JPM AT THE BOFA SECURITIES FUTU R E OF FINANCIALS VIRTUA L CONFERENCE 2020 TRANSCRIPT November 9, 2020 MANAGEMENT DISCUSSION SECTION Erika Najarian Analyst, BofA Securities, Inc. Hey. Good morning, everybody. It's Erika Najarian again, and welcome to our third session of the day. There's no doubt you'll recognize our next guest, not only is she the most influential – one of the most influential women in the banking industry but also one of the most influential people in the banking industry. From JPMorgan, we welcome Marianne Lake. Formerly the CFO for the company, Marianne was named Chief Executive Officer for Consumer Lending in April 2019. Marianne, thank you so much for joining us today. ...................................................................................................................................................................................................................................................... Marianne Lake Chief Executive Officer of Consumer Lending, JPMorgan Chase & Co. And thank you for having me, Erika. Hello, everyone. QUESTION AND ANSWER SECTION Erika Najarian Analyst, BofA Securities, Inc. Q So, I thought I'd start off. And you have such a great vantage point at JPMorgan. You see about 10 billion credit transactions a year, credit card transactions per year, coupled with the fact that most macroeconomic data points are reported on a lagging basis. Can you provide an update on the health of the consumer? ...................................................................................................................................................................................................................................................... Marianne Lake Chief Executive Officer of Consumer Lending, JPMorgan Chase & Co. A Yeah, sure. Happy to do that. So, as we sit here now in what you might call the sort of third wave of the virus, I think I would say that the consumer here in the US is relatively stable and, honestly, somewhat relatively better than we might have feared back in the height of the pandemic in the second quarter of 2020. And that's not in small part as a result of the pretty extraordinary amount of government stimulus that's been in the system since then, but also as a result of sort of pretty broad, industry-wide, across-asset-class payment relief programs. And so, the consumer is in a decent spot right now. To be fair, the consumer came into this crisis in a pretty strong position in terms of household balance sheets and household liquidity and debt service burdens. And so, it's a little different from the previous crisis in that respect. And, likewise, our portfolios in consumer lending came into this crisis, honestly, night and day, differently situated in comparison to the sort of previous crisis. So, as we sit here right now, the economy is doing okay. We're not seeing any decisive signs of softening. Spend trends which is a key part of what I look at, and you mentioned in your question in terms of data, are still grinding higher. And so, we've seen a pretty solid recovery from the lows back in the second quarter. Durable spend is a bright spot. And we see durable spend – consumer spending up 14% year-on-year. And so, the consumers' willingness to carry on spending is a pretty positive sign for a sort of broader economic recovery. So, really, the uncertain points are obvious, and that is, what is the path of the virus from here? What is the path of vaccines? And we saw some news on that today, obviously. And what will a second wave of stimulus look like? We think it's likely that there will be one at some point in January, February timeframe. But what will that look like? How big will it be? And so, all of those will sort of define the sort of outlook going forward, but the consumer is in pretty good shape right now. If you look at the folks who benefited from stimulus, we did see cash buffers go up. And while they are starting to deteriorate, as we come towards the end of the year, they're still elevated relative to pre-COVID levels. So, I think there's enough juice to get people to year-end. And then, there's line of sight, hopefully, to something in the form of stimulus at the beginning of the year next year. And so, I think the consumer should fare relatively well considering the macro environment. ...................................................................................................................................................................................................................................................... Erika Najarian Analyst, BofA Securities, Inc. Q Given the amount of cash that the consumer is holding and expectations for stimulus, how are you then handling the second wave of deferrals or in the consumer? And if you could break down Card, Home Lending and Auto separately, please. ...................................................................................................................................................................................................................................................... 2 Marianne Lake Chief Executive Officer of Consumer Lending, JPMorgan Chase & Co. A Yeah. So, what's interesting – so, let's take Card and Auto together because the sort of relief programs, while different, are more similar they are shorter-duration assets. And as a consequence, the relief programs, the majority of people who asked for help back in the April, May, June time frames have come out of the relief programs at this point. And the majority, the vast majority of them are current today. So taking Card, some 95% of people are out of relief so far, of the people who entered during the pandemic and 85% of those folks are current. So it's not to say there won't be people who will experience stress. And it's a similar pattern true in Auto. We're not seeing a second wave of deferral requests at this point. We are not – what we saw was the request for payment assistance in all three of the asset classes come steadily down and quite dramatically down from April, May, and continue to come down in October versus September and in September versus August. So, we are still getting customers ask for help for the first time. Customers who were able to get through the first six or eight months and are now experiencing hardships but at levels that are much, much lower and still declining. So we're yet to see a second wave. In Home Lending, as you know, the relief program is different. It's different because of the CARES Act but also because of the nature of the payment. 40% of people who ask for help are still in payment relief because that is a 12-month opportunity for them. And so, they're taking advantage of that. We have been able to contact many of them. And so, we do have a decent understanding of how they'll disposition at the end of relief. And again, not to say there won't be people who need ongoing assistance and payment plans and modifications, the vast majority of people we think will end up in the deferment mode. So, no second wave yet. Our relief programs are open. So, we're ready should that be something that we see. As I said at the beginning, this feels like it's not the second but the third wave of the virus. And so far, the economy is holding up quite well, and the consumer is holding up quite well. That isn't to say that we may not see wobbles, but we'll obviously be ready if we do start to see a second wave of requests. ...................................................................................................................................................................................................................................................... Erika Najarian Analyst, BofA Securities, Inc. Q So, Marianne, just taking a step back, it sounds like a good update on the consumer so far. And as you think about the effectiveness of the government's support programs, do you think that they've been able to redefine what net charge-offs would have been for the consumer lower or have we just sort of delayed the recognition of losses? ...................................................................................................................................................................................................................................................... Marianne Lake Chief Executive Officer of Consumer Lending, JPMorgan Chase & Co. A Yeah. So, it's the sixty-four-thousand-dollar question or a bigger number than that, for sure. I think we're only really going to know when we get the chance to look back because I think it's going to to a degree depend on what comes from here. I would say that the stimulus that the government put in place pretty quickly and the very, very significant amount of it has been incredibly important. We talk about it in an analogy, it's a bridge. Is the bridge strong enough and is it long enough? And there's no doubt that, so far, the bridge has been strong enough to give people some time to try and get to the other side of their hardship and get back on solid footing and help them get back to a more robust financial position. The real question is, will it be long enough? And as we sit here today, I would say that there will be a need for a second stimulus package. It feels like that is necessary. It also feels like it's likely. And so, I would suspect that when the final analysis is done and the reckoning is done that it will be a bit of both. But right now, given that there is no actual package out there and that a lot of the assistance programs will sort of effectively come to an end, whether its eligibility will reduce or payments will reduce, or cash buffers will deteriorate. Right now, we're assuming it's more of a deferral than it is an absolute reset down. If you look at back in the second quarter, most people who were unemployed were identifying as being temporarily unemployed. So, in the very high-70s in terms of percentage of people saying that they thought that that situation was temporary. That compared to 15% in the prior crisis. And it's now in the 30s.