e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2011       Commission file number 1-5805
JPMORGAN CHASE & CO.
(Exact name of registrant as specified in its charter)
     
Delaware   13-2624428
     
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
270 Park Avenue, New York, New York   10017
     
(Address of principal executive offices)   (Zip Code)
(Registrant’s telephone number, including area code) (212) 270-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
    (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
Number of shares of common stock outstanding as of April 30, 2011: 3,973,684,787
 
 

 


 

FORM 10-Q
TABLE OF CONTENTS
         
    Page
Part I — Financial information
       
 
       
Item 1 Consolidated Financial Statements – JPMorgan Chase & Co.:
       
 
       
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 EX-15
 EX-31.1
 EX-31.2
 EX-32
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS
                                         
(unaudited)                    
(in millions, except per share, headcount and ratio data)                    
As of or for the period ended,   1Q11   4Q10   3Q10   2Q10   1Q10
 
Selected income statement data
                                       
Total net revenue
  $ 25,221     $ 26,098     $ 23,824     $ 25,101     $ 27,671  
Total noninterest expense
    15,995       16,043       14,398       14,631       16,124  
 
Pre-provision profit(a)
    9,226       10,055       9,426       10,470       11,547  
Provision for credit losses
    1,169       3,043       3,223       3,363       7,010  
 
Income before income tax expense
    8,057       7,012       6,203       7,107       4,537  
Income tax expense
    2,502       2,181       1,785       2,312       1,211  
 
Net income
  $ 5,555     $ 4,831     $ 4,418     $ 4,795     $ 3,326  
 
Per common share data
                                       
Net income per share: Basic
  $ 1.29     $ 1.13     $ 1.02     $ 1.10     $ 0.75  
Diluted
    1.28       1.12       1.01       1.09       0.74  
Cash dividends declared per share
    0.25       0.05       0.05       0.05       0.05  
Book value per share
    43.34       43.04       42.29       40.99       39.38  
Common shares outstanding
                                       
Average: Basic
    3,981.6       3,917.0       3,954.3       3,983.5       3,970.5  
Diluted
    4,014.1       3,935.2       3,971.9       4,005.6       3,994.7  
Common shares at period-end
    3,986.6       3,910.3       3,925.8       3,975.8       3,975.4  
Share price(b)
                                       
High
  $ 48.36     $ 43.12     $ 41.70     $ 48.20     $ 46.05  
Low
    42.65       36.21       35.16       36.51       37.03  
Close
    46.10       42.42       38.06       36.61       44.75  
Market capitalization
    183,783       165,875       149,418       145,554       177,897  
 
                                       
Selected ratios
                                       
Return on common equity (“ROE”)
    13 %     11 %     10 %     12 %     8 %
Return on tangible common equity (“ROTCE”)
    18       16       15       17       12  
Return on assets (“ROA”)
    1.07       0.92       0.86       0.94       0.66  
Overhead ratio
    63       61       60       58       58  
Deposits-to-loans ratio
    145       134       131       127       130  
Tier 1 capital ratio
    12.3       12.1       11.9       12.1       11.5  
Total capital ratio
    15.6       15.5       15.4       15.8       15.1  
Tier 1 leverage ratio
    7.2       7.0       7.1       6.9       6.6  
Tier 1 common capital ratio(c)
    10.0       9.8       9.5       9.6       9.1  
 
                                       
Selected balance sheet data (period-end)
                                       
Trading assets
  $ 501,148     $ 489,892     $ 475,515     $ 397,508     $ 426,128  
Securities
    334,800       316,336       340,168       312,013       344,376  
Loans
    685,996       692,927       690,531       699,483       713,799  
Total assets
    2,198,161       2,117,605       2,141,595       2,014,019       2,135,796  
Deposits
    995,829       930,369       903,138       887,805       925,303  
Long-term debt(d)
    269,616       270,653       271,495       260,442       278,685  
Common stockholders’ equity
    172,798       168,306       166,030       162,968       156,569  
Total stockholders’ equity
    180,598       176,106       173,830       171,120       164,721  
Headcount
    242,929       239,831       236,810       232,939       226,623  
Credit quality metrics
                                       
Allowance for credit losses
  $ 30,438     $ 32,983     $ 35,034     $ 36,748     $ 39,126  
Allowance for loan losses to total retained loans
    4.40 %     4.71 %     4.97 %     5.15 %     5.40 %
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(e)
    4.10       4.46       5.12       5.34       5.64  
Nonperforming assets
  $ 14,986     $ 16,557     $ 17,656     $ 18,156     $ 19,019  
Net charge-offs(f)
    3,720       5,104       4,945       5,714       7,910  
Net charge-off rate(f)
    2.22 %     2.95 %     2.84 %     3.28 %     4.46 %
Wholesale net charge-off rate
    0.30       0.49       0.49       0.44       1.84  
Consumer net charge-off rate(f)
    3.18       4.12       3.90       4.49       5.56  
 
(a)   Pre-provision profit is total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses.
 
(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)   The Firm uses Tier 1 common capital (“Tier 1 common”) along with the other capital measures to assess and monitor its capital position. The Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common divided by risk-weighted assets. For further discussion, see Regulatory capital on pages 49–51 of this Form 10-Q.
 
(d)   Effective January 1, 2011, the long-term portion of advances from Federal Home Loan Banks (“FHLBs”) was reclassified from other borrowed funds to long-term debt. Prior periods have been revised to conform with the current presentation.
 
(e)   Excludes the impact of home lending purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 79–81 of this Form 10-Q.
 
(f)   Net charge-offs and net charge-off rates for the fourth quarter of 2010 include the effect of $632 million of charge-offs related to the estimated net realizable value of the collateral underlying delinquent residential home loans. Because these losses were previously recognized in the provision and allowance for loan losses, this adjustment had no impact on the Firm’s net income.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the Form 10-Q provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”). See the Glossary of terms on pages 174–177 for definitions of terms used throughout this Form 10-Q. The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. For a discussion of such risks and uncertainties, see Forward-looking Statements on pages 180–181 and Part I, Item 1A, Risk Factors, on pages 5–12 of JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the U.S. Securities and Exchange Commission (“2010 Annual Report” or “2010 Form 10-K”), to which reference is hereby made.
INTRODUCTION
JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with $2.2 trillion in assets, $180.6 billion in stockholders’ equity and operations in more than 60 countries as of March 31, 2011. The Firm is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national bank with branches in 23 states in the U.S.; and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national bank that is the Firm’s credit card issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm.
JPMorgan Chase’s activities are organized, for management reporting purposes, into six business segments, as well as Corporate/Private Equity. The Firm’s wholesale businesses comprise the Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management segments. The Firm’s consumer businesses comprise the Retail Financial Services and Card Services segments. A description of the Firm’s business segments, and the products and services they provide to their respective client bases, follows.
Investment Bank
J.P. Morgan is one of the world’s leading investment banks, with deep client relationships and broad product capabilities. The clients of the Investment Bank (“IB”) are corporations, financial institutions, governments and institutional investors. The Firm offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, sophisticated risk management, market-making in cash securities and derivative instruments, prime brokerage, and research.
Retail Financial Services
Retail Financial Services (“RFS”) serves consumers and businesses through personal service at bank branches and through ATMs, online banking and telephone banking, as well as through auto dealerships and school financial-aid offices. Customers can use nearly 5,300 bank branches (third-largest nationally) and more than 16,200 ATMs (second-largest nationally), as well as online and mobile banking around the clock. More than 29,200 branch salespeople assist customers with checking and savings accounts, mortgages, home equity and business loans, and investments across the 23-state footprint from New York and Florida to California. Consumers also can obtain loans through more than 16,300 auto dealerships and 1,300 schools and universities nationwide.
Card Services
Card Services (“CS”) is one of the nation’s largest credit card issuers, with over $128 billion in loans and over 91 million open accounts. In the three months ended March 31, 2011, customers used Chase cards to meet over $77 billion of their spending needs. Through its merchant acquiring business, Chase Paymentech Solutions, CS is a global leader in payment processing and merchant acquiring.

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Commercial Banking
Commercial Banking (“CB”) delivers extensive industry knowledge, local expertise and dedicated service to nearly 24,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from $10 million to $2 billion, and nearly 35,000 real estate investors/owners. CB partners with the Firm’s other businesses to provide comprehensive solutions, including lending, treasury services, investment banking and asset management, to meet its clients’ domestic and international financial needs.
Treasury & Securities Services
Treasury & Securities Services (“TSS”) is a global leader in transaction, investment and information services. TSS is one of the world’s largest cash management providers and a leading global custodian. Treasury Services (“TS”) provides cash management, trade, wholesale card and liquidity products and services to small- and mid-sized companies, multinational corporations, financial institutions and government entities. TS partners with IB, CB, RFS and Asset Management businesses to serve clients firmwide. Certain TS revenue is included in other segments’ results. Worldwide Securities Services holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers, and manages depositary receipt programs globally.
Asset Management
Asset Management (“AM”), with assets under supervision of $1.9 trillion, is a global leader in investment and wealth management. AM clients include institutions, retail investors and high-net-worth individuals in every major market throughout the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity products, including money-market instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and retirement services for corporations and individuals. The majority of AM’s client assets are in actively managed portfolios.

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EXECUTIVE OVERVIEW
This executive overview of MD&A highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a complete description of events, trends and uncertainties, as well as the capital, liquidity, credit and market risks, and the critical accounting estimates affecting the Firm and its various lines of business, this Form 10-Q should be read in its entirety.
Economic environment
The U.S. economic recovery continued in the first quarter of 2011 as the labor market appeared to strengthen, even though disruptive winter weather appeared to slow the economy’s momentum. Despite growing confidence that the U.S. and global economic recovery remains on track, new threats to the global economy emerged that could disrupt activity, at least for a short while. The earthquake and tsunami in Japan represented a significant setback to that country’s important economy and probably disrupted activity elsewhere as well. Furthermore, a surge in oil prices in the wake of political unrest in the Middle East threatened to slow global demand. Concerns about inflation, driven by rising commodity prices, including the impact of widespread crop destruction in 2010 on food prices around the world, resulted in varying actions being taken by several central banks.
The pace of growth in the U.S. economy, which has been unusually slow for a recovery, has been hampered by the depressed housing market. Growth is likely to remain moderate as a result of the planned phase-out of the 2008 fiscal stimulus initiative and additional spending cuts agreed to as part of the final 2011 federal budget plan. The Federal Reserve maintained its accommodative stance in the first quarter of 2011, holding the target range for the federal funds rate steady at zero to one-quarter percent, and continued to indicate that economic conditions were likely to warrant a low federal funds rate for an extended period. To promote a stronger pace of economic recovery, the Federal Reserve also decided to continue expanding its holdings of securities as announced in the fourth quarter of 2010. In particular, the Federal Reserve is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Federal Reserve downplayed recent commodity pressures as transitory, while noting that it would be monitoring inflation developments carefully.
Financial performance of JPMorgan Chase
                         
    Three months ended March 31,
(in millions, except per share data and ratios)   2011   2010   Change
 
Selected income statement data
                       
Total net revenue
  $ 25,221     $ 27,671       (9 )%
Total noninterest expense
    15,995       16,124       (1 )
Pre-provision profit
    9,226       11,547       (20 )
Provision for credit losses
    1,169       7,010       (83 )
Net income
    5,555       3,326       67  
 
                       
Diluted earnings per share
    1.28       0.74       73  
Return on common equity
    13 %     8 %        
 
                       
Capital ratios
                       
Tier 1 capital
    12.3       11.5          
Tier 1 common
    10.0       9.1          
 
Business overview
JPMorgan Chase reported first-quarter 2011 net income of $5.6 billion, or $1.28 per share, on net revenue of $25.2 billion. Net income was up 67%, compared with net income of $3.3 billion, or $0.74 per share, in the first quarter of 2010. Return on common equity for the quarter was 13%, compared with 8% in the prior year. Current-quarter EPS included a $2.0 billion pretax ($0.29 per share after-tax) benefit from a reduction in the allowance for loan losses for credit card loans; a $1.1 billion pretax ($0.16 per share after-tax) decrease in the fair value of the mortgage servicing rights asset to reflect higher estimated servicing costs to enhance servicing processes (for additional information regarding mortgage servicing rights, see Note 16 on pages 149–152 of this Form 10-Q); and a $650 million pretax ($0.10 per share after-tax) expense for estimated costs of foreclosure-related matters.
The increase in net income for the first quarter of 2011 was driven by a significantly lower provision for credit losses, partially offset by lower net revenue. The decrease in the provision for credit losses reflected improvements in both the consumer and wholesale provisions. The decline in net revenue was due to lower net interest income, reflecting a decline in loan and securities balances, lower mortgage fees and related income in Retail Financial Services and lower securities gains in the Corporate/Private Equity segment. These declines were partially offset by higher investment banking fees in the Investment Bank. Noninterest expense was flat compared with the first quarter of 2010, as lower noncompensation expense offset higher compensation expense.

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The Firm’s first-quarter results reflected a strong quarter across the Investment Bank and solid performance from Card Services, Commercial Banking, Treasury & Securities Services and Asset Management. Retail Financial Services demonstrated good underlying performance, as the business continued to invest in building branches and adding to its sales force. However, RFS’ results were more than offset by very high expenses for mortgage-related issues, including the provision for credit losses, the impact of increased servicing costs on the fair value of the Firm’s mortgage servicing rights asset, expense for the estimated costs of foreclosure-related matters, and mortgage repurchase losses.
The continued improvement in the credit environment during the first quarter of 2011 benefited all of JPMorgan Chase’s businesses. Delinquency trends in the consumer businesses were favorable, and lower estimated losses in the credit card portfolio resulted in a reduction in the allowance for credit losses in CS. In addition, net charge-offs were lower in most businesses compared with the prior year. Total firmwide credit reserves at March 31, 2011, were $30.4 billion, resulting in a firmwide loan loss coverage ratio of 4.10% of total loans.
JPMorgan Chase’s balance sheet remained strong, ending the first quarter with a Tier 1 Common ratio of 10.0%. In the quarter, the Firm’s Board of Directors increased the annual dividend to $1.00 per share, up from $0.20 per share, and authorized a new $15 billion multi-year common stock repurchase program, of which up to $8.0 billion of common stock repurchases is approved for 2011. The Firm intends to operate its business with the objectives of maintaining a Basel I Tier 1 Common ratio of at least 9.0% and meeting the Basel III requirements substantially ahead of time. Total stockholders’ equity at March 31, 2011, was $180.6 billion.
The Firm provided credit to and raised capital for its clients of over $450 billion during the quarter. These efforts have a meaningful impact on the communities in which the Firm operates. JPMorgan Chase originated mortgages to over 180,000 people; provided credit cards to approximately 2.6 million people; lent or increased credit to over 7,500 small businesses; lent to over 500 not-for-profit and government entities, including states, municipalities, hospitals and universities; extended or increased loan limits to approximately 1,500 middle-market companies; and lent to or raised capital for more than 3,500 corporations. In addition, the Firm added 16,300 employees over the last twelve months, including more than 9,800 in the U.S. JPMorgan Chase remains committed to helping homeowners and preventing foreclosures. Since the beginning of 2009, the Firm has offered 1,098,000 trial modifications to struggling homeowners, with 324,000 modifications completed.
The discussion that follows highlights the performance of each business segment compared with the prior-year quarter and presents results on a managed basis. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see pages 13–15 of this Form 10-Q.
Investment Bank net income decreased slightly from the prior-year record, reflecting higher noninterest expense, slightly lower net revenue and a lower benefit from the provision for credit losses. Net revenue reflected higher investment banking fees, including record debt underwriting fees, and strong client revenues in Fixed Income and Equity Markets. Credit Portfolio revenue was a loss, primarily reflecting the negative net impact of credit-related valuation adjustments, largely offset by net interest income and fees on retained loans. The provision for credit losses was a smaller benefit in the first quarter of 2011 compared with the first quarter of 2010, reflecting a reduction in the allowance for loan losses, primarily as a result of loan sales and net repayments. Noninterest expense increased, driven by higher compensation expense, partially offset by lower noncompensation expense.
Retail Financial Services reported a larger net loss compared with the prior year. Net revenue decreased, driven by lower mortgage fees and related income, lower loan balances due to portfolio runoff, and narrower loan spreads. The provision for credit losses decreased, as delinquency trends and net charge-offs improved compared with the prior year. However, the current-quarter provision continued to reflect elevated losses in the mortgage and home equity portfolios. Noninterest expense increased, due largely to an expense taken for estimated costs of foreclosure-related matters.
Card Services reported net income compared with a net loss in the prior year, as a lower provision for credit losses was partially offset by lower net revenue. The decrease in net revenue was driven by a decline in net interest income, reflecting lower average loan balances, the impact of legislative changes and a decreased level of fees. These decreases were largely offset by a decrease in revenue reversals associated with lower net charge-offs. The provision for credit losses decreased from the prior year, reflecting lower net charge-offs and a reduction in the allowance for loan losses due to lower estimated losses. Noninterest expense increased, due to the transfer of the Commercial Card business to CS from TSS and higher marketing expense. Sales volume, excluding the Commercial Card portfolio, was $77.5 billion, an increase of 12% from the prior year.
Commercial Banking net income increased, driven by a reduction in the provision for credit losses and higher net revenue. The increase in net revenue was driven by growth in liability balances, wider loan spreads, and growth in loan balances, partially offset by spread compression on liability products. The provision for credit losses decreased from the

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prior year, reflecting stabilization of the credit quality of the loan portfolio. Noninterest expense increased, primarily reflecting higher headcount-related expense.
Treasury & Securities Services net income increased from the prior year, driven by higher net revenue, largely offset by higher noninterest expense. Worldwide Securities Services net revenue increased, driven by net inflows of assets under custody, higher market levels and higher net interest income. Assets under custody were a record $16.6 trillion, an increase of 9% from the prior year. Treasury Services net revenue increased as well, driven by higher net interest income and higher trade loan volumes, offset by the transfer of the Commercial Card business to CS. Noninterest expense for TSS increased, driven by continued investment in new product platforms, primarily related to international expansion, partially offset by the transfer of the Commercial Card business to CS.
Asset Management net income increased from the prior year, reflecting higher net revenue and a lower provision for credit losses, largely offset by higher noninterest expense. The growth in net revenue was driven by the effect of higher market levels, net inflows to products with higher margins and higher loan originations, partially offset by lower performance fees. Assets under supervision increased 12% from the prior year due to the effect of higher market levels and record net inflows to long-term products, partially offset by net outflows in liquidity products. Noninterest expense increased, largely resulting from an increase in headcount.
Corporate/Private Equity net income increased from the prior year, driven by significantly lower noninterest expense. Noninterest expense in the first quarter of 2010 included significant additions to litigation reserves. Private equity gains increased compared with the prior year, while net interest income and securities gains decreased.
2011 Business outlook
The following forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. As noted above, these risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on pages 180-181 and Risk Factors on page 181 of this Form 10-Q.
JPMorgan Chase’s outlook for the remainder of 2011 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client activity levels, and regulatory, litigation and legislative developments in the U.S. and other countries where the Firm does business. Each of these linked factors will affect the performance of the Firm and its lines of business. Economic and macroeconomic factors, such as market and credit trends, customer behavior, client business strategies and competition, are all expected to affect the Firm’s businesses.
In the Mortgage Banking, Auto & Other Consumer Lending business within RFS, if mortgage interest rates remain at current levels or rise in the future, management anticipates that loan production and margins will be negatively affected, resulting in lower revenue for this business for full-year 2011 when compared with 2010. In addition, revenue in 2011 will continue to be negatively affected by continued elevated levels of repurchases of mortgages previously sold, predominantly to U.S. government-sponsored entities (“GSEs”). Management estimates that realized repurchase losses could be approximately $1.2 billion on an annualized basis for the remainder of 2011.
The Firm expects noninterest expense in Mortgage Banking, Auto & Other Consumer Lending to remain at the elevated level seen in the first quarter of 2011 (excluding the $650 million expense for foreclosure-related matters) for the remainder of the year reflecting increased servicing costs to enhance its mortgage servicing processes, particularly loan modification and foreclosure procedures, and to comply with the Consent Orders entered into with the banking regulators. (See Note 23 on pages 160–169 of this Form 10-Q for further information about the Consent Orders). In addition to increased noninterest expense resulting from increased servicing costs, it is also likely that the Firm will incur fines and penalties as well as other costs in connection with the settlement of the governmental investigations related to its mortgage servicing procedures.
In the Real Estate Portfolios business within RFS, management believes that, based on the current outlook for delinquencies and loss severity, total quarterly net charge-offs could be approximately $1.2 billion for the remainder of 2011. Given current origination and production levels, combined with management’s current estimate of portfolio runoff levels, the residential real estate portfolio is expected to decline by approximately 10% to 15% annually for the foreseeable future. The annual reduction in the residential real estate portfolio is expected to reduce net interest income in

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each period, including a reduction of approximately $700 million for full-year 2011 from the 2010 level, assuming no changes in interest rates during the year. However, over time, the reduction in net interest income is expected to be more than offset by an improvement in credit costs and lower expenses. As the portfolio continues to run off, management anticipates that approximately $1.0 billion of capital may become available for redeployment each year, subject to the capital requirements associated with the remaining portfolio.
In CS, management expects end-of-period outstandings for the Chase portfolio (excluding the Washington Mutual and Commercial Card portfolios) to stabilize in the second half of 2011, and that outstandings for such portfolio will be approximately $120 billion by the end of 2011, reflecting a better mix of customers. However, if current high repayment rates persist, outstandings could be lower than $120 billion by the end of 2011. Management estimates that the Washington Mutual portfolio could decline to $10 billion by the end of 2011.
The annual impact of the portfolio runoff will result in an approximately $1.4 billion reduction in net interest income from the 2010 level. Net interest income for 2011 will also be reduced by the full-year impact from implementation of the CARD Act. In addition, if higher repayment rates persist, as noted above, net interest income could also be negatively affected.
Net charge-off rates for both the Chase and Washington Mutual credit card portfolios are anticipated to continue to improve. If current delinquency trends continue, management anticipates the net charge-off rate for the Chase portfolio (excluding the Washington Mutual and Commercial Card portfolios) could be approximately 5.5% for the second quarter of 2011. Furthermore, if current delinquency trends continue, management believes the net charge-off rate for the Chase portfolio could approach 4.5% by the middle of 2012, which management believes represents the “through-the-cycle” net charge off rate for this portfolio.
Management expectations related to future RFS and CS results depend on the health of the U.S. economic environment. Although the positive economic data seen in early 2011 seemed to imply that the U.S. economy is not falling back into recession, high unemployment rates and the difficult housing market have been persistent. Further declines in U.S. housing prices and increases in the unemployment rate remain possible; were this to occur, currently anticipated results for both RFS and CS could be adversely affected.
In IB, TSS and AM, revenue will be affected by market levels, volumes and volatility, which will influence client flows and assets under management, supervision and custody. In addition, IB and CB results will be affected by the credit environment, which will influence levels of charge-offs, repayments and provision for credit losses.
In Private Equity, within the Corporate/Private Equity segment, earnings will likely continue to be volatile and be influenced by capital markets activity, market levels, the performance of the broader economy and investment-specific issues. Corporate’s net interest income levels will generally trend with the size and duration of the investment securities portfolio. Corporate net income, excluding Private Equity, and excluding material litigation expense and significant nonrecurring items, if any, is anticipated to trend toward approximately $300 million per quarter.
Furthermore, continued repositioning of the investment securities portfolio in Corporate, changes in the mix of loans within the consumer loan portfolio and other factors could result in modest downward pressure on the Firm’s net interest margin in the second quarter of 2011.
The Firm faces litigation in its various roles as issuer and/or underwriter in mortgage-backed securities (“MBS”) offerings, primarily related to offerings involving third parties other than the GSEs. The Firm separately evaluates its exposure to such litigation in establishing its litigation reserves. It is possible that these matters will take a number of years to resolve; their ultimate resolution is inherently uncertain and reserves for such litigation matters may need to be increased in the future.
Regarding regulatory reform, JPMorgan Chase intends to continue to work with its regulators as they proceed with the extensive rulemaking required to implement financial reform. The Firm will continue to devote substantial resources to achieving implementation of regulatory reforms to meet all the new rules and regulations, both in letter and spirit. The Firm expects to make numerous changes in its business as it implements regulatory reforms in ways that meet the needs and expectations of its customers. In February 2011, the FDIC issued, pursuant to the Dodd-Frank Act, a final rule

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changing its methodology for calculating the assessment rate. Under the new rule, the assessment base changes from domestic deposits to average consolidated total assets less average tangible equity. These changes became effective on April 1, 2011, and, based on the Firm’s understanding of the final rule, are expected to result in an aggregate annualized increase of approximately $500 million in the assessments that the Firm’s bank subsidiaries pay to the deposit insurance fund.
Management and the Firm’s Board of Directors continually evaluate ways to deploy the Firm’s strong capital base in order to enhance shareholder value. Such alternatives could include the repurchase of common stock, increasing the common stock dividend and pursuing alternative investment opportunities. During the first quarter of 2011, the Firm increased its quarterly dividend to $0.25 per share, an increase of $0.20 per share from the prior-quarter level. The Firm expects to return to a payout ratio of approximately 30% of normalized earnings over time.
In addition, the Board authorized a new $15 billion, multi-year repurchase program for its common stock, of which up to $8.0 billion is approved for 2011. The Firm expects to utilize the repurchase program to, at a minimum, essentially repurchase the same amount of shares that it issues for employee stock-based incentive awards. Beyond this, the Firm intends to repurchase common stock only when it is generating capital in excess of what is needed to fund its organic growth and when, in management’s judgment, such repurchases provide excellent value to the Firm’s existing shareholders. Management and the Board will continue to assess and make decisions regarding alternatives for deploying capital, as appropriate, over the course of the year. Any planned future dividend increases over the current level, or planned use of the repurchase program over the repurchases approved for 2011, will be reviewed by the Firm with its banking regulators before taking action.

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CONSOLIDATED RESULTS OF OPERATIONS
The following section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three months ended March 31, 2011 and 2010. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 86–89 of this Form 10-Q and pages 149–154 of JPMorgan Chase’s 2010 Annual Report.
Revenue
                         
    Three months ended March 31,
(in millions)   2011   2010   Change
 
Investment banking fees
  $ 1,793     $ 1,461       23 %
Principal transactions
    4,745       4,548       4  
Lending- and deposit-related fees
    1,546       1,646       (6 )
Asset management, administration and commissions
    3,606       3,265       10  
Securities gains
    102       610       (83 )
Mortgage fees and related income
    (487 )     658     NM
Credit card income
    1,437       1,361       6  
Other income
    574       412       39  
         
Noninterest revenue
    13,316       13,961       (5 )
Net interest income
    11,905       13,710       (13 )
         
Total net revenue
  $ 25,221     $ 27,671       (9 )%
 
Total net revenue for the first quarter of 2011 was $25.2 billion, down by $2.5 billion, or 9%, from the first quarter of 2010. Results were driven by lower net interest income, mortgage fees and related income in RFS, and securities gains in Corporate/Private Equity. These declines were partially offset by higher investment banking fees in IB.
Investment banking fees included record debt underwriting fees and higher advisory fees, related to stronger industry-wide loan syndication and M&A volumes compared with the prior year; these were partially offset by lower equity underwriting fees. For additional information on investment banking fees, which are primarily recorded in IB, see IB segment results on pages 16–19 of this Form 10-Q.
Principal transactions revenue, which consists of revenue from trading and private equity investing activities, increased compared with the first quarter of 2010, driven by higher private equity gains, as a result of continued improvement in market conditions related to certain portfolio investments. Trading revenue, although lower than the record level of the prior year, reflected strong client revenue in IB. For additional information on principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 16–19 and 38–39, respectively, and Note 6 on page 113 of this Form 10-Q.
Lending- and deposit-related fees decreased, reflecting lower deposit-related fees in RFS associated, in part, with legislation on non-sufficient funds and overdraft fees. For additional information on lending- and deposit-related fees, which are mostly recorded in RFS, CB, TSS and IB, see RFS on pages 20–27, CB on pages 30–31, TSS on pages 32–34 and IB segment results on pages 16–19 of this Form 10-Q.
Asset management, administration and commissions revenue increased from the first quarter of 2010. The increase largely reflected higher asset management fees in AM, driven by the effect of higher market levels and net inflows to products with higher margins, partially offset by lower performance fees. Also contributing to the increase were higher administration fees in TSS, reflecting net inflows of assets under custody and the effects of higher market levels; and higher Equity Markets-related commissions revenue in IB. For additional information on these fees and commissions, see the segment discussions for AM on pages 34–37 and TSS on pages 32–34 of this Form 10-Q.
Securities gains decreased from the first quarter of 2010, due to a lower volume of securities sales in the Firm’s investment portfolio. For additional information on securities gains, which are mostly recorded in the Firm’s Corporate segment, see the Corporate/Private Equity segment discussion on pages 38–39 of this Form 10-Q.
Mortgage fees and related income decreased compared with the first quarter of 2010, driven by an MSR risk management loss; this loss reflected a $1.1 billion decrease in the fair value of the MSR asset related to the estimated impact of higher servicing costs to enhance servicing processes, particularly loan modification and foreclosure procedures, and costs to comply with Consent Orders entered into with banking regulators. An increase in production revenue, driven by higher mortgage origination volumes and wider margins, partially offset the decline. For additional information on mortgage fees and related income, which is recorded primarily in RFS, see RFS’s Mortgage Banking, Auto & Other Consumer

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Lending discussion on pages 23–25 of this Form 10-Q. For additional information on repurchase losses, see the repurchase liability discussion on pages 46–48 and Note 21 on pages 156–159 of this Form 10-Q.
Credit card income increased in the first quarter of 2011, largely reflecting higher customer charge volume on debit and credit cards. For additional information on credit card income, see the CS and RFS segment results on pages 28–30, and pages 20–27, respectively, of this Form 10-Q.
Other income increased compared with the first quarter of 2010, driven by valuation adjustments on certain assets in IB, as well as higher auto operating lease income in RFS, as a result of growth in lease volume.
Net interest income decreased in the first quarter of 2011 compared with the prior year. The decrease was driven by lower yields on securities and lower average securities balances in Corporate, resulting from investment portfolio repositioning; lower average loan balances, primarily in CS and RFS, reflecting the expected runoff of credit card balances and residential real estate loans; and lower fees on credit card receivables, reflecting the impact of legislative changes. The decrease was offset partially by lower revenue reversals associated with lower credit card charge-offs, and higher deposit balances. The Firm’s average interest-earning assets were $1.7 trillion in the first quarter of 2011, and the net yield on those assets, on a fully taxable-equivalent (“FTE”) basis, was 2.89%, a decrease of 43 basis points from the first quarter of 2010. For further information on the impact of the legislative changes on the Consolidated Statements of Income, see CS discussion on Credit Card Legislation on page 79 of JPMorgan Chase’s 2010 Annual Report.
                         
Provision for credit losses   Three months ended March 31,
(in millions)   2011   2010   Change
 
Wholesale
  $ (386 )   $ (236 )     (64 )%
Consumer, excluding credit card
    1,329       3,734       (64 )
Credit card
    226       3,512       (94 )
         
Total consumer
    1,555       7,246       (79 )
         
Total provision for credit losses
  $ 1,169     $ 7,010       (83 )%
 
The provision for credit losses decreased compared with the first quarter of 2010, due to a decrease in both the consumer and wholesale provisions. The consumer, excluding credit card, provision was down from the prior year, driven by the absence of additions to the allowance for loan losses and lower net charge-offs. The credit card provision was down from the prior year, driven primarily by improved delinquency trends and a reduction in the allowance for loan losses as a result of lower estimated losses. The wholesale provision reflected a higher benefit compared with the prior year, primarily reflecting continued improvement in the credit environment from the prior year. For a more detailed discussion of the loan portfolio and the allowance for credit losses, see the segment discussions for RFS on pages 20–27, CS on pages 28–30, IB on pages 16–19 and CB on pages 30–31, and the Allowance for credit losses section on pages 79–81 of this Form 10-Q.
Noninterest expense
                         
    Three months ended March 31,
(in millions)   2011   2010   Change
 
Compensation expense
  $ 8,263     $ 7,276       14 %
Noncompensation expense:
                       
Occupancy
    978       869       13  
Technology, communications and equipment
    1,200       1,137       6  
Professional and outside services
    1,735       1,575       10  
Marketing
    659       583       13  
Other(a)(b)
    2,943       4,441       (34 )
Amortization of intangibles
    217       243       (11 )
         
Total noncompensation expense
    7,732       8,848       (13 )
         
Total noninterest expense
  $ 15,995     $ 16,124       (1 )%
 
(a)   Included litigation expense of $1.1 billion and $2.9 billion for the three months ended March 31, 2011 and 2010, respectively.
 
(b)   Included foreclosed property expense of $210 million and $303 million for the three months ended March 31, 2011 and 2010, respectively.
Total noninterest expense for the first quarter of 2011 was $16.0 billion, down slightly from $16.1 billion in the first quarter of 2010. A decrease in noncompensation expense, largely due to lower additions to litigation reserves in the first quarter of 2011, offset the increase in compensation expense.

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Compensation expense increased from the prior year, predominantly due to higher salary and benefits expense in support of on-going initiatives in IB, as well as additions for sales force and default-related employees in RFS, and front office staff in AM.
The aforementioned decrease in noncompensation expense from the first quarter of 2010 was predominantly related to a net decline in mortgage-related litigation expense (Corporate and IB decreased, partially offset by an increase in RFS). The following items in noncompensation expense were higher in the first quarter of 2011: other expense for the estimated costs of foreclosure-related matters in RFS; professional services expense, due to continued investments in new product platforms in the businesses, including those related to international expansion; occupancy expense, largely reflecting a net increase in charges for excess real estate and higher depreciation expense; marketing expense in CS; and all other expense, reflecting additional operating expense related to business activity in IB. For a further discussion of litigation expense, see the Litigation reserve discussion in Note 23 on pages 160–169 of this Form 10-Q. For a discussion of amortization of intangibles, refer to the Balance Sheet Analysis on pages 41–43, and Note 16 on pages 149–152 of this Form 10-Q.
Income tax expense
                 
    Three months ended March 31,
(in millions, except rate)   2011   2010
 
Income before income tax expense
  $ 8,057     $ 4,537  
Income tax expense
    2,502       1,211  
Effective tax rate
    31.1 %     26.7 %
 
The increase in the effective tax rate compared with the prior year was primarily the result of higher reported pretax income and changes in the mix of income subject to U.S. federal and state and local taxes, as well as significantly lower tax benefits recognized upon the resolution of tax audits. These factors were partially offset by deferred tax benefits associated with state and local income taxes. For additional information on income taxes, see Critical Accounting Estimates Used by the Firm on pages 86–89 of this Form 10-Q.
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its consolidated financial statements using accounting principles generally accepted in the U.S. (“U.S. GAAP”); these financial statements appear on pages 90–93 of this Form 10-Q. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.
In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s results and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the business segments) on a FTE basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits is presented in the managed results on a basis comparable to taxable securities and investments. This non-GAAP financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Tangible common equity (“TCE”) represents common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less identifiable intangible assets (other than MSRs) and goodwill, net of related deferred tax liabilities. ROTCE, a non-GAAP financial ratio, measures the Firm’s earnings as a percentage of TCE and is, in management’s view, a meaningful measure to assess the Firm’s use of equity.
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 trends of the particular business segment and, therefore, facilitate a comparison of the business segment with the performance of its competitors. Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.

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The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
                         
    Three months ended March 31, 2011
            Fully    
    Reported   tax-equivalent   Managed
(in millions, except per share and ratios)   results   adjustments   basis
 
Revenue
                       
Investment banking fees
  $ 1,793     $     $ 1,793  
Principal transactions
    4,745             4,745  
Lending–and deposit–related fees
    1,546             1,546  
Asset management, administration and commissions
    3,606             3,606  
Securities gains
    102             102  
Mortgage fees and related income
    (487 )           (487 )
Credit card income
    1,437             1,437  
Other income
    574       451       1,025  
 
Noninterest revenue
    13,316       451       13,767  
Net interest income
    11,905       119       12,024  
 
Total net revenue
    25,221       570       25,791  
Noninterest expense
    15,995             15,995  
 
Pre-provision profit
    9,226       570       9,796  
Provision for credit losses
    1,169             1,169  
 
Income before income tax expense
    8,057       570       8,627  
Income tax expense
    2,502       570       3,072  
 
Net income
  $ 5,555     $     $ 5,555  
 
Diluted earnings per share
  $ 1.28     $     $ 1.28  
Return on assets
    1.07 %   NM     1.07 %
Overhead ratio
    63     NM     62  
 
                         
    Three months ended March 31, 2010
        Fully    
    Reported   tax-equivalent   Managed
(in millions, except per share and ratios)   results   adjustments   basis
 
Revenue
                       
Investment banking fees
  $ 1,461     $     $ 1,461  
Principal transactions
    4,548             4,548  
Lending–and deposit–related fees
    1,646             1,646  
Asset management, administration and commissions
    3,265             3,265  
Securities gains
    610             610  
Mortgage fees and related income
    658             658  
Credit card income
    1,361             1,361  
Other income
    412       411       823  
 
Noninterest revenue
    13,961       411       14,372  
Net interest income
    13,710       90       13,800  
 
Total net revenue
    27,671       501       28,172  
Noninterest expense
    16,124             16,124  
 
Pre-provision profit
    11,547       501       12,048  
Provision for credit losses
    7,010             7,010  
 
Income before income tax expense
    4,537       501       5,038  
Income tax expense
    1,211       501       1,712  
 
Net income
  $ 3,326     $     $ 3,326  
 
Diluted earnings per share
  $ 0.74     $     $ 0.74  
Return on assets
    0.66 %   NM     0.66 %
Overhead ratio
    58     NM     57  
 
Average tangible common equity
                                         
    Three months ended
    March 31,   December 31,   September 30,   June 30,   March 31,
(in millions)   2011   2010   2010   2010   2010
 
Common stockholders’ equity
  $ 169,415     $ 166,812     $ 163,962     $ 159,069     $ 156,094  
Less: Goodwill
    48,846       48,831       48,745       48,348       48,542  
Less: Certain identifiable intangible assets
    3,928       4,054       4,094       4,265       4,307  
Add: Deferred tax liabilities(a)
    2,595       2,621       2,620       2,564       2,541  
 
Tangible common equity (TCE)
  $ 119,236     $ 116,548     $ 113,743     $ 109,020     $ 105,786  
 
(a)   Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in non-taxable transactions, which are netted against goodwill and other intangibles when calculating TCE.

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Other financial measures
The Firm also discloses the allowance for loan losses to total retained loans, excluding home lending purchased credit-impaired loans. For a further discussion of this credit metric, see Allowance for credit losses on pages 79–81 of this Form 10-Q.
BUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. The business segment financial results presented reflect the current organization of JPMorgan Chase. There are six major reportable business segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services and Asset Management, as well as a Corporate/Private Equity segment. The business segments are determined based on the products and services provided, or the type of customer served, and reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis.
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results allocates income and expense using market-based methodologies. For a further discussion of those methodologies, see Business Segment Results — Description of business segment reporting methodology on pages 67–68 of JPMorgan Chase’s 2010 Annual Report. The Firm continues to assess the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.
Business segment capital allocation changes
Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, economic risk measures and regulatory capital requirements. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2011, capital allocated to CS was reduced and that of TSS was increased. For further information about these capital changes, see Line of business equity on pages 52–53 of this Form 10-Q.
Segment Results – Managed Basis(a)
The following table summarizes the business segment results for the periods indicated.
                                                                         
Three months ended            
March 31,   Total net revenue   Noninterest expense   Pre-provision profit
(in millions, except ratios)   2011   2010   Change   2011   2010   Change   2011   2010   Change
 
Investment Bank(b)
  $ 8,233     $ 8,319       (1 )%   $ 5,016     $ 4,838       4 %   $ 3,217     $ 3,481       (8 )%
Retail Financial Services
    6,275       7,776       (19 )     5,262       4,242       24       1,013       3,534       (71 )
Card Services
    3,982       4,447       (10 )     1,555       1,402       11       2,427       3,045       (20 )
Commercial Banking
    1,516       1,416       7       563       539       4       953       877       9  
Treasury & Securities Services
    1,840       1,756       5       1,377       1,325       4       463       431       7  
Asset Management
    2,406       2,131       13       1,660       1,442       15       746       689       8  
Corporate/Private Equity(b)
    1,539       2,327       (34 )     562       2,336       (76 )     977       (9 )   NM
                                 
Total
  $ 25,791     $ 28,172       (8 )%   $ 15,995     $ 16,124       (1 )%   $ 9,796     $ 12,048       (19 )%
 
                                                                 
Three months ended                                                   Return
March 31,   Provision for credit losses   Net income/(loss)   on equity
(in millions, except ratios)   2011   2010   Change   2011   2010   Change   2011   2010
 
Investment Bank(b)
  $ (429 )   $ (462 )     7 %   $ 2,370     $ 2,471       (4 )%     24 %     25 %
Retail Financial Services
    1,326       3,733       (64 )     (208 )     (131 )     (59 )     (3 )     (2 )
Card Services
    226       3,512       (94 )     1,343       (303 )   NM     42       (8 )
Commercial Banking
    47       214       (78 )     546       390       40       28       20  
Treasury & Securities Services
    4       (39 )   NM     316       279       13       18       17  
Asset Management
    5       35       (86 )     466       392       19       29       24  
Corporate/Private Equity(b)
    (10 )     17     NM     722       228       217     NM   NM
                                     
Total
  $ 1,169     $ 7,010       (83 )%   $ 5,555     $ 3,326       67 %     13 %     8 %
 
(a)   Represents reported results on a tax-equivalent basis.
 
(b)   Corporate/Private Equity includes an adjustment to offset IB’s inclusion of a credit allocation income/(expense) to TSS in total net revenue; TSS reports the credit allocation as a separate line on its income statement (not within total net revenue).

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INVESTMENT BANK
For a discussion of the business profile of IB, see pages 69—71 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 4 of this Form 10-Q.
                         
Selected income statement data   Three months ended March 31,
(in millions, except ratios)   2011   2010   Change
 
Revenue
                       
Investment banking fees
  $ 1,779     $ 1,446       23 %
Principal transactions
    3,398       3,931       (14 )
Lending- and deposit-related fees
    214       202       6  
Asset management, administration and commissions
    619       563       10  
All other income(a)
    166       49       239  
         
Noninterest revenue
    6,176       6,191        
Net interest income
    2,057       2,128       (3 )
         
Total net revenue(b)
    8,233       8,319       (1 )
Provision for credit losses
    (429 )     (462 )     7  
Noninterest expense
                       
Compensation expense
    3,294       2,928       13  
Noncompensation expense
    1,722       1,910       (10 )
         
Total noninterest expense
    5,016       4,838       4  
         
Income before income tax expense
    3,646       3,943       (8 )
Income tax expense
    1,276       1,472       (13 )
         
Net income
  $ 2,370     $ 2,471       (4 )
         
Financial ratios
                       
Return on common equity
    24 %     25 %        
Return on assets
    1.18       1.48          
Overhead ratio
    61       58          
Compensation expense as a percentage of total net revenue
    40       35          
         
Revenue by business
                       
Investment banking fees:
                       
Advisory
  $ 429     $ 305       41  
Equity underwriting
    379       413       (8 )
Debt underwriting
    971       728       33  
         
Total investment banking fees
    1,779       1,446       23  
Fixed income markets(c)
    5,238       5,464       (4 )
Equity markets(d)
    1,406       1,462       (4 )
Credit portfolio(a)(e)
    (190 )     (53 )     (258 )
         
Total net revenue
  $ 8,233     $ 8,319       (1 )
 
(a)   IB manages credit exposures related to Global Corporate Bank (“GCB”) on behalf of IB and TSS. Effective January 1, 2011, IB and TSS will share the economics related to the Firm’s GCB clients. IB recognizes this sharing agreement within all other income. The prior-year period reflected the reimbursement from TSS for a portion of the total costs of managing the credit portfolio on behalf of TSS.
 
(b)   Total net revenue included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing and alternative energy investments as well as tax-exempt income from municipal bond investments of $438 million and $403 million for the quarters ended March 31, 2011 and 2010, respectively.
 
(c)   Fixed income markets primarily include revenue related to market-making across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets.
 
(d)   Equities markets primarily include revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services.
 
(e)   Credit portfolio revenue includes net interest income, fees and loan sale activity, as well as gains or losses on securities received as part of a loan restructuring, for IB’s credit portfolio. Credit portfolio revenue also includes the results of risk management related to the Firm’s lending and derivative activities. See pages 59—81 of the Credit Risk Management section of this Form 10-Q for further discussion.

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Quarterly results
Net income was $2.4 billion, down 4% from the prior-year record, reflecting higher noninterest expense, slightly lower net revenue and a lower benefit from the provision for credit losses.
Net revenue was $8.2 billion, compared with $8.3 billion in the prior year. Investment banking fees were $1.8 billion, up 23% from the prior year; these consisted of record debt underwriting fees of $971 million (up 33%), equity underwriting fees of $379 million (down 8%), and advisory fees of $429 million (up 41%). Fixed Income and Equity Markets revenue was $6.6 billion, compared with $6.9 billion in the prior year, reflecting strong client revenues. Credit Portfolio revenue was a loss of $190 million, primarily reflecting the negative net impact of credit-related valuation adjustments largely offset by net interest income and fees on retained loans.
The provision for credit losses was a benefit of $429 million, compared with a benefit of $462 million in the prior year. The current-quarter benefit primarily reflected a reduction in the allowance for loan losses, primarily related to loan sales and net repayments. The ratio of the allowance for loan losses to end-of-period loans retained was 2.52%, compared with 4.91% in the prior year, driven by the improved quality of the loan portfolio. Net charge-offs were $123 million, compared with net charge-offs of $697 million in the prior year.
Noninterest expense was $5.0 billion, up 4% from the prior year driven by higher compensation expense, partially offset by lower noncompensation expense.
ROE was 24% on $40.0 billion of allocated capital.

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Selected metrics   Three months ended March 31,
(in millions, except headcount and ratios)   2011   2010   Change
 
Selected balance sheet data (period-end)
                       
Loans:
                       
Loans retained(a)
  $ 52,712     $ 53,010       (1 )%
Loans held-for-sale and loans at fair value
    5,070       3,594       41  
         
Total loans
    57,782       56,604       2  
Equity
    40,000       40,000        
 
                       
Selected balance sheet data (average)
                       
Total assets
  $ 815,828     $ 676,122       21  
Trading assets—debt and equity instruments
    368,956       284,085       30  
Trading assets—derivative receivables
    67,462       66,151       2  
Loans:
                       
Loans retained(a)
    53,370       58,501       (9 )
Loans held-for-sale and loans at fair value
    3,835       3,150       22  
         
Total loans
    57,205       61,651       (7 )
Adjusted assets(b)
    611,038       506,635       21  
Equity
    40,000       40,000        
 
                       
Headcount
    26,494       24,977       6  
 
                       
Credit data and quality statistics
                       
Net charge-offs
  $ 123     $ 697       (82 )
Nonperforming assets:
                       
Nonaccrual loans:
                       
Nonaccrual loans retained(a)(c)
    2,388       2,459       (3 )
Nonaccrual loans held-for-sale and loans at fair value
    259       282       (8 )
         
Total nonperforming loans
    2,647       2,741       (3 )
Derivative receivables
    21       363       (94 )
Assets acquired in loan satisfactions
    73       185       (61 )
         
Total nonperforming assets
    2,741       3,289       (17 )
Allowance for credit losses:
                       
Allowance for loan losses
    1,330       2,601       (49 )
Allowance for lending-related commitments
    424       482       (12 )
         
Total allowance for credit losses
    1,754       3,083       (43 )
Net charge-off rate(a)(d)
    0.93 %     4.83 %        
Allowance for loan losses to period-end loans retained(a)(d)
    2.52       4.91          
Allowance for loan losses to nonaccrual loans retained(a)(c)(d)
    56       106          
Nonaccrual loans to period-end loans
    4.58       4.84          
 
                       
Market risk—average trading and credit portfolio VaR — 95% confidence level
                       
Trading activities:
                       
Fixed income
  $ 49     $ 69       (29 )
Foreign exchange
    11       13       (15 )
Equities
    29       24       21  
Commodities and other
    13       15       (13 )
Diversification(e)
    (38 )     (49 )     22  
         
Total trading VaR(f)
    64       72       (11 )
Credit portfolio VaR(g)
    26       19       37  
Diversification(e)
    (7 )     (9 )     22  
         
Total trading and credit portfolio VaR
  $ 83     $ 82       1  
 
(a)   Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and excluded loans held-for-sale and loans at fair value.
 
(b)   Adjusted assets, a non-GAAP financial measure, equals total assets minus: (1) securities purchased under resale agreements and securities borrowed less securities sold, not yet purchased; (2) assets of consolidated variable interest entities (“VIEs”); (3) cash and securities segregated and on deposit for regulatory and other purposes; (4) goodwill and intangibles; (5) securities received as collateral. The amount of adjusted assets is presented to assist the reader in comparing IB’s asset and capital levels to other investment banks in the securities industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a company’s capital adequacy. IB believes an adjusted asset amount that excludes the assets discussed above, which were considered to have a low risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry.
 
(c)   Allowance for loan losses of $567 million and $811 million were held against these nonaccrual loans at March 31, 2011 and 2010, respectively.
 
(d)   Loans held-for-sale and loans at fair value were excluded when calculating the allowance coverage ratio and net charge-off rate.

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(e)   Average value-at-risk (“VaR”) was less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflects the fact that the risks were not perfectly correlated. The risk of a portfolio of positions is therefore usually less than the sum of the risks of the positions themselves.
 
(f)   Trading VaR includes substantially all trading activities in IB, including the credit spread sensitivities of certain mortgage products and syndicated lending facilities that the Firm intends to distribute; however, particular risk parameters of certain products are not fully captured, for example, correlation risk. Trading VaR does not include the debit valuation adjustments (“DVA”) taken on derivative and structured liabilities to reflect the credit quality of the Firm. See VaR discussion on pages 81–84 and the DVA Sensitivity table on page 84 of this Form 10-Q for further details.
 
(g)   Credit portfolio VaR includes the derivative credit valuation adjustments (“CVA”), hedges of the CVA and mark-to-market (“MTM”) hedges of the retained loan portfolio, which are all reported in principal transactions revenue. This VaR does not include the retained loan portfolio, which is not MTM.
According to Dealogic, for the first three months of 2011, the Firm was ranked #1 in Investment Banking fees generated based on revenue, and #1 in Global Announced M&A; #1 in Global Syndicated Loans; #3 in Global Debt, Equity and Equity-related; #3 in Global Long-Term Debt; and #7 in Global Equity and Equity-related, based on volume.
                                 
    Three months ended March 31, 2011   Full-year 2010
Market shares and rankings(a)   Market Share   Rankings   Market Share   Rankings
 
Global investment banking fees(b)
    8.6 %     #1       7.6 %     #1  
Debt, equity and equity-related
                               
Global
    6.6       3       7.2       1  
U.S.
    11.8       1       11.1       1  
Syndicated loans
                               
Global
    12.3       1       8.5       1  
U.S.
    24.5       1       19.3       2  
Long-term debt(c)
                               
Global
    6.7       3       7.2       2  
U.S.
    11.8       1       10.9       2  
Equity and equity-related
                               
Global(d)
    5.7       7       7.3       3  
U.S.
    9.5       4       12.6       2  
Announced M&A(e)
                               
Global
    26.8       1       16.3       3  
U.S.
    44.5       1       23.0       3  
 
(a)   Source: Dealogic. Global Investment Banking fees reflects ranking of fees and market share. Remainder of rankings reflects transaction volume rank and market share.
 
(b)   Global IB fees exclude money market, short-term debt and shelf deals.
 
(c)   Long-term debt tables include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities; and exclude money market, short-term debt, and U.S. municipal securities.
 
(d)   Equity and equity-related rankings include rights offerings and Chinese A-Shares.
 
(e)   Global announced M&A is based on transaction value at announcement; all other rankings are based on transaction proceeds, with full credit to each book manager/equal if joint. Because of joint assignments, market share of all participants will add up to more than 100%. M&A for year-to-date 2011 and full-year 2010 reflects the removal of any withdrawn transactions. U.S. announced M&A represents any U.S. involvement ranking.
                         
International metrics   Three months ended March 31,
(in millions)   2011   2010   Change
 
Total net revenue:(a)
                       
Asia/Pacific
  $ 1,122     $ 988       14 %
Latin America/Caribbean
    327       310       5  
Europe/Middle East/Africa
    2,592       2,875       (10 )
North America
    4,192       4,146       1  
         
Total net revenue
  $ 8,233     $ 8,319       (1 )
 
                       
Loans (period-end): (b)
                       
Asia/Pacific
  $ 5,472     $ 6,195       (12 )
Latin America/Caribbean
    2,190       2,035       8  
Europe/Middle East/Africa
    14,059       12,510       12  
North America
    30,991       32,270       (4 )
         
Total loans
  $ 52,712     $ 53,010       (1 )
 
(a)   Regional revenues are based primarily on the domicile of the client and/or location of the trading desk.
 
(b)   Includes retained loans based on the domicile of the customer. Excludes loans held-for-sale and loans at fair value.

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RETAIL FINANCIAL SERVICES
For a discussion of the business profile of RFS, see pages 72-78 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 4 of this Form 10-Q.
                         
Selected income statement data   Three months ended March 31,
(in millions, except ratios)   2011   2010   Change
 
Revenue
                       
Lending- and deposit-related fees
  $ 746     $ 841       (11 )%
Asset management, administration and commissions
    487       452       8  
Mortgage fees and related income
    (489 )     655     NM
Credit card income
    537       450       19  
Other income
    364       354       3  
         
Noninterest revenue
    1,645       2,752       (40 )
Net interest income
    4,630       5,024       (8 )
         
Total net revenue(a)
    6,275       7,776       (19 )
 
                       
Provision for credit losses
    1,326       3,733       (64 )
 
                       
Noninterest expense
                       
Compensation expense
    1,971       1,770       11  
Noncompensation expense
    3,231       2,402       35  
Amortization of intangibles
    60       70       (14 )
         
Total noninterest expense
    5,262       4,242       24  
         
Income/(loss) before income tax expense/(benefit)
    (313 )     (199 )     (57 )
Income tax expense/(benefit)
    (105 )     (68 )     (54 )
         
Net income/(loss)
  $ (208 )   $ (131 )     (59 )
         
 
                       
Financial ratios
                       
Return on common equity
    (3 )%     (2 )%        
Overhead ratio
    84       55          
Overhead ratio excluding core deposit intangibles(b)
    83       54          
 
(a)   Total net revenue included tax-equivalent adjustments associated with tax-exempt loans to municipalities and other qualified entities of $3 million and $5 million for the three months ended March 31, 2011 and 2010, respectively.
 
(b)   RFS uses the overhead ratio (excluding the amortization of core deposit intangibles (“CDI”)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation would result in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would therefore result in an improving overhead ratio over time, all things remaining equal. The non-GAAP ratio excluded Retail Banking’s CDI amortization expense related to prior business combination transactions of $60 million and $70 million for the three months ended March 31, 2011 and 2010, respectively.
Quarterly results
Retail Financial Services reported a net loss of $208 million, compared with a net loss of $131 million in the prior year.
Net revenue was $6.3 billion, a decrease of $1.5 billion, or 19%, compared with the prior year. Net interest income was $4.6 billion, down by $394 million, or 8%, reflecting the impact of lower loan balances due to portfolio runoff and narrower loan spreads. Noninterest revenue was $1.6 billion, down by $1.1 billion, or 40%, driven by lower mortgage fees and related income.
The provision for credit losses was $1.3 billion, a decrease of $2.4 billion from the prior year. While delinquency trends and net charge-offs improved compared with the prior year, the current-quarter provision continued to reflect elevated losses in the mortgage and home equity portfolios. See page 71 of this Form 10-Q for the net charge-off amounts and rates. To date, no charge-offs have been recorded on PCI loans.
Noninterest expense was $5.3 billion, an increase of $1.0 billion, or 24%, from the prior year.

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Selected metrics   Three months ended March 31,
(in millions, except headcount and ratios)   2011   2010   Change
 
Selected balance sheet data (period-end)
                       
Assets
  $ 355,394     $ 382,475       (7 )%
Loans:
                       
Loans retained
    308,827       339,002       (9 )
Loans held-for-sale and loans at fair value(a)
    12,234       11,296       8  
         
Total loans
    321,061       350,298       (8 )
Deposits
    380,494       362,470       5  
Equity
    28,000       28,000        
 
                       
Selected balance sheet data (average)
                       
Assets
  $ 364,266     $ 393,867       (8 )
Loans:
                       
Loans retained
    312,543       342,997       (9 )
Loans held-for-sale and loans at fair value(a)
    17,519       17,055       3  
         
Total loans
    330,062       360,052       (8 )
Deposits
    372,634       356,934       4  
Equity
    28,000       28,000        
 
                       
Headcount
    123,550       112,616       10  
 
                       
Credit data and quality statistics
                       
Net charge-offs
  $ 1,326     $ 2,438       (46 )
Nonaccrual loans:
                       
Nonaccrual loans retained
    8,499       10,769       (21 )
Nonaccrual loans held-for-sale and loans at fair value
    150       217       (31 )
         
Total nonaccrual loans(b)(c)(d)
    8,649       10,986       (21 )
Nonperforming assets(b)(c)(d)
    9,905       12,191       (19 )
Allowance for loan losses
    16,453       16,200       2  
Net charge-off rate(e)
    1.72 %     2.88 %        
Net charge-off rate excluding PCI loans(e)(f)
    2.23       3.76          
Allowance for loan losses to ending loans retained(e)
    5.33       4.78          
Allowance for loan losses to ending loans retained excluding PCI loans(e)(f)
    4.84       5.16          
Allowance for loan losses to nonaccrual loans retained(b)(e)(f)
    135       124          
Nonaccrual loans to total loans
    2.69       3.14          
Nonaccrual loans to total loans excluding PCI loans(b)
    3.46       4.05          
 
(a)   Loans at fair value consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. These loans totaled $12.0 billion and $8.4 billion at March 31, 2011 and 2010, respectively. Average balances of these loans totaled $17.4 billion and $14.2 billion for the three months ended March 31, 2011 and 2010, respectively.
 
(b)   Excludes PCI loans that were acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of the individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.
 
(c)   Certain of these loans are classified as trading assets on the Consolidated Balance Sheets.
 
(d)   At March 31, 2011 and 2010, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $9.8 billion and $10.5 billion, respectively, that are accruing at the guaranteed reimbursement rate; (2) real estate owned insured by U.S. government agencies of $2.3 billion and $707 million, respectively; and (3) student loans that are 90 days or more past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”), of $615 million and $581 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.
 
(e)   Loans held-for-sale and loans accounted for at fair value were excluded when calculating the allowance coverage ratio and the net charge-off rate.
 
(f)   Excludes the impact of PCI loans that were acquired as part of the Washington Mutual transaction. These loans were accounted for at fair value on the acquisition date, which incorporated management’s estimate, as of that date, of credit losses over the remaining life of the portfolio. An allowance for loan losses of $4.9 billion and $2.8 billion was recorded for these loans at March 31, 2011 and 2010, respectively, which was also excluded from the applicable ratios. To date, no charge-offs have been recorded for these loans.

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RETAIL BANKING
                         
Selected income statement data   Three months ended March 31,
(in millions, except ratios)   2011   2010   Change
 
Noninterest revenue
  $ 1,756     $ 1,702       3 %
Net interest income
    2,659       2,635       1  
         
Total net revenue
    4,415       4,337       2  
Provision for credit losses
    119       191       (38 )
Noninterest expense
    2,802       2,577       9  
         
Income before income tax expense
    1,494       1,569       (5 )
         
Net income
  $ 891     $ 898       (1 )
         
Overhead ratio
    63 %     59 %        
Overhead ratio excluding core deposit intangibles(a)
    62       58          
 
(a)   Retail Banking uses the overhead ratio (excluding the amortization of CDI), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation would result in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would therefore result in an improving overhead ratio over time, all things remaining equal. The non-GAAP ratio excluded Retail Banking’s CDI amortization expense related to prior business combination transactions of $60 million and $70 million for the three months ended March 31, 2011 and 2010, respectively.
Quarterly results
Retail Banking reported net income of $891 million, flat compared with the prior year. Net revenue was $4.4 billion, up 2% from the prior year. The increase was driven by higher debit card and investment sales revenue, largely offset by lower deposit-related fees. Retail Banking net charge-offs were $119 million, compared with $191 million in the prior year. Noninterest expense was $2.8 billion, up 9% from the prior year, resulting from sales force increases and new branch builds.
                         
Selected metrics   Three months ended March 31,
(in billions, except ratios and where otherwise noted)   2011   2010   Change
 
Business metrics
                       
 
                       
Business banking origination volume (in millions)
  $ 1,425     $ 905       57 %
End-of-period loans owned
    17.0       16.8       1  
End-of-period deposits:
                       
Checking
  $ 137.4     $ 123.8       11  
Savings
    176.3       163.4       8  
Time and other
    44.0       53.2       (17 )
         
Total end-of-period deposits
    357.7       340.4       5  
Average loans owned
  $ 16.9     $ 16.9        
Average deposits:
                       
Checking
  $ 132.0     $ 119.7       10  
Savings
    171.1       158.6       8  
Time and other
    45.0       55.6       (19 )
         
Total average deposits
    348.1       333.9       4  
Deposit margin
    2.92 %     3.02 %        
Average assets
  $ 28.7     $ 28.9       (1 )
         
Credit data and quality statistics (in millions, except ratio)
                       
Net charge-offs
  $ 119     $ 191       (38 )
Net charge-off rate
    2.86 %     4.58 %        
Nonperforming assets
  $ 822     $ 872       (6 )
         
Retail branch business metrics
                       
Investment sales volume (in millions)
  $ 6,584     $ 5,956       11  
 
                       
Number of:
                       
Branches
    5,292       5,155       3  
ATMs
    16,265       15,549       5  
Personal bankers
    21,875       19,003       15  
Sales specialists
    7,336       6,315       16  
Active online customers (in thousands)
    18,318       16,208       13  
Checking accounts (in thousands)
    26,622       25,830       3  
 

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MORTGAGE BANKING, AUTO & OTHER CONSUMER LENDING
                         
Selected income statement data   Three months ended March 31,
(in millions, except ratio)   2011   2010   Change
 
Noninterest revenue
  $ (119 )   $ 1,018     NM
Net interest income
    815       893       (9 )%
         
Total net revenue
    696       1,911       (64 )
Provision for credit losses
    131       217       (40 )
Noninterest expense
    2,105       1,246       69  
         
Income/(loss) before income tax expense/(benefit)
    (1,540 )     448     NM
         
Net income/(loss)
  $ (937 )   $ 257     NM
         
Overhead ratio
    302 %     65 %        
 
Quarterly results
Mortgage Banking, Auto & Other Consumer Lending reported a net loss of $937 million, compared with net income of $257 million in the prior year.
Net revenue was $696 million, a decrease of $1.2 billion, or 64%, from the prior year. Mortgage Banking net revenue was a loss of $114 million, compared with net revenue of $962 million in the prior year. Auto & Other Consumer Lending net revenue was $810 million, down by $139 million, predominantly as a result of the discontinuation of tax refund anticipation lending.
Mortgage Banking net revenue in the first quarter of 2011 included $271 million of net interest income and $104 million of other noninterest revenue, offset by a loss of $489 million for mortgage fees and related income. Mortgage fees and related income comprised $259 million of net production revenue, $489 million of servicing operating revenue and a $1.2 billion MSR risk management loss. Production revenue, excluding repurchase losses, was $679 million, an increase of $246 million, reflecting higher mortgage origination volumes and wider margins. Total production revenue was reduced by $420 million of repurchase losses, compared with repurchase losses of $432 million in the prior year. Servicing operating revenue declined 3% from the prior year. MSR risk management revenue declined by $1.4 billion from the prior year, reflecting a $1.1 billion decrease in the fair value of the MSR asset related to the estimated impact of higher servicing costs to enhance servicing processes.
The provision for credit losses, predominantly related to the student and auto loan portfolios, was $131 million, compared with $217 million in the prior year. Auto loan net charge-offs were $47 million, compared with $102 million in the prior year. Student loan and other net charge-offs were $80 million, compared with $64 million in the prior year.
Noninterest expense was $2.1 billion, up by $859 million, or 69%, from the prior year, driven by $650 million recorded for estimated costs of foreclosure-related matters, as well as an increase in default-related expense for the serviced portfolio.
                         
Selected metrics   Three months ended March 31,
(in billions, except ratios and where otherwise noted)   2011   2010   Change
 
Business metrics
                       
End-of-period loans owned:
                       
Auto
  $ 47.4     $ 47.4       %
Prime mortgage, including option ARMs(a)
    14.1       13.7       3  
Student and other
    14.3       17.4       (18 )
         
Total end-of-period loans owned
    75.8       78.5       (3 )
         
Average loans owned:
                       
Auto
  $ 47.7     $ 46.9       2  
Prime mortgage, including option ARMs (a)
    14.0       12.5       12  
Student and other
    14.4       18.4       (22 )
         
Total average loans owned(b)
    76.1       77.8       (2 )
 

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Selected metrics   Three months ended March 31,
(in billions, except ratios and where otherwise noted)   2011   2010   Change
 
Credit data and quality statistics (in millions, except ratios)
                       
Net charge-offs:
                       
Auto
  $ 47     $ 102       (54 )%
Prime mortgage, including option ARMs
    4       6       (33 )
Student and other
    80       64       25  
         
Total net charge-offs
    131       172       (24 )
         
Net charge-off rate:
                       
Auto
    0.40 %     0.88 %        
Prime mortgage, including option ARMs
    0.12       0.20          
Student and other
    2.25       1.64          
         
Total net charge-off rate(b)
    0.70       0.93          
         
 
                       
30+ day delinquency rate(c)(d)(e)
    1.59       1.52          
Nonperforming assets (in millions)(f)
  $ 931     $ 1,006       (7 )
         
Origination volume:
                       
Mortgage origination volume by channel
                       
Retail
  $ 21.0     $ 11.4       84  
Wholesale(g)
    0.2       0.4       (50 )
Correspondent(g)
    13.5       16.0       (16 )
CNT (negotiated transactions)
    1.5       3.9       (62 )
         
Total mortgage origination volume
    36.2       31.7       14  
         
Student
    0.1       1.6       (94 )
Auto
    4.8       6.3       (24 )
         
Application volume:
                       
Mortgage application volume by channel
                       
Retail
  $ 31.3     $ 20.3       54  
Wholesale(g)
    0.3       0.8       (63 )
Correspondent(g)
    13.6       18.2       (25 )
         
Total mortgage application volume
  $ 45.2     $ 39.3       15  
         
Average mortgage loans held-for-sale and loans at fair value(h)
  $ 17.5     $ 14.5       21  
Average assets
    128.4       124.8       3  
Repurchase reserve (ending)
    3.2       1.6       100  
Third-party mortgage loans serviced (ending)
    955.0       1,075.0       (11 )
Third-party mortgage loans serviced (average)
    958.7       1,076.4       (11 )
MSR net carrying value (ending)
    13.1       15.5       (15 )
Ratio of MSR net carrying value (ending) to third-party mortgage loans serviced (ending)
    1.37 %     1.44 %        
Ratio of annualized loan servicing revenue to third-party mortgage loans serviced (average)
    0.45       0.42          
MSR revenue multiple(i)
    3.04x       3.43x          
 
                       
Supplemental mortgage fees and related income details
                       
(in millions)
                       
         
Net production revenue:
                       
Production revenue
  $ 679     $ 433       57  
Repurchase losses
    (420 )     (432 )     3  
         
Net production revenue
    259       1     NM
         
Net mortgage servicing revenue:
                       
Operating revenue:
                       
Loan servicing revenue
    1,052       1,107       (5 )
Other changes in MSR asset fair value
    (563 )     (605 )     7  
         
Total operating revenue
    489       502       (3 )
Risk management:
                       
Changes in MSR asset fair value due to inputs or assumptions in model
    (751 )     (96 )   NM
Derivative valuation adjustments and other
    (486 )     248     NM
         
Total risk management
    (1,237 )     152     NM
         
Total net mortgage servicing revenue
    (748 )     654     NM
         
Mortgage fees and related income
  $ (489 )   $ 655     NM
 
(a)   Predominantly represents prime loans repurchased from Government National Mortgage Association (“Ginnie Mae”) pools, which are insured by U.S. government agencies. See further discussion of loans repurchased from Ginnie Mae pools in Repurchase liability on pages 46–48 of this Form 10-Q.
 
(b)   For the three months ended March 31, 2011 and 2010, total average loans owned included loans held-for-sale of $133 million and $2.9 billion, respectively. These amounts were excluded when calculating the net charge-off rate.
 
(c)   At March 31, 2011 and 2010, total end-of-period loans owned included loans held-for-sale of $188 million and $2.9 billion, respectively. These amounts were excluded when calculating the 30+ day delinquency rate.

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(d)   At March 31, 2011 and 2010, excluded mortgage loans insured by U.S. government agencies of $10.4 billion and $11.2 billion, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.
 
(e)   At March 31, 2011 and 2010, excluded loans that are 30 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $1.0 billion and $965 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.
 
(f)   At March 31, 2011 and 2010, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $9.8 billion and $10.5 billion, respectively, that are accruing at the guaranteed reimbursement rate; (2) real estate owned insured by U.S. government agencies of $2.3 billion and $707 million, respectively; and (3) student loans that are 90 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $615 million and $581 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.
 
(g)   Includes rural housing loans sourced through brokers and correspondents, which are underwritten under U.S. Department of Agriculture guidelines.
 
(h)   Loans at fair value consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. Average balances of these loans totaled $17.4 billion and $14.2 billion for the three months ended March 31, 2011 and 2010, respectively.
 
(i)   Represents the ratio of MSR net carrying value (ending) to third-party mortgage loans serviced (ending) divided by the ratio of annualized loan servicing revenue to third-party mortgage loans serviced (average).
REAL ESTATE PORTFOLIOS
                         
Selected income statement data   Three months ended March 31,
(in millions, except ratio)   2011   2010   Change
 
Noninterest revenue
  $ 8     $ 32       (75 )%
Net interest income
    1,156       1,496       (23 )
         
Total net revenue
    1,164       1,528       (24 )
         
Provision for credit losses
    1,076       3,325       (68 )
Noninterest expense
    355       419       (15 )
         
Income/(loss) before income tax expense/(benefit)
    (267 )     (2,216 )     88  
         
Net income/(loss)
  $ (162 )   $ (1,286 )     87  
         
Overhead ratio
    30 %     27 %        
 
Quarterly results
Real Estate Portfolios reported a net loss of $162 million, compared with a net loss of $1.3 billion in the prior year. The improvement was driven by a lower provision for credit losses.
Net revenue was $1.2 billion, down by $364 million, or 24%, from the prior year. The decrease was driven by a decline in net interest income as a result of lower loan balances due to portfolio runoff, and narrower loan spreads.
The provision for credit losses was $1.1 billion, compared with $3.3 billion in the prior year. The current-quarter provision reflected a $1.0 billion reduction in net charge-offs driven by improved delinquency trends. Also, the prior-year provision included an addition to the allowance for loan losses of $1.2 billion for the Washington Mutual PCI portfolios.
Noninterest expense was $355 million, down by $64 million, or 15%, from the prior year, reflecting a decrease in foreclosed asset expense.

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Selected metrics   Three months ended March 31,
(in billions)   2011   2010   Change
 
Loans excluding PCI loans(a)
                       
End-of-period loans owned:
                       
Home equity
  $ 85.3     $ 97.7       (13 )%
Prime mortgage, including option ARMs
    48.5       55.4       (12 )
Subprime mortgage
    10.8       13.2       (18 )
Other
    0.8       1.0       (20 )
         
Total end-of-period loans owned
  $ 145.4     $ 167.3       (13 )
         
 
                       
Average loans owned:
                       
Home equity
  $ 86.9     $ 99.5       (13 )
Prime mortgage, including option ARMs
    49.3       56.6       (13 )
Subprime mortgage
    11.1       13.8       (20 )
Other
    0.8       1.1       (27 )
         
Total average loans owned
  $ 148.1     $ 171.0       (13 )
         
 
                       
PCI loans(a)
                       
End-of-period loans owned:
                       
Home equity
  $ 24.0     $ 26.0       (8 )
Prime mortgage
    16.7       19.2       (13 )
Subprime mortgage
    5.3       5.8       (9 )
Option ARMs
    24.8       28.3       (12 )
         
Total end-of-period loans owned
  $ 70.8     $ 79.3       (11 )
         
 
                       
Average loans owned:
                       
Home equity
  $ 24.2     $ 26.2       (8 )
Prime mortgage
    17.0       19.5       (13 )
Subprime mortgage
    5.3       5.9       (10 )
Option ARMs
    25.1       28.6       (12 )
         
Total average loans owned
  $ 71.6     $ 80.2       (11 )
         
 
                       
Total Real Estate Portfolios
                       
End-of-period loans owned:
                       
Home equity
  $ 109.3     $ 123.7       (12 )
Prime mortgage, including option ARMs
    90.0       102.9       (13 )
Subprime mortgage
    16.1       19.0       (15 )
Other
    0.8       1.0       (20 )
         
Total end-of-period loans owned
  $ 216.2     $ 246.6       (12 )
         
 
                       
Average loans owned:
                       
Home equity
  $ 111.1     $ 125.7       (12 )
Prime mortgage, including option ARMs
    91.4       104.7       (13 )
Subprime mortgage
    16.4       19.7       (17 )
Other
    0.8       1.1       (27 )
         
Total average loans owned
  $ 219.7     $ 251.2       (13 )
         
Average assets
  $ 207.2     $ 240.2       (14 )
Home equity origination volume
    0.2       0.3       (33 )
 
(a)   PCI loans represent loans acquired in the Washington Mutual transaction for which a deterioration in credit quality occurred between the origination date and JPMorgan Chase’s acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the underlying loans are contractually past due.
Included within Real Estate Portfolios are PCI loans that the Firm acquired in the Washington Mutual transaction. For PCI loans, the excess of the undiscounted gross cash flows expected to be collected over the carrying value of the loans (the “accretable yield”) is accreted into interest income at a level rate of return over the expected life of the loans.
The net spread between the PCI loans and the related liabilities are expected to be relatively constant over time, except for any basis risk or other residual interest rate risk that remains and for certain changes in the accretable yield percentage (e.g., from extended loan liquidation periods and from prepayments). As of March 31, 2011, the remaining weighted-average life of the PCI loan portfolio is expected to be 6.9 years. For further information, see Note 13, PCI loans, on pages 134—136 of this Form 10-Q. The loan balances are expected to decline more rapidly in the earlier years as the most troubled loans are liquidated, and more slowly thereafter as the remaining troubled borrowers have limited refinancing opportunities. Similarly, default and servicing expense are expected to be higher in the earlier years and decline over time as liquidations slow down.

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To date the impact of the PCI loans on Real Estate Portfolios’ net income has been modestly negative. This is due to the current net spread of the portfolio, the provision for loan losses recognized subsequent to its acquisition, and the higher level of default and servicing expense associated with the portfolio. Over time, the Firm expects that this portfolio will contribute positively to net income.
                         
Credit data and quality statistics   Three months ended March 31,
(in millions, except ratios)   2011   2010   Change
 
Net charge-offs excluding PCI loans(a):
                       
Home equity
  $ 720     $ 1,126       (36 )%
Prime mortgage, including option ARMs
    161       476       (66 )
Subprime mortgage
    186       457       (59 )
Other
    9       16       (44 )
         
Total net charge-offs
  $ 1,076     $ 2,075       (48 )
         
Net charge-off rate excluding PCI loans(a):
                       
Home equity
    3.36 %     4.59 %        
Prime mortgage, including option ARMs
    1.32       3.41          
Subprime mortgage
    6.80       13.43          
Other
    4.56       5.90          
Total net charge-off rate excluding PCI loans
    2.95       4.92          
         
Net charge-off rate — reported:
                       
Home equity
    2.63 %     3.63 %        
Prime mortgage, including option ARMs
    0.71       1.84          
Subprime mortgage
    4.60       9.41          
Other
    4.56       5.90          
Total net charge-off rate — reported
    1.99       3.35          
         
30+ day delinquency rate excluding PCI loans(b)
    6.22 %     7.28 %        
Allowance for loan losses
  $ 14,659     $ 14,127       4  
Nonperforming assets(c)
    8,152       10,313       (21 )
Allowance for loan losses to ending loans retained
    6.78 %     5.73 %        
Allowance for loan losses to ending loans retained excluding PCI loans(a)
    6.68       6.76          
 
(a)   Excludes the impact of PCI loans that were acquired as part of the Washington Mutual transaction. These loans were accounted for at fair value on the acquisition date, which incorporated management’s estimate, as of that date, of credit losses over the remaining life of the portfolio. An allowance for loan losses of $4.9 billion and $2.8 billion was recorded for these loans at March 31, 2011 and 2010, respectively, which was also excluded from the applicable ratios. To date, no charge-offs have been recorded for these loans.
 
(b)   At March 31, 2011 and 2010, the delinquency rate for PCI loans was 27.36% and 28.49%, respectively.
 
(c)   Excludes PCI loans that were acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of the individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.

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CARD SERVICES
For a discussion of the business profile of CS, see pages 79—81 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 4 of this Form 10-Q.
                         
Selected income statement data(a) Three months ended March 31,
(in millions, except ratios)   2011   2010   Change
 
Revenue
                       
Credit card income
  $ 898     $ 813       10 %
All other income(b)
    (116 )     (55 )     (111 )
         
Noninterest revenue
    782       758       3  
Net interest income
    3,200       3,689       (13 )
         
Total net revenue
    3,982       4,447       (10 )
 
                       
Provision for credit losses
    226       3,512       (94 )
 
                       
Noninterest expense
                       
Compensation expense
    364       330       10  
Noncompensation expense
    1,085       949       14  
Amortization of intangibles
    106       123       (14 )
         
Total noninterest expense
    1,555       1,402       11  
         
Income/(loss) before income tax expense/(benefit)
    2,201       (467 )   NM
Income tax expense/(benefit)
    858       (164 )   NM
         
Net income/(loss)
  $ 1,343     $ (303 )   NM
         
 
                       
Financial ratios(a)
                       
Return on common equity
    42 %     (8 )%        
Overhead ratio
    39       32          
 
(a)   Effective January 1, 2011, the commercial card business that was previously in TSS was transferred to CS. There is no material impact on the financial data; the prior period was not revised. The commercial card portfolio is excluded from business metrics and supplemental information where noted.
 
(b)   Includes the impact of revenue sharing agreements with other JPMorgan Chase business segments.
Quarterly results
Net income was $1.3 billion, compared with a net loss of $303 million in the prior year. The improved results were driven by a lower provision for credit losses, partially offset by lower net revenue.
End-of-period loans were $128.8 billion, a decrease of $20.5 billion, or 14%, from the prior year. Average loans were $132.5 billion, a decrease of $23.3 billion, or 15%, from the prior year. The declines in both end-of-period and average loans were consistent with expected portfolio runoff.
Net revenue was $4.0 billion, a decrease of $465 million, or 10%, from the prior year. Net interest income was $3.2 billion, down by $489 million, or 13%. The decrease in net interest income was driven by lower average loan balances, the impact of legislative changes and a decreased level of fees. These decreases were largely offset by lower revenue reversals associated with lower charge-offs. Noninterest revenue was $782 million, an increase of $24 million, or 3%. The increase was driven by the transfer of the Commercial Card business to CS from TSS in the first quarter of 2011 and higher net interchange income, partially offset by lower revenue from fee-based products.
The provision for credit losses was $226 million, compared with $3.5 billion in the prior year. The current-quarter provision reflected lower net charge-offs and a reduction of $2.0 billion to the allowance for loan losses due to lower estimated losses. The prior-year provision included a reduction of $1.0 billion to the allowance for loan losses. Excluding the Washington Mutual and Commercial Card portfolios, the net charge-off rate1 was 6.20%, down from 10.54% in the prior year; and the 30-day delinquency rate1 was 3.25%, down from 4.99% in the prior year. Including the Washington Mutual and Commercial Card portfolios, the net charge-off rate was 6.97% (6.81% including loans held-for-sale), down from 11.75% in the prior year; the 30-day delinquency rate was 3.57% (3.55% including loans held-for-sale), down from 5.62% in the prior year.
Noninterest expense was $1.6 billion, an increase of $153 million, or 11%, due to the transfer of the Commercial Card business and higher marketing expense.
1.   Includes loans held-for-sale, which are non-GAAP financial measures, to provide more meaningful measures that enable comparability with the prior period.

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Selected metrics   Three months ended March 31,
(in millions, except headcount, ratios and where otherwise noted)   2011   2010   Change
 
Financial ratios(a)
                       
Percentage of average loans:
                       
Net interest income
    9.79 %     9.60 %        
Provision for credit losses
    0.69       9.14          
Noninterest revenue
    2.39       1.97          
Risk adjusted margin(b)
    11.49       2.43          
Noninterest expense
    4.76       3.65          
Pretax income/(loss) (“ROO”)
    6.73       (1.22 )        
Net income/(loss)
    4.11       (0.79 )        
 
                       
Business metrics, excluding Commercial Card(a)
                       
Sales volume (in billions)
  $ 77.5     $ 69.4       12 %
New accounts opened
    2.6       2.5       4  
Open accounts
    91.9       88.9       3  
 
                       
Merchant acquiring business
                       
Bank card volume (in billions)
  $ 125.7     $ 108.0       16  
Total transactions (in billions)
    5.6       4.7       19  
 
                       
Selected balance sheet data (period-end)(a)
                       
Loans(c)
  $ 128,803     $ 149,260       (14 )
Equity
    13,000       15,000       (13 )
 
                       
Selected balance sheet data (average)(a)
                       
Total assets
  $ 138,113     $ 156,968       (12 )
Loans(d)
    132,537       155,790       (15 )
Equity
    13,000       15,000       (13 )
 
                       
Headcount(e)
    21,774       22,478       (3 )
 
                       
Credit quality statistics — retained(a)
                       
Net charge-offs
  $ 2,226     $ 4,512       (51 )
Net charge-off rate(d)(f)
    6.97 %     11.75 %        
Delinquency rates(c)
                       
30+ day
    3.57       5.62          
90+ day
    1.93       3.15          
 
                       
Allowance for loan losses
  $ 9,041     $ 16,032       (44 )
Allowance for loan losses to period-end loans(c)
    7.24 %     10.74 %        
 
                       
Supplemental information(a)(g)(h)
                       
Chase, excluding Washington Mutual portfolio
                       
Loans (period-end)
  $ 116,395     $ 132,056       (12 )
Average loans
    119,411       137,183       (13 )
Net interest income(i)
    9.09 %     8.86 %        
Risk adjusted margin(b)(i)
    10.28       2.43          
Net charge-off rate
    6.13       10.54          
30+ day delinquency rate
    3.22       4.99          
90+ day delinquency rate
    1.71       2.74          
 
                       
Chase, excluding Washington Mutual and Commercial Card portfolios
                       
Loans (period-end)
  $ 115,016     $ 132,056       (13 )
Average loans
    118,145       137,183       (14 )
Net interest income(i)
    9.25 %     8.86 %        
Risk adjusted margin(b)(i)
    10.21       2.43          
Net charge-off rate
    6.20       10.54          
30+ day delinquency rate
    3.25       4.99          
90+ day delinquency rate
    1.73       2.74          
 
(a)   Effective January 1, 2011, the commercial card business that was previously in TSS was transferred to CS. There is no material impact on the financial data; the prior period was not revised. The commercial card portfolio is excluded from business metrics and supplemental information where noted.
 
(b)   Represents total net revenue less provision for credit losses.
 
(c)   Total period-end loans include loans held-for-sale of $4.0 billion at March 31, 2011. There were no loans held-for-sale at March 31, 2010. No allowance for loan losses was recorded for these loans. Loans held-for-sale are excluded when calculating the allowance for loan losses to period-end loans and delinquency rates. The 30+ day delinquency rate including loans held-for-sale, which is a non-GAAP financial measure, was 3.55% at March 31, 2011. The 90+ day delinquency rate including loans held-for-sale, which is a non-GAAP financial measure, was 1.92% at March 31, 2011.
 
(d)   Total average loans include loans held-for-sale of $3.0 billion for the quarter ended March 31, 2011. There were no loans held-for-sale for the quarter ended March 31, 2010. This amount is excluded when calculating the net charge-off rate. The net charge-off rate including loans held-for-sale, which is a non-GAAP financial measure, was 6.81% for the quarter ended March 31, 2011.
 
(e)   The first quarter of 2011 headcount includes 1,274 employees related to the transfer of the commercial card business from TSS to CS.
 
(f)   Results for the quarter ended March 31, 2010 reflect the impact of fair value accounting adjustments related to the consolidation of the Washington Mutual Master Trust (“WMMT”) in the second quarter of 2009.
 
(g)   Supplemental information is provided for Chase, excluding Washington Mutual and Commercial Card portfolios and including loans held-for-sale, which are non-GAAP financial measures, to provide more meaningful measures that enable comparability with prior periods.

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(h)   For additional information on loan balances, delinquency rates, and net charge-off rates for the Washington Mutual portfolio, see Consumer Credit Portfolio on pages 70—78, and Note 13 on pages 122—138 of this Form 10-Q.
 
(i)   As a percentage of average loans.
COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 82—83 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 5 of this Form 10-Q.
                         
Selected income statement data   Three months ended March 31,
(in millions, except ratios)   2011   2010   Change
 
Revenue
                       
Lending- and deposit-related fees
  $ 264     $ 277       (5 )%
Asset management, administration and commissions
    35       37       (5 )
All other income(a)
    203       186       9  
   
Noninterest revenue
    502       500        
Net interest income
    1,014       916       11  
   
Total net revenue(b)
    1,516       1,416       7  
 
                       
Provision for credit losses
    47       214       (78 )
 
                       
Noninterest expense
                       
Compensation expense
    223       206       8  
Noncompensation expense
    332       324       2  
Amortization of intangibles
    8       9       (11 )
   
Total noninterest expense
    563       539       4  
   
Income before income tax expense
    906       663       37  
Income tax expense
    360       273       32  
   
Net income
  $ 546     $ 390       40  
   
 
                       
Revenue by product
                       
Lending(c)
  $ 837     $ 658       27  
Treasury services(c)
    542       638       (15 )
Investment banking
    110       105       5  
Other
    27       15       80  
   
Total Commercial Banking revenue
  $ 1,516     $ 1,416       7  
 
                       
IB revenue, gross(d)
  $ 309     $ 311       (1 )
 
                       
Revenue by client segment
                       
Middle Market Banking
  $ 755     $ 746       1  
Commercial Term Lending
    286       229       25  
Corporate Client Banking(e)
    290       263       10  
Real Estate Banking
    88       100       (12 )
Other
    97       78       24  
   
Total Commercial Banking revenue
  $ 1,516     $ 1,416       7  
   
 
                       
Financial ratios
                       
Return on common equity
    28 %     20 %        
Overhead ratio
    37       38          
 
(a)   CB client revenue from investment banking products and commercial card transactions is included in all other income.
 
(b)   Total net revenue included tax-equivalent adjustments from income tax credits related to equity investments in designated community development entities that provide loans to qualified businesses in low-income communities as well as tax-exempt income from municipal bond activity of $65 million and $45 million for the three months ended March 31, 2011 and 2010, respectively.
 
(c)   Effective January 1, 2011, product revenue from commercial card and standby letters of credit transactions is included in lending. For the period ending March 31, 2011, the impact of the change was $107 million. In prior quarters, it was reported in treasury services.
 
(d)   Represents the total revenue related to investment banking products sold to CB clients.
 
(e)   Corporate Client Banking was known as Mid-Corporate Banking prior to January 1, 2011.
Quarterly results
Net income was $546 million, an increase of $156 million, or 40%, from the prior year. The increase was driven by a reduction in the provision for credit losses and higher net revenue.
Net revenue was $1.5 billion, up by $100 million, or 7%, from the prior year. Net interest income was $1.0 billion, up by $98 million, or 11%, driven by growth in liability balances, wider loan spreads, and growth in loan balances, partially offset by spread compression on liability products. Noninterest revenue was $502 million, flat compared with the prior year.
Revenue from Middle Market Banking was $755 million, an increase of $9 million, or 1%, from the prior year. Revenue from Commercial Term Lending was $286 million, an increase of $57 million, or 25%. Revenue from Corporate Client Banking (formerly Mid-Corporate Banking) was $290 million, an increase of $27 million, or 10%. Revenue from Real Estate Banking was $88 million, a decrease of $12 million, or 12%.

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The provision for credit losses was $47 million, compared with $214 million in the prior year. Net charge-offs were $31 million (0.13% net charge-off rate) and were largely related to commercial real estate; this compared with net charge-offs of $229 million (0.96% net charge-off rate) in the prior year. The allowance for loan losses to end-of-period loans retained was 2.59%, down from 3.15% in the prior year. Nonaccrual loans were $2.0 billion, down by $1.0 billion, or 35%, from the prior year, reflecting decreases in commercial real estate.
Noninterest expense was $563 million, an increase of $24 million, or 4%, from the prior year, primarily reflecting higher headcount-related expense.
                         
Selected metrics   Three months ended March 31,
(in millions, except headcount and ratios)   2011   2010   Change
 
Selected balance sheet data (period-end):
                       
Loans:
                       
Loans retained
  $ 99,334     $ 95,435       4 %
Loans held-for-sale and loans at fair value
    835       294       184  
             
Total loans
    100,169       95,729       5  
Equity
    8,000       8,000        
Selected balance sheet data (average):
                       
Total assets
  $ 140,400     $ 133,013       6  
Loans:
                       
Loans retained
    98,829       96,317       3  
Loans held-for-sale and loans at fair value
    756       297       155  
             
Total loans
    99,585       96,614       3  
Liability balances
    156,200       133,142       17  
Equity
    8,000       8,000        
Average loans by client segment:
                       
Middle Market Banking
  $ 38,207     $ 33,919       13  
Commercial Term Lending
    37,810       36,057       5  
Corporate Client Banking(a)
    12,374       12,258       1  
Real Estate Banking
    7,607       10,438       (27 )
Other
    3,587       3,942       (9 )
             
Total Commercial Banking loans
  $ 99,585     $ 96,614       3  
 
                       
Headcount
    4,941       4,701       5  
 
                       
Credit data and quality statistics:
                       
Net charge-offs
  $ 31     $ 229       (86 )
Nonperforming assets
                       
Nonaccrual loans:
                       
Nonaccrual loans retained
    1,925       2,947       (35 )
Nonaccrual loans held-for-sale and loans at fair value
    30       49       (39 )
             
Total nonaccrual loans
    1,955       2,996       (35 )
Assets acquired in loan satisfactions
    179       190       (6 )
             
Total nonperforming assets
    2,134       3,186       (33 )
Allowance for credit losses:
                       
Allowance for loan losses(b)
    2,577       3,007       (14 )
Allowance for lending-related commitments
    206       359       (43 )
             
Total allowance for credit losses
    2,783       3,366       (17 )
Net charge-off rate
    0.13 %     0.96 %        
Allowance for loan losses to period-end loans retained
    2.59       3.15          
Allowance for loan losses to nonaccrual loans retained
    134       102          
Nonaccrual loans to total period-end loans
    1.95       3.13          
     
(a)   Corporate Client Banking was known as Mid-Corporate Banking prior to January 1, 2011.
 
(b)   Allowance for loan losses of $360 million and $612 million were held against nonaccrual loans retained for the periods ended March 31, 2011 and 2010, respectively.

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TREASURY & SECURITIES SERVICES
For a discussion of the business profile of TSS, see pages 84—85 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 5 of this Form 10-Q.
                         
Selected income statement data   Three months ended March 31,
(in millions, except headcount and ratios)   2011   2010   Change
 
Revenue
                       
Lending— and deposit—related fees
  $ 303     $ 311       (3 )%
Asset management, administration and commissions
    695       659       5  
All other income
    139       176       (21 )
             
Noninterest revenue
    1,137       1,146       (1 )
Net interest income
    703       610       15  
             
Total net revenue
    1,840       1,756       5  
             
 
                       
Provision for credit losses
    4       (39 )   NM
Credit allocation income/(expense)(a)
    27       (30 )   NM
 
                       
Noninterest expense
                       
Compensation expense
    715       657       9  
Noncompensation expense
    647       650        
Amortization of intangibles
    15       18       (17 )
             
Total noninterest expense
    1,377       1,325       4  
             
Income before income tax expense
    486       440       10  
Income tax expense
    170       161       6  
             
Net income
  $ 316     $ 279       13  
         
 
                       
Revenue by business
                       
Treasury Services
  $ 891     $ 882       1  
Worldwide Securities Services
    949       874       9  
             
Total net revenue
  $ 1,840     $ 1,756       5  
             
 
                       
Revenue by geographic region(b)
                       
Asia/Pacific
  $ 276     $ 219       26  
Latin America/Caribbean
    76       45       69  
Europe/Middle East/Africa
    630       569       11  
North America
    858       923       (7 )
             
Total net revenue
  $ 1,840     $ 1,756       5  
             
 
                       
Trade finance loans by geographic region (period-end)(b)
                       
Asia/Pacific
  $ 14,607     $ 7,679       90  
Latin America/Caribbean
    4,014       2,881       39  
Europe/Middle East/Africa
    5,794       2,163       168  
North America
    1,084       996       9  
             
Total trade finance loans
  $ 25,499     $ 13,719       86  
             
 
                       
Financial ratios
                       
Return on common equity
    18 %     17 %        
Overhead ratio
    75       75          
Pretax margin ratio
    26       25          
 
                       
Selected balance sheet data (period-end)
                       
Loans(c)
  $ 31,020     $ 24,066       29  
Equity
    7,000       6,500       8  
 
                       
Selected balance sheet data (average)
                       
Total assets
  $ 47,873     $ 38,273       25  
Loans(c)
    29,290       19,578       50  
Liability balances
    265,720       247,905       7  
Equity
    7,000       6,500       8  
 
                       
Headcount
    28,040       27,223       3  
 
(a)   IB manages credit exposures related to the GCB on behalf of IB and TSS. Effective January 1, 2011, IB and TSS will share the economics related to the Firm’s GCB clients. Included within this allocation are net revenues, provision for credit losses, as well as expenses. The prior-year period reflected a reimbursement to IB for a portion of the total costs of managing the credit portfolio. IB recognizes this credit allocation as a component of all other income.
 
(b)   Revenue and trade finance loans are based on TSS management’s view of the domicile of clients.
 
(c)   Loan balances include trade finance loans, wholesale overdrafts and commercial card. Effective January 1, 2011, the commercial card loan portfolio (of approximately $1.2 billion) that was previously in TSS was transferred to CS. There is no material impact on the financial data; the prior-year period was not revised.

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Quarterly results
Net income was $316 million, an increase of $37 million, or 13%, from the prior year.
Net revenue was $1.8 billion, an increase of $84 million, or 5%, from the prior year. Worldwide Securities Services net revenue was $949 million, an increase of $75 million, or 9%. The increase was driven by net inflows of assets under custody, higher market levels and higher net interest income. Treasury Services net revenue was $891 million, an increase of $9 million, or 1%. The increase was driven by higher net interest income and higher international trade loan volumes, offset by the transfer of the Commercial Card business to CS in the first quarter of 2011.
TSS generated firmwide net revenue of $2.4 billion, including $1.5 billion by Treasury Services; of that amount, $891 million was recorded in Treasury Services, $542 million in Commercial Banking and $63 million in other lines of business. The remaining $949 million of firmwide net revenue was recorded in Worldwide Securities Services.
Noninterest expense was $1.4 billion, an increase of $52 million, or 4%, from the prior year. The increase was mainly driven by continued investment in new product platforms, primarily related to international expansion, partially offset by the transfer of the Commercial Card business to Card Services.
Results for the current quarter include a $27 million pretax benefit related to the allocation between IB and TSS associated with credit extended to GCB clients. IB manages credit exposures related to the GCB on behalf of IB and TSS. Effective January 1, 2011, IB and TSS will share the economics related to the Firm’s GCB clients.
                         
Selected metrics   Three months ended March 31,
(in millions, except ratios and where otherwise noted)   2011   2010   Change
 
TSS firmwide disclosures
                       
Treasury Services revenue – reported
  $ 891     $ 882       1 %
Treasury Services revenue reported in CB(a)
    542       638       (15 )
Treasury Services revenue reported in other lines of business
    63       56       13  
             
Treasury Services firmwide revenue(b)
    1,496       1,576       (5 )
Worldwide Securities Services revenue
    949       874       9  
             
Treasury & Securities Services firmwide revenue(b)
  $ 2,445     $ 2,450        
 
                       
Treasury Services firmwide liability balances (average)(c)
  $ 339,240     $ 305,105       11  
Treasury & Securities Services firmwide liability balances (average)(c)
    421,920       381,047       11  
 
                       
TSS firmwide financial ratios
                       
Treasury Services firmwide overhead ratio(a)(d)
    56 %     55 %        
Treasury & Securities Services firmwide overhead ratio(a)(d)
    67       65          
 
                       
Firmwide business metrics
                       
Assets under custody (in billions)
  $ 16,619     $ 15,283       9  
 
                       
Number of:
                       
U.S.$ ACH transactions originated
    992       949       5  
Total U.S.$ clearing volume (in thousands)
    30,971       28,669       8  
International electronic funds transfer volume (in thousands)(e)
    60,942       55,754       9  
Wholesale check volume
    532       478       11  
Wholesale cards issued (in thousands)(f)
    23,170       27,352       (15 )
             
 
                       
Credit data and quality statistics
                       
Net charge-offs
  $     $        
Nonaccrual loans
    11       14       (21 )
Allowance for credit losses:
                       
Allowance for loan losses
    69       57       21  
Allowance for lending-related commitments
    48       76       (37 )
             
Total allowance for credit losses
    117       133       (12 )
 
                       
Net charge-off rate
    %     %        
Allowance for loan losses to period-end loans
    0.22       0.24          
Allowance for loan losses to nonaccrual loans
  NM     407          
Nonaccrual loans to period-end loans
    0.04       0.06          
     
(a)   Effective January 1, 2011, certain CB revenues were excluded in the TS firmwide metrics; they are instead directly captured within CB’s lending revenue by product. For the three months ended March 31, 2011, the impact of this change was $107 million. For the three months ended March 31, 2010, these revenues were included in CB’s treasury services revenue by product.
 
(b)   TSS firmwide revenue includes foreign exchange (“FX”) revenue recorded in TSS and FX revenue associated with TSS customers who are FX customers of IB. However, some of the FX revenue associated with TSS customers who are FX customers of IB is not included in TS and TSS

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    firmwide revenue. The total FX revenue generated was $160 million and $137 million for the three months ended March 31, 2011 and 2010, respectively.
 
(c)   Firmwide liability balances include liability balances recorded in CB.
 
(d)   Overhead ratios have been calculated based on firmwide revenue and TSS and TS expense, respectively, including those allocated to certain other lines of business. FX revenue and expense recorded in IB for TSS-related FX activity are not included in this ratio.
 
(e)   International electronic funds transfer includes non-U.S. dollar Automated Clearing House (“ACH”) and clearing volume.
 
(f)   Wholesale cards issued and outstanding include U.S. domestic commercial, stored value, prepaid and government electronic benefit card products. Effective January 1, 2011, the commercial card business was transferred from TSS to CS.
ASSET MANAGEMENT
For a discussion of the business profile of AM, see pages 86–88 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 5 of this Form 10-Q.
                         
Selected income statement data   Three months ended March 31,  
(in millions, except ratios)   2011     2010     Change  
 
Revenue
                       
Asset management, administration and commissions
  $ 1,707     $ 1,508       13 %
All other income
    313       266       18  
             
Noninterest revenue
    2,020       1,774       14  
Net interest income
    386       357       8  
             
Total net revenue
    2,406       2,131       13  
 
                       
Provision for credit losses
    5       35       (86 )
 
                       
Noninterest expense
                       
Compensation expense
    1,039       910       14  
Noncompensation expense
    599       514       17  
Amortization of intangibles
    22       18       22  
             
Total noninterest expense
    1,660       1,442       15  
             
Income before income tax expense
    741       654       13  
Income tax expense
    275       262       5  
             
Net income
  $ 466     $ 392       19  
         
 
                       
Revenue by client segment
                       
Private Banking(a)
  $ 1,317     $ 1,150       15  
Institutional
    549       544       1  
Retail
    540       437       24  
             
Total net revenue
  $ 2,406     $ 2,131       13  
         
Financial ratios
                       
Return on common equity
    29 %     24 %        
Overhead ratio
    69       68          
Pretax margin ratio
    31       31          
     
(a)   Private Banking is a combination of the previously disclosed client segments: Private Bank, Private Wealth Management and JPMorgan Securities.
Quarterly results
Net income was $466 million, an increase of $74 million, or 19%, from the prior year. These results reflected higher net revenue and a lower provision for credit losses, largely offset by higher noninterest expense.
Net revenue was $2.4 billion, an increase of $275 million, or 13%, from the prior year. Noninterest revenue was $2.0 billion, up by $246 million, or 14%, due to the effect of higher market levels, net inflows to products with higher margins and higher loan originations, partially offset by lower performance fees. Net interest income was $386 million, up by $29 million, or 8%, due to higher deposit and loan balances, partially offset by narrower deposit spreads.
Revenue from Private Banking was $1.3 billion, up 15% from the prior year. Revenue from Institutional was $549 million, up 1%. Revenue from Retail was $540 million, up 24%.
The provision for credit losses was $5 million, compared with $35 million in the prior year.
Noninterest expense was $1.7 billion, an increase of $218 million, or 15%, from the prior year, largely resulting from an increase in headcount.

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Business metrics   Three months ended March 31,
(in millions, except headcount, ranking data, and where otherwise noted)   2011   2010   Change
 
Number of:
                       
Client advisors(a)
    2,288       1,998       15 %
Retirement planning services participants (in thousands)
    1,604       1,651       (3 )
JPMorgan Securities brokers
    431       391       10  
 
                       
% of customer assets in 4 & 5 Star Funds(b)
    46 %     43 %     7  
% of AUM in 1st and 2nd quartiles(c)
                       
1 year
    57 %     55 %     4  
3 years
    70 %     67 %     4  
5 years
    77 %     77 %      
 
                       
Selected balance sheet data (period-end)
                       
Loans
  $ 46,454     $ 37,088       25  
Equity
    6,500       6,500        
 
                       
Selected balance sheet data (average)
                       
Total assets
  $ 68,918     $ 62,525       10  
Loans
    44,948       36,602       23  
Deposits
    95,250       80,662       18  
Equity
    6,500       6,500        
 
                       
Headcount
    17,203       15,321       12  
 
                       
Credit data and quality statistics
                       
Net charge-offs
  $ 11     $ 28       (61 )
Nonaccrual loans
    254       475       (47 )
Allowance for credit losses:
                       
Allowance for loan losses
    257       261       (2 )
Allowance for lending-related commitments
    4       13       (69 )
             
Total allowance for credit losses
    261       274       (5 )
 
Net charge-off rate
    0.10 %     0.31 %        
Allowance for loan losses to period-end loans
    0.55       0.70          
Allowance for loan losses to nonaccrual loans
    101       55          
Nonaccrual loans to period-end loans
    0.55       1.28          
     
(a)   Effective January 1, 2011, the methodology used to determine client advisors was revised. The prior period has been revised.
 
(b)   Derived from Morningstar for the U.S., the U.K., Luxembourg, France, Hong Kong and Taiwan; and Nomura for Japan.
 
(c)   Quartile ranking sourced from: Lipper for the U.S. and Taiwan; Morningstar for the U.K., Luxembourg, France and Hong Kong; and Nomura for Japan.

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Assets under supervision
Assets under supervision were $1.9 trillion, an increase of $201 billion, or 12%, from the prior year. Assets under management were $1.3 trillion, an increase of $111 billion, or 9%. Both increases were due to the effect of higher market levels and record net inflows to long-term products, partially offset by net outflows in liquidity products. Custody, brokerage, administration and deposit balances were $578 billion, up by $90 billion, or 18%, due to the effect of higher market levels and custody and brokerage inflows.
                 
ASSETS UNDER SUPERVISION(a) (in billions)            
As of or for the quarter ended March 31,   2011     2010  
 
Assets by asset class
               
Liquidity
  $ 490     $ 521  
Fixed income
    305       246  
Equities and multi-asset
    421       355  
Alternatives
    114       97  
 
Total assets under management
    1,330       1,219  
Custody/brokerage/administration/deposits
    578       488  
 
Total assets under supervision
  $ 1,908     $ 1,707  
 
 
               
Assets by client segment
               
 
               
Private Banking(b)
  $ 293     $ 268  
Institutional
    696       669  
Retail
    341       282  
 
Total assets under management
  $ 1,330     $ 1,219  
 
 
               
Private Banking(b)
  $ 773     $ 666  
Institutional
    697       670  
Retail
    438       371  
 
Total assets under supervision
  $ 1,908     $ 1,707  
 
 
               
Mutual fund assets by asset class
               
Liquidity
  $ 436     $ 470  
Fixed income
    99       76  
Equities and multi-asset
    173       150  
Alternatives
    8       9  
 
Total mutual fund assets
  $ 716     $ 705  
 
(a)   Excludes assets under management of American Century Companies, Inc., in which the Firm had a 40% and 42% ownership at March 31, 2011 and 2010, respectively.
 
(b)   Private Banking is a combination of the previously disclosed client segments: Private Bank, Private Wealth Management and JPMorgan Securities.
                 
    Three months ended March 31,  
(in billions)   2011     2010  
 
Assets under management rollforward
               
Beginning balance, January 1
  $ 1,298     $ 1,249  
Net asset flows:
               
Liquidity
    (9 )     (62 )
Fixed income
    16       16  
Equities, multi-asset and alternatives
    11       6  
Market/performance/other impacts
    14       10  
 
Ending balance, March 31
  $ 1,330     $ 1,219  
 
 
               
Assets under supervision rollforward
               
 
Beginning balance, January 1
  $ 1,840     $ 1,701  
Net asset flows
    31       (10 )
Market/performance/other impacts
    37       16  
 
Ending balance, March 31
  $ 1,908     $ 1,707  
 

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    Three months ended March 31,
International metrics   2011   2010   Change
         
Total net revenue: (in millions)(a)
                       
Asia/Pacific
  $ 246     $ 222       11 %
Latin America/Caribbean
    165       124       33  
Europe/Middle East/Africa
    439       385       14  
North America
    1,556       1,400       11  
             
Total net revenue
  $ 2,406     $ 2,131       13  
 
                       
Assets under management: (in billions)
                       
Asia/Pacific
  $ 115     $ 102       13  
Latin America/Caribbean
    35       26       35  
Europe/Middle East/Africa
    300       265       13  
North America
    880       826       7  
             
Total assets under management
  $ 1,330     $ 1,219       9  
 
                       
Assets under supervision: (in billions)
                       
Asia/Pacific
  $ 155     $ 131       18  
Latin America/Caribbean
    88       66       33  
Europe/Middle East/Africa
    353       310       14  
North America
    1,312       1,200       9  
             
Total assets under supervision
  $ 1,908     $ 1,707       12  
       
(a)   Regional revenue is based on the domicile of clients.

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CORPORATE / PRIVATE EQUITY
For a discussion of the business profile of Corporate/Private Equity, see pages 89—90 of JPMorgan Chase’s 2010 Annual Report.
                         
Selected income statement data   Three months ended March 31,
(in millions, except headcount)   2011   2010   Change
 
Revenue
                       
Principal transactions
  $ 1,298     $ 547       137 %
Securities gains
    102       610       (83 )
All other income
    78       124       (37 )
             
Noninterest revenue
    1,478       1,281       15  
Net interest income(a)
    34       1,076       (97 )
             
Total net revenue(b)
    1,512       2,357       (36 )
 
                       
Provision for credit losses
    (10 )     17     NM
 
                       
Noninterest expense
                       
Compensation expense
    657       475       38  
Noncompensation expense(c)
    1,143       3,041       (62 )
             
Subtotal
    1,800       3,516       (49 )
Net expense allocated to other businesses
    (1,238 )     (1,180 )     (5 )
             
Total noninterest expense
    562       2,336       (76 )
             
Income before income tax expense/(benefit)
    960       4     NM
Income tax expense/(benefit)(d)
    238       (224 )   NM
             
Net income
  $ 722     $ 228       217  
         
 
                       
Total net revenue
                       
Private Equity
  $ 699     $ 115     NM
Corporate
    813       2,242       (64 )
             
Total net revenue
  $ 1,512     $ 2,357       (36 )
         
 
                       
Net income
                       
Private Equity
  $ 383     $ 55     NM
Corporate
    339       173       96  
         
Total net income
  $ 722     $ 228       217  
         
Headcount
    20,927       19,307       8  
 
(a)   Net interest income was $34 million for the three months ended March 31, 2011, a decrease of $1.0 billion from the prior year, primarily driven by lower yields and lower average securities balances due to portfolio repositioning.
 
(b)   Total net revenue included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $64 million and $48 million for the three months ended March 31, 2011 and 2010, respectively.
 
(c)   Includes litigation expense of $363 million and $2.3 billion for the three months ended March 31, 2011 and 2010, respectively.
 
(d)   Income tax in the first quarter of 2010 includes significantly higher tax benefits recognized upon the resolution of tax audits.
Quarterly results
Net income was $722 million, compared with net income of $228 million in the prior year.
Private Equity net income was $383 million, compared with $55 million in the prior year. Net revenue was $699 million, an increase of $584 million, driven by gains on sales and net increases in investment valuations. Noninterest expense was $113 million, an increase of $83 million from the prior year.
Corporate reported net income of $339 million, compared with net income of $173 million in the prior year. Net revenue was $813 million, including $102 million of securities gains. Noninterest expense was $449 million, a decrease of $1.9 billion from the prior year; the prior year included significant additions to litigation reserves.
Treasury and Chief Investment Office (“CIO”)
                         
Selected income statement and   Three months ended March 31,
balance sheet data            
(in millions)   2011   2010   Change
 
Securities gains(a)
  $ 102     $ 610       (83 )%
Investment securities portfolio (average)
    313,319       330,584       (5 )
Investment securities portfolio (ending)
    328,013       337,442       (3 )
Mortgage loans (average)
    11,418       8,162       40  
Mortgage loans (ending)
    12,171       8,368       45  
       
(a)   Reflects repositioning of the Corporate investment securities portfolio.

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For further information on the investment securities portfolio, see Note 3 and Note 11 on pages 94—105 and 116—120, respectively, of this Form 10-Q. For further information on CIO VaR and the Firm’s earnings-at-risk, see the Market Risk Management section on pages 81—84 of this Form 10-Q.
                         
Selected income statement and balance sheet data   Three months ended March 31,
(in millions)   2011   2010   Change
 
Private equity gains/(losses)
                       
Realized gains
  $ 171     $ 113       51 %
Unrealized gains/(losses)(a)
    370       (75 )   NM
             
Total direct investments
    541       38     NM
Third-party fund investments
    186       98       90  
             
Total private equity gains/(losses)(b)
  $ 727     $ 136       435  
 
                         
Private equity portfolio information(c)                  
Direct investments                  
(in millions)   March 31, 2011     December 31, 2010     Change  
 
Publicly held securities
                       
Carrying value
  $ 731     $ 875       (16 )%
Cost
    649       732       (11 )
Quoted public value
    785       935       (16 )
 
                       
Privately held direct securities
                       
Carrying value
    7,212       5,882       23  
Cost
    7,731       6,887       12  
 
                       
Third-party fund investments(d)
                       
Carrying value
    2,179       1,980       10  
Cost
    2,461       2,404       2  
             
Total private equity portfolio
                       
Carrying value
  $ 10,122     $ 8,737       16  
Cost
  $ 10,841     $ 10,023       8  
 
(a)   Unrealized gains/(losses) contain reversals of unrealized gains and losses that were recognized in prior periods and have now been realized.
 
(b)   Included in principal transactions revenue in the Consolidated Statements of Income.
 
(c)   For more information on the Firm’s policies regarding the valuation of the private equity portfolio, see Note 3 on pages 170—187 of JPMorgan Chase’s 2010 Annual Report.
 
(d)   Unfunded commitments to third-party private equity funds were $943 million and $1.0 billion at March 31, 2011, and December 31, 2010, respectively.
The carrying value of the private equity portfolio at March 31, 2011, and December 31, 2010, was $10.1 billion and $8.7 billion, respectively. The increase in the portfolio during the three months ended March 31, 2011, is primarily due to net increases in investment valuations in the portfolio and incremental new investment. The portfolio represented 7.7% and 6.9% of the Firm’s stockholders’ equity less goodwill at March 31, 2011, and December 31, 2010, respectively.

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INTERNATIONAL OPERATIONS
During the three months ended March 31, 2011 and 2010, the Firm reported approximately $6.8 billion of revenue derived from clients, customers and counterparties domiciled outside of North America. Of that amount, approximately 66% and 71%, respectively, was derived from Europe/Middle East/Africa (“EMEA”), approximately 26% and 22%, respectively, from Asia/Pacific, and approximately 8% and 7%, respectively, from Latin America/Caribbean.
The Firm is committed to further expanding its wholesale business activities outside the United States, and it intends to add additional client-serving bankers, as well as more product and sales support personnel, to address the needs of the Firm’s clients located in these regions. With a comprehensive and coordinated international business strategy and growth plan, efforts and investments for growth outside the United States will be accelerated and prioritized.
Set forth below are certain key metrics related to the Firm’s wholesale international operations including, for each of EMEA, Asia/Pacific and Latin America/Caribbean, the number of countries in each such region in which it operates, front office headcount, number of clients, revenue and selected balance sheet data. For additional information regarding international operations, see International Operations on page 91, and Note 33 on page 290 of JPMorgan Chase’s 2010 Annual Report.
                                                 
As of or for the three months ended March 31   EMEA   Asia/Pacific   Latin America/Caribbean
(in millions, except where otherwise noted)   2011   2010   2011   2010   2011   2010
 
Revenue
  $ 4,490     $ 4,760     $ 1,737     $ 1,508     $ 569     $ 480  
Countries with operations
    34       33       16       15       8       8  
Total headcount(a)
    16,268       15,552       19,511       16,825       1,253       889  
Front office headcount
    5,898       5,346       4,126       3,758       503       365  
Significant clients(b)
    944       895       459       398       175       157  
Deposits (average)(c)
  $ 146,559     $ 140,215     $ 47,392     $ 54,002     $ 2,100     $ 1,331  
Loans (period end)(d)
    30,360       26,640       23,144       16,385       17,745       13,294  
Assets under management (in billions)
    300       265       115       102       35       26  
Assets under supervision (in billions)
    353       310       155       131       88       66  
 
Note:   Wholesale international operations is comprised of IB, AM, TSS, CB and CIO/Treasury.
 
(a)   Total headcount includes all employees, including those in service centers, located in the region.
 
(b)   Significant clients are defined as companies with over $1 million in revenue in the region (excludes private banking clients).
 
(c)   Deposits are based on booking location.
 
(d)   Loans outstanding are based predominantly on the domicile of the borrower, and exclude loans held-for-sale and loans carried at fair value.

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BALANCE SHEET ANALYSIS
                 
Selected Consolidated Balance Sheets data (in millions)   March 31, 2011     December 31, 2010  
 
Assets
               
Cash and due from banks
  $ 23,469     $ 27,567  
Deposits with banks
    80,842       21,673  
Federal funds sold and securities purchased under resale agreements
    217,356       222,554  
Securities borrowed
    119,000       123,587  
Trading assets:
               
Debt and equity instruments
    422,404       409,411  
Derivative receivables
    78,744       80,481  
Securities
    334,800       316,336  
Loans
    685,996       692,927  
Allowance for loan losses
    (29,750 )     (32,266 )
 
Loans, net of allowance for loan losses
    656,246       660,661  
Accrued interest and accounts receivable
    79,236       70,147  
Premises and equipment
    13,422       13,355  
Goodwill
    48,856       48,854  
Mortgage servicing rights
    13,093       13,649  
Other intangible assets
    3,857       4,039  
Other assets
    106,836       105,291  
 
Total assets
  $ 2,198,161     $ 2,117,605  
 
 
               
Liabilities
               
Deposits
  $ 995,829     $ 930,369  
Federal funds purchased and securities loaned or sold under repurchase agreements
    285,444       276,644  
Commercial paper
    46,022       35,363  
Other borrowed funds(a)
    36,704       34,325  
Trading liabilities:
               
Debt and equity instruments
    80,031       76,947  
Derivative payables
    61,362       69,219  
Accounts payable and other liabilities
    171,638       170,330  
Beneficial interests issued by consolidated VIEs
    70,917       77,649  
Long-term debt(a)
    269,616       270,653  
 
Total liabilities
    2,017,563       1,941,499  
Stockholders’ equity
    180,598       176,106  
 
Total liabilities and stockholders’ equity
  $ 2,198,161     $ 2,117,605  
 
(a)   Effective January 1, 2011, $23.0 billion of long-term advances from FHLBs were reclassified from other borrowed funds to long-term debt. The prior-year period has been revised to conform with the current presentation. For additional information, see Note 3 and Note 18 on pages 94–105 and 153, respectively, of this Form 10-Q.
Consolidated Balance Sheets overview
JPMorgan Chase’s assets and liabilities increased from December 31, 2010, largely due to a significant increase in deposit inflows toward the end of the first quarter of 2011. The inflows contributed to higher deposits with banks – in particular, balances due from Federal Reserve Banks. A higher level of securities and commercial paper also contributed to the increase in assets and liabilities. The increase in stockholders’ equity predominantly reflected net income for the three months ended March 31, 2011.
The following is a discussion of the significant changes in the specific line captions of the Consolidated Balance Sheets from December 31, 2010. For a description of the specific line captions discussed below, see pages 92–94 of JPMorgan Chase’s 2010 Annual Report.
Deposits with banks; federal funds sold and securities purchased under resale agreements; and securities borrowed
Deposits with banks increased significantly and reflected a higher level of balances due from Federal Reserve Banks; the increase was largely the result of inflows of short-term wholesale deposits from TSS clients toward the end of March 2011 (see deposits discussion for further details). Securities purchased under resale agreements and securities borrowed decreased, largely in IB, reflecting lower client financing needs. For additional information on the Firm’s Liquidity Risk Management, see pages 53–58 of this Form 10-Q.

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Trading assets and liabilities – debt and equity instruments
Trading assets – debt and equity instruments increased, largely driven by growth in customer demand; market activity, including a significant level of new issuances; and rising global indices. Trading liabilities – debt and equity instruments increased, largely due to growth in customer demand, market activity and economic hedging activity. For additional information, refer to Note 3 on pages 94–105 of this Form 10-Q.
Trading assets and liabilities – derivative receivables and payables
Derivative receivables and payables decreased, largely due to a reduction in foreign exchange derivatives, which declined primarily due to the Japanese yen depreciation relative to the U.S. dollar. Interest rate contracts also decreased as a result of higher interest rate yields during the quarter. These items were partially offset by increases in equity derivatives, as a result of growth in activity in the EMEA and Latin American markets, and commodity derivatives, primarily as a result of higher oil prices. For additional information, refer to Derivative contracts on pages 66–67, and Note 3 and Note 5 on pages 94–105 and 107–113, respectively, of this Form 10-Q.
Securities
Securities increased, largely due to repositioning of the portfolio in Corporate, in response to changes in the interest rate environment. The repositioning increased non-U.S. government debt and mortgage-backed securities, increased corporate debt, and reduced U.S. government agency securities. For information related to securities, refer to the Corporate/Private Equity segment on pages 38–39, and Note 3 and Note 11 on pages 94–105 and 116–120, respectively, of this Form 10-Q.
Loans and allowance for loan losses
Loans decreased, reflecting seasonality and higher repayment rates of credit card loans; runoff of the Washington Mutual credit card portfolio; and lower consumer loans, excluding credit card, predominantly as a result of paydowns and charge-offs in RFS. The decrease was offset partially by an increase in wholesale loans, reflecting growth in client activity. The allowance for loan losses decreased, primarily as a result of lower estimated losses in the credit card loan portfolio, as well as wholesale loan sales. For a more detailed discussion of the loan portfolio and the allowance for loan losses, refer to Credit Risk Management on pages 59–81, and Notes 3, 4, 13 and 14 on pages 94–105, 105–106, 122–138 and 139–140, respectively, of this Form 10-Q.
Accrued interest and accounts receivable
Accrued interest and accounts receivable increased, reflecting higher customer receivables in IB’s Prime Services business due to growth in client activity.
Mortgage servicing rights
MSRs decreased, due to changes to inputs and assumptions in the MSR valuation model; these changes resulted in a $1.1 billion decrease in the fair value of the MSR asset related to the estimated impact of higher servicing costs to enhance servicing processes, particularly loan modification and foreclosure procedures, and costs to comply with Consent Orders entered into with banking regulators. This decrease was partially offset by increases related to changes in market interest rates during the quarter. For additional information on MSRs, see Note 3 and Note 16 on pages 94–105 and 149–152, respectively, of this Form 10-Q.
Other intangible assets
The decrease in other intangible assets was predominantly due to amortization. For additional information on other intangible assets, see Note 16 on pages 149–152 of this Form 10-Q.
Deposits
Deposits increased, largely as a result of inflows toward the end of March 2011 of short-term wholesale deposits from TSS clients; also contributing were growth in the level of retail deposits, from the combined effect of seasonal factors, such as tax refunds and bonus payments, and general growth in business volumes. For more information on deposits, refer to the RFS and AM segment discussions on pages 20–27 and 34–37, respectively; the Liquidity Risk Management discussion on pages 53–58; and Note 3 and Note 17 on pages 94–105 and 153, respectively, of this Form 10-Q. For more information on wholesale liability balances, which includes deposits, refer to the CB and TSS segment discussions on pages 30–31 and 32–34, respectively, of this Form 10-Q.
Federal funds purchased and securities loaned or sold under repurchase agreements
Securities sold under repurchase agreements increased, due to higher securities financing balances, in connection with repositioning of the securities portfolio in Corporate. For additional information on the Firm’s Liquidity Risk Management, see pages 53–58 of this Form 10-Q.

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Commercial paper and other borrowed funds
Commercial paper and other borrowed funds increased, due to growth in the volume of liability balances in sweep accounts, in connection with TSS’s cash management product, and modest incremental short-term borrowing by the Firm under cost-effective terms. For additional information on the Firm’s Liquidity Risk Management and other borrowed funds, see pages 53–58, and Note 18 on page 153 of this Form 10-Q.
Beneficial interests issued by consolidated VIEs
Beneficial interests decreased, predominantly due to maturities of Firm-sponsored credit card securitization transactions. For additional information on Firm-sponsored VIEs and loan securitization trusts, see Off–Balance Sheet Arrangements and Contractual Cash Obligations below, and Note 15 on pages 141–149 of this Form 10-Q.
Long-term debt
Long-term debt decreased, due to net repayments of long-term borrowings. For additional information on the Firm’s long-term debt activities, see the Liquidity Risk Management discussion on pages 53–58 of this Form 10-Q.
Stockholders’ equity
Total stockholders’ equity increased, predominantly due to net income and net issuances and commitments to issue under the Firm’s employee stock-based compensation plans. The increase was offset by the declaration of cash dividends on common and preferred stock; a net decrease in accumulated other comprehensive income, due primarily to decreased market value on pass-through agency MBS and agency collateralized mortgage obligations, as well as on foreign government debt, partially offset by the narrowing of spreads on collateralized loan obligations and foreign residential MBS; and stock repurchases.

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OFF–BALANCE SHEET ARRANGEMENTS
JPMorgan Chase is involved with several types of off–balance sheet arrangements, including through special-purpose entities (“SPEs”), which are a type of VIE, and through lending-related financial instruments (e.g., commitments and guarantees). For further discussion, see Off–Balance Sheet Arrangements and Contractual Cash Obligations on pages 95–101 of JPMorgan Chase’s 2010 Annual Report.
Special-purpose entities
SPEs are the most common type of VIE, used in securitization transactions in order to isolate certain assets and distribute related cash flows to investors. SPEs continue to be an important part of the financial markets, including the mortgage- and ABS and commercial paper markets, as they provide market liquidity by facilitating investors’ access to specific portfolios of assets and risks. The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees. For further information on the Firm’s involvement with SPEs, see Note 15 on pages 141–149 of this Form 10-Q; and Note 1 on pages 164–165 and Note 15 on pages 244–259 of JPMorgan Chase’s 2010 Annual Report.
Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.
For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the short-term credit rating of JPMorgan Chase Bank, N.A., were downgraded below specific levels, primarily “P-1,” “A-1” and “F1” for Moody’s, Standard & Poor’s and Fitch, respectively. The aggregate amounts of these liquidity commitments, to both consolidated and nonconsolidated SPEs, were $33.5 billion and $34.2 billion at March 31, 2011, and December 31, 2010, respectively. Alternatively, if JPMorgan Chase Bank, N.A., were downgraded, the Firm could be replaced by another liquidity provider in lieu of providing funding under the liquidity commitment or, in certain circumstances, the Firm could facilitate the sale or refinancing of the assets in the SPE in order to provide liquidity.
Special-purpose entities revenue
The following table summarizes certain revenue information related to consolidated and nonconsolidated VIEs with which the Firm has significant involvement. The revenue reported in the table below primarily represents contractual servicing and credit fee income (i.e., income from acting as administrator, structurer or liquidity provider). It does not include gains and losses from changes in the fair value of trading positions (such as derivative transactions) entered into with VIEs. Those gains and losses are recorded in principal transactions revenue.
                 
Revenue from VIEs and securitization entities(a)   Three months ended March 31,
(in millions)   2011   2010
 
Multi-seller conduits
  $ 48     $ 67  
Investor intermediation
    15       13  
Other securitization entities(b)
    412       544  
 
Total
  $ 475     $ 624  
 
(a)   Includes revenue associated with both consolidated VIEs and significant nonconsolidated VIEs.
 
(b)   Excludes servicing revenue from loans sold to and securitized by third parties.
Off–balance sheet lending-related financial instruments, guarantees and other commitments
JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements. For further discussion of lending-related commitments and guarantees and the Firm’s accounting for them, see Lending-related commitments on page 68 and Note 21 on pages 156–159 of this Form 10-Q; and Lending-related commitments on page 128 and Note 30 on pages 275–280 of JPMorgan Chase’s 2010 Annual Report.

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The following table presents, as of March 31, 2011, the amounts by contractual maturity of off–balance sheet lending-related financial instruments, guarantees and other commitments. The amounts in the table for credit card and home equity lending-related commitments represent the total available credit to borrowers for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products would be used by borrowers at the same time. The Firm can reduce or cancel credit card lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law. The Firm may reduce or close home equity lines of credit when there are significant decreases in the value of the underlying property or when there has been a demonstrable decline in the creditworthiness of the borrower. The accompanying table excludes certain guarantees that do not have a contractual maturity date (e.g., loan sale and securitization-related indemnification obligations). For further information, see discussion of Loan sale and securitization-related indemnification obligations in Note 21 on pages 156–159 of this Form 10-Q, and Loan sale and securitization-related indemnification obligations in Note 30 on pages 275–280 of JPMorgan Chase’s 2010 Annual Report.
Off–balance sheet lending-related financial instruments, guarantees and other commitments
                                                 
    March 31, 2011   Dec. 31, 2010
                    Due after                
            Due after   3 years                
By remaining maturity   Due in 1 year   1 year through   through   Due after            
(in millions)   or less   3 years   5 years   5 years   Total   Total
 
Lending-related
                                               
Consumer, excluding credit card:
                                               
Home equity — senior lien
  $ 697     $ 3,560     $ 5,715     $ 7,434     $ 17,406     $ 17,662  
Home equity — junior lien
    1,407       7,739       10,294       10,706       30,146       30,948  
Prime mortgage
    745                         745       1,266  
Subprime mortgage
                                   
Auto
    5,743       196       1       7       5,947       5,246  
Business banking
    9,093       367       70       278       9,808       9,702  
Student and other
    6       5             497       508       579  
 
Total consumer, excluding credit card
    17,691       11,867       16,080       18,922       64,560       65,403  
 
Credit card
    565,813                         565,813       547,227  
 
Total consumer
    583,504       11,867       16,080       18,922       630,373       612,630  
 
Wholesale:
                                               
Other unfunded commitments to extend credit(a)(b)
    63,549       96,073       41,657       5,400       206,679       199,859  
Standby letters of credit and other financial guarantees(a)(b)(c)(d)
    26,233       44,633       20,091       4,404       95,361       94,837  
Unused advised lines of credit
    39,796       7,412       166       204       47,578       44,720  
Other letters of credit(a)(d)
    3,575       1,972       395       1       5,943       6,663  
 
Total wholesale
    133,153       150,090       62,309       10,009       355,561       346,079  
 
Total lending-related
  $ 716,657     $ 161,957     $ 78,389     $ 28,931     $ 985,934     $ 958,709  
 
Other guarantees and commitments
                                               
Securities lending guarantees(e)
  $ 200,627     $     $     $     $ 200,627     $ 181,717  
Derivatives qualifying as guarantees(f)
    3,416       606       47,348       35,990       87,360       87,768  
Unsettled reverse repurchase and securities borrowing agreements
    47,021                         47,021       39,927  
Other guarantees and commitments(g)
    1,475       235       311       4,352       6,373       6,492  
 
(a)   At March 31, 2011, and December 31, 2010, represented the contractual amount net of risk participations totaling $570 million and $542 million, respectively, for other unfunded commitments to extend credit; $22.8 billion and $22.4 billion, respectively, for standby letters of credit and other financial guarantees; and $1.3 billion and $1.1 billion, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
 
(b)   At March 31, 2011, and December 31, 2010, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other not-for-profit entities of $43.9 billion and $43.4 billion, respectively.
 
(c)   At March 31, 2011, and December 31, 2010, includes unissued standby letters of credit commitments of $41.5 billion and $41.6 billion, respectively.
 
(d)   At March 31, 2011, and December 31, 2010, JPMorgan Chase held collateral relating to $38.0 billion and $37.8 billion, respectively, of standby letters of credit; and $2.0 billion and $2.1 billion, respectively, of collateral related to other letters of credit.
 
(e)   At March 31, 2011, and December 31, 2010, collateral held by the Firm in support of securities lending indemnification agreements totaled $203.4 billion and $185.0 billion, respectively. Securities lending collateral comprises primarily cash, and securities issued by governments that are members of the Organisation for Economic Co-operation and Development (“OECD”) and U.S. government agencies.
 
(f)   Represents the notional amounts of derivative contracts qualifying as guarantees. For further discussion of guarantees, see Note 5 on pages 107–113 and Note 21 on pages 156–159 of this Form 10-Q.
 
(g)   At March 31, 2011, and December 31, 2010, included unfunded commitments of $943 million and $1.0 billion, respectively, to third-party private equity funds; and $1.3 billion and $1.4 billion, respectively, to other equity investments. These commitments included $885 million and $1.0 billion, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3 on pages 94–105 of this Form 10-Q. In addition, at both March 31, 2011, and December 31, 2010, included letters of credit hedged by derivative transactions and managed on a market risk basis of $3.8 billion.

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Repurchase liability
In connection with the Firm’s loan sale and securitization activities with Fannie Mae and Freddie Mac (the “GSEs”) and other loan sale and private-label securitization transactions, the Firm has made representations and warranties that the loans sold meet certain requirements. The Firm may be, and has been, required to repurchase loans and/or indemnify the GSEs and other investors for losses due to material breaches of these representations and warranties; however, predominantly all of the repurchase demands received by the Firm and the Firm’s losses realized to date are related to loans sold to the GSEs.
From 2005 to 2008, excluding Washington Mutual, loans sold to the GSEs subject to certain representations and warranties for which the Firm may be liable were approximately $380 billion; this amount represents the principal amount sold and has not been adjusted for subsequent activity, such as borrower repayments of principal or repurchases completed to date. In addition, from 2005 to 2008, Washington Mutual sold approximately $150 billion of loans to the GSEs subject to certain representations and warranties. Subsequent to the Firm’s acquisition of certain assets and liabilities of Washington Mutual from the FDIC in September 2008, the Firm resolved and/or limited certain current and future repurchase demands for loans sold to the GSEs by Washington Mutual, although it remains the Firm’s position that such obligations remain with the FDIC receivership. For additional information regarding loans sold to the GSEs, see page 98 of JPMorgan Chase’s 2010 Annual Report.
The Firm also sells loans in securitization transactions with Ginnie Mae; these loans are typically insured or guaranteed by a government agency. The Firm, in its role as servicer, may elect to repurchase delinquent loans securitized by Ginnie Mae; however, amounts due under the terms of these repurchased loans continue to be insured and the reimbursement of insured amounts is proceeding normally. Accordingly, the Firm has not recorded any repurchase liability related to these loans.
From 2005 to 2008, the Firm and certain acquired entities made certain loan level representations and warranties in connection with approximately $450 billion of residential mortgage loans that were sold or deposited into private-label securitizations. Of the $450 billion originally sold or deposited (including $165 billion by Washington Mutual, as to which the Firm maintains that certain of the repurchase obligations remain with the FDIC receivership), approximately $185 billion of principal has been repaid (including $65 billion related to Washington Mutual). Approximately $85 billion of the principal has been liquidated (including $30 billion related to Washington Mutual), with an average loss severity of 57%. The remaining outstanding principal balance of these loans (including Washington Mutual) was, as of March 31, 2011, approximately $180 billion of which $65 billion was 60 days or more past due. The remaining outstanding principal balance of loans related to Washington Mutual was approximately $70 billion of which $24 billion were 60 days or more past due. For additional information regarding loans sold to private investors, see page 98 of JPMorgan Chase’s 2010 Annual Report.
To date, loan-level repurchase demands in private-label securitizations have been limited. As a result, the Firm’s repurchase reserve primarily relates to loan sales to the GSEs and is predominantly calculated based on the Firm’s repurchase activity experience with the GSEs. While it is possible that the volume of repurchase demands in private-label securitizations will increase in the future, the Firm cannot offer a reasonable estimate of those future demands based on historical experience to date. To the extent that repurchase demands are received related to loans that the Firm purchased from third parties that remain viable, the Firm typically will have the right to seek a recovery of related repurchase losses from the related third party. Thus far, claims related to private-label securitizations (including claims from insurers that have guaranteed certain obligations of the securitization trusts) have generally manifested themselves through securities-related litigation. The Firm separately evaluates its exposure to such litigation in establishing its litigation reserves. For additional information regarding litigation, see Note 23 on pages 160–169 of this Form 10-Q.

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Estimated Repurchase Liability
To estimate the Firm’s repurchase liability arising from breaches of representations and warranties, the Firm considers:
(i)   the level of current unresolved repurchase demands and mortgage insurance rescission notices,
 
(ii)   estimated probable future repurchase demands considering historical experience,
 
(iii)   the potential ability of the Firm to cure the defects identified in the repurchase demands (“cure rate”),
 
(iv)   the estimated severity of loss upon repurchase of the loan or collateral, make-whole settlement, or indemnification,
 
(v)   the Firm’s potential ability to recover its losses from third-party originators, and
 
(vi)   the terms of agreements with certain mortgage insurers and other parties.
Based on these factors, the Firm has recognized a repurchase liability of $3.5 billion and $3.3 billion as of March 31, 2011, and December 31, 2010, respectively. For further discussion of the repurchase demand process and the approach used by the Firm to estimate the repurchase liability, see Repurchase liability on pages 98–101 of JPMorgan Chase’s 2010 Annual Report.
The following table provides information about outstanding repurchase demands and mortgage insurance rescission notices, excluding those related to Washington Mutual, at each of the past five quarter-end dates.
Outstanding repurchase demands and mortgage insurance rescission notices by counterparty type
                                         
    March 31,     December 31,     September 30,     June 30,     March 31,  
(in millions)   2011     2010     2010     2010     2010  
 
GSEs and other
  $ 1,114     $ 1,071     $ 1,063     $ 1,331     $ 1,358  
Mortgage insurers
    677       624       556       998       1,090  
Overlapping population(a)
    (83 )     (63 )     (69 )     (220 )     (232 )
 
Total
  $ 1,708     $ 1,632     $ 1,550     $ 2,109     $ 2,216  
 
(a)   Because the GSEs may make repurchase demands based on mortgage insurance rescission notices that remain unresolved, certain loans may be subject to both an unresolved mortgage insurance rescission notice and an unresolved repurchase demand.
The following tables show the trend in repurchase demands and mortgage insurance rescission notices received by loan origination vintage, excluding those related to Washington Mutual, for the past five quarters. While repurchase demands declined in the first quarter of 2011 relative to preceding quarters, the Firm does not believe that this represents a trend; instead, the Firm expects repurchase demands to remain at elevated levels.
Quarterly repurchase demands received by loan origination vintage
                                         
    March 31,     December 31,     September 30,     June 30,     March 31,  
(in millions)   2011     2010     2010     2010     2010  
 
Pre-2005
  $ 15     $ 38     $ 31     $ 35     $ 16  
2005
    40       72       67       94       50  
2006
    137       195       185       234       189  
2007
    367       537       498       521       403  
2008
    249       254       191       186       98  
Post-2008
    94       65       46       53       20  
 
Total repurchase demands received
  $ 902     $ 1,161     $ 1,018     $ 1,123     $ 776  
 
Quarterly mortgage insurance rescission notices received by loan origination vintage
                                         
    March 31,     December 31,     September 30,     June 30,     March 31,  
(in millions)   2011     2010     2010     2010     2010  
 
Pre-2005
  $ 4     $ 3     $ 4     $ 4     $ 2  
2005
    30       7       5       7       18  
2006
    49       40       39       39       57  
2007
    125       113       105       155       203  
2008
    49       49       44       52       60  
Post-2008
    1       1                    
 
Total mortgage insurance rescissions received(a)
  $ 258     $ 213     $ 197     $ 257     $ 340  
 
(a)   Mortgage insurance rescissions may ultimately result in a repurchase demand from the GSEs on a lagged basis. This table includes mortgage insurance rescissions where the GSEs have also issued a repurchase demand.

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Because the Firm has demonstrated an ability to cure certain types of defects more frequently than others (e.g., missing documents), trends in the types of defects identified as well as the Firm’s historical data are considered in estimating the future cure rate. Since the beginning of 2010, the Firm’s overall cure rate, excluding Washington Mutual, has been approximately 50%. While the actual cure rate may vary from quarter to quarter, the Firm expects that the overall cure rate will remain in the 40—50% range for the foreseeable future.
The Firm has not observed a direct relationship between the type of defect that causes the breach of representations and warranties and the severity of the realized loss. Therefore, the loss severity assumption is estimated using the Firm’s historical experience and projections regarding home price appreciation. Actual loss severities on finalized repurchases and “make-whole” settlements to date, excluding any related to Washington Mutual, currently average approximately 50%, but may vary from quarter to quarter based on the characteristics of the underlying loans and changes in home prices.
When a loan was originated by a third-party correspondent, the Firm typically has the right to seek a recovery of related repurchase losses from the correspondent originator. Correspondent-originated loans comprise approximately 40% of loans underlying outstanding repurchase demands, excluding those related to Washington Mutual. The actual third-party recovery rate may vary from quarter to quarter based upon the underlying mix of correspondents (e.g., active, inactive, out-of-business originators) from which recoveries are being sought.
Substantially all of the estimates and assumptions underlying the Firm’s established methodology for computing its recorded repurchase liability—including the amount of probable future demands from purchasers (which is in part based on the historical experience), the ability of the Firm to cure identified defects, the severity of loss upon repurchase or foreclosure and recoveries from third parties—require application of a significant level of management judgment. Estimating the repurchase liability is further complicated by limited and rapidly changing historical data and uncertainty surrounding numerous external factors, including: (i) economic factors (for example, further declines in home prices and changes in borrower behavior may lead to increases in the number of defaults, the severity of losses, or both), and (ii) the level of future demands, which is dependent, in part, on actions taken by third parties, such as the GSEs and mortgage insurers. While the Firm uses the best information available to it in estimating its repurchase liability, the estimation process is inherently uncertain, imprecise and potentially volatile as additional information is obtained and external factors continue to evolve.
The following table summarizes the change in the repurchase liability for each of the periods presented.
Summary of changes in repurchase liability
                 
Three months ended March 31, (in millions)   2011   2010
 
Repurchase liability at beginning of period
  $ 3,285     $ 1,705  
Realized losses(a)
    (231 )     (246 )
Provision for repurchase losses
    420       523  
 
Repurchase liability at end of period
  $ 3,474     $ 1,982  
 
(a)   Includes principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expenses. Make-whole settlements were $115 million and $105 million at March 31, 2011 and 2010, respectively.
The following table summarizes the total unpaid principal balance of repurchases during the periods indicated.
Unpaid principal balance of loan repurchases(a)
                 
Three months ended March 31, (in millions)   2011   2010
 
Ginnie Mae(b)
  $ 1,485     $ 2,010  
GSEs and other(c)(d)
    212       322  
 
Total
  $ 1,697     $ 2,332  
 
(a)   Excludes mortgage insurers. While the rescission of mortgage insurance may ultimately trigger a repurchase demand, the mortgage insurers themselves do not present repurchase demands to the Firm.
 
(b)   In substantially all cases, these repurchases represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools or packages as permitted by Ginnie Mae guidelines (i.e., they do not result from repurchase demands due to breaches of representations and warranties). In certain cases, the Firm repurchases these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, the FHA, RHA and/or the VA.
 
(c)   Predominantly all of the repurchases related to GSEs.
 
(d)   Nonaccrual loans held-for-investment included $347 million and $270 million at March 31, 2011 and 2010, respectively, of loans repurchased as a result of breaches of representations and warranties.

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CAPITAL MANAGEMENT
The following discussion of JPMorgan Chase’s capital management highlights developments since December 31, 2010, and should be read in conjunction with Capital Management on pages 102–106 of JPMorgan Chase’s 2010 Annual Report.
The Firm’s capital management objectives are to hold capital sufficient to:
  Cover all material risks underlying the Firm’s business activities;
 
  Maintain “well-capitalized” status under regulatory requirements;
 
  Achieve debt rating targets;
 
  Retain flexibility to take advantage of future investment opportunities; and
 
  Build and invest in businesses, even in a highly stressed environment.
Regulatory capital
The Board of Governors of the Federal Reserve System (the “Federal Reserve”) establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The Office of the Comptroller of the Currency (“OCC”) establishes similar capital requirements and standards for the Firm’s national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. As of March 31, 2011, and December 31, 2010, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and met all capital requirements to which each was subject.
The following table presents the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase and its significant banking subsidiaries at March 31, 2011, and December 31, 2010. These amounts are determined in accordance with regulations issued by the Federal Reserve and/or OCC.
                                                                 
    JPMorgan Chase & Co.(i)   JPMorgan Chase Bank, N.A.(i)   Chase Bank USA, N.A.(i)        
                                                    Well-   Minimum
(in millions,   March 31,   Dec. 31,   March 31,   Dec. 31,   March 31,   Dec. 31,   capitalized   capital
except ratios)   2011   2010   2011   2010   2011   2010   ratios(j)   ratios(j)
 
Regulatory capital
                                                               
Tier 1(a)
  $ 147,234     $ 142,450     $ 92,594     $ 91,764     $ 13,330     $ 12,966                  
Total
    186,417       182,216       131,545       130,444       16,881       16,659                  
Tier 1 common(b)
    119,598       114,763       91,810       90,981       13,330       12,966                  
Assets
                                                               
Risk-weighted(c)(d)
    1,192,536       1,174,978       980,051       965,897       107,160       116,992                  
Adjusted average(e)
    2,041,153       2,024,515       1,621,263       1,611,486       112,349       117,368                  
Capital ratios
                                                               
Tier 1(a)(f)
    12.3 %     12.1 %     9.4 %     9.5 %     12.4 %     11.1 %     6.0 %     4.0 %
Total(g)
    15.6       15.5       13.4       13.5       15.8       14.2       10.0       8.0  
Tier 1 leverage(h)
    7.2       7.0       5.7       5.7       11.9       11.0       5.0 (k)     3.0 (l)
Tier 1 common(b)
    10.0       9.8       9.4       9.4       12.4       11.1     NA   NA
 
(a)   At March 31, 2011, for JPMorgan Chase and JPMorgan Chase Bank, N.A., trust preferred capital debt securities were $19.7 billion and $600 million, respectively. If these securities were excluded from the calculation at March 31, 2011, Tier 1 capital would be $127.5 billion and $92.0 billion, respectively, and the Tier 1 capital ratio would be 10.7% and 9.4%, respectively. At March 31, 2011, Chase Bank USA, N.A. had no trust preferred capital debt securities.
 
(b)   The Tier 1 common ratio is Tier 1 common capital divided by risk-weighted assets. Tier 1 common capital is defined as Tier 1 capital less elements of capital not in the form of common equity, such as perpetual preferred stock, noncontrolling interests in subsidiaries, and trust preferred capital debt securities. Tier 1 common capital, a non-GAAP financial measure, is used by banking regulators, investors and analysts to assess and compare the quality and composition of the Firm’s capital with the capital of other financial services companies. The Firm uses Tier 1 common capital along with the other capital measures to assess and monitor its capital position.
 
(c)   Risk-weighted assets consist of on– and off–balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default. On–balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any. Off–balance sheet assets such as lending-related commitments, guarantees, derivatives and other off–balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on–balance sheet credit-equivalent amount, which is then risk-weighted based on the same factors used for on–balance sheet assets. Risk-weighted assets also incorporate a measure for the market risk related to applicable trading assets–debt and equity instruments, and foreign exchange and commodity derivatives. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets.
 
(d)   Includes off–balance sheet risk-weighted assets at March 31, 2011, of $294.6 billion, $283.3 billion and $31 million, and at December 31, 2010, of $282.9 billion, $274.2 billion and $31 million, for JPMorgan Chase, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., respectively.
 
(e)   Adjusted average assets, for purposes of calculating the leverage ratio, include total quarterly average assets adjusted for unrealized gains/(losses) on securities, less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity investments that are subject to deductions from Tier 1 capital.
 
(f)   Tier 1 capital ratio is Tier 1 capital divided by risk-weighted assets. Tier 1 capital consists of common stockholders’ equity, perpetual preferred stock, noncontrolling interests in subsidiaries, and trust preferred capital debt securities, less goodwill and certain other adjustments.

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(g)   Total capital ratio is Total capital divided by risk-weighted assets. Total capital is Tier 1 capital plus Tier 2 capital. Tier 2 capital consists of preferred stock not qualifying as Tier 1, subordinated long-term debt and other instruments qualifying as Tier 2, and the aggregate allowance for credit losses up to a certain percentage of risk-weighted assets.
 
(h)   Tier 1 leverage ratio is Tier 1 capital divided by adjusted quarterly average assets.
 
(i)   Asset and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions.
 
(j)   As defined by the regulations issued by the Federal Reserve, OCC and FDIC.
 
(k)   Represents requirements for banking subsidiaries pursuant to regulations issued under the FDIC Improvement Act. There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company.
 
(l)   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 for deferred tax liabilities, which have resulted from both nontaxable business combinations and from tax-deductible goodwill. At March 31, 2011, and December 31, 2010, the Firm had deferred tax liabilities resulting from nontaxable business combinations totaling $610 million and $647 million, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $2.0 billion and $1.9 billion, respectively.
A reconciliation of Total stockholders’ equity to Tier 1 common capital, Tier 1 capital and Total qualifying capital is presented in the table below.
                 
Risk-based capital components and assets   March 31,   December 31,
(in millions)   2011   2010
 
Total stockholders’ equity
  $ 180,598     $ 176,106  
Less: Preferred stock
    7,800       7,800  
 
Common stockholders’ equity
    172,798       168,306  
Effect of certain items in accumulated other comprehensive income/(loss) excluded from Tier 1 common equity
    (434 )     (748 )
Less: Goodwill(a)
    46,863       46,915  
Fair value DVA on derivative and structured note liabilities related to the Firm’s credit quality
    1,236       1,261  
Investments in certain subsidiaries and other
    1,184       1,032  
Other intangible assets(a)
    3,483       3,587  
 
Tier 1 common
    119,598       114,763  
 
Preferred stock
    7,800       7,800  
Qualifying hybrid securities and noncontrolling interests(b)
    19,836       19,887  
 
Total Tier 1 capital
    147,234       142,450  
 
Long-term debt and other instruments qualifying as Tier 2
    24,250       25,018  
Qualifying allowance for credit losses
    15,152       14,959  
Adjustment for investments in certain subsidiaries and other
    (219 )     (211 )
 
Total Tier 2 capital
    39,183       39,766  
 
Total qualifying capital
  $ 186,417     $ 182,216  
 
Risk-weighted assets
  $ 1,192,536     $ 1,174,978  
 
Total adjusted average assets
  $ 2,041,153     $ 2,024,515  
 
(a)   Goodwill and other intangible assets are net of any associated deferred tax liabilities.
 
(b)   Primarily includes trust preferred capital debt securities of certain business trusts.
The Firm’s Tier 1 common capital was $119.6 billion at March 31, 2011, compared with $114.8 billion at December 31, 2010, an increase of $4.8 billion. The increase was predominantly due to net income (adjusted for DVA) of $5.6 billion, and net issuances and commitments to issue common stock under the Firm’s employee stock-based compensation plans of $532 million. The increase was partially offset by $1.2 billion of dividends on common and preferred stock and $95 million of repurchases of common stock. The Firm’s Tier 1 capital was $147.2 billion at March 31, 2011, compared with $142.5 billion at December 31, 2010, an increase of $4.7 billion. The increase in Tier 1 capital reflected the increase in Tier 1 common. Additional information regarding the Firm’s capital ratios and the federal regulatory capital standards to which it is subject is presented in Note 29 on pages 273–274 of JPMorgan Chase’s 2010 Annual Report.
Basel II
The minimum risk-based capital requirements adopted by the U.S. federal banking agencies follow the Capital Accord of the Basel Committee on Banking Supervision (“Basel I”). In 2004, the Basel Committee published a revision to the Accord (“Basel II”). The goal of the Basel II Framework is to provide more risk-sensitive regulatory capital calculations and promote enhanced risk management practices among large, internationally active banking organizations. U.S. banking regulators published a final Basel II rule in December 2007, which requires JPMorgan Chase to implement Basel II at the holding company level, as well as at certain of its key U.S. bank subsidiaries.

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Prior to full implementation of the new Basel II Framework, JPMorgan Chase is required to complete a qualification period of four consecutive quarters during which it needs to demonstrate that it meets the requirements of the rule to the satisfaction of its primary U.S. banking regulators. JPMorgan Chase is currently in the qualification period and expects to be in compliance with all relevant Basel II rules within the established timelines. In addition, the Firm has adopted, and will continue to adopt, based on various established timelines, Basel II rules in certain non-U.S. jurisdictions, as required.
Basel III
In addition to the Basel II Framework, on December 16, 2010, the Basel Committee issued the final version of the Capital Accord, called “Basel III”, which revised Basel II by among other things, narrowing the definition of capital, increasing capital requirements for specific exposures, introducing short-term liquidity coverage and term funding standards, and establishing an international leverage ratio. The Basel Committee also announced higher capital ratio requirements under Basel III which provide that the common equity requirement will be increased to 7%, comprised of a minimum of 4.5% plus a 2.5% capital conservation buffer.
In addition, the U.S. federal banking agencies have published for public comment proposed risk-based capital floors pursuant to the requirements of the Dodd-Frank Act to establish a permanent Basel I floor under Basel II / Basel III capital calculations.
The Firm fully expects to be in compliance with the higher Basel III capital standards when they become effective on January 1, 2019, as well as any additional Dodd-Frank Act capital requirements when they are implemented. The Firm estimates that its Tier 1 common ratio under Basel III rules (including the changes for calculating capital on trading assets and securitizations) would be 7.3% as of March 31, 2011. Management considers this estimate, which is a non-GAAP financial measure, as a key measure to assess the Firm’s capital position in conjunction with its capital ratios under Basel I requirements, in order to enable management, investors and analysts to compare the Firm’s capital under the Basel III capital standards with similar estimates provided by other financial services companies.
The Firm’s estimate of its Tier 1 common ratio under Basel III reflect its current understanding of the Basel III rules and the application of such rules to its businesses as currently conducted. The Firm’s understanding of the Basel III rules are based upon information currently published by the Basel Committee and U.S. federal banking agencies. Accordingly, the Firm’s estimates will evolve over time as the Firm’s businesses change, and as a result of further rule-making on Basel III implementation from U.S. federal banking agencies. The Firm also believes it may need to modify the liquidity profile of its assets and liabilities in response to the short-term liquidity coverage and term funding standards contained in Basel III. Management believes that the basis for its calculation of its estimates of Tier 1 common capital and risk-weighted assets under Basel III rules differs so significantly from the current Tier 1 capital and risk-weighted assets calculation under the Basel I rules that numerical reconciliation between the two calculations would not be meaningful.
The Basel III revisions governing liquidity and capital requirements are subject to prolonged observation and transition periods. The observation periods for both the liquidity coverage ratio and term funding standards begin in 2011, with implementation in 2015 and 2018, respectively. The transition period for banks to meet the revised common equity requirement will begin in 2013, with implementation on January 1, 2019. The Firm will continue to monitor the ongoing rule-making process to assess both the timing and the impact of Basel III on its businesses and financial condition.
Broker-dealer regulatory capital
JPMorgan Chase’s principal U.S. broker-dealer subsidiaries are J.P. Morgan Securities LLC (“JPMorgan Securities”), and J.P. Morgan Clearing Corp. (“JPMorgan Clearing”). JPMorgan Clearing is a subsidiary of JPMorgan Securities and provides clearing and settlement services. JPMorgan Securities and JPMorgan Clearing are each subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Net Capital Rule”). JPMorgan Securities and JPMorgan Clearing are also registered as futures commission merchants and subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”).
JPMorgan Securities and JPMorgan Clearing have elected to compute their minimum net capital requirements in accordance with the “Alternative Net Capital Requirements” of the Net Capital Rule. At March 31, 2011, JPMorgan Securities’ net capital, as defined by the Net Capital Rule, was $7.8 billion, exceeding the minimum requirement by $7.3 billion; and JPMorgan Clearing’s net capital was $6.1 billion, exceeding the minimum requirement by $4.2 billion.
In addition to its minimum net capital requirement, JPMorgan Securities is required to hold tentative net capital in excess of $1.0 billion and is also required to notify the Securities and Exchange Commission (“SEC”) in the event that tentative net capital is less than $5.0 billion, in accordance with the market and credit risk standards of Appendix E of the Net Capital Rule. As of March 31, 2011, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements.

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Economic risk capital
JPMorgan Chase assesses its capital adequacy relative to the risks underlying its business activities, using internal risk-assessment methodologies. The Firm measures economic capital primarily based on four risk factors: credit, market, operational and private equity risk.
                         
Economic risk capital   Quarterly Averages
(in billions)   1Q11   4Q10   1Q10
 
Credit risk
  $ 48.6     $ 50.9     $ 49.3  
Market risk
    15.1       14.9       13.8  
Operational risk
    8.3       7.3       7.4  
Private equity risk
    7.2       6.9       5.2  
 
Economic risk capital
    79.2       80.0       75.7  
Goodwill
    48.8       48.8       48.6  
Other(a)
    41.4       38.0       31.8  
 
Total common stockholders’ equity
  $ 169.4     $ 166.8     $ 156.1  
 
(a)   Reflects additional capital required, in the Firm’s view, to meet its regulatory and debt rating objectives.
Line of business equity
Equity for a line of business represents the amount the Firm believes the business would require if it were operating independently, incorporating sufficient capital to address regulatory capital requirements (including Basel III Tier 1 common capital requirements) economic risk measures, and capital levels for similarly rated peers. Capital is also allocated to each line of business for, among other things, goodwill and other intangibles associated with acquisitions effected by the line of business. ROE is measured and internal targets for expected returns are established as key measures of a business segment’s performance. Effective January 1, 2011, capital allocated to CS was reduced by $2.0 billion, to $13.0 billion, largely reflecting portfolio runoff and the improving risk profile of the business; capital allocated to TSS was increased by $500 million, to $7.0 billion, reflecting growth in the underlying business. The Firm continues to assess the level of capital required for each line of business, as well as the assumptions and methodologies used to allocate capital to the business segments, and further refinements may be implemented in future periods.
                 
Line of business equity        
(in billions)   March 31, 2011   December 31, 2010
 
Investment Bank
  $ 40.0     $ 40.0  
Retail Financial Services
    28.0       28.0  
Card Services
    13.0       15.0  
Commercial Banking
    8.0       8.0  
Treasury & Securities Services
    7.0       6.5  
Asset Management
    6.5       6.5  
Corporate/Private Equity
    70.3       64.3  
 
Total common stockholders’ equity
  $ 172.8     $ 168.3  
 
                         
Line of business equity   Quarterly Averages
(in billions)   1Q11   4Q10   1Q10
 
Investment Bank
  $ 40.0     $ 40.0     $ 40.0  
Retail Financial Services
    28.0       28.0       28.0  
Card Services
    13.0       15.0       15.0  
Commercial Banking
    8.0       8.0       8.0  
Treasury & Securities Services
    7.0       6.5       6.5  
Asset Management
    6.5       6.5       6.5  
Corporate/Private Equity
    66.9       62.8       52.1  
 
Total common stockholders’ equity
  $ 169.4     $ 166.8     $ 156.1  
 
Capital actions
Dividends
On March 18, 2011, the Board of Directors increased the Firm’s quarterly common stock dividend from $0.05 to $0.25 per share, effective with the dividend paid on April 30, 2011, to shareholders of record on April 6, 2011. The Firm’s common stock dividend policy reflects JPMorgan Chase’s earnings outlook; desired dividend payout ratio; capital objectives of maintaining a Basel I Tier 1 common ratio of at least 9.0% and meeting Basel III requirements substantially ahead of time; and alternative investment opportunities. The Firm’s current expectation is to return to a payout ratio of approximately 30% of normalized earnings over time. When management and the Board determine that it is appropriate to consider further increasing the common stock dividend, the Firm expects to review those plans with its regulators

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before taking action. For a further discussion of the Firm’s dividend payments, see Dividends on page 106 of JPMorgan Chase’s 2010 Annual Report.
Stock repurchases
On March 18, 2011, the Board of Directors authorized the repurchase of up to $15.0 billion of the Firm’s common stock, of which up to $8.0 billion is approved for 2011. The authorization commenced on March 22, 2011, and replaced the Firm’s previous $10.0 billion repurchase program. During the three months ended March 31, 2011, the Firm repurchased an aggregate of 2 million shares for $95 million at an average price per share of $45.66. For the four months ended April 30, 2011, the Firm has repurchased an aggregate of 18 million shares for $820 million at an average price per share of $45.11. As of March 31, 2011, $14.9 billion of authorized repurchase capacity remained, of which $7.9 billion of approved capacity remains for use during 2011.
Management and the Board will continue to assess and make decisions regarding alternatives for deploying capital, as appropriate, over the course of the year. Any planned use of the repurchase program over the repurchases approved for 2011, will be reviewed by the Firm with the banking regulators before taking action. For a further discussion of the Firm’s stock repurchase program, see Stock repurchases on page 106 of JPMorgan Chase’s 2010 Annual Report.
The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common stock — for example during internal trading “black-out periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on pages 181–182 of this Form 10-Q.
RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s business activities. The Firm’s risk management framework and governance structure are intended to provide comprehensive controls and ongoing management of the major risks inherent in its business activities. The Firm employs a holistic approach to risk management to ensure the broad spectrum of risk types are considered in managing its business activities. The Firm’s risk management framework is intended to create a culture of risk awareness and personal responsibility throughout the Firm where collaboration, discussion, escalation and sharing of information is encouraged.
The Firm’s overall risk appetite is established in the context of the Firm’s capital, earnings power, and diversified business model. The Firm employs a formalized risk appetite framework to clearly link risk appetite and return targets, controls and capital management. There are eight major types of risk identified in the business activities of the Firm: liquidity, credit, market, interest rate, operational, legal and reputation, fiduciary, and private equity risk.
For further discussion of these risks, as well as how they are managed by the Firm, see Risk Management on pages 107–109 of JPMorgan Chase’s 2010 Annual Report and the information below.
LIQUIDITY RISK MANAGEMENT
The following discussion of JPMorgan Chase’s liquidity risk management framework highlights developments since December 31, 2010, and should be read in conjunction with pages 110–115 of JPMorgan Chase’s 2010 Annual Report.
The ability to maintain surplus levels of liquidity through economic cycles is crucial to financial services companies, particularly during periods of adverse conditions. The Firm’s funding strategy is intended to ensure liquidity and diversity of funding sources to meet actual and contingent liabilities through both normal and stress periods.
JPMorgan Chase’s primary sources of liquidity include a diversified deposit base, which was $995.8 billion at March 31, 2011, and access to the equity capital markets and long-term unsecured and secured funding sources, including through asset securitizations and borrowings from FHLBs. Additionally, JPMorgan Chase maintains significant amounts of highly liquid, unencumbered assets. The Firm actively monitors the availability of funding in the wholesale markets across various geographic regions and in various currencies. The Firm’s ability to generate funding from a broad range of sources in a variety of geographic locations and in a range of tenors is intended to enhance financial flexibility and limit funding concentration risk.

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Management considers the Firm’s liquidity position to be strong, based on its liquidity metrics as of March 31, 2011, and believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on— and off—balance sheet obligations. The Firm was able to access the funding markets as needed during the three months ended March 31, 2011.
Governance
The Firm’s governance process is designed to ensure that its liquidity position remains strong. The Asset-Liability Committee reviews and approves the Firm’s liquidity policy and contingency funding plan. Corporate Treasury formulates and is responsible for executing the Firm’s liquidity policy and contingency funding plan as well as measuring, monitoring, reporting and managing the Firm’s liquidity risk profile. JPMorgan Chase centralizes the management of global funding and liquidity risk within Corporate Treasury to maximize liquidity access, minimize funding costs and enhance global identification and coordination of liquidity risk. This centralized approach involves frequent communication with the business segments, disciplined management of liquidity at the parent holding company, comprehensive market-based pricing of all assets and liabilities, continuous balance sheet monitoring, frequent stress testing of liquidity sources, and frequent reporting to and communication with senior management and the Board of Directors regarding the Firm’s liquidity position.
Liquidity monitoring
The Firm employs a variety of metrics to monitor and manage liquidity. One set of analyses used by the Firm relates to the timing of liquidity sources versus liquidity uses (e.g., funding gap analysis and parent holding company funding, as discussed below). A second set of analyses focuses on measurements of the Firm’s reliance on short-term unsecured funding as a percentage of total liabilities, as well as the relationship of short-term unsecured funding to highly liquid assets, the deposits-to-loans ratio and other balance sheet measures.
The Firm performs regular liquidity stress tests as part of its liquidity monitoring. The purpose of the liquidity stress tests is intended to ensure sufficient liquidity for the Firm under both idiosyncratic and systemic market stress conditions. These scenarios measure the Firm’s liquidity position across a full-year horizon by analyzing the net funding gaps resulting from contractual and contingent cash and collateral outflows versus the Firm’s ability to generate additional liquidity by pledging or selling excess collateral and issuing unsecured debt. The scenarios are produced for the parent holding company and major bank subsidiaries as well as the Firm’s major U.S. broker-dealer subsidiaries.
The idiosyncratic stress scenario employed by the Firm is a JPMorgan Chase-specific event that evaluates the Firm’s net funding gap after a short-term ratings downgrade to A-2/P-2. The systemic market stress scenario evaluates the Firm’s net funding gap during a period of severe market stress similar to market conditions in 2008 and assumes the Firm is not uniquely stressed versus its peers. The Firm’s liquidity position is strong under the Firm-defined stress scenarios described above.
Parent holding company
Liquidity monitoring of the parent holding company takes into consideration regulatory restrictions that limit the extent to which bank subsidiaries may extend credit to the parent holding company and other nonbank subsidiaries. Excess cash generated by parent holding company issuance activity is used to purchase liquid collateral through reverse repurchase agreements or is placed with both bank and nonbank subsidiaries in the form of deposits and advances to satisfy a portion of subsidiary funding requirements. The Firm’s liquidity management is also intended to ensure that its subsidiaries have the ability to generate replacement funding in the event the parent holding company requires repayment of the aforementioned deposits and advances.
The Firm closely monitors the ability of the parent holding company to meet all of its obligations with liquid sources of cash or cash equivalents for an extended period of time without access to the unsecured funding markets. The Firm targets pre-funding of parent holding company obligations for at least 12 months; however, due to conservative liquidity management actions taken by the Firm in the current environment, the current pre-funding of such obligations is significantly greater than target.
Global Liquidity Reserve
In addition to the parent holding company, the Firm maintains a significant amount of liquidity — primarily at its bank subsidiaries, but also at its nonbank subsidiaries. The Global Liquidity Reserve represents consolidated sources of available liquidity to the Firm, including cash on deposit at central banks, and cash proceeds reasonably expected to be received in secured financings of highly liquid, unencumbered securities — such as government-issued debt, government- and FDIC-guaranteed corporate debt, U.S. government agency debt and agency mortgage-backed securities (“MBS”). The liquidity amount estimated to be realized from secured financings is based on management’s current judgment and assessment of the Firm’s ability to quickly raise secured financings. The Global Liquidity Reserve also includes the Firm’s borrowing capacity at various FHLBs, the Federal Reserve Bank discount window and various other central banks from

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collateral pledged by the Firm to such banks. Although considered as a source of available liquidity, the Firm does not view borrowing capacity at the Federal Reserve Bank discount window and various other central banks as a primary source of funding. As of March 31, 2011, the Global Liquidity Reserve was estimated to be approximately $316 billion.
In addition to the Global Liquidity Reserve, the Firm has significant amounts of other high-quality, marketable securities available to raise liquidity, such as corporate debt and equity securities.
Funding
Sources of funds
A key strength of the Firm is its diversified deposit franchise through the RFS, CB, TSS and AM lines of business, which provides a stable source of funding and decreases reliance on the wholesale markets. As of March 31, 2011, total deposits for the Firm were $995.8 billion, compared with $930.4 billion at December 31, 2010. Average total deposits for the Firm were $930.4 billion and $877.5 billion for the three months ended March 31, 2011 and 2010, respectively. The Firm typically experiences higher customer deposit inflows at period ends. A significant portion of the Firm’s deposits are retail deposits (38% and 40% at March 31, 2011, and December 31, 2010, respectively), which are considered particularly stable as they are less sensitive to interest rate changes or market volatility. A significant portion of the Firm’s wholesale deposits are also considered stable sources of funding due to the nature of the relationships from which they are generated, particularly customers’ operating service relationships with the Firm. As of March 31, 2011, the Firm’s deposits-to-loans ratio was 145%, compared with 134% at December 31, 2010. For further discussions of deposit and liability balance trends, see the discussion of the results for the Firm’s business segments and the Balance Sheet Analysis on page 15 and 41–43, respectively, of this Form 10-Q.
Additional sources of funding include a variety of unsecured and secured short-term and long-term instruments. Short-term unsecured funding sources include federal funds and Eurodollars purchased, certificates of deposit, time deposits, commercial paper and other borrowed funds. Long-term unsecured funding sources include long-term debt, trust preferred capital debt securities, preferred stock and common stock.
The Firm’s short-term secured sources of funding consist of securities loaned or sold under agreements to repurchase and borrowings from the Chicago, Pittsburgh and San Francisco FHLBs. Secured long-term funding sources include asset-backed securitizations, and borrowings from the Chicago, Pittsburgh and San Francisco FHLBs.
Funding markets are evaluated on an ongoing basis to achieve an appropriate global balance of unsecured and secured funding at favorable rates.
Short-term funding
The Firm’s reliance on short-term unsecured funding sources is limited. Short-term unsecured funding sources include federal funds and Eurodollars purchased, which represent overnight funds; certificates of deposit; time deposits; commercial paper, which is generally issued in amounts not less than $100,000 and with maturities of 270 days or less; and other borrowed funds, which consist of demand notes, term federal funds purchased, and various other borrowings that generally have maturities of one year or less.
Total commercial paper liabilities for the Firm were $46.0 billion as of March 31, 2011, compared with $35.4 billion as of December 31, 2010. However, of those totals, $35.2 billion and $29.2 billion as of March 31, 2011, and December 31, 2010, respectively, originated from deposits that customers chose to sweep into commercial paper liabilities as a cash management product offered by the Firm. Therefore, commercial paper liabilities sourced from wholesale funding markets were $10.8 billion as of March 31, 2011, compared with $6.2 billion as of December 31, 2010; in addition, the average balance of commercial paper liabilities sourced from wholesale funding markets was $8.4 billion for the three months ended March 31, 2011.
Securities loaned or sold under agreements to repurchase, generally mature between one day and three months, are secured predominantly by high-quality securities collateral, including government-issued debt, agency debt and agency MBS. The balances of securities loaned or sold under agreements to repurchase, which constitute a significant portion of the federal funds purchased and securities loaned or sold under repurchase agreements, was $282.3 billion as of March 31, 2011, compared with $273.3 billion as of December 31, 2010. There were no material differences between the average and period-end balances of securities loaned or sold under agreements to repurchase for the three months ended and as of March 31, 2011. The balances associated with securities loaned or sold under agreements to repurchase fluctuate over time due to customers’ investment and financing activities; the Firm’s demand for financing; the Firm’s matched book activity; the ongoing management of the mix of the Firm’s liabilities, including its secured and unsecured financing (for both the investment and trading portfolios); and other market and portfolio factors. For additional

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information, see the Balance Sheet Analysis on pages 41–43, Note 12 on page 121 and Note 18 on page 153 of this Form 10-Q.
Total other borrowed funds for the Firm was $36.7 billion as of March 31, 2011, compared with $34.3 billion as of December 31, 2010. There were no material differences between the average and period-end balances of other borrowed funds for the three months ended and as of March 31, 2011.
Long-term funding and issuance
During the three months ended March 31, 2011, the Firm issued $13.0 billion of long-term debt, including $7.0 billion of senior notes issued in the U.S. market, $2.7 billion of senior notes issued in the non-U.S. markets, and $3.3 billion of IB structured notes. In addition, in April 2011, the Firm issued $4.4 billion of senior notes in the U.S. market. During the first three months of 2010, the Firm issued $10.9 billion of long-term debt, including $5.6 billion of senior notes issued in U.S. markets, $904 million of senior notes issued in non-U.S. markets and $4.4 billion of IB structured notes. During the three months ended March 31, 2011, $18.1 billion of long-term debt matured or was redeemed, including $5.6 billion of IB structured notes. During the first three months of 2010, $14.1 billion of long-term debt matured or was redeemed, including $7.4 billion of IB structured notes.
In addition to the unsecured long-term funding and issuances discussed above, the Firm securitizes consumer credit card loans, residential mortgages, auto loans and student loans for funding purposes. Loans securitized by the Firm’s wholesale businesses are related to client-driven transactions and are not considered to be a source of funding for the Firm. During the three months ended March 31, 2011 and 2010, respectively, the Firm did not securitize any credit card loans, residential mortgage loans, auto loans or student loans through consolidated or nonconsolidated securitization trusts for funding purposes. In April 2011, the Firm securitized $500 million of credit card loans. During the three months ended March 31, 2011, $6.7 billion of loan securitizations matured or were redeemed, including $6.6 billion of credit card loan securitizations, $44 million of residential mortgage loan securitizations and $76 million of student loan securitizations. During the three months ended March 31, 2010, $6.7 billion of loan securitizations matured or were redeemed, including $6.5 billion of credit card loan securitizations, $43 million of residential mortgage loan securitizations, $84 million of student loan securitizations, and $39 million of auto loan securitizations. For further discussion of loan securitizations, see Note 15 on pages 141–149 in this Form 10-Q.
During the three months ended March 31, 2011, the Firm borrowed $4.0 billion of new long-term advances from the FHLBs, which were partially offset by $2.5 billion of maturities. For the three months ended March 31, 2010, the Firm borrowed $1.5 billion of new long-term advances from the FHLBs, which were more than offset by $8.5 billion of maturities.
Cash flows
Cash and due from banks was $23.5 billion and $31.4 billion at March 31, 2011 and 2010, respectively. These balances decreased by $4.1 billion from December 31, 2010, and increased by $5.2 billion from December 31, 2009, respectively. The following discussion highlights the major activities and transactions that affected JPMorgan Chase’s cash flows for the three months ended March 31, 2011 and 2010, respectively.
Cash flows from operating activities
JPMorgan Chase’s operating assets and liabilities support 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-driven activities, market conditions and trading strategies. Management believes cash flows from operations, available cash balances and the Firm’s ability to generate cash through short- and long-term borrowings are sufficient to fund the Firm’s operating liquidity needs.
For the three months ended March 31, 2011, net cash used in operating activities was $6.0 billion. This resulted from a decrease in trading liabilities — derivative payables largely due to a reduction in foreign exchange derivatives, which declined primarily due to the Japanese yen depreciation relative to the U.S. dollar, and a reduction in interest rate contracts as a result of higher interest rate yields during the quarter; an increase in trading assets — debt and equity instruments largely driven by growth in customer demand, market activity, including a significant level of new issuances, and rising global indices; and an increase in accrued interest and accounts receivable reflecting higher customer receivables in IB’s Prime Services business due to growth in client activity. Partially offsetting these cash outflows were an increase in trading liabilities — debt and equity instruments largely due to growth in customer demand, market activity and economic hedging activity, and a decrease in trading assets — derivative receivables largely due to reductions in the aforementioned foreign exchange derivatives and interest rate contracts. Additionally, cash used to acquire loans originated or purchased with an initial intent to sell was higher than proceeds from sales and paydowns of such loans. Net cash was provided by net income and from adjustments for non-cash items such as the provision for credit losses, depreciation and amortization, and stock-based compensation.

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For the three months ended March 31, 2010, net cash provided by operating activities was $17.4 billion, primarily driven by a net increase in trading liabilities reflecting favorable developments in financial markets, as well as an increase in business activity in markets outside of the United States, partially offset by sales of debt securities. Also, net cash generated from operating activities was higher than net income, largely as a result of adjustments for non-cash items such as the provision for credit losses, stock-based compensation, and depreciation and amortization. Proceeds from sales and paydowns of loans originated or purchased with an initial intent to sell were higher than cash used to acquire such loans.
Cash flows from investing activities
The Firm’s investing activities predominantly include loans originated to be held for investment, the available-for-sale securities (“AFS”) portfolio and other short-term interest-earning assets. For the three months ended March 31, 2011, net cash of $65.8 billion was used in investing activities. This resulted from a significant increase in deposits with banks reflecting a higher level of deposit balances at Federal Reserve Banks largely the result of inflows of short-term wholesale deposits from TSS clients toward the end of March 2011, net purchases of AFS securities, largely due to repositioning of the portfolio in Corporate, in response to changes in the interest rate environment, and an increase in wholesale loans reflecting growth in client activity. Partially offsetting these cash outflows were a net decrease in loans reflecting seasonality and higher repayment rates of credit card loans, runoff of the Washington Mutual credit card portfolio, and lower consumer loans, excluding credit card, predominantly as a result of paydowns in RFS, and a decline in securities purchased under resale agreements, largely in IB, reflecting lower client financing needs.
For the three months ended March 31, 2010, net cash of $13.9 billion was used in investing activities. This was primarily due to an increase in securities purchased under resale agreements largely due to higher financing volume in IB resulting from increased client flows, partially offset by a net decrease in the loan portfolio, driven by seasonally lower charge volume on credit cards, continued runoff in the residential real estate portfolios, and repayments and loan sales, predominantly in IB. Proceeds from sales and maturities of AFS securities used in the Firm’s interest rate risk management activities were slightly higher than cash used to acquire such securities.
Cash flows from financing activities
The Firm’s financing activities primarily reflect cash flows related to taking customer deposits, and issuing long-term debt as well as preferred and common stock. For the three months ended March 31, 2011, net cash provided by financing activities was $67.3 billion. This was largely driven by an increase in deposits as a result of inflows of short-term wholesale deposits from TSS clients toward the end of March 2011, also contributing were growth in the level of retail deposits from the combined effect of seasonal factors such as tax refunds and bonus payments, and general growth in business volumes; an increase in commercial paper and other borrowed funds due to growth in the volume of liability balances in sweep accounts in connection with TSS’s cash management product, and modest incremental short-term borrowings by the Firm under cost-effective terms; and an increase in securities sold under repurchase agreements due to higher securities financing balances in connection with repositioning of the securities portfolio in Corporate. Partially offsetting these cash proceeds were net repayments of long-term borrowings, including a decline in long-term beneficial interests issued by consolidated VIEs due to maturities of Firm-sponsored credit card securitization transactions; the payments of cash dividends; and repurchases of common stock.
In the first three months of 2010, net cash provided by financing activities was $2.0 billion, which reflected increased cash proceeds from securities loaned or sold under repurchase agreements primarily to facilitate the increase in IB’s securities purchased under resale agreements. Cash was used as TSS deposits declined reflecting the normalization of deposit levels; offset partially by net inflows from existing customers and new business in CB, RFS and AM; a decline in short-term beneficial interest issued by consolidated VIEs; for net payments of long-term borrowings and trust preferred capital debt securities as new issuances were more than offset by payments; and for the payment of cash dividends.
Credit ratings
The cost and availability of financing are influenced by credit ratings. Reductions in these ratings could have an adverse effect on the Firm’s access to liquidity sources, increase the cost of funds, trigger additional collateral or funding requirements and decrease the number of investors and counterparties willing to lend to the Firm. Additionally, the Firm’s funding requirements for VIEs and other third-party commitments may be adversely affected by a decline in credit ratings. For additional information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see Special-purpose entities on page 44, and Note 5 on pages 107–113, respectively, of this Form 10-Q.
Critical factors in maintaining high credit ratings include a stable and diverse earnings stream, strong capital ratios, strong credit quality and risk management controls, diverse funding sources, and disciplined liquidity monitoring procedures.

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The credit ratings of the parent holding company and each of the Firm’s significant banking subsidiaries as of March 31, 2011, were as follows.
                                                 
    Short-term debt   Senior long-term debt
    Moody’s   S&P   Fitch   Moody’s   S&P   Fitch
 
JPMorgan Chase & Co.
  P -1       A-1       F1+     Aa3     A+     AA–
JPMorgan Chase Bank, N.A.
  P -1       A-1+       F1+     Aa1   AA–   AA–
Chase Bank USA, N.A.
  P -1       A-1+       F1+     Aa1   AA–   AA–
 
The senior unsecured ratings from Moody’s, S&P and Fitch on JPMorgan Chase and its principal bank subsidiaries remained unchanged at March 31, 2011, from December 31, 2010. On February 25, 2011, S&P revised its outlook on the Firm from negative to stable. At March 31, 2011, Moody’s outlook was negative, while S&P’s and Fitch’s outlook was stable.
If the Firm’s senior long-term debt ratings were downgraded by one notch, the Firm believes the incremental cost of funds or loss of funding would be manageable, within the context of current market conditions and the Firm’s liquidity resources. JPMorgan Chase’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price.
Several rating agencies have announced that they will be evaluating the effects of the financial regulatory reform legislation in order to determine the extent, if any, to which financial institutions, including the Firm, may be negatively impacted. There is no assurance the Firm’s credit ratings will not be downgraded in the future as a result of any such reviews.

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CREDIT PORTFOLIO
For a further discussion on the Firm’s credit risk management framework, see pages 116-118 of JP Morgan Chase’s 2010 Annual Report.
The following table presents JPMorgan Chase’s credit portfolio as of March 31, 2011, and December 31, 2010. Total credit exposure of $1.8 trillion at March 31, 2011, increased by $23.8 billion from December 31, 2010, reflecting increases in the wholesale and consumer portfolios of $21.4 billion and $2.4 billion, respectively. During the first three months of 2011, increases in lending-related commitments and receivables from customers of $27.2 billion and $5.5 billion, respectively were partly offset by decreases in loans and derivative receivables of $6.9 billion and $1.7 billion, respectively.
The Firm provided credit to and raised capital of over $450 billion for our clients during the first three months of 2011. The Firm also originated mortgages to over 180,000 people; provided credit cards to approximately 2.6 million people; lent or increased credit to over 7,500 small businesses; lent to over 500 not-for-profit and government entities, including states, municipalities, hospitals and universities; extended or increased loan limits to approximately 1,500 middle market companies; and lent to or raised capital for more than 3,500 corporations.
In the table below, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale (which are carried at the lower of cost or fair value, with changes in value recorded in noninterest revenue); and loans accounted for at fair value. For additional information on the Firm’s loans and derivative receivables, including the Firm’s accounting policies, see Notes 13 and 5 on pages 122–138 and 107–113, respectively, of this Form 10-Q. Average retained loan balances are used for net charge-off rate calculations.
                                                                 
    Credit                   Three months ended March 31,
    exposure   Nonperforming(e)(f)                   Average annual
    March 31,   Dec. 31,   March 31,   Dec. 31,   Net charge-offs   net charge-off rate(g)
(in millions, except ratios)   2011   2010   2011   2010   2011   2010   2011   2010
 
Total credit portfolio
                                                               
Loans retained
  $ 675,437     $ 685,498     $ 13,152     $ 14,345     $ 3,720     $ 7,910       2.22 %     4.46 %
Loans held-for-sale
    8,754       5,453       199       341                          
Loans at fair value
    1,805       1,976       90       155                          
 
Total loans — reported
    685,996       692,927       13,441       14,841       3,720       7,910       2.22       4.46  
Derivative receivables
    78,744       80,481       21       34     NA   NA   NA   NA
Receivables from customers(a)
    38,053       32,541                                      
Interest in purchased receivables(b)
    177       391                                      
 
Total credit-related assets
    802,970       806,340       13,462       14,875       3,720       7,910       2.22       4.46  
Lending-related commitments(c)
    985,934       958,709       895       1,005     NA   NA   NA   NA
 
Assets acquired in loan satisfactions
                                                               
Real estate owned
  NA   NA     1,467       1,610     NA   NA   NA   NA
Other
  NA   NA     57       72     NA   NA   NA   NA
 
Total assets acquired in loan satisfactions
  NA   NA     1,524       1,682     NA   NA   NA   NA
 
Total credit portfolio
  $ 1,788,904     $ 1,765,049     $ 15,881     $ 17,562     $ 3,720     $ 7,910       2.22 %     4.46 %
 
Net credit derivative hedges notional(d)
  $ (24,731 )   $ (23,108 )   $ (47 )   $ (55 )   NA   NA   NA   NA
Liquid securities and other cash collateral held against derivatives
    (16,185 )     (16,486 )   NA   NA   NA   NA   NA   NA
 
(a)   Represents primarily margin loans to prime and retail brokerage customers, which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets.
 
(b)   Represents an ownership interest in cash flows of a pool of receivables transferred by a third-party seller into a bankruptcy-remote entity, generally a trust.
 
(c)   The amounts in nonperforming represent unfunded commitments that are risk rated as nonaccrual.
 
(d)   Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage both performing and non-performing credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 67 and Note 5 on pages 107–113 of this Form 10-Q.
 
(e)   At March 31, 2011, and December 31, 2010, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $9.8 billion and $10.5 billion, respectively, that are accruing at the guaranteed reimbursement rate; (2) real estate owned insured by U.S. government agencies of $2.3 billion and $1.9 billion, respectively; and (3) student loans that are 90 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $615 million and $625 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”). Credit card loans are

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    charged off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a specified event (e.g., bankruptcy of the borrower), whichever is earlier.
 
(f)   Excludes PCI loans acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past due status of the pools, or that of individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.
 
(g)   For the three months ended March 31, 2011, and 2010, net charge-off rates were calculated using average retained loans of $680.0 billion and $718.5 billion, respectively. These average retained loans include average PCI loans of $71.6 billion and $80.3 billion, respectively. Excluding the impact of PCI loans, the Firm’s total charge-off rate would have been 2.48% and 5.03% respectively.
WHOLESALE CREDIT PORTFOLIO
As of March 31, 2011, wholesale exposure (IB, CB, TSS and AM) increased by $21.4 billion from December 31, 2010. The overall increase was primarily driven by increases of $9.5 billion in lending-related commitments, $8.4 billion in loans and $5.5 billion of receivables from customers. The growth in wholesale credit exposure represented increased client activity across all businesses and all regions. Effective January 1, 2011, the commercial card credit portfolio (of approximately $5.3 billion of lending-related commitments and $1.2 billion of loans) that was previously in TSS was transferred to CS.
Wholesale
                                 
    Credit        
    exposure     Nonperforming(e)  
    March 31,     December 31,     March 31,     December 31,  
(in millions)   2011     2010     2011     2010  
 
Loans retained
  $ 229,648     $ 222,510     $ 4,578     $ 5,510  
Loans held-for-sale
    4,554       3,147       199       341  
Loans at fair value
    1,805       1,976       90       155  
 
Loans — reported
    236,007       227,633       4,867       6,006  
Derivative receivables
    78,744       80,481       21       34  
Receivables from customers(a)
    38,053       32,541              
Interests in purchased receivables(b)
    177       391              
 
Total wholesale credit-related assets
    352,981       341,046       4,888       6,040  
Lending-related commitments(c)
    355,561       346,079       895       1,005  
 
Total wholesale credit exposure
  $ 708,542     $ 687,125     $ 5,783     $ 7,045  
 
Net credit derivative hedges notional(d)
  $ (24,731 )   $ (23,108 )   $ (47 )   $ (55 )
Liquid securities and other cash collateral held against derivatives
    (16,185 )     (16,486 )   NA     NA  
 
(a)   Represents primarily margin loans to prime and retail brokerage customers, which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets.
 
(b)   Represents an ownership interest in cash flows of a pool of receivables transferred by a third-party seller into a bankruptcy-remote entity, generally a trust.
 
(c)   The amounts in nonperforming represent unfunded commitments that are risk rated as nonaccrual.
 
(d)   Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage both performing and nonperforming credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on page 67, and Note 5 on pages 107—113 of this Form 10-Q.
 
(e)   Excludes assets acquired in loan satisfactions.

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The following table presents summaries of the maturity and ratings profiles of the wholesale portfolio as of March 31, 2011, and December 31, 2010. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings as defined by S&P and Moody’s. Also included in this table is the notional value of net credit derivative hedges; the counterparties to these hedges are predominantly investment grade banks and finance companies.
Wholesale credit exposure — maturity and ratings profile
                                                                 
    Maturity profile(e)   Ratings profile
                                    Investment-   Noninvestment-              
                                    grade (“IG”)   grade            
March 31, 2011   Due in 1 year   Due after 1 year   Due after 5           AAA/Aaa to   BB+/Ba1           Total %
(in millions, except ratios)   or less   through 5 years   years   Total   BBB-/Baa3   & below   Total   of IG
     
Loans
  $ 89,044     $ 82,128     $ 58,476     $ 229,648     $ 153,159     $ 76,489     $ 229,648       67 %
Derivative receivables(a)
                            78,744                       78,744          
Less: Liquid securities and other cash collateral held against derivatives
                            (16,185 )                     (16,185 )        
 
                                                           
Total derivative receivables, net of all collateral
    11,894       22,351       28,314       62,559       48,871       13,688       62,559       78  
Lending-related commitments
    133,153       212,399       10,009       355,561       285,010       70,551       355,561       80  
     
Subtotal
    234,091       316,878       96,799       647,768       487,040       160,728       647,768       75  
Loans held-for-sale and loans at fair value(b)(c)
                            6,359                       6,359          
Receivables from customers(c)
                            38,053                       38,053          
Interests in purchased receivables(c)
                            177                       177          
     
Total exposure — net of liquid securities and other cash collateral held against derivatives
                          $ 692,357                     $ 692,357          
     
Net credit derivative hedges notional(d)
  $ (1,621 )   $ (14,284 )   $ (8,826 )   $ (24,731 )   $ (24,811 )   $ 80     $ (24,731 )     100 %
     
                                                                 
    Maturity profile(e)   Ratings profile
                                    Investment-   Noninvestment-            
                                    grade (“IG”)   grade            
December 31, 2010   Due in 1 year   Due after 1 year   Due after 5           AAA/Aaa to   BB+/Ba1           Total %
(in millions, except ratios)   or less   through 5 years   years   Total   BBB-/Baa3   & below   Total   of IG
     
Loans
  $ 78,017     $ 85,987     $ 58,506     $ 222,510     $ 146,047     $ 76,463     $ 222,510       66 %
Derivative receivables(a)
                            80,481                       80,481          
Less: Liquid securities and other cash collateral held against derivatives
                            (16,486 )                     (16,486 )        
 
                                                           
Total derivative receivables, net of all collateral
    11,499       24,415       28,081       63,995       47,557       16,438       63,995       74  
Lending-related commitments
    126,389       209,299       10,391       346,079       276,298       69,781       346,079       80  
     
Subtotal
    215,905       319,701       96,978       632,584       469,902       162,682       632,584       74  
Loans held-for-sale and loans at fair value(b)(c)
                            5,123                       5,123          
Receivables from customers(c)
                            32,541                       32,541          
Interests in purchased receivables(c)
                            391                       391          
     
Total exposure — net of liquid securities and other cash collateral held against derivatives
                          $ 670,639                     $ 670,639          
     
Net credit derivative hedges notional(d)
  $ (1,228 )   $ (16,415 )   $ (5,465 )   $ (23,108 )   $ (23,159 )   $ 51     $ (23,108 )     100 %
     
(a)   Represents the fair value of derivative receivables as reported on the Consolidated Balance Sheets.
 
(b)   Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans transferred from the retained portfolio.
 
(c)   From a credit risk perspective maturity and ratings profiles are not meaningful.
 
(d)   Represents the net notional amounts of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP.
 
(e)   The maturity profile of loans and lending-related commitments is based on the remaining contractual maturity. The maturity profile of derivative receivables is based on the maturity profile of average exposure. For further discussion of average exposure, see Derivative receivables marked to market on page 66 of this Form 10-Q.

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Customer receivables of $38.1 billion and $32.5 billion at March 31, 2011, and December 31, 2010, respectively, representing primarily margin loans to prime and retail brokerage clients, are included in the table. These margin loans are collateralized through a pledge of assets maintained in clients’ brokerage accounts and are subject to daily minimum collateral requirements. In the event that the collateral value decreases, a maintenance margin call is made to the client to provide additional collateral into the account. If additional collateral is not provided by the client, the client’s positions may be liquidated by the Firm to meet the minimum collateral requirements.
Wholesale credit exposure — selected industry exposures
The Firm focuses on the management and diversification of its industry exposures, with particular attention paid to industries with actual or potential credit concerns. Exposures deemed criticized generally represent a ratings profile similar to a rating of “CCC+"/“Caa1” and lower, as defined by S&P and Moody’s. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, decreased to $20.8 billion at March 31, 2011, from $22.4 billion from December 31, 2010. The decrease was primarily related to loan sales and net repayments.
Below are summaries of the top 25 industry exposures as of March 31, 2011, and December 31, 2010.
Wholesale credit exposure — selected industry exposures
                                                                         
                                                                    Liquid
                                                                    securities
                                                                    and other
                                                                    cash
                                            30 days or                   collateral
As of or for the year ended                   Noninvestment-grade   more past due   Year-to-date   Credit   held against
March 31, 2011   Credit   Investment-           Criticized   Criticized   and accruing   net charge-offs/   derivative   derivative
(in millions)   exposure(c)   grade   Noncriticized   performing   nonperforming   loans   (recoveries)   hedges(d)   receivables
 
Top 25 industries(a)
                                                                       
Banks and finance companies
  $ 65,982     $ 55,393     $ 9,979     $ 533     $ 77     $ 6     $ (7 )   $ (3,097 )   $ (9,173 )
Real estate
    62,927       34,216       20,476       5,871       2,364       294       160       (42 )     (52 )
Healthcare
    39,280       32,633       6,372       237       38       16             (730 )     (105 )
State and municipal governments
    34,315       33,324       781       186       24       6             (190 )     (30 )
Asset managers
    30,393       25,898       4,040       455             8                   (3,057 )
Oil and gas
    28,789       20,514       8,187       86       2       40             (114 )     (90 )
Utilities
    27,628       22,635       4,210       441       342             4       (415 )     (293 )
Consumer products
    26,468       16,687       9,289       475       17       3       (1 )     (870 )     (2 )
Retail and consumer services
    20,183       12,010       7,649       367       157       8       1       (604 )     (3 )
Technology
    13,816       9,826       3,578       370       42       3       1       (164 )     (2 )
Machinery and equipment manufacturing
    13,804       7,904       5,616       282       2       7       (1 )     (73 )      
Building materials/ construction
    13,176       6,716       5,357       1,084       19       4       (5 )     (338 )      
Media
    13,165       6,251       5,668       716       530       56       6       (205 )      
Metals/mining
    12,643       6,038       6,168       419       18       7       (4 )     (472 )      
Telecom services
    12,613       9,486       2,299       818       10             (1 )     (798 )     (15 )
Central government
    12,497       12,014       469       14                         (8,071 )     (173 )
Chemicals and plastics
    11,674       7,650       3,657       360       7       1             (130 )     (2 )
Insurance
    11,634       8,563       2,775       284       12                   (1,012 )     (706 )
Holding companies
    11,035       8,804       2,185       46             104       (1 )           (358 )
Securities firms and exchanges
    10,908       9,473       1,381       54             80             (37 )     (1,980 )
Business services
    10,885       6,068       4,653       133       31       23       8       (5 )      
Transportation
    9,971       7,001       2,750       178       42       2       1       (129 )      
Automotive
    9,612       4,296       5,071       242       3                   (911 )      
Agriculture/paper manufacturing
    7,140       4,510       2,405       225             7             (62 )     (7 )
Aerospace
    6,086       5,153       832       101                         (378 )      
All other(b)
    147,329       129,028       15,175       2,264       862       667       4       (5,884 )     (137 )
 
Subtotal
    663,953       502,091       141,022       16,241       4,599       1,342       165       (24,731 )     (16,185 )
 
Loans held-for-sale and loans at fair value
    6,359                                                                  
Receivables from customers
    38,053                                                                  
Interest in purchased receivables
    177                                                                  
 
Total
  $ 708,542     $ 502,091     $ 141,022     $ 16,241     $ 4,599     $ 1,342     $ 165     $ (24,731 )   $ (16,185 )
 

62


Table of Contents

                                                                         
                                                                    Liquid
                                                                    securities
                                                                    and other
                                            30 days or                   cash collateral
As of or for the year ended                   Noninvestment-grade   more past due   Year-to-date   Credit   held against
December 31, 2010   Credit   Investment-           Criticized   Criticized   and accruing   net charge-offs/   derivative   derivative
(in millions)   exposure(c)   grade   Noncriticized   performing   nonperforming   loans   (recoveries)   hedges(d)   receivables
 
Top 25 industries(a)
                                                                       
Banks and finance companies
  $ 65,867     $ 54,839     $ 10,428     $ 467     $ 133     $ 26     $ 69     $ (3,456 )   $ (9,216 )
Real estate
    64,351       34,440       20,569       6,404       2,938       399       862       (76 )     (57 )
Healthcare
    41,093       33,752       7,019       291       31       85       4       (768 )     (161 )
State and municipal governments
    35,808       34,641       912       231       24       34       3       (186 )     (233 )
Asset managers
    29,364       25,533       3,401       427       3       7                   (2,948 )
Oil and gas