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ANNUAL
REPORT
2013

Table of contents

  • Page 1
    A NNUAL REPORT 2013

  • Page 2
    ... declared Book value Tangible book value(b) Selected ratios Return on common equity Return on tangible common equity(b) Tier 1 capital ratio Total capital ratio Tier 1 common capital ratio(b) Selected balance sheet data (period-end) Loans Total assets Deposits Total stockholders' equity Headcount...

  • Page 3
    communities clients customers employees veterans nonprofits business owners schools hospitals local governments Together we can.

  • Page 4
    ... 2013. Our financial results reflected strong underlying performance across our four main businesses - unfortunately marred by significant legal settlements largely related to mortgages. These legal expenses cost the company $8.6 billion after-tax. Excluding these expenses and some one-time positive...

  • Page 5
    ...: serving our clients and communities around the world. The good news is that our four franchises maintained - and even strengthened - our leadership positions as we continued to gain market share and improve customer satisfaction in every business. When I look back at our company last year with all...

  • Page 6
    ... Chase continued to serve our clients and make a significant positive impact on our communities. In 2013, the firm provided credit and raised capital of more than $2.1 trillion for our clients. The firm also has hired more than 6,300 military veterans since 2011 as a proud founding member of the 100...

  • Page 7
    ...93 $100 $17 $91 $82  Small Business  Card & Auto $122 $131  Commercial/ Middle Market  Asset Management $141 $165  Mortgage/ Home Equity $67 Total Consumer & 13% Commercial Banking $165 $156 $191 $177 17% 5% 2010 2011 2012 2013 2010 2011 2012 2013 Our clients also...

  • Page 8
    ...future with a strong foundation and excellent franchises built to serve our clients We will dedicate extraordinary effort in 2014 adapting to the new global financial architecture II. III. We have made significant progress strengthening our company IV. We believe our long-term outlook is bright 6

  • Page 9
    ...of our businesses have had good - in fact, close to best-in-class - financial performance over the last several years in terms of First and foremost are the High Quality Liquid Assets (HQLA), shown in the chart below, which are mostly deposits at central banks, agency mortgage-backed securities and...

  • Page 10
    ... strong returns on tangible equity (see Return on Equity (ROE) chart on the following page). Some of our competitors are not earning similar returns, and they likely will feel more pressure to alter their business strategies going forward. JPMorgan Chase Capital Levels  Basel I Tier 1 Common...

  • Page 11
    Return on Equity Excluding significant items(c) 2011 2012 2013 2013 JPMorgan Chase & Co. (ROTCE(a)) ROE by line of business Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset Management Corporate/Private Equity (a) (b) (c) (d) 15% 15% 11% 15% 15% 17% 30% 25% 0%...

  • Page 12
    ... 10 investment banks; #1 Total Markets revenue share of top 10 investment banks. • #1 in Global Long-Term Debt. • #1 in Global Loan Syndications. • #1 in U.S. Announced M&A. • #2 in Global Equity and Equity-Related; #2 in Global Announced M&A. • #6 in Cash Equities (we're working on that...

  • Page 13
    ... quarters of positive long-term inflows. • Client assets double since the beginning of 2006. • 80% of 10-year mutual fund assets under management in top two quartiles. • #1 Ultra-High-Net-Worth Global Private Bank (Euromoney, 2013). • #1 Institutional Money Market Fund Manager Worldwide...

  • Page 14
    ... the firm's overall capital planning process. • 500 professionals globally across our lines of business and support functions are working on the firm's annual Recovery and Resolution plans. • 400 people are dedicated to continue to build out our Liquidity Risk Management infrastructure, which...

  • Page 15
    ... than 130 employees. In 2013, this highly specialized team completed over 450 model reviews, built capital models that enabled the firm to achieve the regulatory approval required to exit parallel Basel III reporting, and implemented a permanent new governance and control structure for the proper...

  • Page 16
    ... as a service to the client - not because they are profitable for us. The new rules require us to hold 100% of HQLA against financial institution deposits and 40% against non-financial corporate deposits. In addition, based on current proposals, we would have to hold 6% equity against the assets we...

  • Page 17
    ... policies that work for originators, servicers, investors, finance and standby letters of credit also will increase dramatically, with pricing potentially up by 75 basis points in the long term. The rates business (mostly trading government securities and interest rate swaps). The new rules have...

  • Page 18
    ... types of deposits and credit lines), clients with large amounts of trade, credit-only clients and specific types of financial companies - will experience far higher costs to transact banking business. • Character of the borrower. • Changes in the tax code. • Changes in the structure of the...

  • Page 19
    ...new world in the same way. Some banks will stop offering certain products or will leave certain markets - market shares will change and, in some cases, consolidate. This eventually should lead to margins in each product and business that are adequate for those that remain in the business. • Return...

  • Page 20
    ... investment trusts and mortgage servicers, and middle market lending funds to PayPal and clearinghouses. Many of these institutions are smart and sophisticated and will benefit as banks move out of certain products and services. Non-bank financial competitors will look at every product we price...

  • Page 21
    ... our business  Exiting products non-core to our customers or with outsized operational risk - for example:  One Equity Partners  Physical commodities  Global Special Opportunities Group  Student lending originations  Canadian money orders  Co-branded business debit cards and...

  • Page 22
    ... Global Prime Brokerage build-out In progress $150+/- ü ü ü Ongoing $175+/- Corporate & Investment Bank Global Corporate Bank $600+/- Equities electronic trading Middle Market expansion1 $100+/- Commercial Banking $450+/- Asset Management Private Bankers/ Investment Management sales...

  • Page 23
    ... risk assessment, a constant review of all processes, properly functioning risk and control committees, vigilant compliance and a thorough rechecking of everything by Audit. Your management is taking full responsibility for all aspects of our business operations. Transparency and escalation are key...

  • Page 24
    ... will pull together all our internal information from Internet and systems monitoring, as well as reconnaissance from our partners in industry and government. This approach will give us a comprehensive and consolidated view of all the threats facing our firm and our customers, and it will help to...

  • Page 25
    ... seven years, we have been through a global financial crisis, massive regulatory changes and a number of setbacks - but our company has been able to recover and prosper. Most important, our client franchises consistently got stronger. All companies, at some point, are going to have tough times. The...

  • Page 26
    ... global multinationals. • The United States also has the widest, deepest, most transparent and best financial markets in the world. And I'm not talking just about Wall Street and banks - I include the whole mosaic: venture capital, private equity, asset managers, individual and corporate investors...

  • Page 27
    ...in the past two years due to the strengthening economy. • Capital markets are wide open - credit, for the most part, is flowing freely. (The only exception I see here is that it still is too hard to get a mortgage for many people.) • Corporations and middle market companies are in extremely good...

  • Page 28
    ... in their use of cash and debt is that rating agencies are much tougher on ratings. In 1993, the number of AAA and AA issuers was 413, and in 2013, that number was 147. Today, the companies are bigger, basic financial metrics (i.e., debt to equity and margins) essentially are the same and defaults...

  • Page 29
    ... spent the money, bought additional stocks or bonds and invested in long-term assets, there would be an effect on the real economy. There is little question that QE - because it drove long-term rates down - lifted asset prices, including stocks and home prices (there were other global effects, but...

  • Page 30
    ... CNBC or read The Wall Street Journal. In the real economy, what matters to most people is one's family, job and quality of life. Banks still need to be there in good times and in bad times - but it will be a little harder in the new world In the last financial crisis, many banks stood against the...

  • Page 31
    ...of cities and communities, global trade and capital flows, and workforce development, among other themes. • Big Data. We have created a high-powered group of experts to enhance our use of data (generated across JPMorgan Chase or purchased externally) to create intelligent solutions for our clients...

  • Page 32
    ... payment companies in the world (across credit cards, merchant payments, global wire transfers, etc.). We are even one of the biggest mobile payment companies. So in this space, there is both risk and opportunity. We have some good ideas and action plans so stay tuned! • European capital markets...

  • Page 33
    ... Growth JPMorgan Chase continues to focus on ways to help metropolitan communities operate and grow. We offer states and cities our best advice and considerable financial support. Last year, the firm provided more than $85 billion in capital or credit to nearly 1,500 government entities, including...

  • Page 34
    ... because of structural or technological changes, but, frequently, it happens because of plain and simple mismanagement. And this is even more true when you operate in tough, complex, competitive and sometimes volatile global markets. So to succeed long term, we need an excellent management team. And...

  • Page 35
    ...'s office drives many of the processes and corporate utilities, as well as the infrastructure, to that end, ranging from managing the firm's liquidity, funding and structural interest rate risk to overseeing strategic firmwide functions such as global Technology and Operations, Oversight and Control...

  • Page 36
    rising rate environment. The average yield of our investment securities portfolio increased by more than 50 basis points from 4Q 2012 to 4Q 2013, reflecting our ability to deploy new investments at higher yields throughout the year. We have put enormous resources on the control and compliance agenda...

  • Page 37
    ... it is upgrading our nextgeneration digital and mobile programs, enhancing our Asset Management Solutions business, improving our e-trading platforms, enabling growth in Commercial Banking or making our corporate functions more effective, technology is core to the delivery. Conclusion Not every...

  • Page 38
    ...of the year. We also felt the impact of lower deposit margins and lower loan balances. We ended 2013 with a strong return on equity of 23%. Gordon Smith Across Consumer & Community Banking (CCB), we are growing our business by building lifelong relationships with our customers. Throughout 2013, we...

  • Page 39
    ... quarter. Credit trends continue to improve, and charge-off rates continue to fall to historic lows. Our 2013 net charge-off rate for Credit Card of 3.14% was down from 3.95% in 2012. • Over the years, Chase has developed a leading end-to-end payments franchise. Merchant Servicing processing...

  • Page 40
    ...Chase accounts are opened in a branch, and branches are essential to our other businesses across JPMorgan Chase. For example, 55% of Commercial Banking customers and 35% of Private Banking households visit a Chase branch every quarter. Branches are a core distribution channel for our other products...

  • Page 41
    ... credit card issuer in the U.S. based on loans outstanding • #1 online financial services destination (chase.com) and #1 mobile banking functionality • #1 in total U.S. credit and debit payments volume • Record credit card sales and client investment assets • #2 mortgage originator...

  • Page 42
    ...employees in 60 countries with a mission to serve 7,700 of the world's most significant companies, governments and institutions. To provide those clients with the range of services they need, more than 13,000 employees are in front office lines of business such as banking, markets, investor services...

  • Page 43
    ...our financial results, 2013 was a strong year for the CIB, which reported net income of $8.5 billion CIB Integrated Client Coverage Model Markets Revenue Dominated by Client-Driven Flow Business Markets revenue by flow vs. structured ($ in billions) $20.2 Lending, Trade Finance Advisory, Capital...

  • Page 44
    ... firms experienced. Along with our #1 ranking in Global Investment Banking fee wallet share, Dealogic ranked J.P. Morgan, based on volume, #1 in Global Debt, Equity and EquityRelated; #1 in Global Long-Term Debt; and #1 in Global Loan Syndications. J.P. Morgan also earned a strong position in Global...

  • Page 45
    ... 7,700 clients in 60 countries • Key growth initiatives include global prime brokerage, electronic trading and market structure changes Dealogic and internal reporting Thomson Financial, internal sources Net revenue, net income, return on equity and overhead ratio, excluding...

  • Page 46
    ...Investment Bank's treasury services products are essential to our business, generating $2.4 billion in revenue last year. The Consumer & Community Banking network has been critical to the success of our Middle Market Banking business. Our clients used Chase branches almost 18 million times last year...

  • Page 47
    ...2013, our Florida business had 77 employees, 250 clients, and more than $1.3 billion in loans and $1.2 billion in deposits. Over time, we believe this to be a tremendous opportunity to expand and deepen our Middle Market Banking franchise. Our long-term success will depend upon continuous investment...

  • Page 48
    ... Awards in Middle Market online services, international service and treasury management and Mid-Corporate Banking investment banking and international service Business segment highlights • Real Estate Banking - Record originations (up 35%); 6% deposit growth • Community Development...

  • Page 49
    ... for packaging our investment expertise into mutual funds. Globally, more than 3,000 financial intermediary firms invest on their clients' behalf in our full range of solutions, which spans fixed income, equities, multi-asset and alternatives strategies. 20,000 people in 30+ countries Mary Callahan...

  • Page 50
    ... quarter of net long-term inflows, the longest such streak by any of our key competitors. Our wealth management business marked its 11th year of positive client flows, as well as record yearend balances in deposits, mortgages and loans. Record financial results driven by continued investment Asset...

  • Page 51
    ... more clients are turning to find enhanced returns. Mary Callahan Erdoes CEO, Asset Management 2013 HIGHLIGHTS AND ACCOMPLISHMENTS • #1 Ultra-High-Net-Worth Global Private Bank, Euromoney • #1 U.S. Mid-Cap Value Equity Manager of the Year, Institutional Investor • #1 Non-U.S. Equity...

  • Page 52
    ... communities. At JPMorgan Chase, corporate responsibility always has been central to how we do business, starting with operating with integrity in all we do and extending to all the ways we help our clients and communities navigate a complex global economy. We strive to develop innovative programs...

  • Page 53
    ... in need. Financial returns will be linked to commercial success in developed country markets, while investors' downside is limited by a partial backstop provided by the Bill & Melinda Gates Foundation and the Swedish government. This structure allows individual investors, corporations, private...

  • Page 54
    ... via zero-fee, zeroexperienced employees assimilate counted homes since 2008 to interest credit-building social into the firm and to educate our community associations, municiloans and to develop high-quality hiring managers about the skills palities, veterans groups and financial education...

  • Page 55
    ... on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Notes to Consolidated Financial Statements Supplementary information: 339 341 Selected Quarterly Financial Data Glossary of Terms JPMorgan Chase & Co./2013 Annual...

  • Page 56
    ... ratio Loans-to-deposits ratio High Quality Liquid Assets ("HQLA") (in billions)(e) Tier 1 capital ratio (d) Total capital ratio(d) Tier 1 leverage ratio Tier 1 common capital ratio(d)(f) Selected balance sheet data (period-end) Trading assets Securities(g) Loans Total assets Deposits Long-term debt...

  • Page 57
    ...Firm's Use of Non-GAAP Financial Measures on pages 82-83 of this Annual Report. (b) Share prices shown for JPMorgan Chase's common stock are from the New York Stock Exchange. JPMorgan Chase's common stock is also listed and traded on the London Stock Exchange and the Tokyo Stock Exchange. (c) Return...

  • Page 58
    ... mortgages and home equity loans, including the purchased credit-impaired ("PCI") portfolio acquired in the Washington Mutual transaction. Card issues credit cards to consumers and small businesses, provides payment services to corporate and public sector clients through its commercial card products...

  • Page 59
    ...Investor Services also includes the Securities Services business, a leading global custodian which includes custody, fund accounting and administration, and securities lending products sold principally to asset managers, insurance companies and public and private investment funds. Commercial Banking...

  • Page 60
    ... Pre-provision profit 26,139 32,302 Provision for credit losses 225 3,385 Net income 17,923 21,284 Diluted earnings per share 4.35 5.20 Return on common equity 9% 11% Capital ratios Tier 1 capital 11.9 12.6 Tier 1 common 10.7 11.0 Summary of 2013 Results JPMorgan Chase reported full-year 2013 net...

  • Page 61
    ... monitor its capital position. For further discussion of the Tier 1 common capital ratios, see Regulatory capital on pages 161-165 of this Annual Report.) During 2013, the Firm worked to help its customers, corporate clients and the communities in which it does business. The Firm provided credit to...

  • Page 62
    ... in such forward-looking statements. See Forward-Looking Statements on page 181 of this Annual Report and the Risk Factors section on pages 9-18 of the 2013 Form 10-K. As a global financial services firm, JPMorgan Chase is subject to extensive regulation under state and federal laws in the United...

  • Page 63
    ... in response to developments in the legal and regulatory, as well as business and economic, environment in which it operates. 2014 Business Outlook JPMorgan Chase's outlook for the full year 2014 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the...

  • Page 64
    ...to own approximately 40 million Visa Class B shares. For further information, see Note 2 on pages 326- 332 of this Annual Report. One Chase Manhattan Plaza On December 17, 2013, the Firm sold One Chase Manhattan Plaza, an office building located in New York City, and recognized a pretax gain of $493...

  • Page 65
    ... share in equity capital markets and loans. Advisory fees decreased, as the industry-wide M&A wallet declined. For additional information on investment banking fees, see CIB segment results on pages 98-102 and Note 7 on pages 234-235 of this Annual Report. JPMorgan Chase & Co./2013 Annual Report

  • Page 66
    ... on private investments, partially offset by higher unrealized gains on public securities. Lending- and deposit-related fees decreased in 2012 compared with the prior year. The decrease predominantly reflected lower lending-related fees in CIB and lower deposit-related fees in CCB. Asset management...

  • Page 67
    ..., excluding credit card loans, which reflected a reduction in the allowance for loan losses, due primarily to lower estimated losses in the non-PCI residential real estate portfolio as delinquency trends improved, partially offset by the impact of charge-offs of Chapter 7 loans. A higher level of...

  • Page 68
    ..., state and local taxes, business tax credits, tax benefits associated with prior year tax adjustments and audit resolutions. For additional information on income taxes, see Critical Accounting Estimates Used by the Firm on pages 174-178 and Note 26 on pages 313-315 of this Annual Report. 2012...

  • Page 69
    ... of debt securities. For additional information, refer to Note 3 on pages 195-215 of this Annual Report. The increase in trading liabilities was driven by client-driven market-making activity in CIB, which resulted in higher levels of short positions in debt and equity securities. Trading assets and...

  • Page 70
    ... to CIB's liquidity management product, whereby clients choose to sweep their deposits into commercial paper. Other borrowed funds increased slightly due to higher secured short-term borrowings to meet short-term funding needs. For additional information on the Firm's Liquidity Risk Management and...

  • Page 71
    ... a limited life and no employees. The basic SPE structure involves a company selling assets to the SPE; the SPE funds the purchase of those assets by issuing securities to investors. JPMorgan Chase uses SPEs as a source of liquidity for itself and its clients by securitizing financial assets, and...

  • Page 72
    ... millions) On-balance sheet obligations Deposits(a) Federal funds purchased and securities loaned or sold under repurchase agreements Commercial paper Other borrowed funds(a) Beneficial interests issued by consolidated VIEs(a) Long-term debt(a) Other(b) Total on-balance sheet obligations Off-balance...

  • Page 73
    .... On November 15, 2013, the Firm announced it had reached a $4.5 billion agreement with 21 major institutional investors to make a binding offer to the trustees of 330 residential mortgage-backed securities trusts issued by J.P.Morgan, Chase and Bear Stearns ("RMBS Trust Settlement") to resolve all...

  • Page 74
    ... the Firm's capital markets and lending activities, including the origination or purchase of loans initially designated as held-for-sale. Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by client...

  • Page 75
    ... secured financings of the Firm's assets; an increase in commercial paper issuance in the wholesale funding markets to meet short-term funding needs, partially offset by a decline in the volume of client deposits and other third-party liability balances related to CIB's liquidity management product...

  • Page 76
    ...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 business-segment level, because it believes these other non-GAAP financial measures provide information to investors about the underlying operational performance and...

  • Page 77
    ...on a managed basis, management also reviews core net interest income to assess the performance of its core lending, investing (including asset-liability management) and deposit-raising activities (which excludes the impact of CIB's market-based activities). The core data presented below are non-GAAP...

  • Page 78
    ...Corporate & Investment Bank, Commercial Banking and Asset Management. In addition, there is a Corporate/Private Equity 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...

  • Page 79
    ...,331 $ 35,161 $ 36,856 Year ended December 31, (in millions, except ratios) Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset Management Corporate/Private Equity Total (a) (a) Provision for credit losses 2013 $ 335 $ (232) 85 65 (28) $ 225 $ 2012 3,774 $ (479) 41 86...

  • Page 80
    ... public sector clients through its commercial card products, offers payment processing services to merchants, and provides auto and student loan services. Selected income statement data(a) Year ended December 31, (in millions, except ratios) Revenue Lending- and deposit-related fees Asset management...

  • Page 81
    ... operations, as well as real estate-related functions and staff, from Corporate/Private Equity to CCB, effective January 1, 2013. (b) Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated...

  • Page 82
    ...542 18,883 $ 5,827 17,652 2013 2012 2011 Consumer & Business Banking Selected income statement data(a) Year ended December 31, (in millions, except ratios) Revenue Lending- and deposit-related fees Asset management, administration and commissions Card income All other income Noninterest revenue Net...

  • Page 83
    ... except ratios and where otherwise noted) Credit data and quality statistics Net charge-offs Net charge-off rate Allowance for loan losses Nonperforming assets Retail branch business metrics Investment sales volume Client investment assets % managed accounts Number of: Chase Private Client locations...

  • Page 84
    ... income/ (loss) $ 3,082 Overhead ratios Mortgage Production Mortgage Servicing Real Estate Portfolios 79% 114 44 $ 5,332 $ 3,341 $ (3,308) $ (2,138) 43% 133 40 65% 462 33 (a) Includes provision for credit losses associated with Mortgage Production. 90 JPMorgan Chase & Co./2013 Annual Report

  • Page 85
    ... mortgage banks and other financial institutions that sell closed loans to the Firm. Servicing expense was $3.0 billion, a decrease of $1.8 billion from the prior year, reflecting lower costs associated with the Independent Foreclosure Review and lower servicing headcount. Real Estate Portfolios...

  • Page 86
    ... over time as liquidations slow down. For further information, see Note 14, PCI loans, on pages 274-276 of this Annual Report. Mortgage Production and Servicing Selected metrics As of or for the year ended December 31, (in millions, except ratios) Selected balance sheet data Period-end loans: Prime...

  • Page 87
    ... have been excluded from nonaccrual loans based upon the government guarantee. For further discussion, see Note 14 on pages 258-283 of this Annual Report which summarizes loan delinquency information. Real Estate Portfolios Selected metrics As of or for the year ended December 31, (in millions...

  • Page 88
    ... home equity, prime mortgage, including option ARMs, and subprime mortgage portfolios, respectively. For further information, see Consumer Credit Portfolio on pages 120-129 of this Annual Report. (c) The 30+ day delinquency rate for PCI loans was 15.31%, 20.14%, and 23.30% at December 31, 2013, 2012...

  • Page 89
    ... for loan losses. The Credit Card net charge-off rate was 3.14%, down from 3.95% in the prior year; and the 30+ day delinquency rate was 1.67%, down from 2.10% in the prior year. The Auto net charge-off rate was 0.31%, down from 0.39% in the prior year. JPMorgan Chase & Co./2013 Annual Report 95

  • Page 90
    ...Total loans Selected balance sheet data (average) Total assets Loans: Credit Card Auto Student Total loans Business metrics Credit Card, excluding Commercial Card Sales volume (in billions) New accounts opened Open accounts Accounts with sales activity % of accounts acquired online Merchant Services...

  • Page 91
    ...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. Sales volume - Dollar amount of cardmember purchases, net of returns. Open...

  • Page 92
    ... and liquidity solutions, and trade finance products. The Markets & Investor Services segment of the CIB is a global marketmaker in cash securities and derivative instruments, and also offers sophisticated risk management solutions, prime brokerage, and research. Markets & Investor Services also...

  • Page 93
    ... lower trade finance spreads, partially offset by higher net interest income on higher deposit balances. Lending revenue was JPMorgan Chase & Co./2013 Annual Report $1.6 billion, up from $1.3 billion, in the prior year reflecting net interest income on retained loans, fees on lending related...

  • Page 94
    ...,913 107,540 56,500 109,501 5,749 115,250 47,500 111,099 3,016 114,115 47,000 $ 843,577 $ 876,107 $ 845,095 2013 2012 2011 (a) Loans retained includes credit portfolio loans, trade finance loans, other held-for-investment loans and overdrafts. 100 JPMorgan Chase & Co./2013 Annual Report

  • Page 95
    ...agreements) as part of their client cash management program. 2013 2012 2011 Market shares and rankings(a) 2013 Year ended December 31, Global investment banking fees(b) Debt, equity and equityrelated Global U.S. Syndicated loans Global U.S. Long-term debt(c) Global U.S. Equity and equity-related...

  • Page 96
    ...,326 $ 11,102 4,589 1,409 17,100 16,884 $ 33,984 2013 2012 2011 (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...

  • Page 97
    ... real estate investors and owners. Partnering with the Firm's other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients' domestic and international financial needs. Selected income statement data...

  • Page 98
    ...increased investment banking revenue. Revenue from Middle Market Banking was $3.0 billion, an increase of $168 million, or 6%, from the prior year driven by higher loans and client deposits, partially offset by lower spreads from lending and deposit products. Revenue from Commercial Term Lending was...

  • Page 99
    ... (a) 131,100 930 $ 132,030 198,356 13,500 Loans held-for-sale and loans at fair value Total loans Client deposits and other third-party liabilities(c) Equity Average loans by client segment Middle Market Banking(b) Corporate Client Banking(b) Commercial Term Lending Real Estate Banking Other Total...

  • Page 100
    ...' investment needs. For individual investors, AM also provides retirement products and services, brokerage and banking services including trusts and estates, loans, mortgages and deposits. The majority of AM's client assets are in actively managed portfolios. Selected income statement data Year...

  • Page 101
    ... customer assets in 4 & 5 Star Funds(a) % of AUM in 1st and 2nd quartiles:(b) 1 year 3 years 5 years Selected balance sheet data (period-end) Total assets Loans (c) 2013 2,962 49% 2012 2,821 47% 2011 2,883 43% prime mortgage loans reported in the CIO portfolio within the Corporate/Private Equity...

  • Page 102
    ... 2012, an increase of $174 billion, or 9%, from the prior year. Assets under management were $1.4 trillion, an increase of $90 billion, or 7%, due to the effect of higher market levels and net inflows to long-term products, partially offset by net outflows from liquidity products. Custody, brokerage...

  • Page 103
    ... Firm's liquidity, funding and structural interest rate and foreign exchange risks, as well as executing the Firm's capital plan. The major Other Corporate units include Real Estate, Central Technology, Legal, Compliance, Finance, Human Resources, Internal Audit, Risk Management, Oversight & Control...

  • Page 104
    ... Firm's investment securities portfolio. For further information on liquidity and funding risk, see Liquidity Risk Management on pages 168-173 of this Annual Report. For information on interest rate, foreign exchange and other risks, Treasury and CIO Value-at-risk ("VaR") and the Firm's structural...

  • Page 105
    ... value of the private equity portfolio at December 31, 2012 was $8.1 billion, up from $7.7 billion at December 31, 2011. The increase in the portfolio was predominantly driven by new investments and unrealized gains, partially offset by sales of investments. JPMorgan Chase & Co./2013 Annual Report...

  • Page 106
    ...private banking clients). (e) Deposits are based on the location from which the client relationship is managed. (f) Loans outstanding are based predominantly on the domicile of the borrower and exclude loans held-for-sale and loans carried at fair value. 112 JPMorgan Chase & Co./2013 Annual Report

  • Page 107
    ... Financial Officer ("CFO"), Chief Risk Officer ("CRO") and Chief Operating Officer ("COO") develop and set the risk management framework and governance structure for the Firm which is intended to provide comprehensive controls and ongoing management of the major risks inherent in the Firm's business...

  • Page 108
    ... the Firm will not have the appropriate amount, composition or tenor of funding and liquidity to support its assets and obligations. Key risk management metrics Risk-based capital ratios, Supplementary Leverage ratio LCR; Stress; Parent Holding Company Pre-Funding FX Net Open Position ("NOP") Non...

  • Page 109
    ...DRPC), reviews firmwide value-at-risk, stress limits and any other metrics agreed to with management, and performance against such metrics. The Firm's CRO, LOB CROs, LOB CEOs, heads of risk for Country Risk, Market Risk, Wholesale Credit Risk, Consumer Credit Risk, Model Risk, Risk Management Policy...

  • Page 110
    ...which lines of business "transfer" interest rate and foreign exchange risk to Treasury), overall structural interest rate risk position, funding requirements and strategy, and the Firm's securitization programs (and any required liquidity support by the Firm of such programs). The Capital Governance...

  • Page 111
    ... residential real estate loans, credit card loans, certain auto and business banking loans, and student loans. For the scored portfolio, credit loss estimates are based on statistical analysis of credit losses over discrete periods of time and are estimated using portfolio modeling, credit scoring...

  • Page 112
    ... on an annual basis. Industry and counterparty limits, as measured in terms of exposure and economic credit risk capital, are subject to stress-based loss constraints. Management of the Firm's wholesale credit risk exposure is accomplished through a number of means including Loan underwriting and...

  • Page 113
    ... Annual Report. For further information regarding the credit risk inherent in the Firm's investment securities portfolio, see Note 12 on pages 249-254 of this Annual Report. Total credit portfolio December 31, 2013 (in millions) Loans retained Loans held-for-sale Loans at fair value(a) Total loans...

  • Page 114
    ... information on PCI loans see Note 14 on pages 258-283 of this Annual Report. The credit performance of the consumer portfolio continues to improve as the economy slowly expands and home prices improve. Loss rates are improving, particularly in the credit card and residential real estate portfolios...

  • Page 115
    ... 31, 2013 and 2012, excluded operating lease-related assets of $5.5 billion and $4.7 billion, respectively. Represents prime mortgage loans held-for-sale. Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not...

  • Page 116
    ... analysis Consumer loan balances declined during the year ended December 31, 2013, due to paydowns and the charge-off or liquidation of delinquent loans, partially offset by new mortgage and auto originations. Credit performance has improved across most portfolios but residential real estate charge...

  • Page 117
    ... Total current high risk junior liens (a) (a) 2013 $ 0.9 0.6 0.8 $ 2.3 $ $ 2012 1.1 0.9 1.1 3.1 At December 31, 2013 and 2012, the Firm's prime mortgage portfolio included $14.3 billion and $15.6 billion, respectively, of mortgage loans insured and/or guaranteed by U.S. government agencies...

  • Page 118
    ... the allowance for loan losses. Summary of lifetime principal loss estimates December 31, (in billions) Home equity Prime mortgage Subprime mortgage Option ARMs Total (a) Lifetime loss estimates(a) 2013 $ 14.7 3.8 3.3 10.2 $ 32.0 2012 $ 14.9 4.2 3.6 11.3 $ 34.0 LTD liquidation losses(b) 2013 $ 12...

  • Page 119
    ... the Firm's residential real estate loan portfolio. In general, the delinquency rate for loans with high LTV ratios is greater than the delinquency rate for loans in which the borrower has equity in the collateral. While a large portion of the loans with current estimated LTV ratios greater than 100...

  • Page 120
    ...payments on homes with negative equity, as well as on the cost of alternative housing. For further information on the geographic composition and current estimated LTVs of residential real estate - non-PCI and PCI loans, see Note 14 on pages 258-283 of this Annual Report. Loan modification activities...

  • Page 121
    ... other than PCI loans are generally accounted for and reported as troubled debt restructurings ("TDRs"). For further information on TDRs for the years ended December 31, 2013 and 2012, see Note 14 on pages 258-283 of this Annual Report. Modified residential real estate loans 2013 On- balance sheet...

  • Page 122
    ...to estimated net realizable value of the collateral at December 31, 2013 and 2012, respectively. The elongated foreclosure processing timelines are expected to continue to result in elevated levels of nonaccrual loans in the residential real estate portfolios. At December 31, 2012, the Firm reported...

  • Page 123
    ...offset against loans and charged to interest income, for the estimated uncollectible portion of accrued interest and fee income. For additional information about loan modification programs to borrowers, see Note 14 on pages 258-283 of this Annual Report. JPMorgan Chase & Co./2013 Annual Report 129

  • Page 124
    ...of lending continues to remain a key point of focus, consistent with evolving market conditions and the Firm's risk management activities. The wholesale portfolio is actively managed, in part by conducting ongoing, in-depth reviews of credit quality and of industry, product and client concentrations...

  • Page 125
    ... Lending-related commitments Subtotal Loans held-for-sale and loans at fair value(a) Receivables from customers and other Total exposure - net of liquid securities and other cash collateral held against derivatives Credit Portfolio Management derivatives net notional by reference entity ratings...

  • Page 126
    ...of this Annual Report. Selected metrics Noninvestment-grade(e) 30 days or more past due and accruing loans Liquid securities and other cash collateral held against derivative receivables As of or for the year ended December 31, 2013 (in millions) Top 25 industries(a) Real Estate Banks & Finance Cos...

  • Page 127
    ... accruing loans Liquid securities and other cash collateral held against derivative receivables As of or for the year ended December 31, 2012 (in millions) Top 25 industries(a) Real Estate Banks & Finance Cos Oil & Gas Healthcare State & Municipal Govt(b) Consumer Products Asset Managers Utilities...

  • Page 128
    ... on loans, including information on credit quality indicators, see Note 14 on pages 258-283 of this Annual Report. The Firm actively manages its wholesale credit exposure. One way of managing credit risk is through secondary market sales of loans and lending-related commitments. During 2013 and 2012...

  • Page 129
    ... services, see Note 29 on 318-324, of this Annual Report. Derivative contracts In the normal course of business, the Firm uses derivative instruments predominantly for market-making activities. Derivatives enable customers to manage exposures to fluctuations in interest rates, currencies and...

  • Page 130
    ... in the underlying market environment. The Firm believes that active risk management is essential to controlling the dynamic credit risk in the derivatives portfolio. In addition, the Firm's risk management process takes into consideration the potential impact of wrong-way risk, which is broadly...

  • Page 131
    ... 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...

  • Page 132
    ... real estate loans; 16% and 18%, respectively, were business banking loans; and 8% and 7%, respectively, were other loans. CRA nonaccrual loans were 3% and 4%, respectively, of the Firm's total nonaccrual loans. For the years ended December 31, 2013 and 2012, net charge-offs in the CRA portfolio...

  • Page 133
    ... related management judgments, see Critical Accounting Estimates Used by the Firm on pages 174-178 and Note 15 on pages 284-287 of this Annual Report. At least quarterly, the allowance for credit losses is reviewed by the Chief Risk Officer, the Chief Financial Officer and the Controller of the Firm...

  • Page 134
    ... by regulatory guidance. (d) Net charge-offs and net charge-off rates for the year ended December 31, 2012, included $800 million of charge-offs of Chapter 7 loans. See Consumer Credit Portfolio on pages 120-129 of this Annual Report for further details. 140 JPMorgan Chase & Co./2013 Annual Report

  • Page 135
    ... for loan losses, due to the impact of improved home prices on the residential real estate portfolio and improved delinquency trends in the residential real estate and credit card portfolios. Total consumer provision for credit losses was $308 million in 2013, compared with $3.7 billion in 2012. The...

  • Page 136
    ...rates, foreign exchange rates, equity prices, commodity prices, implied volatilities or credit spreads. Market risk management Market Risk is an independent risk management function that works in close partnership with the lines of business, including Treasury and CIO within Corporate/Private Equity...

  • Page 137
    ... Deposits Corporate/ Private equity • Predominantly responsible for managing the Firm's liquidity, funding, structural interest rate and foreign exchange risks arising from activities undertaken by the Firm's four major reportable business segments, as well as executing the Firm's capital plan...

  • Page 138
    ...historical time series used to generate daily market values may be different across product types or risk management systems. The VaR model results across all portfolios are aggregated at the Firm level. Data sources used in VaR models may be the same as those used for financial statement valuations...

  • Page 139
    ...its 2012 first quarter financial statements regarding the CIO synthetic credit portfolio. The CIO VaR amounts for 2012 were not recalculated to reflect the restatement. (e) Effective in the fourth quarter of 2012, CIB's VaR includes the VaR of the former reportable business segments, Investment Bank...

  • Page 140
    ... the banking regulators under Basel 2.5. Under this definition market risk-related gains and losses are defined as: profits and losses on the Firm's Risk Management positions, excluding fees, commissions, fair value adjustments, net interest income, and gains and losses arising from intraday trading...

  • Page 141
    ... rate products. All transfer-pricing assumptions are dynamically reviewed. Oversight of structural interest rate risk is managed through a dedicated risk function reporting to the CTC CRO. This risk function is responsible for providing independent oversight, JPMorgan Chase & Co./2013 Annual Report...

  • Page 142
    ...of reinvesting at higher yields and assets re-pricing at a faster pace than deposits. Additionally, another 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...

  • Page 143
    ... on securities financing receivables or related to client clearing activities). These indirect exposures are managed in the normal course of business through the Firm's credit, market, and operational risk governance, rather than through Country Risk Management. The Firm's internal country risk...

  • Page 144
    ... models and ratings indicators. Country risk reporting The following table presents the Firm's top 20 exposures by country (excluding the U.S.). The selection of countries is based solely on the Firm's largest total exposures by country, based on the Firm's internal country risk management approach...

  • Page 145
    ... protection purchased through the Firm's credit portfolio management activities, which are managed separately from its market-making activities. Predominantly includes single-name CDS and also includes index credit derivatives and short bond positions. JPMorgan Chase & Co./2013 Annual Report 151

  • Page 146
    ... $ Purchased (7.8) (23.6) (0.7) (2.8) (0.7) (35.6) $ $ Portfolio hedging Sold 7.4 18.7 0.6 2.7 0.7 30.1 $ $ Net (0.4) (4.9) (0.1) (0.1) - (5.5) Under the Firm's internal country risk management approach, credit derivatives are generally reported based on the country where the majority of the assets...

  • Page 147
    ... head of the Model Risk function to allow a model to be used prior to review or approval. For a summary of valuations based on models, see Critical Accounting Estimates Used by the Firm on pages 176-177 and Note 3 on pages 195-215 of this Annual Report. JPMorgan Chase & Co./2013 Annual Report 153

  • Page 148
    ... affordable housing, and mezzanine/junior debt investments. The majority of the Firm's private equity is reported separately under Corporate/Private Equity (for detailed information, see Private Equity portfolio on page 111 of this Annual Report). 154 JPMorgan Chase & Co./2013 Annual Report

  • Page 149
    ... independent risk management • Governance through business risk and control committees • Risk Categories • Independent review by Internal Audit • Tools to measure, monitor, and mitigate risk The goal is to keep operational risk at appropriate levels, in light of the Firm's financial strength...

  • Page 150
    ...are held accountable for tracking and resolving issues on a timely basis. Risk monitoring The Firm has a process for monitoring operational risk event data, which permits analysis of errors and losses as well as trends. Such analysis, performed both at a line of business level and by risk-event type...

  • Page 151
    ... to recover its critical business functions and supporting assets (i.e., staff, technology and facilities) in the event of a business interruption, and to remain in compliance with global laws and regulations as they relate to resiliency risk. The program includes corporate governance, awareness and...

  • Page 152
    ... liquidity, capital, credit, market, principal and operational risks that are part of its business risks, but equally on the recognition among its many constituents - customers and clients, employees, investors, government officials, regulators, as well as the general public - that the Firm adheres...

  • Page 153
    ... risk committees; and a list of designated contacts. Line of business reputation risk governance is overseen by a Firmwide Reputation Risk Governance function, which provides oversight of the governance infrastructure and process to support the consistent identification, escalation, management...

  • Page 154
    ... discussion and analysis CAPITAL MANAGEMENT A strong capital position is essential to the Firm's business strategy and competitive position. The Firm's capital strategy focuses on long-term stability, which enables the Firm to build and invest in market-leading businesses, even in a highly stressed...

  • Page 155
    ... capital disciplines: • Regulatory capital • Economic capital • Line of business equity Regulatory capital The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The Office of the Comptroller of the Currency...

  • Page 156
    ... intangible assets(a) Fair value DVA on structured notes and derivative liabilities related to the Firm's credit quality Investments in certain subsidiaries and other Tier 1 common Preferred stock Qualifying hybrid securities and noncontrolling interests(b) Other Total Tier 1 capital Long-term debt...

  • Page 157
    ... estimates, based on the predominant driver of the change. Year ended December 31, 2013 (in billions) RWA at December 31, 2012 Rule changes (a) Credit risk RWA $ 1,156 39 24 (11) 15 67 $ 1,223 (c) Market risk RWA $ 114 134 1 (45) (39) 51 $ 165 Total RWA $ 1,270 Model & data changes(b) Portfolio...

  • Page 158
    ... the Firm's capital to that of other financial services companies. The following table presents a comparison of the Firm's Tier 1 common under Basel I rules to its estimated Tier 1 common under the Advanced Approach of the Basel III rules, along with the Firm's estimated risk-weighted assets. Key...

  • Page 159
    ... each of the Firm's SLR and J.P. Morgan Chase Bank, N.A.'s SLR by 10 basis points as of December 31, 2013. The Firm's estimates of its Tier 1 common ratio under Basel III and of the Firm's and JPMorgan Chase Bank, N.A.'s SLR reflect its current understanding of the U.S. Basel III rules based on the...

  • Page 160
    ... 31, Common dividend payout ratio 2013 33% 2012 23% 2011 22% Line of business equity Year ended December 31, (in billions) Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset Management Corporate/Private Equity Total common stockholders' equity $ 2013 46.0 56.5 13...

  • Page 161
    ... not include specific price targets or timetables; may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 programs; and may be suspended at any time. For additional information regarding repurchases of the Firm's equity securities, see Part II...

  • Page 162
    ...the Federal Home Loan Banks. 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 JPMorgan Chase & Co./2013 Annual Report 168

  • Page 163
    ... of business, the period-end and average deposit balances as of and for the years ended December 31, 2013 and 2012. Deposits As of or for the period ended December 31, (in millions) Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset Management Corporate/Private Equity...

  • Page 164
    ...preferred stock and common stockholders' equity see Capital Management on pages 160-167, Consolidated Statements of Changes in Stockholders' Equity on page 187, Note 22 on page 309 and Note 23 on page 310 of this Annual Report. Short-term funding A significant portion of the Firm's total commercial...

  • Page 165
    ... information, see Note 21 on pages 306-308 of this Annual Report. Long-term unsecured funding Year ended December 31, (in millions) Issuance Senior notes issued in the U.S. market Senior notes issued in non-U.S. markets Total senior notes Trust preferred securities Subordinated debt Structured notes...

  • Page 166
    ... of deposit account, and the nature and extent of the Firm's relationship with the depositor. • Secured funding Range of haircuts on collateral based on security type and counterparty. • Derivatives Margin calls by exchanges or clearing houses; Collateral calls associated with ratings downgrade...

  • Page 167
    ..., 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...

  • Page 168
    ...for credit losses, see Note 15 on pages 284-287 of this Annual Report. Asset-specific component The asset-specific allowance for loan losses for each of the Firm's portfolio segments is generally measured as the difference between the recorded investment in the impaired loan and the present value of...

  • Page 169
    ...loan loss estimates of approximately $600 million. 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 loss estimates of approximately $2.1 billion. 175 • • • JPMorgan Chase & Co./2013 Annual Report

  • Page 170
    .... For further information, see Note 3 on pages 195-215 of this Annual Report. December 31, 2013 (in billions, except ratio data) Trading debt and equity instruments Derivative receivables Trading assets AFS securities Loans MSRs Private equity investments Other Total assets measured at fair value on...

  • Page 171
    ...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. During the fourth quarter of 2013 the Firm...

  • Page 172
    ... decreases in home prices beyond management's current expectations. Declines in business performance, increases in equity capital requirements, or increases in the estimated cost of equity, could cause the estimated fair values of the Firm's reporting units or their associated goodwill to decline...

  • Page 173
    ... 17, 2013. For further information on the Firm's benchmark interest rate hedges, see Note 6 on pages 220- 233 of this Annual Report. Investments in qualified affordable housing projects In January 2014, the FASB issued guidance regarding the accounting for investments in affordable housing projects...

  • Page 174
    Management's discussion and analysis NONEXCHANGE TRADED COMMODITY DERIVATIVE CONTRACTS AT FAIR VALUE In the normal course of business, JPMorgan Chase trades nonexchange-traded commodity derivative contracts. To determine the fair value of these contracts, the Firm uses various fair value estimation...

  • Page 175
    ... security of its financial, accounting, technology, data processing and other operating systems and facilities; • The other risks and uncertainties detailed in Part I, Item 1A: Risk Factors in the Firm's Annual Report on Form 10K for the year ended December 31, 2013. Any forward-looking statements...

  • Page 176
    ... the "COSO" criteria. Based upon the assessment performed, management concluded that as of December 31, 2013, JPMorgan Chase's internal control over financial reporting was effective based upon the COSO 1992 criteria. Additionally, based upon management's assessment, the Firm determined that there...

  • Page 177
    ... reporting". Our responsibility is to express opinions on these financial statements and on the Firm's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States...

  • Page 178
    Consolidated statements of income Year ended December 31, (in millions, except per share data) Revenue Investment banking fees Principal transactions Lending- and deposit-related fees Asset management, administration and commissions Securities gains(a) Mortgage fees and related income Card income ...

  • Page 179
    ... $ $ 2013 17,923 (4,070) (41) (259) 1,467 (2,903) 15,020 $ $ 2012 21,284 3,303 (69) 69 (145) 3,158 24,442 $ $ 2011 18,976 1,067 (279) (155) (690) (57) 18,919 The Notes to Consolidated Financial Statements are an integral part of these statements. JPMorgan Chase & Co./2013 Annual Report 185

  • Page 180
    ... $1,996 and $1,170 at fair value) Long-term debt (included $28,878 and $30,788 at fair value) Total liabilities(a) Commitments and contingencies (see Notes 29, 30 and 31 of this Annual Report) Stockholders' equity Preferred stock ($1 par value; authorized 200,000,000 shares: issued 1,115,750 and 905...

  • Page 181
    ...at January 1 Reissuance from RSU Trust Balance at December 31 Treasury stock, at cost Balance at January 1 Purchase of treasury stock Reissuance from treasury stock Share repurchases related to employee stock-based compensation awards Balance at December 31 Total stockholders' equity (12,002) (4,789...

  • Page 182
    ... and accounts receivable Other assets Trading liabilities Accounts payable and other liabilities Other operating adjustments Net cash provided by operating activities Investing activities Net change in: Deposits with banks Federal funds sold and securities purchased under resale agreements Held...

  • Page 183
    ...Firm is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity. For a discussion of the Firm's business segments, see Note 33 on pages 334-337 of this Annual Report. The accounting...

  • Page 184
    ... investment funds, including mutual funds, private equity funds and hedge funds. For the funds to which the deferral applies, the Firm continues to apply other existing authoritative accounting guidance to determine whether such funds should be consolidated. Assets held for clients in an agency...

  • Page 185
    ... employee benefit plans Employee stock-based incentives Securities Securities financing activities Loans Allowance for credit losses Variable interest entities Goodwill and other intangible assets Premises and equipment Long-term debt Income taxes Off-balance sheet lending-related financial...

  • Page 186
    ...several State Attorneys General, as well as litigation by the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Federal Housing Finance Agency relating to residential mortgagebacked securities activities by JPMorgan Chase, Bear Stearns and Washington Mutual (the...

  • Page 187
    ... On November 15, 2013, the Firm announced it had reached a $4.5 billion agreement with 21 major institutional investors to make a binding offer to the trustees of 330 residential mortgage-backed securities trusts issued by J.P. Morgan, Chase, and Bear Stearns ("RMBS Trust Settlement") to resolve...

  • Page 188
    ... of a civil money penalty by the Financial Crimes Enforcement Network for failure to detect and adequately report suspicious transactions relating to BLMIS. For further information on these settlements, see Note 31 on pages 326-332 of this Annual Report. 194 JPMorgan Chase & Co./2013 Annual Report

  • Page 189
    ... Bank ("CIB"), Mortgage Banking, (part of Consumer & Community Banking) and certain corporate functions including Treasury and Chief Investment Office ("CIO"). The valuation control function verifies fair value estimates leveraging independently derived prices, valuation inputs and other market data...

  • Page 190
    ... open risk position. The determination of such adjustments follows a consistent framework across the Firm: • Liquidity valuation adjustments are considered when the Firm may not be able to observe a recent market price for a financial instrument that trades in an inactive (or less active) market...

  • Page 191
    New significant valuation models, as well as material changes to existing models, are reviewed and approved prior to implementation except where specified conditions are met. The Model Risk function performs an annual firmwide model risk assessment where developments in the product or market are ...

  • Page 192
    ... value, see Note 14 on pages 258-283 of this Annual Report. Held for investment credit card Valuations are based on discounted cash flows, which consider: receivables • Projected interest income and late fee revenue, funding, servicing and credit costs, and loan repayment rates • Estimated life...

  • Page 193
    ... the following products: Mortgage- and asset-backed securities specific inputs: • Collateral characteristics • Deal-specific payment and loss allocations • Current market assumptions related to yield, prepayment speed, conditional default rates and loss severity Collateralized loan obligations...

  • Page 194
    ... issues and lack of liquidity Public investments held in the Private Equity portfolio • Valued using observable market prices less adjustments for relevant restrictions, where applicable Fund investments (i.e., mutual/ Net asset value ("NAV") collective investment funds, • NAV is validated by...

  • Page 195
    ... funds Trading liabilities: Debt and equity instruments(d) Derivative payables: Interest rate Credit Foreign exchange Equity Commodity Total derivative payables(e) Total trading liabilities Accounts payable and other liabilities Beneficial interests issued by consolidated VIEs Long-term debt Total...

  • Page 196
    ... consolidated financial statements Fair value hierarchy December 31, 2012 (in millions) Federal funds sold and securities purchased under resale agreements Securities borrowed Trading assets: Debt instruments: Mortgage-backed securities: U.S. government agencies(a) Residential - nonagency Commercial...

  • Page 197
    ...trading portfolio, based on increased liquidity and price transparency; and $1.3 billion of long-term debt, largely driven by an increase in observability of certain equity structured notes. Transfers from level 2 to level 3 included $1.4 billion of corporate debt securities in the trading portfolio...

  • Page 198
    Notes to consolidated financial statements Level 3 valuations The Firm has established well-documented processes for determining fair value, including for instruments where fair value is estimated using significant unobservable inputs (level 3). For further information on the Firm's valuation ...

  • Page 199
    ... Private equity fund investments(d) Long-term debt, other borrowed funds, and deposits(e) 9,614 4,872 1,602 13,282 Market comparables Discounted cash flows Market comparables Net asset value Option pricing Refer to Note 17 on pages 299-304 of this Annual Report. EBITDA multiple Liquidity...

  • Page 200
    ... in valuing a mortgage-backed security investment depends on a host of factors relating to the underlying mortgages. This includes the loan-to-value ratio, the nature of the lender's charge over the property and various other instrument-specific factors. 206 JPMorgan Chase & Co./2013 Annual Report

  • Page 201
    ... fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains and losses in the following tables do not reflect the effect of the Firm's risk management activities related to such level 3 instruments. JPMorgan Chase & Co./2013 Annual Report 207

  • Page 202
    ... Credit Foreign exchange Equity Commodity Total net derivative receivables Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments All other (a) Fair value at January 1, 2013 Purchases...

  • Page 203
    ...rate Credit Foreign exchange Equity Commodity Total net derivative receivables Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments All other Fair value at January 1, 2012 Purchases...

  • Page 204
    ...rate Credit Foreign exchange Equity Commodity Total net derivative receivables Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments All other Fair value at January 1, 2011 Purchases...

  • Page 205
    ... Annual Report; • $1.6 billion increase in trading assets - debt and equity instruments, largely driven by net purchases of trading loans, new client-driven financing transactions, and partially offset by transfers of highly rated CLOs from level 3 to into level 2 during the year ended 2013, based...

  • Page 206
    ...the Credit Portfolio and other lines of business within the CIB. (b) At December 31, 2013, 2012 and 2011 included derivatives DVA of $(115) million, $(590) million and $538 million, respectively. (c) Structured notes are measured at fair value based on the Firm's election under the fair value option...

  • Page 207
    ...billion related to trade finance loans that were reclassified to held-for-sale during the fourth quarter of 2013 and subject to a lower of cost or fair value adjustment. These loans were classified as level 3, as they are valued based on the indicative pricing received from external investors, which...

  • Page 208
    ... 31, 2012 Estimated fair value hierarchy Total estimated fair value - $ - 0.6 53.7 121.8 60.9 (in billions) Financial assets Cash and due from banks Deposits with banks Accrued interest and accounts receivable Federal funds sold and securities purchased under resale agreements Securities borrowed...

  • Page 209
    ... this Note. Trading assets and liabilities Trading assets include debt and equity instruments owned by JPMorgan Chase ("long" positions) that are held for client market-making and client-driven activities, as well as for certain risk management activities, certain loans managed on a fair value basis...

  • Page 210
    ... in fair value Other assets Deposits(a) Federal funds purchased and securities loaned or sold under repurchase agreements Other borrowed funds(a) Trading liabilities Beneficial interests issued by consolidated VIEs Other liabilities Long-term debt: Changes in instrument-specific credit risk(a) Other...

  • Page 211
    ... debt and long-term beneficial interests for which the fair value option has been elected. 2013 Fair value over/ (under) contractual principal outstanding 2012 Fair value over/ (under) contractual principal outstanding December 31, (in millions) Loans(a) Nonaccrual loans Loans reported as trading...

  • Page 212
    ... relates. December 31, 2013 Other Long-term borrowed debt funds $ 9,516 $ 4,248 2,321 11,082 1,260 December 31, 2012 Other Long-term borrowed debt funds $ 8,669 $ 6,166 2,819 11,580 1,379 (in millions) Risk exposure Interest rate Credit Foreign exchange Equity Commodity Total structured notes...

  • Page 213
    ... option adjustable rate mortgages ("ARMs")), industry segment (e.g., commercial real estate) or its exposure to residential real estate loans with high loan-to-value ratios results in a significant concentration of credit risk. Terms of loan products and collateral coverage are included in the Firm...

  • Page 214
    .... Customers use derivatives to mitigate or modify interest rate, credit, foreign exchange, equity and commodity risks. The Firm actively manages the risks from its exposure to these derivatives by entering into other derivative transactions or by purchasing or selling other financial instruments...

  • Page 215
    ...certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. For foreign currency qualifying net investment hedges, changes in the fair value of the derivatives are recorded in the translation adjustments account within AOCI. JPMorgan Chase & Co./2013 Annual Report...

  • Page 216
    ... quarter of 2012. The results of the synthetic credit portfolio, including the portion transferred to CIB, have been included in the gains and losses on derivatives related to market-making activities and other derivatives category discussed on page 231 of this Note. 222 JPMorgan Chase & Co./2013...

  • Page 217
    ... rate contracts Credit derivatives(b) Foreign exchange contracts(a) Cross-currency swaps Spot, futures and forwards Written options Purchased options Total foreign exchange contracts Equity contracts Swaps Futures and forwards(a) Written options(a) Purchased options Total equity contracts Commodity...

  • Page 218
    ... payables(c) 5,949 $ 1,160,149 Gross derivative receivables December 31, 2012 (in millions) Trading assets and liabilities Interest rate(b) Credit Foreign exchange(b) Equity(b) Commodity(b) Total fair value of trading assets and liabilities $ 1,296,268 $ 100,310 145,676 42,679 43,185 $ 1,628,118...

  • Page 219
    ... results of operations. (b) Exchange traded derivative amounts that relate to futures contracts are settled daily. (c) Included netted cash collateral payables of $63.9 billion and $79.2 billion at December 31, 2013, and December 31, 2012, respectively. JPMorgan Chase & Co./2013 Annual Report 225

  • Page 220
    ... payables 2012 Amounts netted on the Consolidated balance sheets December 31, (in millions) U.S. GAAP nettable derivative payables Interest rate contracts: OTC(a) OTC-cleared Exchange traded(b) Total interest rate contracts Credit contracts: OTC OTC-cleared Total credit contracts Foreign exchange...

  • Page 221
    ... These amounts mitigate counterparty credit risk associated with the Firm's derivative instruments but are not eligible for net presentation, because (a) the collateral is non-cash financial instruments (generally U.S. government and agency securities and other G7 government bonds), (b) the amount...

  • Page 222
    ... statements 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 December 31, 2013 and 2012, related...

  • Page 223
    ... Foreign exchange(b) Commodity(c) Total $ $ Derivatives 532 5,684 1,784 8,000 $ (d) Hedged items $ 33 $ (3,761) (2,880) (6,608) $ (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...

  • Page 224
    Notes to consolidated financial statements Cash flow hedge gains and losses The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pretax gains/(losses) recorded on such derivatives, for the years ended December 31, 2013, 2012...

  • Page 225
    ...a market-maker, the Firm actively manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. Second, as an end-user, the Firm uses credit derivatives to manage credit risk associated with lending...

  • Page 226
    Notes to consolidated financial statements certain AFS securities and from certain financial instruments in the Firm's market-making businesses. For more information on the synthetic credit portfolio, see the discussion on page 222 of this Note. Following is a summary of various types of credit ...

  • Page 227
    ... and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below. Protection sold - credit derivatives and credit-related notes ratings(a)/maturity profile December 31, 2013 (in millions) Risk rating of reference entity Investment-grade...

  • Page 228
    ..., refined Foreign exchange Equity Commodity(c) Total trading revenue Private equity gains(f) Principal transactions 9,339 802 $ 10,141 (a) Includes a pretax gain of $665 million for the year ended December 31, 2012, reflecting the recovery on a Bear Stearns-related subordinated loan. (b) Includes...

  • Page 229
    ... customer and member lists to the Firm, and they may also conduct marketing activities and provide awards under the various credit card programs. The terms of these agreements generally range from three to ten years. The Firm typically makes incentive payments to the partners based on new account...

  • Page 230
    ... Trading assets Federal funds sold and securities purchased under resale agreements Securities borrowed Deposits with banks Other assets(a) Total interest income Interest expense Interest-bearing deposits Short-term and other liabilities(b) Long-term debt Beneficial interests issued by consolidated...

  • Page 231
    ... portfolios. The JPMorgan Chase Common Stock Fund, which is an investment option under the 401(k) Savings Plan, is a nonleveraged employee stock ownership plan. The Firm matches eligible employee contributions up to 5% of benefits-eligible compensation (e.g., base pay) on an annual basis. Employees...

  • Page 232
    ... obligation, end of year Change in plan assets Fair value of plan assets, beginning of year Actual return on plan assets Firm contributions WaMu Global Settlement Employee contributions Benefits paid Foreign exchange impact and other Fair value of plan assets, end of year Funded/(unfunded) status...

  • Page 233
    ...$ 18 (658) $ OPEB plans 2013 125 1 126 $ $ 2012 (133) 1 (132) The following table presents the components of net periodic benefit costs reported in the Consolidated Statements of Income and other comprehensive income for the Firm's U.S. and non-U.S. defined benefit pension, defined contribution and...

  • Page 234
    ... each asset class. The return on equities has been selected by reference to the yield on long-term U.K. government bonds plus an equity risk premium above the risk-free rate. The expected return on "AA" rated long-term corporate bonds is based on an implied yield for similar bonds. The discount rate...

  • Page 235
    ... strategy for this plan was adjusted in 2013 to provide for greater liquidity. Currently, approved asset allocation ranges are: U.S. equity 0% to 45%, international equity 0% to 40%, debt securities 0% to 80%, hedge funds 0% to 20%, and real estate 0% to 10%, real assets 0% to 10% and private equity...

  • Page 236
    ... securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities. Alternatives primarily include limited partnerships. Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded. 242 JPMorgan Chase & Co./2013 Annual Report

  • Page 237
    ... finance companies Business services Energy Materials Real Estate Other Total equity securities Common/collective trust funds(a) Limited partnerships:(b) Hedge funds Private equity Real estate Real assets(c) Total limited partnerships Corporate debt securities(d) U.S. federal, state, local and non...

  • Page 238
    ... goods Banks and finance companies Business services Energy Materials Real estate Other Total equity securities Common/collective trust funds(a) Limited partnerships: Hedge funds Private equity Real estate Real assets (c) (b) Non-U.S. defined benefit pension plans(i) Total fair value Level 1 $ 142...

  • Page 239
    ...out of level 3 Fair value, December 31, 2013 Year ended December 31, 2012 (in millions) U.S. defined benefit pension plans Equities Common/collective trust funds Limited partnerships: Hedge funds Private equity Real estate Real assets Total limited partnerships Corporate debt securities Other Total...

  • Page 240
    ...: Hedge funds Private equity Real estate Real assets Total limited partnerships Corporate debt securities Other Total U.S. defined benefit pension plans OPEB plans COLI Total OPEB plans $ $ $ $ Fair value, January 1, 2011 - 194 1,160 1,232 304 - 2,696 1 387 3,278 1,381 1,381 Purchases, sales and...

  • Page 241
    ... granted with an exercise price equal to the fair value of JPMorgan Chase's common stock on the grant date. The Firm typically awards SARs to certain key employees once per year; the Firm also periodically grants employee stock options and SARs to individual employees. The 2013, 2012 and 2011 grants...

  • Page 242
    ... to value employee stock options and SARs granted during the years ended December 31, 2013, 2012 and 2011, under the Black-Scholes valuation model. Year ended December 31, Weighted-average annualized valuation assumptions Risk-free interest rate Expected dividend yield Expected common stock price...

  • Page 243
    ...Note 3 on pages 195-215 of this Annual Report. Predominantly all of the Firm's AFS and HTM investment securities (the "investment securities portfolio") is held by CIO in connection with its asset-liability management objectives. At December 31, 2013, the average credit rating of the debt securities...

  • Page 244
    ... Fair value Amortized cost 2012 Gross unrealized gains Gross unrealized losses Fair value December 31, (in millions) Available-for-sale debt securities Mortgage-backed securities: U.S. government agencies(a) Residential: Prime and Alt-A Subprime Non-U.S. Commercial Total mortgage-backed securities...

  • Page 245
    ...: Prime and Alt-A Subprime Non-U.S. Commercial Total mortgage-backed securities U.S. Treasury and government agencies Obligations of U.S. states and municipalities Certificates of deposit Non-U.S. government debt securities Corporate debt securities Asset-backed securities: Collateralized loan...

  • Page 246
    Notes to consolidated financial statements Securities with gross unrealized losses Less than 12 months December 31, 2012 (in millions) Available-for-sale debt securities Mortgage-backed securities: U.S. government agencies Residential: Prime and Alt-A Subprime Non-U.S. Commercial Total mortgage-...

  • Page 247
    ...) Debt securities the Firm does not intend to sell that have credit losses Total OTTI(a) Losses recorded in/ (reclassified from) AOCI Total credit losses recognized in income(b) Securities the Firm intends to sell Total OTTI losses recognized in income $ $ (1) - (1) (20) (21) (c) 2013 2012 2011...

  • Page 248
    ... 31, 2013, of JPMorgan Chase's investment securities portfolio by contractual maturity. By remaining maturity December 31, 2013 (in millions) Available-for-sale debt securities Mortgage-backed securities(a) Amortized cost Fair value Average yield(b) U.S. Treasury and government agencies(a) Amortized...

  • Page 249
    ... Consolidated Statements of Income. The Firm has elected the fair value option for certain securities financing agreements. For further information regarding the fair value option, see Note 4 on pages 215- 218 of this Annual Report. The securities financing agreements for which the fair value option...

  • Page 250
    Notes to consolidated financial statements The following table presents information as of December 31, 2013 and 2012, regarding the securities purchased under resale agreements and securities borrowed for which an appropriate legal opinion has been obtained with respect to the master netting ...

  • Page 251
    ... reserves for credit impairment with respect to these agreements as of December 31, 2013 and 2012. For further information regarding assets pledged and collateral received in securities financing agreements, see Note 30 on page 325 of this Annual Report. Transfers not qualifying for sale accounting...

  • Page 252
    ... real estate loans, non-modified credit card loans and scored business banking loans are generally charged off at 180 days past due. In the second quarter of 2012, the Firm revised its policy to charge-off modified credit card loans that do not comply with their modified payment terms at 120 days...

  • Page 253
    ... of liquid securities, the fair value is based on quoted market prices or broker quotes. For illiquid securities or other financial assets, the fair value of the collateral is estimated using a discounted cash flow model. For residential real estate loans, collateral values are based upon external...

  • Page 254
    ... on the Firm's elections of fair value accounting under the fair value option. See Note 3 and Note 4 on pages 195-215 and 215-218 of this Annual Report for further information on loans carried at fair value and classified as trading assets. PCI loans PCI loans held-for-investment are initially...

  • Page 255
    ...Auto(b) • Business banking(b) • Student and other Residential real estate - PCI • Home equity • Prime mortgage • Subprime mortgage • Option ARMs Credit card • Credit card loans Wholesale(c) • Commercial and industrial • Real estate • Financial institutions • Government agencies...

  • Page 256
    ... risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures. 2013 Years ended December 31, (in millions) Purchases Sales Retained loans reclassified to held-for-sale Consumer, excluding credit card $ 7,616 4,845 1,261 (a)(b) 2012 Wholesale 697 $ 4,232 5,641 Total...

  • Page 257
    ... below provides information about retained consumer loans, excluding credit card, by class. December 31, (in millions) Residential real estate - excluding PCI Home equity: Senior lien Junior lien Mortgages: Prime, including option ARMs Subprime Other consumer loans Auto Business banking Student and...

  • Page 258
    Notes to consolidated financial statements Residential real estate - excluding PCI loans Home equity December 31, (in millions, except ratios) Loan delinquency(a) Current 30-149 days past due 150 or more days past due Total retained loans % of 30+ days past due to total retained loans 90 or more ...

  • Page 259
    ...Mortgages Prime, including option ARMs 2013 2012 $ 76,108 3,155 7,899 87,162 2.32% - 7,823 2,666 $ 61,439 3,237 11,580 76,256 3.97% - 10,625 3,445 $ Subprime 2013 5,956 $ 646 502 7,104 $ 16.16% - $ - 1,390 2012 6,673 727 855 8,255 19.16% - - 1,807 $ Total residential real estate - excluding PCI 2013...

  • Page 260
    .... The higher delinquency rates associated with amortizing HELOCs and HELOANs are factored into the loss estimates produced by the Firm's delinquency roll-rate methodology, which estimates defaults based on the current delinquency status of a portfolio. 266 JPMorgan Chase & Co./2013 Annual Report

  • Page 261
    ...3,083 Total residential real estate - excluding PCI $ 13,460 $ 10,941 $ 7,750 $ $ (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. JPMorgan Chase & Co./2013 Annual Report...

  • Page 262
    ...and other liquidations (e.g., short sales) Principal payments and other Ending balance of TDRs Permanent modifications Trial modifications Senior lien 2013 2012 2011 2013 Junior lien 2012 2011 Prime, including option ARMs 2013 2012 2011 2013 Mortgages Subprime 2012 2011 Total residential real estate...

  • Page 263
    ... equity loans, 3,100 prime mortgage, including option ARMs, and 3,100 subprime mortgages. Home equity Senior lien 2013 2012 2011 2013 Junior lien 2012 2011 Prime, including option ARMs 2013 2012 2011 2013 Mortgages Subprime 2012 2011 Total residential real estate - excluding PCI 2013 2012 2011 Year...

  • Page 264
    ... forgiven Number of loans that redefaulted within one year of permanent modification(a) Home equity Senior lien 2013 2012 2011 2013 Junior lien 2012 2011 Prime, including option ARMs 2013 2012 2011 2013 Mortgages Subprime 2012 2011 Total residential real estate - excluding PCI 2013 2012 2011...

  • Page 265
    ...lien home equity, 33% of prime mortgages, including option ARMs, and 23% of subprime mortgages that were 30 days or more past due. At December 31, 2013, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were 6 years for...

  • Page 266
    Notes to consolidated financial statements (c) (d) 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. December 31, 2013 and 2012, excluded loans 30 days or...

  • Page 267
    ... remaining contractual term (in years) of loans with term or payment extensions - after TDR 2013 13.66% 4.94 NM NM 2012 12.64% 4.83 NM NM 2011 12.45% 5.70 NM NM 2013 8.37% 6.05 1.1 3.1 Business banking 2012 7.33% 5.49 1.4 2.4 2011 7.55% 5.52 1.4 2.6 JPMorgan Chase & Co./2013 Annual Report 273

  • Page 268
    ... loans were funded with fixed-rate liabilities with a similar maturity profile. A net spread will be earned on the declining balance of the portfolio, which is estimated as of December 31, 2013, to have a remaining weighted-average life of 8 years. 274 JPMorgan Chase & Co./2013 Annual Report

  • Page 269
    ...junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property. Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis. JPMorgan Chase & Co./2013 Annual Report 275

  • Page 270
    Notes to consolidated financial statements Approximately 20% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or HELOCs. The following tables set forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on ...

  • Page 271
    ... region California New York Texas Illinois Florida New Jersey Ohio Pennsylvania Michigan Virginia All other Total retained credit card loans Percentage of portfolio based on carrying value with estimated refreshed FICO scores Equal to or greater than 660 Less than 660 $ 2013 3,879 $ 3.14% 2012 4,944...

  • Page 272
    ...line of credit. The following table provides information regarding the nature and extent of modifications of credit card loans for the periods presented. Year ended December 31, (in millions) Short-term programs Long-term programs Total new enrollments $ $ 2013 - $ 1,180 1,180 $ New enrollments 2012...

  • Page 273
    ... large corporate and institutional clients to high-net-worth individuals. The primary credit quality indicator for wholesale loans is the risk rating assigned each loan. Risk ratings are used to identify the credit quality of loans and differentiate risk within the portfolio. Risk ratings on loans...

  • Page 274
    ... and loans to private banking clients. See Note 1 on pages 189-191 of this Annual Report for additional information on SPEs. The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment for the periods indicated. The real estate class...

  • Page 275
    ... and development 2013 $ 3,674 81 2.20% $ 3 0.08% $ $ 2012 2,989 119 3.98% 21 0.70% $ $ 2013 5,139 29 0.56% 9 0.18% $ $ Other 2012 5,053 189 3.74% 43 0.85% $ $ Total real estate loans 2013 69,151 2,575 3.72% 346 0.50% $ $ 2012 60,740 4,377 7.21% 520 0.86% JPMorgan Chase & Co./2013 Annual Report 281

  • Page 276
    ...loan fees or costs; and unamortized discount or premiums on purchased loans. The following table presents the Firm's average impaired loans for the years ended 2013, 2012 and 2011. Year ended December 31, (in millions) Commercial and industrial Real estate Financial institutions Government agencies...

  • Page 277
    ..., Government agencies and Other. Financial effects of modifications and redefaults Wholesale loans modified as TDRs are typically term or payment extensions and, to a lesser extent, deferrals of principal and/or interest on commercial and industrial and real estate loans. For the years ended...

  • Page 278
    Notes to consolidated financial statements Note 15 - Allowance for credit losses JPMorgan Chase's allowance for loan losses covers the consumer, including credit card, portfolio segments (primarily scored); and wholesale (risk-rated) portfolio, and represents management's estimate of probable credit...

  • Page 279
    ... impact the risk rating assigned by the Firm to that loan. PD estimates are based on observable external through-the-cycle data, using creditrating agency default statistics. LGD estimates are based on the Firm's history of actual credit losses over more than one credit cycle. Management applies...

  • Page 280
    ... incremental penalty rates. (d) Consumer, excluding credit card, charge-offs for the year ended December 31, 2012, included $747 million of charge-offs for Chapter 7 residential real estate loans and $53 million of charge-offs for Chapter 7 auto loans. 286 JPMorgan Chase & Co./2013 Annual Report

  • Page 281
    ...2012 Consumer, excluding credit card $ 16,294 4,805 (508) 4,297 - 302 (7) $ 12,292 $ (d) (d) 2011 Consumer, excluding credit card $ 16,471 5,419 (547) 4,872 - 4,670 25 $ 16,294 $ $ Credit card $ 6,999 5,755 (811) 4,944 - 3,444 2 5,501 $ $ Wholesale 4,316 $ 346 (524) (178) - (359) 8 4,143 $ Total...

  • Page 282
    ... community development entities that may meet the definition of a VIE. In addition, CB provides financing and lending related services to certain client-sponsored VIEs. In general, CB does not control the activities of these entities and does not consolidate these entities. Corporate/Private Equity...

  • Page 283
    ... in consolidation. Firm-sponsored mortgage and other securitization trusts The Firm securitizes (or has securitized) originated and purchased residential mortgages, commercial mortgages and other consumer loans (including automobile and student loans) primarily in its CIB and CCB businesses...

  • Page 284
    ...pages 297-298 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. The Firm generally does not retain a residual...

  • Page 285
    ...the power to direct the significant activities of the VIE generally is held by the servicer or investors in a specified class of securities ("controlling class"). See the table on page 296 of this Note for more information on the consolidated commercial mortgage securitizations, and the table on the...

  • Page 286
    ... bankruptcy remote entities that purchase interests in, and make loans secured by, pools of receivables and other financial assets pursuant to agreements with customers of the Firm. The conduits fund their purchases and loans through the issuance of highly rated commercial paper. The primary source...

  • Page 287
    ... 31, 2013 and 2012, respectively, and are reported as off-balance sheet lending-related commitments. For more information on off-balance sheet lending-related commitments, see Note 29 on pages 318-324 of this Annual Report. VIEs associated with investor intermediation activities As a financial...

  • Page 288
    ... note entities. As a derivative counterparty, the Firm has a senior claim on the collateral of the VIE and reports such derivatives on its Consolidated Balance Sheets at fair value. Substantially all of the assets purchased by such VIEs are investment-grade. 294 JPMorgan Chase & Co./2013 Annual...

  • Page 289
    ...value. Substantially all of the assets purchased by such VIEs are investment-grade. Exposure to nonconsolidated credit-related note and asset swap VIEs at December 31, 2013 and 2012, was as follows. December 31, 2013 (in billions) Credit-related notes Static structure Managed structure Total credit...

  • Page 290
    ... Bear Stearns merger in June 2008, the Federal Reserve Bank of New York ("FRBNY") took control, through an LLC formed for this purpose, of a portfolio of $30.0 billion in assets, based on the value of the portfolio as of March 14, 2008. The assets of the LLC were funded by a $28.85 billion term loan...

  • Page 291
    ... based on the accounting rules in effect at the time of the securitization. 2013 Year ended December 31, (in millions, except rates)(a) Principal securitized All cash flows during the period: Proceeds from new securitizations(b) Servicing fees collected Purchases of previously transferred financial...

  • Page 292
    ... 31, 2013 and 2012, respectively. Substantially all of these loans and real estate owned are insured or guaranteed by U.S. government agencies. For additional information, refer to Note 14 on pages 258-283 of this Annual Report. (a) The Firm's interests in prime mortgage securitizations were...

  • Page 293
    ... are reviewed by the Firm's Operating Committee. The following table presents goodwill attributed to the business segments. December 31, (in millions) Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset Management Corporate/Private Equity Total goodwill 2013 2012 2011...

  • Page 294
    ...to service, late charges and other ancillary revenue, and other economic factors. The Firm compares fair value estimates and assumptions to observable market data where available, and also considers recent market activity and actual portfolio experience. 300 JPMorgan Chase & Co./2013 Annual Report

  • Page 295
    ... amounts the Firm pays as the servicer (e.g., scheduled principal and interest to a trust, 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...

  • Page 296
    ...return requirements that the Firm believes a market participant would consider, taking into account factors such as the pending Basel III capital rules. Consequently, the OAS assumption for the Firm's portfolio increased by approximately 400 basis points and decreased the fair value of the MSR asset...

  • Page 297
    ... MSR risk management activities) for the years ended December 31, 2013, 2012 and 2011. Year ended December 31, (in millions) CCB mortgage fees and related income Net production revenue: Production revenue Repurchase losses Net production revenue Net mortgage servicing revenue Operating revenue: Loan...

  • Page 298
    ... table presents estimated future amortization expense related to credit card relationships, core deposits and other intangible assets at December 31, 2013. Year ended December 31, (in millions) 2014 2015 2016 2017 2018 $ Purchased credit card relationships Other credit card-related intangibles 51...

  • Page 299
    ... trust accounts. (b) Includes Money Market Deposit Accounts ("MMDAs"). (c) Includes structured notes classified as deposits for which the fair value option has been elected. For further discussion, see Note 4 on pages 215-218 of this Annual Report. JPMorgan Chase & Co./2013 Annual Report 305

  • Page 300
    ... interest rate ranges shown exclude structured notes accounted for at fair value. Included long-term debt of $68.4 billion and $48.0 billion secured by assets totaling $131.3 billion and $112.8 billion at December 31, 2013 and 2012, respectively. The amount of long-term debt secured by assets does...

  • Page 301
    ...collateral, based on unfavorable changes in the Firm's credit ratings, financial ratios, earnings or stock price. Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities On May 8, 2013, the Firm redeemed approximately $5.0 billion , or 100% of...

  • Page 302
    ..., including unamortized original-issue discount. The principal amount of debentures issued to the trusts includes the impact of hedging and purchase accounting fair value adjustments that were recorded on the Firm's Consolidated Financial Statements. 308 JPMorgan Chase & Co./2013 Annual Report

  • Page 303
    Note 22 - Preferred stock At December 31, 2013 and 2012, JPMorgan Chase was authorized to issue 200 million shares of preferred stock, in one or more series, with a par value of $1 per share. In the event of a liquidation or dissolution of the Firm, JPMorgan Chase's preferred stock then outstanding...

  • Page 304
    ... the U.S. Treasury Capital Purchase Program in 2008, and are currently traded on the New York Stock Exchange. The warrants are exercisable, in whole or in part, at any time and from time to time until October 28, 2018, at an exercise price of $42.42 per share. The number of shares issuable upon the...

  • Page 305
    ... Capital Purchase Program to purchase shares of the Firm's common stock. The aggregate number of shares issuable upon the exercise of such options and warrants was 6 million, 148 million and 133 million for the years ended December 31, 2013, 2012 and 2011, respectively. (b) Participating securities...

  • Page 306
    ... market value on U.S. government agency issued MBS and obligations of U.S. states and municipalities, partially offset by the widening of spreads on non-U.S. corporate debt and the realization of gains due to portfolio repositioning. (c) Included after-tax unrealized losses not related to credit...

  • Page 307
    ... tax benefits associated with the Firm's employee stock-based compensation plans. The tax effect of all items recorded directly to stockholders' equity resulted in an increase of $2.1 billion in 2013, a decrease of $1.9 billion in 2012, and an increase of $927 million in 2011. U.S. federal income...

  • Page 308
    ... associated U.S. federal income tax deductions, and the portion of gross non-U.S. unrecognized tax benefits that would have offsets in other jurisdictions. JPMorgan Chase is presently under audit by a number of taxing authorities, most notably by the Internal Revenue Service, New York State and City...

  • Page 309
    ... U.S. Non-U.S.(a) Income before income tax expense 2013 $ 17,229 8,685 $ 25,914 2012 $ 24,895 4,022 $ 28,917 2011 $ 16,336 10,413 $ 26,749 (a) For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S. JPMorgan Chase & Co./2013 Annual Report...

  • Page 310
    Notes to consolidated financial statements Note 27 - Restrictions on cash and intercompany funds transfers The business of JPMorgan Chase Bank, National Association ("JPMorgan Chase Bank, N.A.") is subject to examination and regulation by the OCC. The Bank is a member of the U.S. Federal Reserve ...

  • Page 311
    ... definition of a well-capitalized bank holding company. (g) The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4%, depending on factors specified in regulations issued by the Federal Reserve and OCC. Note: Rating agencies allow measures of capital to be adjusted upward...

  • Page 312
    ... hybrid securities and noncontrolling interests(a) Less: Goodwill(b) Other intangible assets(b) Fair value DVA on structured notes and derivative liabilities related to the Firm's credit quality Investments in certain subsidiaries and other Total Tier 1 capital Tier 2 capital Long-term debt and...

  • Page 313
    ... fair valued at net asset value as discussed in Note 3 on pages 195-215 of this Annual Report. In addition, at both December 31, 2013 and 2012, included letters of credit hedged by derivative transactions and managed on a market risk basis of $4.5 billion. (g) For lending-related products, the...

  • Page 314
    ... with a financial sponsor-related company and used internal risk grades to identify the leveraged lending portfolio. For further information, see Note 3 and Note 4 on pages 195- 215 and 215-218 respectively, of this Annual Report. In addition, the Firm acts as a clearing and custody bank in the...

  • Page 315
    ... ratings profiles of the Firm's customers, as of December 31, 2013 and 2012. Standby letters of credit, other financial guarantees and other letters of credit 2013 December 31, (in millions) Investment-grade(a) Noninvestment-grade(a) Total contractual amount Allowance for lending-related commitments...

  • Page 316
    .... On November 15, 2013, the Firm announced that it had reached a $4.5 billion agreement with 21 major institutional investors to make a binding offer to the trustees of 330 residential mortgage-backed securities trust issued by J.P.Morgan, Chase, and Bear Stearns ("RMBS Trust Settlement") to resolve...

  • Page 317
    ...historical experience, management expects the risk of loss to be remote. Credit card charge-backs Chase Paymentech Solutions, Card's merchant services business and a subsidiary of JPMorgan Chase Bank, N.A., is a global leader in payment processing and merchant acquiring. Under the rules of Visa USA...

  • Page 318
    ... both long-term debt and structured notes sold as part of the Firm's market-making activities. These guarantees are not included in the table on page 319 of this Note. For additional information, see Note 21 on pages 306-308 of this Annual Report. 324 JPMorgan Chase & Co./2013 Annual Report

  • Page 319
    ... information on the Firm's securities financing activities and long-term debt, see Note 13 on pages 255-257, and Note 21 on pages 306-308, respectively, of this Annual report. The significant components of the Firm's pledged assets were as follows. December 31, (in billions) Securities Loans Trading...

  • Page 320
    ...New York against a number of foreign exchange dealers, including the Firm, for alleged violations of federal and state antitrust laws and unjust enrichment based on an alleged conspiracy to manipulate foreign exchange rates reported on the WM/Reuters service. JPMorgan Chase & Co./2013 Annual Report

  • Page 321
    ... All cases were consolidated in the United States District Court for the Eastern District of New York for pretrial proceedings. The parties have entered into an agreement to settle those cases, for a cash payment of $6.05 billion to the class plaintiffs (of which the Firm's share is approximately 20...

  • Page 322
    ... to the United States as a non-tax-deductible payment. JPMorgan Chase Bank, N.A. also consented, subject to the terms and conditions of the DPA, to the filing by the U.S. Attorney of an Information charging the bank with failure to maintain an adequate anti-money laundering program, and a failure to...

  • Page 323
    ... Firm's banking and other business relationships with MF Global, including as a depository for MF Global's customer segregated accounts. J.P. Morgan Securities LLC has been named as one of several defendants in a number of purported class actions filed by purchasers of MF Global's publicly traded...

  • Page 324
    ...several State Attorneys General relating to residential mortgage-backed securities activities by JPMC, Bear Stearns and Washington Mutual, in addition to resolving litigation by the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation and the National Credit Union Administration...

  • Page 325
    ... 220 of the Delaware General Corporation Law. In February 2014, the Firm entered into a settlement with the United States Attorney's Office for the Southern District of New York, the Federal Housing Administration ("FHA"), the United States Department of Housing and Urban Development ("HUD") and the...

  • Page 326
    ... Chase's credit card, student loan, auto loan, business banking and commercial banking customers who defaulted on their loan or contract. Separately, the Consumer Financial Protection Bureau and multiple state Attorneys General are conducting investigations into the Firm's collection and sale...

  • Page 327
    ... U.S. and international operations. These estimates and assumptions are consistent with the allocations used for the Firm's segment reporting as set forth in Note 33 on pages 334-337 of this Annual Report. The Firm's long-lived assets for the periods presented are not considered by management to be...

  • Page 328
    ... financial statements Note 33 - 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 Management. In addition, there is a Corporate/Private Equity...

  • Page 329
    ... Firm's liquidity, funding and structural interest rate and foreign exchange risks, as well as executing the Firm's capital plan. The major Other Corporate units include Real Estate, Central Technology, Legal, Compliance, Finance, Human Resources, Internal Audit, Risk Management, Oversight & Control...

  • Page 330
    ...balance sheet items were revised to reflect the transfer of certain technology and operations, as well as real estate-related functions and staff, from Corporate/Private Equity to CCB, effective January 1, 2013. Segment managed results reflect revenue on a FTE basis with the corresponding income tax...

  • Page 331
    ... Corporate/Private Equity(b) 2013 $ 3,093 $ (1,839) 1,254 (28) 10,255 (8,973) (2,995) $ $ (5,978) $ 71,409 $ 805,987 NM NM Reconciling Items(c) 2013 $ (2,495) $ (697) (3,192) - - (3,192) (3,192) $ $ - $ - $ NA NM NM Total 2011 (2,003) (530) (2,533) - - (2,533) (2,533) - - NA NM NM $ $ 2012 7,847...

  • Page 332
    ...(b) Financing activities Net change in: Borrowings from subsidiaries and affiliates(a) Other borrowed funds 2013 $ 264 64,843 13,727 15,228 2,829 $ 2012 216 75,521 8,128 3,541 2,101 Proceeds from the issuance of long-term debt Payments of long-term debt Excess tax benefits related to stock-based...

  • Page 333
    ... shares at period-end Share price(b) High Low Close Market capitalization Selected ratios Return on common equity ("ROE") Return on tangible common equity ("ROTCE")(a) Return on assets ("ROA") Return on risk-weighted assets(c)(d) Overhead ratio Loans-to-deposits ratio High Quality Liquid Assets...

  • Page 334
    ... the Firm's Use of Non-GAAP Financial Measures on pages 82-83 of this Annual Report. Share prices shown for JPMorgan Chase's common stock are from the New York Stock Exchange. JPMorgan Chase's common stock is also listed and traded on the London Stock Exchange and the Tokyo Stock Exchange. Return on...

  • Page 335
    ..., mutual funds, stock trading services, etc., sold by the Firm or by third-party vendors through retail branches, Chase Private Client locations and other channels. Client assets: Represent assets under management as well as custody, brokerage, administration and deposit accounts. Client investment...

  • Page 336
    ... 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 lien positions related to the property. Combined LTV ratios are used for junior lien home equity products. Managed...

  • Page 337
    ...: Retail branch office personnel who acquire, retain and expand new and existing customer relationships by assessing customer needs and recommending and selling appropriate banking products and services. Portfolio activity: Describes changes to the risk profile of existing lending-related exposures...

  • Page 338
    ...loan officers, who specialize in marketing and sales of various business banking products (i.e., business loans, letters of credit, deposit accounts, Chase Paymentech, etc.) and mortgage products to existing and new clients. Seed capital: Initial JPMorgan capital invested in products, such as mutual...

  • Page 339
    ... of investment banking competitive analysis and volume-based league tables for the above noted industry products. 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...

  • Page 340
    ... Chairman and Chief Executive Officer of GE Capital (Industrial and financial services) Member of: 1 Audit Committee 2 Compensation & Management Development Committee 3 Corporate Governance & Nominating Committee 4 Public Responsibility Committee 5 Risk Policy Committee Jamie Dimon James A. Bell...

  • Page 341
    ..., ASEAN CEO Gregory L. Guyett, Greater China CEO Europe, Middle East, Africa Daniel E. Pinto Emilio Saracho, Deputy CEO Latin America Martin G. Marron Senior Country Officers Asia Pacific ASEAN Australia/New Zealand Robert C. Priestley Indonesia Haryanto T. Budiman Malaysia Steve R. Clayton...

  • Page 342
    ...de Ayala Chairman and Chief Executive Officer Ayala Corporation Makati City, Philippines Hon. Robert M. Gates Partner RiceHadleyGates LLC Washington, District of Columbia Akio Mimura Senior Advisor Nippon Steel & Sumitomo Metal Corporation Tokyo, Japan 348 JPMorgan Chase & Co./2013 Annual Report

  • Page 343
    JPMorgan Chase & Co. Corporate headquarters 270 Park Avenue New York, NY 10017-2070 Telephone: 212-270-6000 jpmorganchase.com Principal subsidiaries JPMorgan Chase Bank, National Association Chase Bank USA, National Association J.P. Morgan Securities LLC J.P. Morgan Securities plc Annual Report on ...

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