’s repurchases of common equity for the three months ended March 31, 2018 and 2017. There were no warrants repurchased during the three months ended March 31, 2018 and 2017.
 
 
Three months ended March 31,
(in millions)
 
2018

2017

Total shares of common stock repurchased
 
41.4

32.1

Aggregate common stock repurchases
 
$
4,671

$
2,832

The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the common equity repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common equity — for example, during internal trading blackout periods. All purchases under Rule 10b5-1 plans must be made according to predefined plans 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; maybe executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 programs; and may be suspended at any time.

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Shares repurchased pursuant to the common equity repurchase program during the three months ended March 31, 2018, were as follows.
Three months ended March 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)
 
January
12,479,338

 
$
110.98

 
$
1,385

 
$
8,442

 
February
14,798,888

 
112.94

 
1,671

 
6,771

 
March
14,140,809

 
114.20

 
1,615

 
5,156

(b) 
First quarter
41,419,035

 
$
112.78

 
$
4,671

 
$
5,156

(b) 
(a)
Excludes commissions cost.
(b)
Represents the amount remaining under the $19.4 billion repurchase program that was authorized by the Board of Directors on June 28, 2017.
Item 3.    Defaults Upon Senior Securities.
None.
Item 4.    Mine Safety Disclosures.
Not applicable.
Item 5.    Other Information.
None.


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Item 6.    Exhibits.
Exhibit No.
 
Description of Exhibit
 
 
 
15
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32
 
 
 
 
101.INS
 
XBRL Instance Document.(a)(c)
101.SCH
 
XBRL Taxonomy Extension Schema Document.(a)
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.(a)
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.(a)
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.(a)
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.(a)
(a)
Filed herewith.
(b)
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.
(c)
Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Firm’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated statements of income (unaudited) for the three months ended March 31, 2018 and 2017, (ii) the Consolidated statements of comprehensive income (unaudited) for the three months ended March 31, 2018 and 2017, (iii) the Consolidated balance sheets (unaudited) as of March 31, 2018, and December 31, 2017, (iv) the Consolidated statements of changes in stockholders’ equity (unaudited) for the three months ended March 31, 2018 and 2017, (v) the Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2018 and 2017, and (vi) the Notes to Consolidated Financial Statements (unaudited).

166


SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JPMorgan Chase & Co.
(Registrant)


By:
/s/ Nicole Giles
 
Nicole Giles
 
Managing Director and Corporate Controller
 
(Principal Accounting Officer)


Date:
May 2, 2018






167


INDEX TO EXHIBITS



Exhibit No.
 
Description of Exhibit
 
 
 
15
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32
 
 
 
 
101.INS
 
XBRL Instance Document.
101.SCH
 
XBRL Taxonomy Extension Schema Document.
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
 
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.



168