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 Commission file
March 31,June 30, 2012 number 1-5805

JPMorgan Chase & Co.
(Exact name of registrant as specified in its charter)
Delaware13-2624428
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification no.)
  
270 Park Avenue, New York, New York10017
(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.
T 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).
T 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 T Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes T No
 
Number of shares of common stock outstanding as of April 30,July 31, 2012: 3,806,666,475
3,798,753,657
 




FORM 10-Q
TABLE OF CONTENTS

Part I - Financial informationPage
Item 1
Consolidated Financial Statements – JPMorgan Chase & Co.:
 
 
Consolidated statements of income (unaudited) for the three and six months ended March 31,June 30, 2012 and 2011
85112
 
Consolidated statements of comprehensive income (unaudited) for the three and six months ended March 31,June 30, 2012 and 2011
86113
 
Consolidated balance sheets (unaudited) at March 31,June 30, 2012, and December 31, 2011

87114
 
Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the threesix months ended March 31,June 30, 2012 and 2011

88115
 
Consolidated statements of cash flows (unaudited) for the threesix months ended March 31,June 30, 2012 and 2011

89116
 
Notes to Consolidated Financial Statements (unaudited)
90117
 Report of Independent Registered Public Accounting Firm166209
 
Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and six months ended March 31,June30, 2012 and 2011

167210
 
Glossary of Terms and Line of Business Metrics
168212
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations: 
 
Consolidated Financial Highlights
3
 
Introduction
4
 
Executive Overview
6
 
Consolidated Results of Operations
1013
 Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures1216
 
Business Segment Results
1418
 
International Operations
3553
 
Balance Sheet Analysis
3654
 
Off-Balance Sheet Arrangements
3856
 
Capital Management
4260
 
Risk Management
4664
 
Supervision and Regulation
79106
 
Critical Accounting Estimates Used by the Firm
80107
 
Accounting and Reporting Developments
83110
 
Forward-Looking Statements
84111
Item 3
Quantitative and Qualitative Disclosures About Market Risk
175219
Item 4
Controls and Procedures
175219
Part II - Other information 
Item 1
Legal Proceedings
175219
Item 1A
Risk Factors
175219
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
175222
Item 3
Defaults Upon Senior Securities
176223
Item 4Mine Safety Disclosure176223
Item 5
Other Information
176223
Item 6
Exhibits
176223

Restatement of first quarter 2012 previously-filed interim financial statements
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) restated its previously-filed interim financial statements for the quarterly period ended March 31, 2012. The restatement related to valuations of certain positions in the synthetic credit portfolio held by the Firm’s Chief Investment Office (“CIO”) and reduced the Firm’s reported net income by $459 million for the three months ended March 31, 2012. The restatement had no impact on any of the Firm’s Consolidated Financial Statements as of June 30, 2012, and December 31, 2011, or for the three and six months ended June 30, 2012 and 2011. In addition, the restatement had no impact on the Firm’s basic and diluted earnings per common share for the three and six months ended June 30, 2012 and 2011.


2



JPMorgan Chase & Co.
Consolidated financial highlights
(unaudited)
(in millions, except per share, headcount and ratio data)
       Six months ended June 30,
As of or for the period ended,1Q124Q113Q112Q111Q112Q12 1Q12 4Q113Q112Q11 20122011
Selected income statement data        
Total net revenue$26,712
$21,471
$23,763
$26,779
$25,221
$22,180
 $26,052
 $21,471
$23,763
$26,779
 $48,232
$52,000
Total noninterest expense18,345
14,540
15,534
16,842
15,995
14,966
 18,345
 14,540
15,534
16,842
 33,311
32,837
Pre-provision profit(a)
8,367
6,931
8,229
9,937
9,226
7,214
 7,707
 6,931
8,229
9,937
 14,921
19,163
Provision for credit losses726
2,184
2,411
1,810
1,169
214
 726
 2,184
2,411
1,810
 940
2,979
Income before income tax expense7,641
4,747
5,818
8,127
8,057
7,000
 6,981
 4,747
5,818
8,127
 13,981
16,184
Income tax expense2,258
1,019
1,556
2,696
2,502
2,040
 2,057
 1,019
1,556
2,696
 4,097
5,198
Net income$5,383
$3,728
$4,262
$5,431
$5,555
$4,960
 $4,924
 $3,728
$4,262
$5,431
 $9,884
$10,986
Per common share data        
Net income per share: Basic$1.31
$0.90
$1.02
$1.28
$1.29
$1.22
 $1.20
 $0.90
$1.02
$1.28
 $2.41
$2.57
Diluted1.31
0.90
1.02
1.27
1.28
1.21
 1.19
 0.90
1.02
1.27
 2.41
2.55
Cash dividends declared per share(b)(a)
0.30
0.25
0.25
0.25
0.25
0.30
 0.30
 0.25
0.25
0.25
 0.60
0.50
Book value per share47.60
46.59
45.93
44.77
43.34
48.40
 47.48
 46.59
45.93
44.77
 48.40
44.77
Tangible book value per share(c)(b)
34.91
33.69
33.05
32.01
30.77
35.71
 34.79
 33.69
33.05
32.01
 35.71
32.01
Common shares outstanding        
Average: Basic3,818.8
3,801.9
3,859.6
3,958.4
3,981.6
3,808.9
 3,818.8
 3,801.9
3,859.6
3,958.4
 3,813.9
3,970.0
Diluted3,833.4
3,811.7
3,872.2
3,983.2
4,014.1
3,820.5
 3,833.4
 3,811.7
3,872.2
3,983.2
 3,827.0
3,998.6
Common shares at period-end3,822.0
3,772.7
3,798.9
3,910.2
3,986.6
3,796.8
 3,822.0
 3,772.7
3,798.9
3,910.2
 3,796.8
3,910.2
Share price(d)(c)
        
High$46.49
$37.54
$42.55
$47.80
$48.36
$46.35
 $46.49
 $37.54
$42.55
$47.80
 $46.49
$48.36
Low34.01
27.85
28.53
39.24
42.65
30.83
 34.01
 27.85
28.53
39.24
 30.83
39.24
Close45.98
33.25
30.12
40.94
46.10
35.73
 45.98
 33.25
30.12
40.94
 35.73
40.94
Market capitalization175,737
125,442
114,422
160,083
183,783
135,661
 175,737
 125,442
114,422
160,083
 135,661
160,083
Selected ratios        
Return on common equity (“ROE”)12%8%9%12%13%11% 11% 8%9%12% 11%13%
Return on tangible common equity (“ROTCE”)(c)(b)
16
11
13
17
18
15
 15
 11
13
17
 15
18
Return on assets (“ROA”)0.96
0.65
0.76
0.99
1.07
0.88
 0.88
 0.65
0.76
0.99
 0.88
1.03
Return on risk-weighted assets(e)(d)
1.76
1.21
1.40
1.82
1.90
1.52
(h) 
1.57
(h) 
1.21
1.40
1.82
 1.55
1.86
Overhead ratio69
68
65
63
63
67
 70
 68
65
63
 69
63
Deposits-to-loans ratio157
156
157
152
145
153
 157
 156
157
152
 153
152
Tier 1 capital ratio12.6
12.3
12.1
12.4
12.3
11.3
(h) 
11.9
(h) 
12.3
12.1
12.4
 11.3
12.4
Total capital ratio15.6
15.4
15.3
15.7
15.6
14.0
(h) 
14.9
(h) 
15.4
15.3
15.7
 14.0
15.7
Tier 1 leverage ratio7.1
6.8
6.8
7.0
7.2
6.7
 7.1
 6.8
6.8
7.0
 6.7
7.0
Tier 1 common capital ratio(f)(e)
10.4
10.1
9.9
10.1
10.0
9.9
(h) 
9.8
(h) 
10.1
9.9
10.1
 9.9
10.1
Selected balance sheet data (period-end)        
Trading assets$456,000
$443,963
$461,531
$458,722
$501,148
$417,324
 $455,633
 $443,963
$461,531
$458,722
 $417,324
$458,722
Securities381,742
364,793
339,349
324,741
334,800
354,595
 381,742
 364,793
339,349
324,741
 354,595
324,741
Loans720,967
723,720
696,853
689,736
685,996
727,571
 720,967
 723,720
696,853
689,736
 727,571
689,736
Total assets2,320,330
2,265,792
2,289,240
2,246,764
2,198,161
2,290,146
 2,320,164
 2,265,792
2,289,240
2,246,764
 2,290,146
2,246,764
Deposits1,128,512
1,127,806
1,092,708
1,048,685
995,829
1,115,886
 1,128,512
 1,127,806
1,092,708
1,048,685
 1,115,886
1,048,685
Long-term debt255,831
256,775
273,688
279,228
269,616
239,539
 255,831
 256,775
273,688
279,228
 239,539
279,228
Common stockholders’ equity181,928
175,773
174,487
175,079
172,798
183,772
 181,469
 175,773
174,487
175,079
 183,772
175,079
Total stockholders’ equity189,728
183,573
182,287
182,879
180,598
191,572
 189,269
 183,573
182,287
182,879
 191,572
182,879
Headcount261,453
260,157
256,663
250,095
242,929
262,882
 261,453
 260,157
256,663
250,095
 262,882
250,095
Credit quality metrics        
Allowance for credit losses$26,621
$28,282
$29,036
$29,146
$30,438
$24,555
 $26,621
 $28,282
$29,036
$29,146
 $24,555
$29,146
Allowance for loan losses to total retained loans3.63%3.84%4.09%4.16%4.40%3.29% 3.63% 3.84%4.09%4.16% 3.29%4.16%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g)(f)
3.11
3.35
3.74
3.83
4.10
2.74
 3.11
 3.35
3.74
3.83
 2.74
3.83
Nonperforming assets(h)(g)
$11,953
$11,315
$12,468
$13,435
$15,149
$11,397
 $11,953
 $11,315
$12,468
$13,435
 $11,397
$13,435
Net charge-offs2,387
2,907
2,507
3,103
3,720
2,278
 2,387
 2,907
2,507
3,103
 4,665
6,823
Net charge-off rate1.35%1.64%1.44%1.83%2.22%1.27% 1.35% 1.64%1.44%1.83% 1.31%2.02%
(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)
On March 13, 2012, the Board of Directors increased the Firm’s quarterly stock dividend from $0.25$0.25 to $0.30$0.30 per share.
(c)(b)Tangible book value per share and ROTCE are non-GAAP financial ratios. ROTCE measures the Firm’s earnings as a percentage of tangible common equity. Tangible book value per share represents the Firm’s tangible common equity divided by period-end common shares. For further discussion of these ratios, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 12–1316–17 of this Form 10-Q.
(d)(c)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.
(e)(d)Return on Basel I risk-weighted assets is the annualized earnings of the Firm divided by its average risk-weighted assets.
(f)(e)Basel I Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common capital (“Tier 1 common”) divided by risk-weighted assets. The Firm uses Tier 1 common capital along with the other capital measures to assess and monitor its capital position. For further discussion of Tier 1 common capital ratio, see Regulatory capital on pages 42–4460–62 of this Form 10-Q.
(g)(f)Excludes the impact of residential real estate purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 70–7293–95 of this Form 10-Q.
(h)(g)Prior periodto the first quarter of 2012, reported amounts have been revised tohad only included defaulted derivatives; effective in the first quarter of 2012, reported amounts in all periods include both defaulted derivatives andas well as derivatives that have been risk rated as nonperforming; in prior periods only the amount of defaulted derivatives was reported.nonperforming.
(h)These ratios have been revised. For further information see Regulatory developments on pages 11-12 and Regulatory capital on pages 60-62.

3

INTRODUCTION
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”).Chase. See the Glossary of terms on pages 168–171212–218 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 page 84111 and Part II, Item 1A: Risk Factors, on page 175pages 219–222 of this Form 10-Q, and Part I, Item 1A, Risk Factors, on pages 7–17 of JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the U.S. Securities and Exchange Commission (“2011 Annual Report” or “2011 Form 10-K”), to which reference is hereby made.
JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; the Firm has $2.3 trillion in assets and $189.7191.6 billion in stockholders’ equity as of March 31,June 30, 2012. The Firm is a leader in investment banking, financial services for consumers and small businesses, 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 U.S. branches in 23 states, 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. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc (formerly J.P. Morgan Securities Ltd.), a subsidiary of JPMorgan Chase Bank, N.A.
JPMorgan Chase’s activities are organized, for management reporting purposes, into six major business segments, as well assegments. In addition, there is a Corporate/Private Equity.Equity segment. 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
 
businesses comprise the Retail Financial Services and Card Services & Auto 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 and mobile banking and telephone banking. RFS is organized into Consumer & Business Banking and Mortgage Banking (including Mortgage Production and Servicing, and Real Estate Portfolios). Consumer & Business Banking includes branch bankingoffers deposit and business bankingactivities.investment products and services to consumers and lending, deposit and cash management, and payment solutions to small businesses. Mortgage Production and Servicing includes mortgage origination and servicing activities. Real Estate Portfolios comprises residential mortgages and home equity loans, including the PCI portfolio acquired in the Washington Mutual transaction. Customers can use more than 5,500 bank branches (third largest nationally) and more than 17,60018,100 ATMs (largest nationally), as well as online and mobile banking around the clock. More than 33,40033,300 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. As one of the largest mortgage originators in the U.S., Chase helps customers buy or refinance homes resulting in approximately $150 billion of mortgage originations annually. Chase also services more thanapproximately 8 million mortgages and home equity loans.
Card Services & Auto
Card Services & Auto (“Card”) is one of the nation’s largest credit card issuers, with overnearly $125 billion in credit card loans. Customers have overnearly 64 million open credit card accounts (excluding the commercial card portfolio), and used Chase credit cards to meet overnearly $86183 billion of their spending needs in the threesix months ended March 31,June 30, 2012. Through its Merchant Services business, Chase Paymentech Solutions, Card is a global leader in payment processing and merchant acquiring. Consumers also can obtain loans through more than 17,20017,300 auto dealerships and 2,000 schools and universities nationwide.


4

Commercial Banking
Commercial Banking (“CB”) delivers extensive industry knowledge, local expertise and dedicated service to more than 24,000U.S. and U.S. multinational 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. In addition, CB provides financing to real estate investors/investors and owners. CB partnersPartnering with the Firm’s other businesses, to provideCB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs, including lending, treasury services, investment banking and asset management.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 (“WSS”) 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 $2.0 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.

In addition to the six major reportable business segments outlined above, the following is a description of Corporate/Private Equity.
Corporate/Private Equity
The Corporate/Private Equity sector comprises Private Equity, Treasury, Chief Investment Office, corporate staff units and expense that is centrally managed. Treasury and CIO manage capital, liquidity and structural risks of the Firm. The corporate staff units include Central Technology and Operations, Audit, Executive, Finance, Human Resources, Corporate Marketing, Internet & Mobile, Legal & Compliance, Global Real Estate, General Services, Risk Management, and Corporate Responsibility & Public Policy. Other centrally managed expense includes the Firm’s occupancy and pension-related expense that are subject to allocation to the businesses.


5

EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a complete description of 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 global economy expanded moderatelycontinued to expand in the first quarterhalf of 2012, but regionalthe pace of activity slowed somewhat in response to stress in Europe’s economies. Asia’s developing economies continued expanding, although growth trends diverged. Inslowed significantly. Overall, the slowdown eased inflationary pressures and allowed policy makers to relax earlier tightening moves. During the second quarter there was some moderation in U.S., economic growth. U.S. labor market conditions continued to improve as companies added jobsalbeit at a slower pace in the fastest pace since the spring of 2006, the total amount of hours logged by workers accelerated, weekly layoffs continued to move lower,second quarter, and the unemployment rate although elevated, declined.was unchanged from the first quarter. Household spending continued to advance but slowed in the spring. The U.S. housing sector showed promising signs of improvement, with housing starts up and business surveys of home builders growing increasingly upbeat. The multifamily and rental sector continued to benefit from robust demand. Business
fixed investment, although soft in recent months, also remained solid. The mild winter reduced household utility billsInflation eased and freed up resources for other spending, and retail sales grew steadily. At the same time, sales of motor vehicles, a benchmark of consumer confidence, grew faster than the industry expected. The housing sector remained depressed but the drag on the economy is easing and builder sentiment improved. Longer-termlonger-term inflation expectations remained stable, even with recent increases inas oil and gasoline prices.prices eased during the second quarter.
Strains in the global financial markets eased following measures taken by the European Central Bank (“ECB”) in the fourth quarter of 2011 to support bank lending and money market activity. However,Relief was short-lived, however, as there were renewed worries, including concerns about Spain and Italy. Later in the second quarter, concerns again eased somewhat as Europe’s leaders laid out a roadmap to deal with their fiscal and banking strains and to continue to strengthen the integration of their economies. Although fears that the monetary union might break up receded, Europe’s financial crisis continued to pose significant downside risksweigh on investor confidence.
Looking forward, the U.S. economy is likely to be affected by the economic outlook as economic activityfiscal debate over taxes and spending expected to occur later in Europe continued to contract at a moderate rate and the growth of emerging European economies slowed significantly. Growth in the Asian region slowed in some areas but that region’s economies continued to expand at a solid pace.
2012. The Board of Governors of the Federal Reserve System (the “Federal Reserve”) maintained the target range for the federal funds rate at zero to one-quarter percent and began to offer guidanceguided that economic conditions are likely to warrant exceptionally low levels for the federal funds rate, at least through late 2014.


Financial performance of JPMorgan Chase        
 Three months ended June 30, Six months ended June 30,
(in millions, except per share data and ratios)2012 2011 Change 2012 2011 Change
Selected income statement data           
Total net revenue$22,180
 $26,779
 (17)% $48,232
 $52,000
 (7)%
Total noninterest expense14,966
 16,842
 (11) 33,311
 32,837
 1
Pre-provision profit7,214
 9,937
 (27) 14,921
 19,163
 (22)
Provision for credit losses214
 1,810
 (88) 940
 2,979
 (68)
Net income4,960
 5,431
 (9) 9,884
 10,986
 (10)
Diluted earnings per share1.21
 1.27
 (5)% 2.41
 2.55
 (5)%
Return on common equity11% 12%   11% 13%  
Capital ratios           
Tier 1 capital11.3
 12.4
        
Tier 1 common9.9
 10.1
        









Financial performance of JPMorgan Chase  
 Three months ended March 31,
(in millions, except per share data and ratios)2012 2011 Change
Selected income statement data     
Total net revenue$26,712
 $25,221
 6 %
Total noninterest expense18,345
 15,995
 15
Pre-provision profit8,367
 9,226
 (9)
Provision for credit losses726
 1,169
 (38)
Net income5,383
 5,555
 (3)
Diluted earnings per share1.31
 1.28
 2
Return on common equity12% 13%  
Capital ratios     
Tier 1 capital12.6
 12.3
  
Tier 1 common10.4
 10.0
  


Business overviewOverview
JPMorgan Chase reported first-quartersecond-quarter 2012 net income of $5.0 billion or $1.21 per share, on net revenue of $22.2 billion. Net income declined by $471 million, or 9%, compared with net income of $5.4 billion, or $1.31 per share, on net revenue of $26.7 billion. Net income declined by $172 million, or 3%, compared with net income of $5.6 billion, or $1.28$1.27 per share, in the firstsecond quarter of 2011. ROE for the quarter was 12%11%, compared with 13%12% for the prior-year quarter. Results in the firstsecond quarter of 2012 included the following significant items: $1.8$4.4 billion pretax loss ($0.69 per share after-tax reduction in earnings) from the synthetic credit portfolio held by the Firm’s CIO – see Recent developments on pages 10-11 of this Form 10-Q; $1.0 billion pretax benefit ($0.280.16 per share after-tax increase in earnings) from thesecurities gains in CIO’s investment
securities portfolio; $2.1 billion pretax benefit ($0.33 per share after-tax increase in earnings) from a reduction in the allowance for loan losses, related tomostly for mortgage and credit card loans; $1.1card; $0.8 billion pretax benefitgain ($0.170.12 per share after-tax increase in earnings) from the Washington Mutual bankruptcy settlement, in Corporate; $2.5 billion pretax expense ($0.39 per share after-tax reduction in earnings) for additional litigation reserves, predominantly for mortgage-related matters, in Corporate; and $0.9 billion pretax loss ($0.14 per share after-tax reduction in earnings) from debit valuation adjustments (“DVA”) in the Investment Bank, resulting from tighteningBank; $0.5 billion pretax gain ($0.09 per share after-tax increase in earnings) reflecting the expected recovery on a Bear Stearns-related subordinated loan in Corporate. The tax rate used for each of the Firm’s credit spreads.above significant items is 38%; for additional information, see the discussion at the end of this section on pages 8–9.
The decrease in net income from the firstsecond quarter of 2011 was driven by higherlower net revenue, largely offset by


6

lower noninterest expense largely offset by higher net revenue.and a lower provision for credit losses. The increasedecrease in net revenue as compared with the prior year was drivendue to $4.4 billion of principal transactions losses from the synthetic credit portfolio held by CIO and lower investment banking fees, partially offset by higher mortgage fees and related income. Net interest income decreased compared with the prior year, reflecting the impact of low interest rates, as well as lower average trading asset balances, higher financing costs associated with mortgage-backed securities, and a $1.1 billion benefit from the Washington Mutual bankruptcy settlement, partiallyrunoff of higher-yielding loans, largely offset by lower principal transactions revenue, driven by a $907 million loss from DVA. The increase in noninterest expense was predominantly driven by higher compensationother borrowing and noncompensation expense, including $2.5 billion of additional litigation reserves, predominantly for mortgage-related matters.deposit costs.
Results in the firstsecond quarter of 2012 reflected positive credit trends for the consumer real estate and credit card portfolios. EstimatedThe provision for credit losses declinedwas $214 million, down $1.6 billion, or 88%, from the prior year. The total consumer provision for these portfolios, andcredit losses was $171 million, down $1.8 billion from the Firm reducedprior year. The decrease in the consumer provision reflected a $2.1 billion reduction of the related allowance for loan losses predominantly related to the mortgage and credit card portfolios as delinquency trends improved and estimated losses declined, and to a lesser extent, a refinement of the Firm’s incremental loss estimates with respect to certain mortgage borrower assistance programs. Consumer net charge-offs were $2.3 billion, compared with $3.0 billion in the prior year, resulting in net charge-off rates of 2.14% and 2.74%, respectively. Excluding the PCI portfolio, the consumer net charge-off rates were 2.51% and 3.25%, respectively. The wholesale provision for credit losses was $43 million compared with a benefit of $117 million in the prior year. The current quarter provision primarily reflected loan growth and other portfolio activity. Wholesale net charge-offs were $9 million, compared with $80 million in the prior year, resulting in net charge-off rates of 0.01% and 0.14%, respectively. The Firm’s allowance for loan losses to end-of-period loans retained was 2.74%, compared with 3.83% in the prior year. The Firm’s nonperforming assets totaled $11.4 billion at June 30, 2012, down from the prior-year level of $13.4 billion and down from the prior-quarter level of $12.0 billion.
Loans increased $37.8 billion from the second quarter of 2011; this increase was due to a $54.0 billion increase in the wholesale loan portfolio, mainly in CB, IB and AM, partly offset by a $16.2 billion decrease in the consumer loan portfolio, reflecting net runoff, primarily in the real estate portfolios.
Noninterest expense decreased from the prior year driven by lower noncompensation expense. The prior year noninterest expense included a total of $1.8$2.3 billion in the first quarter. However, costs


6

of litigation expense, predominantly for mortgage-related matters, and losses associated with mortgage-related issues continued to negatively affect the mortgage business. Trends in the Firm’s credit metrics across the wholesale portfolios were stable and continued to be strong. Firmwide, net charge-offs were $2.4 billionexpense for the quarter, down $1.3 billion from the first quarterestimated costs of 2011, and nonperforming assets were $12.0 billion, down 21%. Based upon regulatory guidance issued in the first quarter of 2012, the Firm began reporting performing junior liens that are subordinate to senior liens that are 90 days or more past due as nonaccrual loans, a component of nonperforming assets. For more information on the new regulatory guidance, see Consumer Credit Portfolio on pages 60–69 of this Form 10-Q. Total firmwide credit reserves at March 31, 2012, were $26.6 billion, resulting in a loan loss coverage ratio of 3.11% of total loans, excluding the PCI portfolio.foreclosure-related matters.
While several significant items affected the Firm’s results, overall, the Firm’s underlying business performance in the firstsecond quarter was solid. TheIB maintained its #1 ranking in
Global Investment Bank,Banking Fees for the quarter and reported a 29% increase in particular, reported strong results driven by continued leadership and improved market conditions.loans retained compared with the prior year. Consumer & Business Banking within Retail Financial ServicesRFS increased average deposits by 8% compared with the first quarter lastprior year; Business Banking loan originations were up 8% as well.14% compared with the prior year. Mortgage Banking (also within Retail Financial Services) applicationorigination volume increased 33%29% from the prior-year quarter, and Retailprior year, including record retail channel originations, were a record, up 11%26% from the prior-year quarter.prior year. In the Card business, credit card sales volume (excluding Commercial Card) was up 12% compared with the firstsecond quarter of 2011. Commercial BankingCB reported record revenue and its seventheighth consecutive quarter of loan growth, including record middle-market loans. Treasury & Securities Servicesgrowth. TSS reported record assets under custody of $17.9$17.7 trillion, up 4%, and Asset ManagementAM reported record assets under supervision of $2.0 trillion. The first quarter was also the twelfthits thirteenth consecutive quarter of positive net long-term product flows into assets under management.
DuringNet income for the first quartersix months of 2012 was $9.9 billion, or $2.41 per share, compared with $11.0 billion, or $2.55 per share, in the Firm providedfirst half of 2011. The decrease was driven by a decline in net revenue, partially offset by a lower provision for credit and raised capitallosses. The decline in net revenue for the first six months of over $445 billion for its commercial and consumer clients. This included more than $4the year was driven by lower principal transactions revenue, reflecting $5.8 billion of principal transactions losses from the synthetic credit to U.S. small businesses, up 35%portfolio held by CIO, and lower investment banking fees, largely offset by higher mortgage fees and related income. The lower provision for credit losses reflected an improved credit environment. Noninterest expense was flat compared with the prior year. first six months of 2011.
The Firm originated more than 200,000 mortgages in the first quarter and remains committed to helping struggling homeowners; JPMorgan Chase has offered more than 1.3 million mortgage modifications since 2009, and has completed more than 490,000.
JPMorgan Chase continued to strengthen its balance sheet, ending the firstsecond quarter with Basel I Tier 1 common capital of $128$130 billion, or 10.4%9.9%, up from $123compared with $121 billion, or 10.1% at year-end, from second quarter of 2011. The Firm estimated that its Basel III Tier 1 common ratio was approximately 8.2%7.9% at March 31, 2012.June 30, 2012, taking into account the impact of final Basel 2.5 rules and the Federal Reserve’s recent Notice of Proposed Rulemaking (“NPR”). (The Basel I and III Tier 1 common ratios are non-GAAP financial measures, which the Firm uses along with the other capital measures, to assess and monitor its capital position.) For further discussion of the Tier 1 common
capital ratios, see Regulatory capital on pages 42–4560–62 of this Form 10-Q.)
JPMorgan Chase serves clients, consumers and companies, and communities around the globe. During the first quarterhalf of 2012, the BoardFirm provided credit and raised capital of Directors of JPMorgan Chase increased the Firm’s quarterly common stock dividend to $0.30 per share, an increase of $0.05 per share. The Board of Directors also authorized a new $15approximately $890 billion common equity repurchase program, of which up to $12for its commercial and consumer clients. This included more than $10 billion of repurchases is approved for 2012 and upcredit to $3 billion is approved forU.S. small businesses in the first quarter of 2013.
The discussion that follows highlights the performance of each business segmentsix months, up 35% compared with the prior yearyear; and presents results on a managed basis. Managed basis starts with the reported results under the accounting principles generally acceptednearly $29 billion of capital raised for and credit provided to more than 900 nonprofit and government entities in the United Statesfirst six months of America (“U.S. GAAP”)2012. The Firm originated over 425,000 mortgages in the first six months of 2012 and for each line of business andremains committed to helping struggling homeowners. Even in this difficult economy, the Firm asadded thousands of new employees across the country — over 62,000 since January 2008. In 2011, the Firm


7

founded the “100,000 Jobs Mission”, a whole, includes certain reclassificationspartnership with 54 other companies to present total net revenue on a fully taxable-equivalent (“FTE”) basis. Forhire 100,000 U.S. veterans by the year 2020. The Firm has hired more information about managed basis, as well as other non-GAAP financial measures used by managementthan 4,000 veterans since the beginning of 2011, in addition to evaluate the performancethousands of each line of business, see pages 12–13 of this Form 10-Q.veterans who already worked at JPMorgan Chase.
Investment Banknet income decreased from the prior year as lower net revenue and a lower benefit from the provision for credit losses, compared with a benefit in the prior year, were partiallylargely offset by lower noninterest expense. Net revenue included the $907a $755 million lossgain from DVA. Excluding the DVA impact, net revenue was approximately flat to the level in the prior year. Fixed Income and Equity Markets revenue, decreased slightly, excluding DVA, decreased compared with the prior year and reflected continuedthe impact of weaker market conditions, with solid client revenue. Investment banking fees also decreased.decreased compared with prior year, reflecting lower industry-wide volumes. Lower compensation expense drove the decline in noninterest expense from the prior-year level.
Retail Financial Servicesreported net income in the current quarterincreased compared with a net loss in the prior year, driven by higher net revenue and a lowerbenefit from the provision for credit losses. GrowthThe increase in net revenue was driven by higher mortgage fees and related income, partially offset by lower net interest income resulting from lower loan balances due to portfolio runoff, and lower debit card revenue. The provision for credit losses was a benefit in the firstsecond quarter of 2012, compared with an expense in the prior year, and reflected lower net charge-offs and a $1.0$1.4 billion reduction ofin the allowance for loan losses, primarily due to lower estimated losses as mortgage delinquency trends improved.continued to improve, and to a lesser extent, a refinement of the Firm’s incremental loss estimates with respect to certain mortgage borrower assistance programs. The prior-year provision for credit losses reflected higher net charge-offs. Noninterest expense decreased compared with the prior year which included approximately $1.0 billion of incremental expense related to foreclosure-related matters.
Card Services & Autonet income decreased compared with the prior year reflectingdriven by a higher provisionlower reduction in the allowance for creditloan losses. The current-quarter provision reflected lower net charge-offs and a reduction of $750$751 million toin the allowance for loan losses due to lower estimated losses. The prior-year provision included a reduction of $2.0$1.0 billion toin the allowance for loan losses.
The decline in net revenue was driven by lower net interest income, reflecting lower average loan balances and narrower loan spreads and higher amortization of direct loan origination costs, partially offset by higher net interchange income and lower revenue reversals associated with lower net charge-offs. Credit card sales volume, excluding the Commercial Card portfolio, was


7

up 12% from the firstsecond quarter of 2011. The increase in noninterest expense was primarily due to anadditional expense related to a non-core product that is being exited.
Commercial Bankingnet income increased, driven by a benefit from the provision for credit losses and an increase in net revenue, partially offset by higher noninterest expense and an increase inexpense. Record net revenue for the provision for credit losses. The increase in revenuesecond quarter of 2012 reflected higher net interest income driven by growth in liability and loan balances, largelypartially offset by spread compression on loan and liability and loan products.products, compared with the prior year. The
increase in noninterest expense primarily reflected higher headcount-related expense.expense and regulatory deposit insurance assessments.
Treasury & Securities Servicesnet income increased ascompared with the prior year reflecting higher net revenue. Growth in TS net revenue was largely offsetdriven by higher noninterest expense. Treasury Services drovedeposit balances, higher trade finance loan volumes, and spreads. WSS also contributed to the increase in net revenue withdue to higher deposit balances and higher trade finance loan volumes contributing to revenue growth in the business. Worldwide Securities Services net revenue increased modestly compared with the prior year. Assets under custody were a record $17.9 trillion, up 8% from the prior year. Higher noninterest expense was primarily driven by continued expansion into new markets.balances.
Asset Managementnet income decreased, reflecting higher noninterest expense and lower net revenue.revenue and higher provision for credit losses, partially offset by lower noninterest expense. The modest decline in net revenue was primarily due to lower credit-related fees, lower performance fees, lower brokerage commissionsvaluations of seed capital investments and narrower deposit spreads. The decline was predominantlythe effect of lower market levels, largely offset by higher net interest revenue reflecting higher deposit and loan balances and net inflows to products with higher margins, and higher valuations of seed capital investments.product inflows. Assets under supervision at the end of the firstsecond quarter of 2012 were a record $2.0 trillion, an increase of $105 billion from the prior year. Assetsincluding assets under management of $1.4$1.3 trillion, were also a record. Both increases were due toboth relatively flat compared with the prior year and prior quarter as net inflows to long-term products were offset by the effect of lower market levels and net outflows from liquidity products. Noninterest expense decreased compared with the impact of higher market levels. In addition, deposit and custody inflows contributedprior year, due to the increase in assets under supervision. The increase in noninterestabsence of prior-year non-client-related litigation expense was due to higher headcount-related expense.and lower performance-based compensation.
Corporate/Private Equityreported a net loss in the firstsecond quarter of 2012 compared with net income in the firstsecond quarter of 2011. Net income and revenue in Private Equity declined, driven by lower private equity gainsprimarily due to the absence of prior-yearlower gains on sales and lower net valuation gains on private investments. Corporateinvestments, partially offset by higher gains on public securities. Treasury and CIO reported a net loss, drivencompared with net income in the prior year. The quarter’s net loss reflected $4.4 billion of principal transactions losses from the synthetic credit portfolio held by CIO, partially offset by securities gains of $1.0 billion. Net interest income was a minimal loss, compared with income in the prior year, reflecting higher financing costs associated with mortgage backed securities. Other Corporate reported net income, compared with a net loss in the prior year, including a $545 million pretax gain reflecting the expected recovery on a Bear Stearns-related subordinated loan. Noninterest expense declined compared with the prior year. The current quarter included $335 million of litigation reserves,expense. The prior year included $1.3 billion of additional litigation expense, which was predominantly for mortgage-related matters, partially offset bymatters.
Note: The Firm uses a $1.1 billion benefit from single U.S.-based, blended marginal tax rate of 38% (“the Washington Mutual bankruptcy settlement.marginal rate”) to report the estimated after-tax effects of each significant item affecting net income. This rate represents the weighted-average marginal tax rate for the U.S. consolidated tax group. The Firm uses this single marginal rate to reflect the tax effects of all significant items because (a) it simplifies the presentation and analysis for management and investors; (b) it has proved to be a reasonable estimate of the marginal tax effects; and (c) often


8

there is uncertainty at the time a significant item is disclosed regarding its ultimate tax outcome.








2012 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. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on page 84111 and Risk Factors on page 175pages 219–222 of this Form 10-Q.
JPMorgan Chase’s outlook for the remainder of 2012 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 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.
In the Consumer & Business Banking business within RFS, the Firm estimates that deposit spread compression, given the current low interest rate environment, spread compression will likely negatively affect 2012 net income by approximately $400 million formillion. It is possible that this decline may be offset by strong deposit balance growth. Although, the full year.exact extent of any such deposit growth, cannot be determined at this time. In addition, the effect of the Durbin Amendment will likely reduce annualized net income in RFS by approximately $600 million.
In the Mortgage Production and Servicing business within RFS, revenue in 2012 could 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 mortgage repurchase losses could be approximately $350 million per quarter in 2012. Also for Mortgage Production and Servicing, management expects the business to continue to incur elevated default and foreclosure-related costs, including additional costs associated with the Firm’s mortgage servicing processes, particularly its loan modification and foreclosure procedures. (See Mortgage servicing-related matters on pages 67–6989–91 and Note 16 on pages 144–146184–186 of this Form 10-Q.) In addition, management believes that the high production margins experienced in the firstsecond quarter of 2012 will not be sustainable over time. In Mortgage Production and Servicing, management expects continued elevated levels of repurchases of mortgages previously sold, predominantly to U.S. government-sponsored entities (“GSEs”). However, based on current trends and estimates, the existing mortgage repurchase liability is expected to be sufficient to cover such losses.
For Real Estate Portfolios within RFS, management believes that total quarterly net charge-offs couldare likely to be less than $900 million.below $750 million and will continue to trend down thereafter, subject to economic uncertainty. If positive credit trends in the residential real estate portfolio continue or accelerate and economic uncertainty does not increase, the related allowance for loan losses will be reduced over time. Given management’s current estimate of net portfolio runoff levels, the existing residential real estate portfolio is expected to
decline by approximately 10% to 15%12% in 2012 from year-end 2011 levels. This reduction in the residential real estate portfolio is expected to reduce net interest income by approximately $500 million in 2012. 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. In addition, as the portfolio continues to run off, management anticipates that approximatelyup to $1 billion of capital may become available for redeployment each year, subject to the capital requirements associated with the remaining portfolio.


8

In Card, the net charge-off rate for the credit card portfolio could decrease in the secondthird quarter of 2012 to approximately 4.25%3.75%. The Firm expects that further reductions in the allowance for loan losses for the credit card portfolio may be at or near an end in light of the current stage of the credit cycle within the credit card business.
The currently anticipated results offor RFS and Card described above could be adversely affected by adverse economic conditions, including, as applicable, further declines in U.S. housing prices or increases in the unemployment rate. Given ongoing weak economic conditions, combined with a high level of uncertainty concerning the residential real estate markets, management continues to closely monitor the portfolios in these businesses.
In IB, TSS, CB and AM, revenue will be affected by market levels, volumes and volatility, which will influence client flows and assets under management, supervision and custody. For the IB, the second quarter of 2012 has started weaker than the seasonally strong first quarter. CB and TSS will continue to experience low net interest margins as long as market interest rates remain low. In addition, the wholesale credit environment will influence levels of charge-offs, repayments and the provision for credit losses for IB, CB, TSS and AM.
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.
InFor Treasury and CIO, within the Corporate/Private Equity segment, management currently expects quarterly net losses of approximately $200 million, which may vary positively or negatively by approximately $200 million and will depend on decisions related to the positioning of the investment securities portfolio. Also, in connection with the Firm’s redemption of approximately $9 billion of trust preferred capital debt securities on July 12, 2012, management expects to record a pretax extinguishment gain of approximately $900 million related to adjustments applied to the cost basis of the securities during the period that the securities were in a qualifying hedge accounting relationship. With respect to the trust preferred capital debt securities that have been redeemed, management also expects to realize a gross reduction in net interest expense of approximately $300 million for the remainder of 2012 and approximately $650 million for 2013. These savings could be partially offset by the cost associated with other funding alternatives.
For Other Corporate, within the Corporate/Private Equity segment, net income (excluding Private Equity results and litigation expense) for the second quarter is currently estimated to be a loss of approximately $800 million. (Prior guidance for Corporatemanagement expects quarterly net income (excluding Private Equity results,litigation expense) to be approximately $100 million, which is likely to vary each quarter.


9

The Firm’s net yield on interest earning assets is expected to be under modest pressure in the third quarter of 2012, reflecting the continued low interest rate environment.
The Firm’s total noninterest expense for the second half of 2012, excluding Corporate litigation expense, compensation expense for the IB and nonrecurring significant items) was approximately $200 million.) Actual secondexpense for foreclosure-related matters, is expected to be flat relative to the level for the first half of 2012. This is higher than previously expected predominantly due to higher costs in Mortgage Banking as a result of higher production costs associated with strong origination volumes and higher default-related servicing costs, including costs associated with the Consent Orders entered into with banking regulators relating to its residential mortgage servicing. See Mortgage servicing-related matters on pages 89-91 of this Form 10-Q for a discussion of the Consent Orders. The Firm’s noninterest expense is also expected to reflect higher costs associated with compliance and legal fees, and higher regulatory deposit insurance assessments.
The Firm intends to resubmit its capital plans to the Board of Governors of the Federal Reserve under the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) process and hopes to recommence its equity repurchase program in the first quarter results could be substantially differentof 2013, subject to the Board's completion of its work on CIO and the Firm's receiving no objection from the current estimate andFederal Reserve to the re-submitted capital plan. The Firm will depend on market levels and portfolio actions relatedcontinue to investments held bypay a quarterly common stock dividend of $0.30 per share.



Recent developments
On July 13, 2012, the Chief Investment Office (CIO), as well as other activities in Corporate duringFirm reported that it had reached a determination to restate its previously-filed interim financial statements for the remainderquarterly period ended March 31, 2012. The restatement had the effect of reducing the quarter.
SinceFirm’s reported net income for the three months ended March 31, 2012 CIO has had significant mark-to-market lossesby $459 million. The restatement relates to valuations of certain positions in itsthe synthetic credit portfolio of the Firm’s CIO. The Firm’s year-to-date principal transactions revenue, total net revenue and thisnet income and the year-to-date principal transactions revenue, total net revenue and net income of the Firm’s CIO have remained unchanged as a result of the restatement. The Firm reached the determination to restate on July 12, 2012, following management review of the matter with the Audit Committee of the Firm’s Board of Directors on the same day.
The restatement resulted from information that came to the Firm’s attention in the days preceding July 12, 2012, as a result of management’s internal review of activities related to CIO’s synthetic credit portfolio. Under Firm policy, the positions in the portfolio has provenare to be riskier, more volatilemarked at fair value, based on the traders’ reasonable judgment as to the prices at which transactions could occur. As an independent check on those marks, the CIO’s valuation control group (“VCG”), a finance function within CIO, verifies that the trader marks
are within pre-established price testing thresholds around external “mid-market” benchmarks and, less effective as an economic hedge thanif not, adjusts trader marks that are outside the relevant threshold. The thresholds consider market bid/offer spreads and are intended to establish a range of reasonable fair value estimates for each relevant position. At March 31, 2012, the trader marks, subject to the VCG verification process, formed the basis for preparing the Firm’s reported first quarter results.
Specifically, information that came to management’s attention raised questions about the integrity of the trader marks, and suggested that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio for the three months ended March 31, 2012. As a result, the Firm previously believed.was no longer confident that the trader marks used to prepare the Firm’s reported first quarter results (although within the established thresholds) reflected good faith estimates of fair value at March 31, 2012. The Firm consequently concluded that the Firm’s previously-filed interim financial statements for the quarterly period ended March 31, 2012, should no longer be relied upon. On August 9, 2012, the Firm filed an amendment to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, which included restated financial statements reflecting adjusted valuations of the positions in the synthetic credit portfolio held by CIO as of March 31, 2012, based on external “mid-market” benchmarks, adjusted for liquidity considerations. While there are a range of acceptable values for such positions, the Firm believes this approach represented an objective valuation and was reasonable under the circumstances. The information in this Form 10-Q reflects the restated amounts for the first quarter of 2012.
Management also determined that a material weakness existed in the Firm’s internal control over financial reporting at March 31, 2012. During the first quarter of 2012, the size and characteristics of the synthetic credit portfolio changed significantly. These changes had a negative impact on the effectiveness of CIO’s internal controls over valuation of the synthetic credit portfolio. Management has taken steps to remediate the internal control deficiency, including enhancing management supervision of valuation matters. The control deficiency was substantially remediated by June 30, 2012, although the remedial processes remain subject to testing. For information concerning the remedial changes in, and related testing of, the Firm’s internal control over financial reporting, see Part I, Item 4: Controls and Procedures on page 219 of this Form 10-Q.
As part of its internal review, management also concluded that CIO’s governance and risk management had been ineffective in dealing with the growth in the size and complexity of the synthetic credit portfolio during the first quarter of 2012; CIO risk limits were not sufficiently granular; and the approval and implementation during the first quarter of 2012 of the CIO VaR model related to the


10

synthetic credit portfolio had been inadequate. The Firm has taken several steps to remediate these issues, including:
(i)revamping CIO’s leadership, by appointing a new management team, and enhancing talent and resources in key support functions;
(ii)instituting new committees to improve risk governance and controls and ensure tighter linkages between CIO, Treasury and other activities in the Corporate sector;
(iii)refocusing CIO on its core mandate of managing the Firm’s investment portfolio;
(iv)introducing more granular risk limits for the CIO portfolio; and
(v)improving CIO’s internal controls around valuation and enhancing key business processes and reporting in CIO.
In addition, the Firm has clarified the roles among the Model Risk and Development Group within the Risk function, the line of business risk management function and front office personnel in connection with the development, approval, implementation and monitoring of risk models. The Firm has also enhanced oversight by the Model Risk and Development Group of implemented models, including establishing a new team within the Model Risk and Development Group to review model usage and the soundness of the line of business model operational environment. For further information on model risk oversight and review, see “Market Risk Management” on pages 96-102 of this Form 10-Q.
Management discussed the matters described above with its Board of Directors, and with the special committee of the Board of Directors that is reviewing management’s internal review of CIO activities.
The Firm continues to actively manage the risks in the CIO synthetic credit portfolio. The synthetic credit portfolio was a portfolio of credit derivatives, including short and long positions, intended to protect the Firm in a stressed credit environment. The portfolio performed as expected between 2007 through 2011, generating approximately $2.0 billion in gains during that period. As noted above, during the first quarter of 2012, the size and characteristics of the portfolio changed significantly, thereby significantly increasing the associated risks. During the three and six months ended June 30, 2012, the synthetic credit portfolio held by CIO incurred losses of $4.4 billion and $5.8 billion, respectively. As of July 13, 2012, management’s stress testing of the synthetic credit portfolio indicated that it is possible that the portion of the portfolio that was transferred to the IB (see below for further information on the transfer) could, under certain extreme, simulated scenarios, incur additional losses of between approximately $800 million and $1.7 billion.
The new CIO management team actively reduced the net notionals of the portfolio and appreciably reduced the risk profile of the portfolio during the second quarter. As of July 2, 2012, substantially all of the synthetic credit portfolio (other than a portion aggregating to approximately $12 billion of notionals as further discussed
below) was transferred to the Firm’s IB, which has the expertise, trading platforms and market franchise to manage these positions to maximize their economic value. The synthetic credit trading group within CIO has been closed.
As part of its refocused asset-liability management mandate, CIO will continue to invest in high quality securities that are generally accounted for as available-for-sale. In June 2012, CIO identified a limited number of index credit derivatives within the synthetic credit portfolio aggregating to approximately $12 billion of notionals to offset potential losses in CIO'sa portion of the available-for-sale (“AFS”) securities portfolio in a stressed credit environment. As of July 13, 2012, these positions retained by CIO aggregated to $11 billion of notionals, and will continue to be reduced further over time based on the Firm’s view of changes in the macro economic environment. For further information regarding the CIO, see Corporate/Private Equity on pages 49-52 of this Form 10-Q.
All CIO managers based in London with responsibility for the synthetic credit portfolio have been partially offset by realized gainsseparated from sales, predominantly of credit-related positions, in CIO's AFS securities portfolio. As of March 31, 2012, the value of CIO's total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value.
Firm. The Firm is currently repositioning CIO's synthetic credit portfolio, which it is doing in conjunction with its assessmentseeking to claw back certain compensation from these individuals.
Management’s internal review of the Firm's overall credit exposure. As this repositioningCIO-related matters is being effected in a manner designedongoing. If the Firm obtains additional information material to maximize economic value, CIO may hold certain of its current synthetic credit positions for the longer term.
Accordingly, net income in Corporate likelyperiodic financial reports, it will be more volatile in future periods than it has been in the past.make appropriate disclosure.
The reported trading losses have resulted in litigation against the Firm, facesas well as heightened regulatory scrutiny, and may lead to additional regulatory or legal proceedings. Such regulatory and legal proceedings may expose the Firm to fines, penalties, judgments or losses, harm the Firm’s reputation or otherwise cause a variety of exposures resulting from repurchase demands and litigation arising out of its various roles as issuer and/or underwriter of mortgage-backed securities (“MBS”) offeringsdecline in private-label securitizations. It is possible that these matters will takeinvestor confidence. For a number of years to resolve and their ultimate resolution is currently uncertain. Reserves for such matters may need to be increased in the future; however, with the additional litigation reserves taken in the first quarter of 2012, absent any materially adverse developments that could change management’s current views, JPMorgan Chase does not currently anticipate further material additions to its litigation reserves for mortgage-backed securities-related matters over the remainderdescription of the year.regulatory and legal developments relating to the CIO matters described above, see Note 23 on page 198 of this Form 10-Q. See also Part II, Item 1A, Risk Factors, beginning on page 219 of this Form 10-Q.
Regulatory developments
JPMorgan Chase is subject to regulation under state and federal laws in the U.S., as well as the applicable laws of each of the various other jurisdictions outside the U.S. in which the Firm does business. The Firm is currently experiencing a period of unprecedented change in regulation and supervision, and such changes could have a significant impact on how the Firm conducts business. The Firm continues to work diligently in assessing and understanding the implications of the regulatory changes it is facing, and is devoting substantial resources to implementing all the new rules and regulations while meeting the needs and expectations of its clients. In June 2012, the U.S. federal banking agencies published final rules on Basel 2.5 that will go into effect on January 1, 2013 and result in additional capital requirements for trading positions and securitizations. Also, in June 2012, the U.S. federal banking agencies published for comment a


11

Notice of Proposed Rulemaking (the “NPR”) for implementing the Capital Accord, commonly referred to as “Basel III”, in the United States. For further information on these rules, see Capital Management on pages 60–63 of this Form 10-Q.
The Firm expects heightened scrutiny by its regulators of its compliance with new and existing regulations, such as the Unfair and Deceptive Acts and Practices act, Anti Money Laundering regulations, the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act,  and regulations promulgated by the Office of Foreign Assets Control, among others.   As a result, the Firm expects that regulatorsit will more frequently bringbe the subject of more formal enforcement actions for violations of law, rather than resolving those violationssuch matters being resolved through informal supervisory processes. While the Firm has made a preliminary assessment of the likely impact of thesethis heightened  regulatory scrutiny and  anticipated changes in law , the Firm cannot, given the current status of the regulatory and supervisory developments, quantifyquantity the possible effects on its business and operations of all of the significant changes that are currently underway.
On August 8, 2012, the Firm was informed by the Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve Bank of New York that they had determined that the Firm and JPMorgan Chase Bank, N.A. should amend their respective Basel I risk weighted assets (“RWA”) at both March 31, 2012 and June 30, 2012. The determination relates to an adjustment to the Firm’s regulatory capital ratios to reflect regulatory guidance regarding a limited number of market risk models used for certain positions held by the Firm during the first half of the year, including the CIO synthetic credit portfolio. The Firm believes that, as a result of portfolio management actions and enhancements it will be making to certain of its market risk models, these adjustments will be significantly reduced by the end of 2012.
As a result of the banking regulators’ determination, the Firm’s consolidated Basel I Tier I common ratio, its Basel I Tier I capital ratio, and its Basel I total capital ratio have been revised to 9.9%, 11.3% and 14.0%, respectively, at June 30, 2012, compared to 10.3%, 11.7%, and 14.5%, respectively at such date; and have been revised to 9.8%, 11.9%, and 14.9%, respectively, at March 31, 2012, from 10.3%, 12.6%, and 15.6%, respectively at such date. In addition, the JPMorgan Chase Bank, N.A.’s Basel I Tier 1 capital ratio and Basel I Total capital ratio have been revised to 9.2%, and 12.5%, respectively, at June 30, 2012, and have been revised to 9.0% and 12.4% respectively, at March 31, 2012. For further discussion of regulatory developments,additional information see Supervision and regulationRegulatory capital on pages 1–760-62 of this Form 10-Q.


Subsequent events – Business segment changes
On July 27, 2012, the Firm announced that it will be reorganizing its business segments to reflect the manner in which the segments will be managed. As a result, Retail Financial Services and Risk factors on pages 7–17 of JPMorgan Chase’s 2011 Form 10-K.Card Services & Auto businesses will be combined to form the Consumer & Community Banking segment. The Investment Bank and Treasury & Securities Services businesses will be combined to form the Corporate & Investment Bank segment. Asset Management and Commercial Banking will remain unchanged. In addition, Corporate/Private Equity will not be affected.



912

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 and six months ended March 31,June 30, 2012 and 2011. 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 80–82107–109 of this Form 10-Q and pages 168–172 of JPMorgan Chase’s 2011 Annual Report.
Revenue                
Three months ended March 31,Three months ended June 30, Six months ended June 30,
(in millions)2012
 2011
 Change
2012
 2011
 Change
 2012
 2011
 Change
Investment banking fees$1,381
 $1,793
 (23)%$1,257
 $1,933
 (35)% $2,638
 $3,726
 (29)%
Principal transactions3,382
 4,745
 (29)(427) 3,140
 NM
 2,295
 7,885
 (71)
Lending- and deposit-related fees1,517
 1,546
 (2)1,546
 1,649
 (6) 3,063
 3,195
 (4)
Asset management, administration and commissions3,392
 3,606
 (6)3,461
 3,703
 (7) 6,853
 7,309
 (6)
Securities gains536
 102
 425
1,014
 837
 21
 1,550
 939
 65
Mortgage fees and related income2,010
 (487)         NM2,265
 1,103
 105
 4,275
 616
 NM
Credit card income1,316
 1,437
 (8)1,412
 1,696
 (17) 2,728
 3,133
 (13)
Other income1,512
 574
 163
506
 882
 (43) 2,018
 1,456
 39
Noninterest revenue15,046
 13,316
 13
11,034
 14,943
 (26) 25,420
 28,259
 (10)
Net interest income11,666
 11,905
 (2)11,146
 11,836
 (6) 22,812
 23,741
 (4)
Total net revenue$26,712
 $25,221
 6 %$22,180
 $26,779
 (17)% $48,232
 $52,000
 (7)%
Total net revenue for the firstsecond quarter of 2012 was $26.722.2 billion, an increasea decrease of $1.54.6 billion, or 6%17%, from the prior-year quarter. Resultssecond quarter of 2011. For the first six months of 2012, total net revenue was $48.2 billion, a decrease of $3.8 billion, or 7%, from the first six months of 2011. In both periods lower principal transactions revenue, net interest income and investment banking fees were drivenpartially offset by higher mortgage fees and related income in RFS and a $1.1 billion benefit from the Washington Mutual bankruptcy settlement. The increase was partially offset by lower principal transactions revenue in Corporate/Private Equity and IB.income.
Investment banking fees for both the second quarter and first quartersix months of 2012 decreased compared with the prior year in particular, for debt underwriting and equity underwriting, as well as advisory fees, due primarily to lower industry-wideindustry volumes. For additional information on investment banking fees, which are primarily recorded in IB, see IB segment results on pages 15–17, and Note 6 on page 11020–24 of this Form 10-Q.
Principal transactions revenue which consists of revenue from the Firm’s market-making and private equity investing activities, decreased compared with both the second quarter and first six months of 2011. The decrease was largely driven by principal transactions losses in the synthetic credit portfolio held by CIO of $4.4 billion in the second quarter and $5.8 billion for the first quarterhalf of 2011, driven by lower market-making revenue2012, and to a lesser extent, lower private equity gains. These factors were partially offset by higher market-making revenue in IB and a $545 million gain in Other Corporate representing the expected recovery on a Bear Stearns-related subordinated loan. Principal transactions revenue in IB included a $907755 million lossgain from DVA on certain structured notes and derivative liabilities, resulting from the tighteningwidening of the Firm’s credit spreads. Excluding the impact of DVA, principal transactions revenue was down slightly with continuedabove prior periods, reflecting solid client revenue and particularly strong results in rates-related and equity products. Lower private equity gains were primarily due to the absence of prior-year valuation gains on private investments.IB’s market-making businesses. For additional information on
principal transactions revenue, see IB andCorporate/Private Equity segment results on pages 15–1720–24 and 33–34,49–52, respectively, and Note 6 on page 110pages 144–145 of this Form 10-Q.
Lending- and deposit-related fees remained relatively unchangeddecreased slightly in both the second quarter and first six months of 2012 compared with the prior year. The decrease was spread across the wholesale and consumer businesses of the Firm. For additional information on lending- and deposit-related fees, which are mostly recorded in RFS, CB, TSS and IB, see RFS on pages 18–24,25–34, CB on pages 27–28,38–40, TSS on pages 29–3041–44 and IB segment results on pages 15–1720–24 of this Form 10-Q.
Asset management, administration and commissions revenue decreased compared withfrom the second quarter and first quartersix months of 2011, reflecting lower brokerage commissions in IB and AM; lower asset management fees in AM,2011. The decrease for both periods was largely driven by lower performance fees partially offset by net inflows to products with higher margins.and the effect of lower market levels in AM, as well as lower brokerage commissions in IB. For additional information on these fees and commissions, see the segment discussions for
AM on pages 31–32,45–48 and Note 6TSS on page 110pages 41–44 of this Form 10-Q.
Securities gains increased compared withfrom both the levelsecond quarter and first six months of 2011. Results in the first quarter of 2011,both comparable periods were primarily due to the repositioning of the investment securities portfolio in response to changes in the current market environment and to rebalancing exposures.CIO AFS portfolio. For additional information on securities gains which are mostly recorded in the Firm’s Corporate/Private Equity segment, see the Corporate/Private Equity segment discussion on pages 33–34, and Note 11 on pages 113–11749–52 of this
Form 10-Q.
Mortgage fees and related income increased compared with the second quarter of 2011, driven largely by higher production revenue, reflecting wider margins, driven by market conditions and mix, and higher volumes, due to a favorable refinancing environment, including the impact of the Home Affordable Refinancing Programs (“HARP”), as well as higher net mortgage servicing revenue. Mortgage fees and related income increased compared with the first quartersix months of 2011. Higher2011, driven largely by higher production


13

revenue, (excluding repurchase losses), contributed to the increase in mortgage fees and related income, reflecting wider margins, driven by market conditions and product mix, and higher volumes, due toas well as a favorable refinancing environment. In addition, the prior year included a $1.1 billion decreaseswing in the fair valueMSR risk management results (reflecting a gain of the mortgage servicing rights (“MSR”) asset$426 million for the estimated impactfirst six months of increased servicing costs.2012, compared with a loss of $1.2 billion for the first six months of 2011). For additional information on mortgage fees and related income, which is recorded primarily in RFS, see RFS’s Mortgage Production and Servicing discussion on pages 20–22,29–31, and Note 16 on pages 144–146184–187 of this Form 10-Q. For additional information on repurchase losses, see the Mortgage repurchase liability discussion on pages 38–4156–59 and Note 21 on pages 150–154192–196 of this Form 10-Q.
Credit card income decreased in both the second quarter and first quartersix months of 2012, due to2012. The decrease for both periods was largely driven by the impact of lower debit card revenue, reflecting the impact of the Durbin Amendment, and to a lesser extent, lower revenue from fee-based products. The decline washigher amortization of direct loan origination costs, partially offset by lower partner revenue-sharing due to the impact of the Kohl’s portfolio sale on April 1, 2011, as well as higher net interchange income associated with higher customer transaction volume on credit and debit cards. For additional information on credit card income, see the Card and RFS segment results on pages 25–26,35–37, and pages 18–24,25–34, respectively, of this Form 10-Q.



10

Other income decreased compared with the second quarter of 2011, driven by lower gains and valuation adjustments on certain assets in IB, and lower valuations of seed capital investments in AM. Other income increased compared with the first six months of 2011, driven by a $1.1 billion benefit recognized in the first quarter of 2012 driven by a $1.1 billion benefit from the Washington Mutual bankruptcy settlement. For additional information onsettlement, partially offset by the bankruptcy settlement, see Note 2 on pages 90–91aforementioned items in IB and Note 23 on pages 154–163, respectively, of this Form 10-Q.AM.
Net interest income decreased in the second quarter and first quartersix months of 2012 compared with the prior year, primarilyyear. The declines in both periods were driven by the impact of lower loan yields due to changes in portfolio mixinterest rates, as well as lower average trading asset balances, higher financing costs associated with mortgage-backed securities, and market rates, and higher long-term debt cost. The decrease was partiallythe runoff of higher-yielding loans, largely offset by higher average loan balances, in particular, in the wholesale businesses, lower interest-bearingother borrowing and deposit cost and higher levels of investment securities.costs. The Firm’s average interest-earning assets were $1.8 trillion for the firstsecond quarter of 2012, and the net yield on those assets, on a fully taxable-equivalent (“FTE”) basis, was 2.47%, a decrease of 25 basis points from the second quarter of 2011. For the first six months of 2012, average interest-earning assets were $1.8 trillion, and the net yield on those assets, on a FTE basis, was 2.61%2.54%, a decrease of 2826 basis points from the first quartersix months of 2011.

Provision for credit lossesProvision for credit losses    Provision for credit losses          
Three months ended March 31,Three months ended June 30, Six months ended June 30,
(in millions)2012
 2011
 Change
2012
 2011
 Change
 2012
 2011
 Change
Wholesale$89
 $(386) NM %
$43
 $(117) NM%
 $132
 $(503) NM%
Consumer, excluding credit card1
 1,329
 (100)(424) 1,117
 NM
 (423) 2,446
 NM
Credit card636
 226
 181
595
 810
 (27) 1,231
 1,036
 19
Total consumer637
 1,555
 (59)171
 1,927
 (91) 808
 3,482
 (77)
Total provision for credit losses$726
 $1,169
 (38)%$214
 $1,810
 (88)% $940
 $2,979
 (68)%
The provision for credit losses declined by $443 milliondecreased compared with the second quarter and first quartersix months of 2011. The consumer, excluding credit card, provision for credit losses decreased, reflectingdecrease in the second quarter of 2012 was largely due to a $1.0 billionhigher reduction in the consumer-related allowance for loan losses, due to lower estimated lossesof $2.1 billion compared with $1.1 billion in the non-PCIprior year. The decrease from the first six months of 2011 also reflected a higher reduction in the consumer-related allowance of $3.9 billion compared with $3.1 billion in the prior year. These allowance reductions predominantly reflected the impact of improved delinquency trends across most consumer
portfolios, notably residential real estate portfolio as delinquency trends improved.and credit card. The wholesaledecrease in the provision for credit losses was $89 million, compared with a benefitoffset partially by the impact of $386 million in the first quarter of 2011; the prior year reflected a reduction in the allowance forwholesale loan losses due to an improvement in the credit environment. The current-quarter credit card provision reflected lower net charge-offsgrowth and a reduction of $750 million to the allowance for loan losses due to lower estimated losses; the prior-year provision included a reduction of $2.0 billion to the allowance for loan losses.
other portfolio activity. For a more detailed discussion of the loan portfolio and the allowance for credit losses, see the segment discussions for RFS on pages 18–24,25–34, Card on pages 25–26,35–37, IB on pages 15–1720–24 and CB on pages 27–28,38–40, and the Allowance for credit lossesFor Credit Losses section on pages 70–7293–95 of this Form 10-Q.



14

Noninterest expenseNoninterest expense    Noninterest expense          
Three months ended March 31,Three months ended June 30, Six months ended June 30,
(in millions)2012
 2011
 Change
2012
 2011
 Change
 2012
 2011
 Change
Compensation expense$8,613
 $8,263
 4 %$7,427
 $7,569
 (2)% $16,040
 $15,832
 1 %
Noncompensation expense:             

  
Occupancy961
 978
 (2)1,080
 935
 16
 2,041
 1,913
 7
Technology, communications and equipment1,271
 1,200
 6
1,282
 1,217
 5
 2,553
 2,417
 6
Professional and outside services1,795
 1,735
 3
1,857
 1,866
 —
 3,652
 3,601
 1
Marketing680
 659
 3
642
 744
 (14) 1,322
 1,403
 (6)
Other(a)
4,832
 2,943
 64
2,487
 4,299
 (42) 7,319
 7,242
 1
Amortization of intangibles193
 217
 (11)191
 212
 (10) 384
 429
 (10)
Total noncompensation expense9,732
 7,732
 26
7,539
 9,273
 (19) 17,271
 17,005
 2
Total noninterest expense$18,345
 $15,995
 15 %$14,966
 $16,842
 (11)% $33,311
 $32,837
 1 %
(a)
Included litigation expense of $2.7 billion323 million and $1.11.9 billion for the three months ended March 31,June 30, 2012 and 2011, respectively.respectively, and $3.0 billion for each of the six months ended June 30, 2012 and 2011.

Total noninterest expense for the firstsecond quarter of 2012 was $18.315.0 billion, down by $1.9 billion, or 11%, compared with the second quarter of 2011. The decrease in the second quarter of 2012 was predominantly due to lower noncompensation expense, in particular, litigation expense. Total noninterest expense for the first six months of 2012 was $33.3 billion, up by $2.4 billion474 million, or 15%1%, fromcompared with the comparable quarter infirst six months of 2011. The increase in the first six months of 2012 was driven predominantly by additional litigationdue to higher compensation as well as noncompensation expense.
Compensation expense increaseddecreased from the prior year,second quarter of 2011 predominantly due to lower compensation expense in IB, partially offset by investments in the businesses, including sales force and new branch builds in RFS, and increased headcountRFS. The increase for the first six months of 2012 was predominantly due to the aforementioned investments in AM,the businesses, partially offset by lower compensation expense in IB.
The increasedecrease in noncompensation expense in the firstsecond quarter of 2012 was due to lower litigation expense, primarily reflected $2.5 billion of additional litigation reserves, predominantly forrelated to mortgage-related matters, in Corporate partially offset byand RFS, as well as lower foreclosure-related expense in RFS. Noncompensation expense for foreclosure-related matters in RFS. Other contributorsthe first six months of 2012 increased generally due to the increase included the impact of continued investments in the businesses, and higher servicing expense (excluding foreclosure-related matters) in RFS, and higher regulatory deposit insurance assessments in IB and CB. Other items included lower foreclosure-related expense in RFS offset partially by higher litigation expense in Corporate, reflecting the significant litigation reserves recognized in the first quarter of 2012. For a further discussion of litigation expense, see Note 23 on pages 196–205 of this Form 10-Q. For a discussion of amortization of intangibles, refer to the Balance Sheet Analysis on pages 54–55, and Note 16 on pages 184–187 of this Form 10-Q.
in RFS.

Income tax expense   Income tax expense      
(in millions, except rate)Three months ended March 31,Three months ended June 30, Six months ended June 30,
2012 20112012 2011 2012 2011
Income before income tax expense$7,641
 $8,057
$7,000
 $8,127
 $13,981
 $16,184
Income tax expense2,258
 2,502
2,040
 2,696
 4,097
 5,198
Effective tax rate29.6% 31.1%29.1% 33.2% 29.3% 32.1%
The decrease in the effective tax rate during the three months and six months ended June 30, 2012, compared with the prior yearprior-year periods was primarily the result of lower reported pretax income in combination with changes in the mix of income and expenses subject to U.S. federal and state and local taxes as well as greater benefits associated with the resolution of tax audits, and to increases inthe impact of tax-exempt income and business tax credits. These factors wereIn addition, the six
month period of 2012, was partially offset by the tax effect of the Washington Mutual bankruptcy settlement, which is discussed in Note 2 on pages 90–91117–118 and in Note 23 on pages 154–163196–205 of this Form 10-Q. The current and prior year periods include deferred tax benefits associated with state and local income taxes. For additional information on income taxes, and tax benefits associated withsee Critical Accounting Estimates Used by the resolutionFirm on pages 107–109 of tax audits.this Form 10-Q.



1115

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. GAAP;(“U.S. GAAP”); these financial statements appear on pages 85–89112–116 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 investments that receive tax credits and tax-exempt securities is presented in
the managed results on a basis comparable to taxable
investments and securities. This 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.
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.


The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.
Three months ended March 31,Three months ended June,
2012 20112012 2011
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income$1,512
 $534
 $2,046
 $574
 $451
 $1,025
$506
 $517
 $1,023
 $882
 $510
 $1,392
Total noninterest revenue15,046
 534
 15,580
 13,316
 451
 13,767
11,034
 517
 11,551
 14,943
 510
 15,453
Net interest income11,666
 171
 11,837
 11,905
 119
 12,024
11,146
 195
 11,341
 11,836
 121
 11,957
Total net revenue26,712
 705
 27,417
 25,221
 570
 25,791
22,180
 712
 22,892
 26,779
 631
 27,410
Pre-provision profit8,367
 705
 9,072
 9,226
 570
 9,796
7,214
 712
 7,926
 9,937
 631
 10,568
Income before income tax expense7,641
 705
 8,346
 8,057
 570
 8,627
7,000
 712
 7,712
 8,127
 631
 8,758
Income tax expense$2,258
 $705
 $2,963
 $2,502
 $570
 $3,072
$2,040
 $712
 $2,752
 $2,696
 $631
 $3,327
Overhead ratio69% NM
 67% 63% NM
 62%67% NM
 65% 63% NM
 61%
 Six months ended June,
 2012 2011
(in millions, except ratios)
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
 
Reported
results
 
Fully taxable-equivalent adjustments(a)
 
Managed
basis
Other income$2,018
 $1,051
 $3,069
 $1,456
 $961
 $2,417
Total noninterest revenue25,420
 1,051
 26,471
 28,259
 961
 29,220
Net interest income22,812
 366
 23,178
 23,741
 240
 23,981
Total net revenue48,232
 1,417
 49,649
 52,000
 1,201
 53,201
Pre-provision profit14,921
 1,417
 16,338
 19,163
 1,201
 20,364
Income before income tax expense13,981
 1,417
 15,398
 16,184
 1,201
 17,385
Income tax expense$4,097
 $1,417
 $5,514
 $5,198
 $1,201
 $6,399
Overhead ratio69% NM
 67% 63% NM
 62%
(a)Predominantly recognized in IB and CB business segments and Corporate/Private Equity.

Tangible common equity (“TCE”), ROTCE, tangible book value per share (“TBVS”), and Tier 1 common under Basel I and III rules are each non-GAAP financial measures. TCE represents the Firm’s common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of
related deferred tax liabilities. ROTCE measures the Firm’s earnings as a percentage of TCE. TBVS represents the Firm'sFirm’s tangible common equity divided by period-end common shares. Tier 1 common under Basel I and III rules are used by management, along with other capital measures, to
assess and monitor the Firm’s capital position. TCE, ROTCE,


16

and TBVS are meaningful to the Firm, as well as analysts and investors, in assessing the Firm’s use of equity. For additional information on Tier 1 common under Basel I and III, see Regulatory capital on pages 42–4560–62 of this Form 10-Q. In addition, all of the aforementioned measures are
useful to the Firm, as well as analysts and investors, in facilitating comparisons with competitors.




12

Average tangible common equity
 Three months ended March 31, Three months ended June 30, Six months ended June 30,
(in millions) 2012 2011 2012 2011 2012 2011
Common stockholders’ equity $177,711
 $169,415
 $181,021
 $174,077
 $179,366
 $171,759
Less: Goodwill 48,218
 48,846
 48,157
 48,834
 48,188
 48,840
Less: Certain identifiable intangible assets 3,137
 3,928
 2,923
 3,738
 3,029
 3,833
Add: Deferred tax liabilities(a)
 2,724
 2,595
 2,734
 2,618
 2,729
 2,607
Tangible common equity $129,080
 $119,236
 $132,675
 $124,123
 $130,878
 $121,693
(a)Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill and other intangibles when calculating TCE.



Core net interest income
In addition to reviewing JPMorgan Chase'sChase’s net interest income on a managed basis, management also reviews core net interest income to assess the performance of its core lending, investing (including asset/liabilityasset-liability management) and deposit-raising activities, excluding the impact of IB'sIB’s market-based activities. The table below presents an analysis of core net interest income, core average interest-earning assets, and the core net interest yield on core average interest-earning assets, on a managed basis. Each
of these amounts is a non-GAAP financial measure due to the exclusion of IB’s market-based net interest income and the related assets. Management believes the exclusion of IB’s market-based activities provides investors and analysts a more meaningful measure to analyze non-market related business trends of the Firm and can be used as a comparable measure to other financial institutions primarily focused on core lending, investing and deposit-raising activities.

Core net interest income data(a)
   
 Three months ended March 31,
(in millions, except rates)20122011 Change
Net interest income – managed basis$11,837
$12,024
 (2)%
Impact of market-based net interest income1,569
1,834
 (14)
Core net interest income$10,268
$10,190
 1
     
Average interest-earning assets – managed basis$1,821,513
$1,686,693
 8
Impact of market-based earning assets490,750
520,924
 (6)
Core average interest-earning assets$1,330,763
$1,165,769
 14 %
Net interest yield on interest-earning assets – managed basis2.61%2.89%  
Net interest yield on market-based activity
1.29
1.43
  
Core net interest yield on core average interest-earning assets3.10%3.54%  
Core net interest income data(a)
 Three months ended June 30, Six months ended June 30,
(in millions, except rates)20122011 Change 20122011 Change
Net interest income – managed basis(b)
$11,341
$11,957
 (5)% $23,178
$23,981
 (3)%
Impact of market-based net interest income1,345
1,829
 (26) 2,914
3,663
 (20)
Core net interest income(b)
$9,996
$10,128
 (1) $20,264
$20,318
 —
          
Average interest-earning assets – managed basis$1,843,627
$1,764,822
 4
 $1,832,570
$1,725,973
 6
Impact of market-based earning assets505,282
543,458
 (7) 498,016
532,253
 (6)
Core average interest-earning assets$1,338,345
$1,221,364
 10 % $1,334,554
$1,193,720
 12 %
Net interest yield on interest-earning assets – managed basis2.47%2.72%   2.54%2.80%  
Net interest yield on market-based activity
1.07
1.35
   1.18
1.39
  
Core net interest yield on core average interest-earning assets3.00%3.33%   3.05%3.43%  
(a)Includes core lending, investing and deposit-raising activities on a managed basis, across RFS, Card, CB, TSS, AM and Corporate/Private Equity, as well as IB credit portfolio loans.
(b)Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
First quarter of 2012 compared with the first quarter of 2011
Quarterly and year-to-date results
Core net interest income increaseddecreased by $78$132 million to $10.310.0 billion, and coreby $54 million to $20.3 billion for the three and six months ended June 30, 2012, respectively. Core average interest-earning assets increased by $165.0117.0 billion to $1,330.81,338.3 billion. and by $140.8 billion to $1,334.6 billion for the three and six months ended June 30, 2012, respectively. The increasesdecrease in net interest income and interest-earning assets werewas primarily driven by higher financing costs associated with mortgage-backed securities, runoff of higher-yielding loans, and was partially offset by lower deposit and other borrowing costs. The increase in average interest-earning assets was driven by increased levels of loans, higher deposits with banks and other short-term investments due to wholesale and retail client deposit growth.growth, and an
increase in investment securities. The core net interest yield decreased by 4433 basis points to 3.10%,3.00% and by 38 basis points to 3.05% for the three and six months ended June 30, 2012, respectively. The decrease in yield was primarily driven by higher financing costs associated with mortgage-backed securities, runoff of higher-yielding loans as well as lower yields on loanscustomer loan rates, and investment securities due to change in portfolio mix, and higher levels of deposits with banks and other short term investments.was slightly offset by lower customer deposit rates.
Other financial measures
The Firm also discloses the allowance for loan losses to total retained loans, excluding residential real estate PCI loans. For a further discussion of this credit metric, see Allowance for Credit Losses on pages 70–7293–94 of this Form 10-Q.




1317

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 & Auto, Commercial Banking,
Treasury & Securities Services and Asset Management, as well
asManagement. In addition, there is a Corporate/Private Equity segment.
The business segments are determined based on the products and services provided, or the type of customer served, and reflect the manner in which financial information is currently evaluated by management. Results of the lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures, on pages 12–1316–17 of this Form 10-Q.
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.
 
using market-based methodologies. For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on pages 79–80 of JPMorgan Chase’s 2011 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, regulatory capital requirements (under Basel III) and economic risk measures and regulatory capital requirements.measures. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2012, the Firm revised the capital allocated to certain businesses, reflecting additional refinement of each segment’s estimated Basel III Tier 1 common capital requirements and balance sheet trends. For further information about these capital changes, see Line of business equity on page 4563 of this Form 10-Q.


18

Segment Results – Managed Basis

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/(loss)(b)
Three months ended June 30,Total net revenue Noninterest expense Pre-provision profit/(loss)
(in millions)2012
2011
Change
 2012
2011
Change
 2012
2011
Change
2012
2011
Change
 2012
2011
Change
 2012
2011
Change
Investment Bank(a)
$7,321
$8,233
(11)% $4,738
$5,016
(6)% $2,583
$3,217
(20)%$6,766
$7,314
(7)% $3,802
$4,332
(12)% $2,964
$2,982
(1)%
Retail Financial Services7,649
5,466
40
 5,009
4,900
2
 2,640
566
366
7,935
7,142
11
 4,726
5,271
(10) 3,209
1,871
72
Card Services & Auto4,714
4,791
(2) 2,029
1,917
6
 2,685
2,874
(7)4,525
4,761
(5) 2,096
1,988
5
 2,429
2,773
(12)
Commercial Banking1,657
1,516
9
 598
563
6
 1,059
953
11
1,691
1,627
4
 591
563
5
 1,100
1,064
3
Treasury & Securities Services2,014
1,840
9
 1,473
1,377
7
 541
463
17
2,152
1,932
11
 1,491
1,453
3
 661
479
38
Asset Management2,370
2,406
(1) 1,729
1,660
4
 641
746
(14)2,364
2,537
(7) 1,701
1,794
(5) 663
743
(11)
Corporate/Private Equity(a)
1,692
1,539
10
 2,769
562
393
 (1,077)977
NM
(2,541)2,097
NM
 559
1,441
(61) (3,100)656
         NM
Total$27,417
$25,791
6 % $18,345
$15,995
15 % $9,072
$9,796
(7)%$22,892
$27,410
(16)% $14,966
$16,842
(11)% $7,926
$10,568
(25)%
Three months ended March 31,Provision for credit losses Net income/(loss)
Three months ended June 30,Provision for credit losses Net income/(loss)
(in millions)2012
2011
Change
 2012
2011
Change
2012
2011
Change
 2012
2011
Change
Investment Bank(a)
$(5)$(429)99 % $1,682
$2,370
(29)%$21
$(183)NM%
 $1,913
$2,057
(7)%
Retail Financial Services(96)1,199
NM
 1,753
(399)NM
(555)994
                  NM 2,267
383
492
Card Services & Auto738
353
109
 1,183
1,534
(23)734
944
(22) 1,030
1,110
(7)
Commercial Banking77
47
64
 591
546
8
(17)54
                  NM 673
607
11
Treasury & Securities Services2
4
(50) 351
316
11
8
(2)                  NM 463
333
39
Asset Management19
5
280
 386
466
(17)34
12
183
 391
439
(11)
Corporate/Private Equity(a)
(9)(10)10
 (563)722
NM
(11)(9)(22) (1,777)502
                    NM
Total$726
$1,169
(38)% $5,383
$5,555
(3)%$214
$1,810
(88)% $4,960
$5,431
(9)%

Six months ended June 30,Total net revenue Noninterest expense Pre-provision profit/(loss)
(in millions)2012
2011
Change
 2012
2011
Change
 2012
2011
Change
Investment Bank(a)
$14,087
$15,547
(9)% $8,540
$9,348
(9)% $5,547
$6,199
(11)%
Retail Financial Services15,584
12,608
24
 9,735
10,171
(4) 5,849
2,437
140
Card Services & Auto9,239
9,552
(3) 4,125
3,905
6
 5,114
5,647
(9)
Commercial Banking3,348
3,143
7
 1,189
1,126
6
 2,159
2,017
7
Treasury & Securities Services4,166
3,772
10
 2,964
2,830
5
 1,202
942
28
Asset Management4,734
4,943
(4) 3,430
3,454
(1) 1,304
1,489
(12)
Corporate/Private Equity(a)
(1,509)3,636
         NM 3,328
2,003
66
 (4,837)1,633
         NM
Total$49,649
$53,201
(7)% $33,311
$32,837
1 % $16,338
$20,364
(20)%
Six months ended June 30,Provision for credit losses Net income/(loss)
(in millions)2012
2011
Change
 2012
2011
Change
Investment Bank(a)
$16
$(612)NM%
 $3,595
$4,427
(19)%
Retail Financial Services(651)2,193
                  NM 4,020
(16)                    NM
Card Services & Auto1,472
1,297
13
 2,213
2,644
(16)
Commercial Banking60
101
(41) 1,264
1,153
10
Treasury & Securities Services10
2
400
 814
649
25
Asset Management53
17
212
 777
905
(14)
Corporate/Private Equity(a)
(20)(19)(5) (2,799)1,224
                    NM
Total$940
$2,979
(68)% $9,884
$10,986
(10)%
(a)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 item on its income statement (not within total net revenue).
(b)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.


1419

INVESTMENT BANK
For a discussion of the business profile of IB, see pages 81-84 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 4 of this Form 10-Q.
Selected income statement dataSelected income statement data  Selected income statement data        
Three months ended March 31,Three months ended June 30, Six months ended June 30,
(in millions, except ratios)2012 2011 Change2012 2011 Change 2012 2011 Change
Revenue                
Investment banking fees$1,375
 $1,779
 (23)%$1,245
 $1,922
 (35)% $2,620
 $3,701
 (29)%
Principal transactions(a)
3,210
 3,398
 (6)3,063
 2,309
 33
 6,273
 5,707
 10
Asset management, administration and commissions565
 619
 (9)499
 548
 (9) 1,064
 1,167
 (9)
All other income(b)
268
 380
 (29)235
 454
 (48) 503
 834
 (40)
Noninterest revenue5,418
 6,176
 (12)5,042
 5,233
 (4) 10,460
 11,409
 (8)
Net interest income1,903
 2,057
 (7)1,724
 2,081
 (17) 3,627
 4,138
 (12)
Total net revenue(c)
7,321
 8,233
 (11)6,766
 7,314
 (7) 14,087
 15,547
 (9)
                
Provision for credit losses(5) (429) 99
21
 (183) NM
 16
 (612) NM
                
Noninterest expense                
Compensation expense2,901
 3,294
 (12)2,011
 2,564
 (22) 4,912
 5,858
 (16)
Noncompensation expense1,837
 1,722
 7
1,791
 1,768
 1
 3,628
 3,490
 4
Total noninterest expense4,738
 5,016
 (6)3,802
 4,332
 (12) 8,540
 9,348
 (9)
Income before income tax expense2,588
 3,646
 (29)2,943
 3,165
 (7) 5,531
 6,811
 (19)
Income tax expense906
 1,276
 (29)1,030
 1,108
 (7) 1,936
 2,384
 (19)
Net income$1,682
 $2,370
 (29)%$1,913
 $2,057
 (7)% $3,595
 $4,427
 (19)%
Financial ratios                
Return on common equity17% 24%  19% 21%   18% 22%  
Return on assets0.86
 1.18
  0.97
 0.98
   0.91
 1.08
  
Overhead ratio65
 61
  56
 59
   61
 60
  
Compensation expense as a percentage of total net revenue(d)40
 40
  30
 35
   35
 38
  
(a)
Principal transactions included DVA related to derivatives and structured liabilities measured at fair value, DVA gains/(losses) were $(907)$755 million and $(46)$165 million for the three months ended March 31,June 30, 2012 and 2011, and $(152) million and $119 million for the six months ended June 30, 2012 and 2011, respectively.
(b)All other income included lending- and deposit-related fees. In addition, IB manages traditional credit exposures related to Global Corporate Bank (“GCB”) on behalf of IB and TSS, and IB and TSS share the economics related to the Firm’s GCB clients. IB recognizes this sharing agreement within all other income.
(c)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 $509$494 million and $438$493 million for the three months ended March 31,June 30, 2012 and 2011, and $1.0 billion and $931 million for the six months ended June 30, 2012 and 2011, respectively.
(d)Compensation expense as a percentage of total net revenue excluding DVA was 33% and 36% for the three months ended June 30, 2012 and 2011 respectively, and 34% and 38% for the six months ended June 30, 2012 and 2011 respectively.
The following table provides IB'sIB’s total net revenue by business.
 Three months ended March 31,
(in millions)2012 2011 Change
Revenue by business     
Investment banking fees:     
Advisory$281
 $429
 (34)%
Equity underwriting276
 379
 (27)
Debt underwriting818
 971
 (16)
Total investment banking fees1,375
 1,779
 (23)
Fixed income markets(a)
4,664
 5,238
 (11)
Equity markets(b)
1,294
 1,406
 (8)
Credit portfolio(c)(d)
(12) (190) 94
Total net revenue$7,321
 $8,233
 (11)
 Three months ended June 30, Six months ended June 30,
(in millions)2012 2011 Change 2012 2011 Change
Revenue by business           
Investment banking fees:           
Advisory$356
 $601
 (41)% $637
 $1,030
 (38)%
Equity underwriting250
 455
 (45) 526
 834
 (37)
Debt underwriting639
 866
 (26) 1,457
 1,837
 (21)
Total investment banking fees1,245
 1,922
 (35) 2,620
 3,701
 (29)
Fixed income markets(a)
3,734
 4,280
 (13) 8,398
 9,518
 (12)
Equity markets(b)
1,243
 1,223
 2
 2,537
 2,629
 (3)
Credit portfolio(c)(d)
544
 (111) NM
 532
 (301) NM
Total net revenue$6,766
 $7,314
 (7)% $14,087
 $15,547
 (9)%
(a)Fixed income markets primarily include revenue related to market-making across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets. Includes DVA gains/(losses) of ($352) million and $95 million for the three months ended March 31, 2012 and 2011, respectively.

20

credit and commodities markets. Includes DVA gains/(losses) of $241 million and $64 million for the three months ended June 30, 2012 and 2011, and $(111) million and $159 million for the six months ended June 30, 2012 and 2011, respectively.
(b)Equity markets primarily include revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services. Includes DVA gains/(losses)gains of ($130)$200 million and ($72)$78 million for the three months ended March 31,June 30, 2012 and 2011, and $70 million and $6 million for the six months ended June 30, 2012 and 2011, respectively.
(c)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. Includes DVA gains/(losses) of ($425)$314 million and ($69)$23 million for the three months ended March 31,June 30, 2012 and 2011, and $(111) million and $(46) million for the six months ended June 30, 2012 and 2011, respectively. See pages 58–5973–95 of the Credit Risk Management section of this Form 10-Q for further discussion.
(d)IB manages traditional credit exposures related to GCB on behalf of IB and TSS, and IB and TSS share the economics related to the Firm’s GCB clients. IB recognizes this sharing agreement within all other income.
Quarterly results
Net income was $1.7$1.9 billion, down 29%7% from the prior year. These results reflected lower net revenue and a lower benefit from the provision for credit losses partiallycompared with a benefit in the prior year, largely offset by lower noninterest expense.
Net revenue was $7.3$6.8 billion, compared with $8.2$7.3 billion in the prior year,year. Investment banking fees were $1.2 billion (down 35%), which consists of debt underwriting fees of $639 million (down 26%), equity underwriting fees of $250 million (down 45%), and advisory fees of $356 million (down 41%). Combined Fixed Income and Equity Markets revenue was $5.0 billion, down 10% from the prior year. Credit Portfolio reported revenue of $544 million.
Net revenue included a $907$755 million lossgain from DVA compared with a $46on certain structured and derivative liabilities resulting from the widening of the Firm’s credit spreads; this gain was composed of $241 million loss in the prior year.Fixed Income Markets, $200 million in Equity Markets and $314 million in Credit Portfolio. Excluding the impact of DVA, net revenue was $8.2$6.0 billion and net income was $2.2$1.4 billion.
Investment banking fees were $1.4 billion (down 23%), which consists of debt underwriting fees of $818 million (down 16%), equity underwriting fees of $276 million (down 27%), and advisory fees of $281 million (down 34%) primarily due to lower industry-wide volumes. Combined Fixed Income and Equity Markets revenue was $6.0 billion, down 10% from the prior year, and included DVA losses of $352 million in Fixed Income Markets and $130 million in Equity Markets. Excluding the impact of DVA, Fixed Income and Equity Markets combined revenue was $6.4$4.5 billion, down 3%15% from the prior year, reflecting the impact of weaker market conditions, with continued solid client revenue, and particularly strong results in rates-related and equity products.revenue. Excluding the impact of DVA, Credit Portfolio


15

reported a loss of $12 net revenue was $230 million, and reflected DVA losses of $425 million, which more than offsetdriven by net interest income and fees on retained loans and credit valuation adjustment (“CVA”)gains net of hedges.fees on lending-related commitments.
The provision for credit losses was a benefit of $5$21 million, compared with a benefit in the prior year of $429$183 million. The ratio of the allowance for loan losses to end-of-period loans retained was 2.06%1.97%, compared with 2.52%2.10% in the prior year.
Noninterest expense was $4.7$3.8 billion, down 6%12% from the prior year, driven by lower compensation expense. The ratio of compensation to net revenue was 35%33%, excluding DVA.
Return on equity was 17% (23%,19% (15% excluding DVA) on $40.0 billion of average allocated capital.
Year-to-date results
Net income was $3.6 billion, down 19% from the prior year, reflecting lower net revenue and a provision for credit losses compared with a benefit in the prior year, offset by lower noninterest expense.
Net revenue was $14.1 billion, compared with $15.5 billion in the prior year. Investment banking fees were $2.6 billion (down 29%), consisting of debt underwriting fees of $1.5 billion (down 21%), equity underwriting fees of $526 million (down 37%), and advisory fees of $637 million (down 38%). Combined Fixed Income and Equity Markets revenue was $10.9 billion down 10% from the prior year. Credit Portfolio reported revenue of $532 million.
Net revenue included a $152 million loss from DVA on certain structured and derivative liabilities resulting from the tightening of the Firm’s credit spreads; this was composed of a loss of $111 million in both Fixed Income Markets and Credit Portfolio, partially offset by a gain of $70 million in Equity Markets. Excluding the impact of DVA, net revenue was $14.2 billion and net income was $3.7 billion.
Excluding the impact of DVA, Fixed Income and Equity Markets combined revenue was $11.0 billion, down 8% from the prior year, reflecting the impact of weaker market conditions, primarily in the second quarter of 2012, with solid client revenue. Excluding the impact of DVA, Credit Portfolio net revenue was $643 million, compared with a loss of $255 million the prior year, reflecting the absence of negative credit-related valuation adjustments in the prior year, as well as higher net interest income on retained loans and fees on lending-related commitments.
The provision for credit losses was $16 million, compared with a benefit of $612 million in the prior year. Net recoveries were $45 million, compared with net charge-offs of $130 million in the prior year.
Noninterest expense was $8.5 billion, down 9% from the prior year, driven primarily by lower compensation expense. The ratio of compensation to net revenue was 34%, excluding DVA. Noncompensation expense increased by 4% from the prior year, primarily reflecting higher regulatory deposit insurance assessments.
Return on equity was 18% (19% excluding DVA) on $40.0 billion of average allocated capital.



21

Selected metrics                
As of or for the three months ended March 31,As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except headcount)2012 2011 Change2012 2011 Change 2012 2011 Change
Selected balance sheet data (period-end)                
Total assets$812,959
 $853,452
 (5)%$829,655
 $809,630
 2 % $829,655
 $809,630
 2 %
Loans:                
Loans retained(a)
67,213
 52,712
 28
72,159
 56,107
 29
 72,159
 56,107
 29
Loans held-for-sale and loans at fair value5,451
 5,070
 8
2,278
 3,466
 (34) 2,278
 3,466
 (34)
Total loans72,664
 57,782
 26
74,437
 59,573
 25
 74,437
 59,573
 25
Equity40,000
 40,000
 —
40,000
 40,000
 —
 40,000
 40,000
 —
Selected balance sheet data (average)                
Total assets$789,569
 $815,828
 (3)$792,628
 $841,355
 (6) $791,099
 $828,662
 (5)
Trading assets-debt and equity instruments313,267
 368,956
 (15)304,203
 374,694
 (19) 308,735
 371,841
 (17)
Trading assets-derivative receivables76,225
 67,462
 13
74,965
 69,346
 8
 75,595
 68,409
 11
Loans:                
Loans retained(a)
66,710
 53,370
 25
70,837
 54,590
 30
 68,774
 53,983
 27
Loans held-for-sale and loans at fair value2,767
 3,835
 (28)3,158
 4,154
 (24) 2,963
 3,995
 (26)
Total loans69,477
 57,205
 21
73,995
 58,744
 26
 71,737
 57,978
 24
Adjusted assets(b)
559,566
 611,038
 (8)560,356
 628,475
 (11) 559,961
 619,805
 (10)
Equity40,000
 40,000
 —
40,000
 40,000
 —
 40,000
 40,000
 —
                
Headcount25,707
 26,494
 (3)%26,553
 27,716
 (4)% 26,553
 27,716
 (4)%
(a)Loans retained included credit portfolio loans, leveraged leases and other held-for-investment loans.
(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; and (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.

22

Selected metrics                
As of or for the three months ended March 31,As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except ratios)2012 2011 Change2012 2011 Change 2012 2011 Change
Credit data and quality statistics                
Net charge-offs/(recoveries)$(35) $123
 NM %
Net (recoveries)/charge-offs$(10) $7
 NM %
 $(45) $130
 NM %
Nonperforming assets:                
Nonaccrual loans:                
Nonaccrual loans retained(a)
695
 2,388
 (71)657
 1,494
 (56) 657
 1,494
 (56)
Nonaccrual loans held-for-sale and loans at fair value
182
 259
 (30)158
 193
 (18) 158
 193
 (18)
Total nonaccrual loans877
 2,647
 (67)815
 1,687
 (52) 815
 1,687
 (52)
Derivative receivables(b)
317
 180
 76
451
 213
 112
 451
 213
 112
Assets acquired in loan satisfactions79
 73
 8
68
 83
 (18) 68
 83
 (18)
Total nonperforming assets1,273
 2,900
 (56)1,334
 1,983
 (33) 1,334
 1,983
 (33)
Allowance for credit losses:                
Allowance for loan losses1,386
 1,330
 4
1,419
 1,178
 20
 1,419
 1,178
 20
Allowance for lending-related commitments530
 424
 25
533
 383
 39
 533
 383
 39
Total allowance for credit losses1,916
 1,754
 9
1,952
 1,561
 25
 1,952
 1,561
 25
Net charge-off/(recovery) rate(c)
(0.21)% 0.93%  
Net (recovery)/charge-off rate(c)
(0.06)% 0.05%   (0.13)% 0.49%  
Allowance for loan losses to period-end loans retained2.06
 2.52
  1.97
 2.10
   1.97
 2.10
  
Allowance for loan losses to nonaccrual loans retained(a)
199
 56
  216
 79
   216
 79
  
Nonaccrual loans to period-end loans1.21
 4.58
  1.09
 2.83
   1.09
 2.83
  
Market risk-average trading and credit portfolio VaR – 95% confidence level                
Trading activities:                
Fixed income$60
 $49
 22
$66
 $45
 47
 $63
 $47
 34
Foreign exchange11
 11
 —
10
 9
 11
 11
 10
 10
Equities17
 29
 (41)20
 25
 (20) 19
 27
 (30)
Commodities and other21
 13
 62
13
 16
 (19) 17
 15
 13
Diversification benefit to IB trading VaR(d)
(46) (38) (21)(44) (37) (19) (46) (38) (21)
Total trading VaR(e)
63
 64
 (2)65
 58
 12
 64
 61
 5
Credit portfolio VaR(f)
32
 26
 23
25
 27
 (7) 29
 27
 7
Diversification benefit to total other VaR(d)
(14) (7) (100)(15) (8) (88) (15) (8) (88)
Total trading and credit portfolio VaR$81
 $83
 (2)%$75
 $77
 (3)% $78
 $80
 (3)%
(a)Allowance for loan losses of $225$201 million and $567$377 million were held against these nonaccrual loans at March 31,June 30, 2012 and 2011, respectively.
(b)Prior periodto the first quarter of 2012, reported amounts have been revised tohad only included defaulted derivatives; effective in the first quarter of 2012, reported amounts in all periods include both defaulted derivatives andas well as derivatives that have been risk rated as nonperforming; in prior periods only the amount of defaulted derivatives was reported.nonperforming.
(c)Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate.
(d)Average value-at-risk (“VaR”) wasand period-end VaR were less than the sum of the VaR of the components described above, 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.
(e)Trading VaR includes substantially all market-making and client-driven activities as well as certain risk management 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 DVA on derivative and structured liabilities to reflect the credit quality of the Firm. See VaR discussion on pages 96–99 and the DVA sensitivity table on page 100 of this Form 10-Q for further details.


16

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 DVA on derivative and structured liabilities to reflect the credit quality of the Firm. See VaR discussion on pages 73–75 and the DVA sensitivity table on page 75 of this Form 10-Q for further details.
(f)Credit portfolio VaR includes the derivative CVA,credit valuation adjustments (“CVA”), hedges of the CVA and the fair value of 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 reported at fair value.

23

Market shares and rankings(a)
Market shares and rankings(a)
Market shares and rankings(a)
Three months ended March 31, 2012 Full-year 2011Six months ended June 30, 2012 Full-year 2011
Market ShareRankings Market ShareRankingsMarket ShareRankings Market ShareRankings
Global investment banking fees(b)
7.9%#1 8.0%#17.6%#1 8.0%#1
Debt, equity and equity-related  
Global7.21 6.717.11 6.71
U.S.11.71 11.1111.31 11.11
Syndicated loans  
Global9.02 10.919.91 10.81
U.S.16.02 21.2118.21 21.21
Long-term debt(c)
  
Global7.11 6.717.01 6.71
U.S.11.41 11.2111.21 11.21
Equity and equity-related  
Global(d)
8.63 6.838.23 6.83
U.S.11.33 12.5111.14 12.51
Announced M&A(e)
  
Global22.31 18.5220.02 18.22
U.S.21.71 27.1220.72 26.72
(a)Source: Dealogic. Global Investment Banking fees reflects ranking of fees and market share. Remainder of rankings reflects transaction volume rank and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit to each book manager/equal if joint.
(b)Global Investment Banking fees rankings exclude money market, short-term debt and shelf deals.
(c)Long-term debt rankings 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)Global Equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(e)Announced M&A reflects the removal of any withdrawn transactions. U.S. announced M&A represents any U.S. involvement ranking.
According to Dealogic, the Firm was ranked #1 in Global Investment Banking Fees generated during the first threesix months of 2012, based on revenue; #1 in Global Debt, Equity and Equity-related; #1 in Global Long-Term Debt; #2#1 in Global Syndicated Loans; #3 in Global Equity and Equity-related; and #1#2 in Global Announced M&A, based on volume.

International metricsThree months ended March 31,Three months ended June 30, Six months ended June 30,
(in millions)2012 2011 Change2012 2011 Change 2012 2011 Change
Total net revenue(a)
                
Europe/Middle East/Africa$2,400
 $2,592
 (7)%$2,106
 $2,478
 (15)% $4,506
 $5,070
 (11)%
Asia/Pacific758
 1,122
 (32)662
 762
 (13) 1,420
 1,884
 (25)
Latin America/Caribbean339
 327
 4
304
 337
 (10) 643
 664
 (3)
North America3,824
 4,192
 (9)3,694
 3,737
 (1) 7,518
 7,929
 (5)
Total net revenue$7,321
 $8,233
 (11)$6,766
 $7,314
 (7) $14,087
 $15,547
 (9)
Loans retained (period-end)(b)
                
Europe/Middle East/Africa$16,358
 $14,059
 16
$18,804
 $15,370
 22
 $18,804
 $15,370
 22
Asia/Pacific7,969
 5,472
 46
8,268
 6,211
 33
 8,268
 6,211
 33
Latin America/Caribbean3,764
 2,190
 72
4,195
 2,633
 59
 4,195
 2,633
 59
North America39,122
 30,991
 26
40,892
 31,893
 28
 40,892
 31,893
 28
Total loans$67,213
 $52,712
 28 %$72,159
 $56,107
 29 % $72,159
 $56,107
 29 %
(a)Regional revenue is 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.


1724

RETAIL FINANCIAL SERVICES
For a discussion of the business profile of RFS, see pages 85-93 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 4 of this Form 10-Q.
Selected income statement dataSelected income statement data    Three months ended June 30, Six months ended June 30,
Three months ended March 31, 
(in millions, except ratios)2012 2011 Change2012 2011 Change 2012 2011 Change
Revenue                
Lending- and deposit-related fees$748
 $736
 2 %$777
 $813
 (4)% $1,525
 $1,549
 (2)%
Asset management, administration and commissions527
 485
 9
522
 499
 5
 1,049
 984
 7
Mortgage fees and related income2,008
 (489) NM
2,265
 1,100
 106
 4,273
 611
 NM
Credit card income315
 537
 (41)344
 572
 (40) 659
 1,109
 (41)
Other income126
 111
 14
126
 131
 (4) 252
 242
 4
Noninterest revenue3,724
 1,380
 170
4,034
 3,115
 30
 7,758
 4,495
 73
Net interest income3,925
 4,086
 (4)3,901
 4,027
 (3) 7,826
 8,113
 (4)
Total net revenue7,649
 5,466
 40
7,935
 7,142
 11
 15,584
 12,608
 24
    

    

      
Provision for credit losses(96) 1,199
 NM
(555) 994
 NM
 (651) 2,193
 NM
    

    

      
Noninterest expense    

    

      
Compensation expense2,305
 1,876
 23
2,298
 1,937
 19
 4,603
 3,813
 21
Noncompensation expense2,653
 2,964
 (10)2,378
 3,274
 (27) 5,031
 6,238
 (19)
Amortization of intangibles51
 60
 (15)50
 60
 (17) 101
 120
 (16)
Total noninterest expense5,009
 4,900
 2
4,726
 5,271
 (10) 9,735
 10,171
 (4)
Income/(loss) before income tax expense/(benefit)2,736
 (633) NM
Income tax expense/(benefit)983
 (234) NM
Net income/(loss)$1,753
 $(399) NM
Income before income tax expense3,764
 877
 329
 6,500
 244
 NM
Income tax expense1,497
 494
 203
 2,480
 260
 NM
Net income$2,267
 $383
 492 % $4,020
 $(16) NM%
Financial ratios                
Return on common equity27% (6)%  34% 6%   31% —%  
Overhead ratio65
 90
  60
 74
   62
 81
  
Overhead ratio excluding core deposit intangibles(a)
65
 89
  59
 73
   62
 80
  
(a)
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. This non-GAAP ratio excluded Consumer & Business Banking’s CDI amortization expense related to prior business combination transactions of $5150 million and $60 million for the three months ended March 31,June 30, 2012 and 2011, respectively, and $101 million and $120 million for the six months ended June 30, 2012 and 2011, respectively.
Quarterly results
Retail Financial Services reported net income of $1.82.3 billion, compared with a net lossan increase of $399 million1.9 billion incompared with the prior year.
Net revenue was $7.67.9 billion, an increase of $2.2 billion793 million, or 40%11%, compared with the prior year. Net interest income was $3.9 billion, down by $161126 million, or 4%3%, largely reflectingdriven by the impact of lower deposit spreads and lower loan balances due to portfolio runoff.runoff, largely offset by higher deposit balances. Noninterest revenue was $3.74.0 billion, an increase of $2.3 billion919 million, or 30%, driven by higher mortgage fees and related income, partially offset by lower debit card revenue.
The provision for credit losses was a benefit of $96555 million compared with a provision expense of $1.2 billion994 million in the prior year. The current-quarter provision reflected lower net charge-offs and a $1.01.4 billion reduction in the allowance for loan losses due to lower estimated losses as mortgage delinquency trends improved.continued to improve, and to a lesser extent, a refinement
of incremental loss estimates with respect to certain borrower assistance programs. The prior-year provision for credit losses reflected higher net charge-offs. See Consumer Credit Portfolio on pages 60–6982–92 of this Form 10-Q for the net charge-off amounts and rates.
Noninterest expense was $5.04.7 billion, a decrease of $545 million, or 10%, from the prior year.
Year-to-date results
Retail Financial Services reported net income of $4.0 billion, compared with a net loss of $16 million in the prior year.
Net revenue was $15.6 billion, an increase of $1093.0 billion, or 24%, compared with the prior year. Net interest income was $7.8 billion, down by $287 million, or 2%4%, driven by the impact of lower deposit spreads and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. Noninterest revenue was $7.8 billion, an increase of $3.3 billion, driven by higher mortgage fees and related income, partially offset by lower debit card revenue.


25

The provision for credit losses was a benefit of $651 million compared with a provision expense of $2.2 billion in the prior year. The current-year provision reflected lower net charge-offs and a $2.4 billion reduction in the allowance for loan losses, due to lower estimated losses as mortgage delinquency trends continued to improve, and to a lesser extent, a refinement of incremental loss estimates with respect to certain borrower assistance programs. The prior-
year provision for credit losses reflected higher net charge-offs. See Consumer Credit Portfolio on pages 82–92 of this Form 10-Q for the net charge-off amounts and rates.
Noninterest expense was $9.7 billion, a decrease of $436 million, or 4%, from the prior year.


Selected metricsSelected metrics    As of or for the three months ended June 30, As of or for the six months ended June 30,
As of or for the three months ended March 31, 
(in millions, except headcount and ratios)2012 2011 Change
(in millions, except headcount)2012 2011 Change 2012 2011 Change
Selected balance sheet data (period-end)                
Total assets$269,442
 $289,336
 (7)%$264,320
 $283,753
 (7)% $264,320
 $283,753
 (7)%
Loans:                
Loans retained227,491
 247,128
 (8)222,773
 241,127
 (8) 222,773
 241,127
 (8)
Loans held-for-sale and loans at fair value(a)
12,496
 12,234
 2
14,254
 13,558
 5
 14,254
 13,558
 5
Total loans239,987
 259,362
 (7)237,027
 254,685
 (7) 237,027
 254,685
 (7)
Deposits413,901
 379,605
 9
413,571
 378,371
 9
 413,571
 378,371
 9
Equity26,500
 25,000
 6
26,500
 25,000
 6
 26,500
 25,000
 6
Selected balance sheet data (average)                
Total assets$271,973
 $297,938
 (9)$268,507
 $287,235
 (7) $270,240
 $292,557
 (8)
Loans:                
Loans retained230,170
 250,443
 (8)225,144
 244,030
 (8) 227,657
 247,218
 (8)
Loans held-for-sale and loans at fair value(a)
15,621
 17,519
 (11)17,694
 14,613
 21
 16,658
 16,058
 4
Total loans245,791
 267,962
 (8)242,838
 258,643
 (6) 244,315
 263,276
 (7)
Deposits399,561
 371,787
 7
409,256
 378,932
 8
 404,408
 375,379
 8
Equity26,500
 25,000
 6
26,500
 25,000
 6
 26,500
 25,000
 6
                
Headcount134,321
 118,547
 13
134,380
 122,728
 9 % 134,380
 122,728
 9 %
(a)Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets.



18

As of or for the three months ended March 31, 
Selected metricsAs of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except ratios)2012 2011 Change2012 2011 Change 2012 2011 Change
Credit data and quality statistics                
Net charge-offs$904
 $1,199
 (25)%$795
 $1,069
 (26)% $1,699
 $2,268
 (25)%
Nonaccrual loans:                
Nonaccrual loans retained8,191
 8,278
 (1)7,835
 8,088
 (3) 7,835
 8,088
 (3)
Nonaccrual loans held-for-sale and loans at fair value101
 150
 (33)98
 142
 (31) 98
 142
 (31)
Total nonaccrual loans (a)(b)(c)(d)
8,292
 8,428
 (2)7,933
 8,230
 (4) 7,933
 8,230
 (4)
Nonperforming assets(a)(b)(c)(d)
9,109
 9,632
 (5)8,645
 9,175
 (6) 8,645
 9,175
 (6)
Allowance for loan losses14,247
 15,554
 (8)12,897
 15,479
 (17)% 12,897
 15,479
 (17)%
Net charge-off rate(e)
1.58% 1.94% 

1.42% 1.76% 

 1.50% 1.85%  
Net charge-off rate excluding PCI loans(e)
2.20
 2.72
 

1.98
 2.46
 

 2.09
 2.59
  
Allowance for loan losses to ending loans retained6.26
 6.29
 

5.79
 6.42
 

 5.79
 6.42
  
Allowance for loan losses to ending loans retained excluding PCI loans(f)
5.22
 6.02
 

4.49
 6.12
 

 4.49
 6.12
  
Allowance for loan losses to nonaccrual loans retained(a)(d)(f)
104
 128
 

92
 130
 

 92
 130
  
Nonaccrual loans to total loans(d)
3.46
 3.25
 

3.35
 3.23
 

 3.35
 3.23
  
Nonaccrual loans to total loans excluding PCI loans(a)(d)
4.71
 4.47
 

4.55
 4.43
 

 4.55
 4.43
  
(a)Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.
(b)Certain of these loans are classified as trading assets on the Consolidated Balance Sheets.
(c)
At March 31,June 30, 2012 and 2011, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $11.811.9 billion and $8.89.1 billion, respectively, that are 90 or more days past due; and (2) real estate owned insured by U.S. government agencies of $1.21.3 billion and $2.32.4 billion, respectively. These amounts were excluded from nonaccrual loans as reimbursement of insured amounts is proceeding normally. For further discussion, see Note 13 on pages 118–135 of this Form 10-Q, which summarizes loan delinquency information.

26

see Note 13 on pages 153–175 of this Form 10-Q, which summarizes loan delinquency information.
(d)For more information on the new reporting of performing junior liens that are subordinate to senior liens that are 90 days or more past due based on new regulatory guidance issued in the first quarter of 2012, see Consumer Credit Portfolio on pages 60-6982–92 of this Form 10-Q.
(e)Loans held-for-sale and loans accounted for at fair value were excluded when calculating the net charge-off rate.
(f)
An allowance for loan losses of $5.7 billion and $4.9 billion was recorded for PCI loans at March 31,June 30, 2012 and 2011, respectively; these amounts were also excluded from the applicable ratios.











Consumer & Business Banking
Selected income statement dataSelected income statement data               
Three months ended March 31,
Three months ended June 30, Six months ended June 30,
(in millions, except ratios)2012 2011 Change2012 2011 Change 2012 2011 Change
Noninterest revenue$1,585
 $1,757
 (10)%$1,646
 $1,889
 (13)% $3,231
 $3,646
 (11)%
Net interest income2,675
 2,659
 1
2,680
 2,706
 (1) 5,355
 5,365
 —
Total net revenue4,260
 4,416
 (4)4,326
 4,595
 (6) 8,586
 9,011
 (5)
    

           
Provision for credit losses96
 119
 (19)(2) 42
 NM
 94
 161
 (42)
    

    

      
Noninterest expense2,866
 2,799
 2
2,742
 2,713
 1
 5,608
 5,512
 2
Income before income tax expense1,298
 1,498
 (13)1,586
 1,840
 (14) 2,884
 3,338
 (14)
Net income$774
 $893
 (13)$946
 $1,098
 (14)% $1,720
 $1,991
 (14)%
Overhead ratio67% 63% 

63% 59% 

 65% 61%  
Overhead ratio excluding core deposit intangibles(a)
66
 62
 

62
 58
 

 64
 60
  
(a)
Consumer & Business Banking uses the overhead ratio (excluding the amortization of CDI), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. See footnote (a) to the selected income statement data table on page 1825 of this Form 10-Q for further details.
Quarterly results
Consumer & Business Banking reported net income of $774946 million, a decrease of $119152 million, or 13%14%, compared with the prior year.
Net revenue was $4.3 billion, down 4%6% from the prior year. Net interest income was $2.7 billion, relatively flatdown 1% compared with the prior year, driven by the effect of higher deposit balances, predominantly offset by the impact of lower deposit spreads.spreads, predominantly offset by higher deposit balances. Noninterest revenue was $1.6 billion, a decrease of 10%13%, driven by lower debit card revenue, reflecting the impact of the Durbin Amendment.
The provision for credit losses was a benefit of $2 million, compared with a provision expense of $42 million in the prior year. The current-quarter provision reflected a $100 million reduction in the allowance for loan losses due to lower estimated losses as delinquency trends continued to improve. Net charge-offs were $98 million, compared with $117 million in the prior year.
Noninterest expense was $2.7 billion, up 1% from the prior year, including the benefit of certain adjustments in the current quarter.
Year-to-date results
Consumer & Business Banking reported net income of $1.7 billion, a decrease of $271 million, or 14%, compared with the prior year.
Net revenue was $8.6 billion, down 5% from the prior year. Net interest income was $5.4 billion, relatively flat compared with the prior year, driven by the impact of lower deposit spreads, predominantly offset by higher deposit balances. Noninterest revenue was $3.2 billion, a decrease of 11%, driven by lower debit card revenue, reflecting the impact of the Durbin Amendment.
The provision for credit losses was $9694 million, compared with $119161 million in the prior year. Net charge-offs were $96194 million, compared with $119236 million in the prior year.
Noninterest expense was $2.95.6 billion, up 2% from the prior year, due to investments in sales force and new branch builds.


1927

Selected metrics          
(in millions, except ratios and where otherwise noted)As of or for the three months ended June 30, As of or for the six months ended June 30,
2012 2011 Change 2012 2011 Change
Business metrics           
Business banking origination volume$1,787
 $1,573
 14 % $3,327
 $2,998
 11 %
End-of-period loans18,218
 17,141
 6
 18,218
 17,141
 6
End-of-period deposits:    

      
Checking156,449
 136,297
 15
 156,449
 136,297
 15
Savings203,910
 182,127
 12
 203,910
 182,127
 12
Time and other34,403
 41,948
 (18) 34,403
 41,948
 (18)
Total end-of-period deposits394,762
 360,372
 10
 394,762
 360,372
 10
Average loans17,934
 17,057
 5
 17,800
 16,972
 5
Average deposits:    

      
Checking151,733
 136,558
 11
 149,594
 134,269
 11
Savings202,685
 180,892
 12
 199,942
 178,028
 12
Time and other35,096
 43,053
 (18) 35,608
 44,039
 (19)
Total average deposits389,514
 360,503
 8
 385,144
 356,336
 8
Deposit margin2.62% 2.83% 

 2.65% 2.86%  
Average assets$30,275
 $29,047
 4
 $30,566
 $29,227
 5
Credit data and quality statistics          
Net charge-offs$98
 $117
 (16) $194
 $236
 (18)
Net charge-off rate2.20% 2.74%   2.19% 2.80%  
Allowance for loan losses$698
 $800
 (13) $698
 $800
 (13)
Nonperforming assets597
 784
 (24) 597
 784
 (24)
Retail branch business metrics          
Investment sales volume$6,171
 $6,334
 (3) $12,769
 $12,918
 (1)
Client investment assets147,641
 140,285
 5
 147,641
 140,285
 5
% managed accounts26% 23%   26% 23%  
Number of:           
Branches5,563
 5,340
 4
 5,563
 5,340
 4
Chase Private Client branch locations738
 16
 NM
 738
 16
 NM
ATMs18,132
 16,443
 10
 18,132
 16,443
 10
Personal bankers24,052
 23,330
 3
 24,052
 23,330
 3
Sales specialists6,179
 5,289
 17
 6,179
 5,289
 17
Client advisors3,075
 3,112
 (1) 3,075
 3,112
 (1)
Active online customers (in thousands)17,929
 17,083
 5
 17,929
 17,083
 5
Active mobile customers (in thousands)9,075
 6,580
 38
 9,075
 6,580
 38
Chase Private Clients50,649
 5,807
 NM
 50,649
 5,807
 NM
Checking accounts (in thousands)27,384
 26,266
 4 % 27,384
 26,266
 4 %

Selected metrics    
As of or for the three months ended March 31, (in millions, except ratios and where otherwise noted) 
2012 2011 Change
Business metrics     
Business banking origination volume$1,540
 $1,425
 8 %
End-of-period loans17,822
 16,957
 5
End-of-period deposits:    

Checking159,075
 137,463
 16
Savings200,662
 180,345
 11
Time and other35,642
 44,001
 (19)
Total end-of-period deposits395,379
 361,809
 9
Average loans17,667
 16,886
 5
Average deposits:    

Checking147,455
 131,954
 12
Savings197,199
 175,133
 13
Time and other36,121
 45,035
 (20)
Total average deposits380,775
 352,122
 8
Deposit margin2.68% 2.88% 

Average assets$30,857
 $29,409
 5
Credit data and quality statistics    
Net charge-offs$96
 $119
 (19)
Net charge-off rate2.19% 2.86%  
Allowance for loan losses$798
 $875
 (9)
Nonperforming assets$663
 $822
 (19)
Retail branch business metrics    
Investment sales volume$6,598
 $6,584
 —
Client investment assets147,083
 138,150
 6
% managed accounts26% 22%  
Number of:     
Branches5,541
 5,292
 5
Chase Private Client branch locations366
 16
 NM
ATMs17,654
 16,265
 9
Personal bankers24,198
 21,894
 11
Sales specialists6,110
 5,039
 21
Client advisors3,131
 3,051
 3
Active online customers
  (in thousands)
17,915
 17,339
 3
Active mobile customers
  (in thousands)
8,570
 6,025
 42
Chase Private Clients32,857
 4,829
 NM
Checking accounts
  (in thousands)
27,034
 26,622
 2
28








Mortgage Production and Servicing
Selected income statement data
Three months ended March 31,     
(in millions, except ratios)2012
 2011
 Change
Mortgage fees and related income$2,008
 $(489) NM%
Other noninterest revenue123
 104
 18
Net interest income177
 271
 (35)
Total net revenue2,308
 (114) NM
     

Provision for credit losses—
 4
 NM
     

Noninterest expense1,724
 1,746
 (1)
Income/(loss) before income tax expense/(benefit)584
 (1,864) NM
Net income/(loss)$461
 $(1,130) NM
Overhead ratio75% NM
  
      
Functional results     
Production     
Production revenue$1,432
 $679
 111
Production-related net interest & other income187
 218
 (14)
Production-related revenue, excluding repurchase losses1,619
 897
 80
Production expense573
 424
 35
Income, excluding repurchase losses1,046
 473
 121
Repurchase losses(302) (420) 28
Income before income tax expense744
 53
 NM
Servicing    

Loan servicing revenue1,039
 1,052
 (1)
Servicing-related net interest & other income112
 156
 (28)
Servicing-related revenue1,151
 1,208
 (5)
MSR asset modeled amortization(351) (563) 38
Default servicing expense(a)
890
 1,078
 (17)
Core servicing expense(a)
261
 248
 5
Income/(loss), excluding MSR risk management(351) (681) 48
MSR risk management, including related net interest income/(expense)191
 (1,236) NM
Income/(loss) before income tax expense/(benefit)(160) (1,917) 92
Net income/(loss)$461
 $(1,130) NM
Selected income statement data      
 Three months ended June 30, Six months ended June 30,
(in millions, except ratios)2012
 2011
 Change 2012
 2011
 Change
Mortgage fees and related income$2,265
 $1,100
 106 % $4,273
 $611
 NM%
Other noninterest revenue110
 106
 4
 233
 210
 11
Net interest income194
 124
 56
 371
 395
 (6)
Total net revenue2,569
 1,330
 93
 4,877
 1,216
 301
            
Provision for credit losses1
 (2) NM
 1
 2
 (50)
     

      
Noninterest expense1,572
 2,187
 (28) 3,296
 3,933
 (16)
Income/(loss) before income tax expense/(benefit)996
 (855) NM
 1,580
 (2,719) NM
Net income/(loss)$604
 $(649) NM
 $1,065
 $(1,779) NM
Overhead ratio61% 164%   68% 323%  
            
Functional results           
Production           
Production revenue$1,362
 $767
 78
 $2,794
 $1,446
 93
Production-related net interest & other income199
 199
 —
 386
 417
 (7)
Production-related revenue, excluding repurchase losses1,561
 966
 62
 3,180
 1,863
 71
Production expense620
 457
 36
 1,193
 881
 35
Income, excluding repurchase losses941
 509
 85
 1,987
 982
 102
Repurchase losses(10) (223) 96
 (312) (643) 51
Income before income tax expense931
 286
 226
 1,675
 339
 394
Servicing    

      
Loan servicing revenue1,004
 1,011
 (1) 2,043
 2,063
 (1)
Servicing-related net interest & other income108
 29
 272
 220
 185
 19
Servicing-related revenue1,112
 1,040
 7
 2,263
 2,248
 1
MSR asset modeled amortization(327) (478) 32
 (678) (1,041) 35
Default servicing expense(a)
705
 1,449
 (51) 1,595
 2,527
 (37)
Core servicing expense(a)
248
 279
 (11) 509
 527
 (3)
Income/(loss), excluding MSR risk management(168) (1,166) 86
 (519) (1,847) 72
MSR risk management, including related net interest income/(expense)233
 25
 NM
 424
 (1,211) NM
Income/(loss) before income tax expense/(benefit)65
 (1,141) NM
 (95) (3,058) 97
Net income/(loss)$604
 $(649) NM%
 $1,065
 $(1,779) NM%
(a)
Default and core servicing expense includesinclude an aggregate of approximately $200 million and $650 million1.7 billion for foreclosure-related matters for the threesix months ended March 31,June 30, 2012 and June 30, 2011, respectively.



2029

Selected income statement data
Three months ended March 31,     
(in millions)2012
 2011
 Change
Supplemental mortgage fees and related income details     
Net production revenue:     
Production revenue$1,432
 $679
 111 %
Repurchase losses(302) (420) 28
Net production revenue1,130
 259
 336
Net mortgage servicing revenue:    

Operating revenue:    

Loan servicing revenue1,039
 1,052
 (1)
Changes in MSR asset fair value due to modeled amortization(351) (563) 38
Total operating revenue688
 489
 41
Risk management:    

Changes in MSR asset fair value due to inputs or assumptions in model596
 (751) NM
Derivative valuation adjustments and other(406) (486) 16
Total risk management190
 (1,237) NM
Total net mortgage servicing revenue878
 (748) NM
Mortgage fees and related income$2,008
 $(489) NM

Selected income statement data      
 Three months ended June 30, Six months ended June 30,
(in millions)2012
 2011
 Change 2012
 2011
 Change
Supplemental mortgage fees and related income details           
Net production revenue:           
Production revenue$1,362
 $767
 78 % $2,794
 $1,446
 93 %
Repurchase losses(10) (223) 96
 (312) (643) 51
Net production revenue1,352
 544
 149
 2,482
 803
 209
Net mortgage servicing revenue:    

      
Operating revenue:    

      
Loan servicing revenue1,004
 1,011
 (1) 2,043
 2,063
 (1)
Changes in MSR asset fair value due to modeled amortization(327) (478) 32
 (678) (1,041) 35
Total operating revenue677
 533
 27
 1,365
 1,022
 34
Risk management:    

      
Changes in MSR asset fair value due to market interest rates(1,193) (932) (28) (549) (553) 1
Other changes in MSR asset fair value due to inputs or assumptions in model(a)
76
 (28) NM
 28
 (1,158) NM
Derivative valuation adjustments and other1,353
 983
 38
 947
 497
 91
Total risk management236
 23
 NM
 426
 (1,214) NM
Total net mortgage servicing revenue913
 556
 64
 1,791
 (192) NM
Mortgage fees and related income$2,265
 $1,100
 106 % $4,273
 $611
 NM%
(a)Represents the aggregate impact of changes in model inputs and assumptions such as costs to service, home prices, mortgage spreads, ancillary income, and assumptions used to derive prepayment speeds, as well as changes to the valuation models themselves.
Quarterly results
Mortgage Production and Servicing reported net income of $461604 million, compared with a net loss of $1.1 billion649 million in the prior year.
Mortgage production reported pretax income of $931 million, an increase of $645 million from the prior year. Mortgage production-related revenue, excluding repurchase losses, was $1.6 billion, an increase of $722595 million, or 80%62%, from the prior year, reflecting wider margins, driven by market conditions and product mix, and higher volumes, due to a favorable refinancing environment, including the impact of the Home Affordable Refinance Programs (“HARP”). Production expense was $573620 million, an increase of $149163 million, or 36%, reflecting higher volumes. Repurchase losses were $10 million, compared with $223 million in the prior year. The current-quarter reflected a $216 million reduction in the repurchase liability. For further information, see Mortgage repurchase liability on pages 56–59 of this Form 10-Q.
Mortgage servicing reported pretax income of $65 million, compared with a pretax loss of $1.1 billion in the prior year. Mortgage servicing revenue, including mortgage servicing rights (“MSR”) amortization, was $785 million, an increase of $223 million, or 40%, from the prior year. This increase reflected reduced amortization as a result of a lower MSR asset value. Servicing expense was $953 million, a decrease of $775 million, or 45%, from the prior year. The prior-year servicing expense included approximately $1.0 billion of incremental expense related to foreclosure-related matters. MSR risk management income was $233 million, compared with $25 million in the prior year. See Note 16 on pages 185–186 of this Form 10-Q for further information regarding changes in value of the MSR asset and related hedges.
Year-to-date results
Mortgage Production and Servicing reported net income of $1.1 billion, compared with a net loss of $1.8 billion in the prior year.
Mortgage production reported pretax income of $1.7 billion, an increase of $1.3 billion from the prior year. Mortgage production-related revenue, excluding repurchase losses, was $3.2 billion, an increase of $1.3 billion, or 71%, from the prior year, reflecting wider margins and higher volumes, due to a favorable rate environment and the expansion of the HARP. Production expense was $1.2 billion, an increase of $312 million, or 35%, reflecting higher volumes and a strategic shift to the Retailretail channel, including branches, where origination costs and margins are traditionally higher. Repurchase losses were $302312 million, compared with repurchase losses of $420643 million in the prior year. For further information, see Mortgage productionrepurchase liability on pages 56–59 of this Form 10-Q.
Mortgage servicing reported a pretax incomeloss of $74495 million, compared with $3.1 billion in the prior year. Mortgage servicing revenue, including MSR amortization, was $1.6 billion, an increase of $691378 million, or 31%, from the prior year.
Mortgage servicing-related revenue was $1.2 billion, a decline of 5% from the prior year, as a result of a decline in third-party loans serviced. MSR asset amortization was $351 million, compared with $563 million in the prior year; this This increase reflected reduced amortization as a result of a lower MSR asset value. Servicing expense was $1.22.1 billion, a decrease of $175 million1.0 billion, or 13%31%, from the prior year. Foreclosure-related matters, including adjustments for the global settlement with federal and state agencies, resulted in approximately $200 million of additional servicing expense. The prior-year servicing expense included
approximately $650 million1.7 billion related to foreclosure-related matters. MSR risk management income was $191424 million, compared with a loss of $1.2 billion in the prior year. The prior year MSR risk management loss included a $1.1 billion decrease in the fair value of the MSR asset for the estimated impact of increased servicing costs. Mortgage servicing reported a pretax loss of $160 million, compared with a pretax loss of $1.9 billion in the prior year. See Note 16 on pages 144–146185–186 of this Form 10-Q for further information regarding changes in value of the MSR asset and related hedges.


30

Selected metrics         
As of or for the three months ended March 31,      
(in millions, except ratios and where otherwise noted)2012
 2011
 Change
 
As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions)2012
 2011
 Change
 2012
 2011
 Change
Selected balance sheet data                 
End-of-period loans:                 
Prime mortgage, including option ARMs(a)
$17,268
 $14,147
 22 % $17,454
 $14,260
 22 % $17,454
 $14,260
 22 %
Loans held-for-sale and loans at fair value(b)
12,496
 12,234
 2
 14,254
 13,558
 5
 14,254
 13,558
 5
Average loans:                 
Prime mortgage, including option ARMs(a)
17,238
 14,037
 23
 17,478
 14,083
 24
 17,358
 14,060
 23
Loans held-for-sale and loans at fair value(b)
15,621
 17,519
 (11) 17,694
 14,613
 21
 16,658
 16,058
 4
Average assets58,862
 61,354
 (4) 60,534
 58,072
 4
 59,698
 59,704
 —
Repurchase reserve (ending)3,213
 3,205
 —
 
Repurchase liability (ending)2,997
 3,213
 (7)% 2,997
 3,213
 (7)%
(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 Mortgage repurchase liability on pages 38–4156–59 of this Form 10-Q.
(b)Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets.



21

Selected metrics        
As of or for the three months ended March 31,     
As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except ratios and where otherwise noted)2012
 2011
 Change
2012
 2011
 Change
 2012
 2011
 Change
Credit data and quality statistics                
Net charge-offs:     
Net charge-offs/(recoveries):           
Prime mortgage, including option ARMs$—
 $4
 NM %
$1
 $(2) NM%
 $1
 $2
 (50)%
Net charge-off rate:    

Net charge-off/(recovery) rate:    

      
Prime mortgage, including option ARMs—% 0.12% 

0.02% (0.06)% 

 0.01% 0.03%  
30+ day delinquency rate(a)
3.01
 3.21
 

3.00
 3.30
 

 3.00
 3.30
  
Nonperforming assets(b)
$708
 $658
 8
$708
 $662
 7
 $708
 $662
 7
Business metrics (in billions)    

    

      
Origination volume by channel    

    

      
Retail$23.4
 $21.0
 11
$26.1
 $20.7
 26
 $49.5
 $41.7
 19
Wholesale(c)
—
 0.2
 NM
0.2
 0.1
 100
 0.2
 0.3
 (33)
Correspondent(c)
14.2
 13.5
 5
16.5
 10.3
 60
 30.7
 23.8
 29
CNT (negotiated transactions)0.8
 1.5
 (47)1.1
 2.9
 (62) 1.9
 4.4
 (57)
Total origination volume$38.4
 $36.2
 6
$43.9
 $34.0
 29
 $82.3
 $70.2
 17
Application volume by channel    

    

      
Retail$40.0
 $31.3
 28
$43.1
 $33.6
 28
 $83.1
 $64.9
 28
Wholesale(c)
0.2
 0.3
 (33)0.1
 0.3
 (67) 0.3
 0.6
 (50)
Correspondent(c)
19.7
 13.6
 45
23.7
 14.9
 59
 43.4
 28.5
 52
Total application volume$59.9
 $45.2
 33
$66.9
 $48.8
 37
 $126.8
 $94.0
 35
Third-party mortgage loans serviced (ending)$884.2
 $955.0
 (7)$860.0
 $940.8
 (9) $860.0
 $940.8
 (9)
Third-party mortgage loans serviced (average)892.6
 958.7
 (7)866.7
 947.0
 (8) 879.6
 952.9
 (8)
MSR net carrying value (ending)8.0
 13.1
 (39)7.1
 12.2
 (42)% 7.1
 12.2
 (42)%
Ratio of MSR net carrying value (ending) to third-party mortgage loans serviced (ending)0.90% 1.37% 

0.83% 1.30 % 

 0.83% 1.30%  
Ratio of loan servicing revenue to third-party mortgage loans serviced (average)0.47
 0.45
 

Ratio of annualized loan servicing revenue to third-party mortgage loans serviced (average)0.47
 0.43
 

 0.47
 0.44
  
MSR revenue multiple(d)
1.91x
 3.04x
 

1.77x
 3.02x
 

 1.77x
 2.95x
  
(a)
At March 31,June 30, 2012 and 2011, excluded mortgage loans insured by U.S. government agencies of $12.713.0 billion and $9.510.1 billion, respectively, that are 30 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally. For further discussion, see Note 13 on pages 118–135153–175 of this Form 10-Q which summarizes loan delinquency information.
(b)
At March 31,June 30, 2012 and 2011, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $11.811.9 billion and $8.89.1 billion, respectively, that are 90 or more days past due; and (2) real estate owned insured by U.S. government agencies of $1.21.3 billion and $2.32.4 billion, respectively. These amounts were excluded from nonaccrual loans as reimbursement of insured amounts is proceeding normally. For further discussion, see Note 13 on pages 118–135153–175 of this Form 10-Q which summarizes loan delinquency information.
(c)Includes rural housing loans sourced through brokers and correspondents, which are underwritten and closed with pre-funding loan approval from the U.S. Department of Agriculture Rural Development, which acts as the guarantor in the transaction.
(d)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).



31

Real Estate Portfolios
Selected income statement dataSelected income statement data    Selected income statement data        
Three months ended March 31,
(in millions, except ratios)
2012 2011 Change
Three months ended June 30, Six months ended June 30,
(in millions, except ratios)2012 2011 Change 20122011 Change
Noninterest revenue$8
 $8
 — %$13
 $20
 (35)% $21
$28
 (25)%
Net interest income1,073
 1,156
 (7)1,027
 1,197
 (14) 2,100
2,353
 (11)
Total net revenue1,081
 1,164
 (7)1,040
 1,217
 (15) 2,121
2,381
 (11)
    

    

    
Provision for credit losses(192) 1,076
 NM
(554) 954
 NM
 (746)2,030
 NM
    

    

    
Noninterest expense419
 355
 18
412
 371
 11
 831
726
 14
Income/(loss) before income tax expense/(benefit)854
 (267) NM
1,182
 (108) NM
 2,036
(375) NM
Net income/(loss)$518
 $(162) NM
$717
 $(66) NM%
 $1,235
$(228) NM%
Overhead ratio39% 30% 

40% 30% 

 39%30%  

Quarterly results
Real Estate Portfolios reported net income of $518717 million, compared with a net loss of $16266 million in the prior year. The increase was driven by a benefit from the provision for credit losses, reflecting ancontinued improvement in credit trends.
Net revenue was $1.11.0 billion, down by $83177 million, or 7%15%, from the prior year. The decrease was driven by a decline in net interest income, resulting from lower loan balances due to portfolio runoff.
The provision for credit losses reflected a benefit of $192554 million, compared with a provision expense of $1.1 billion954 million in the prior year. The current-quarter provision benefit reflected lower charge-offs as compared with the prior year and a $1.01.25 billion reduction ofin the allowance for loan losses due to lower estimated losses as delinquency trends improved.continued to improve, and to a lesser extent, a refinement of incremental loss estimates with respect to certain borrower assistance programs. See Consumer Credit Portfolio on pages 60–6982–92 of this Form 10-Q for the net charge-off amounts and rates.
Nonaccrual loans were $7.06.7 billion at both March 31, 2012 and 2011., compared with $6.9 billion in the prior year. Based upon regulatory guidance issued in the first quarter of 2012, the Firm began reporting performing junior liens that are subordinate to nonaccrual senior liens that are 90 days or more past due as nonaccrual loans. For more information on the new reporting of performing junior liens that are subordinate to senior liens that are 90 days or more past due based on the new regulatory guidance,
see Consumer Credit Portfolio on pages 60–6982–92 of this
Form 10-Q.
Noninterest expense was $419412 million, up by $6441 million, or 18%11%, from the prior year due to an increase in servicing costs.
Year-to-date results
Real Estate Portfolios reported net income of $1.2 billion, compared with a net loss of $228 million in the prior year. The increase was largely driven by a benefit from the provision for credit losses, reflecting an improvement in credit trends.


22Net revenue was $2.1 billion, down by $260 million, or 11%, from the prior year. The decrease was driven by a decline in net interest income, resulting from lower loan balances due to portfolio runoff.
The provision for credit losses reflected a benefit of $746 million, compared with a provision expense of $2.0 billion in the prior year. The current-year provision benefit reflected lower charge-offs as compared with the prior year and a $2.25 billion reduction in the allowance for loan losses due to lower estimated losses as delinquency trends continued to improve, and to a lesser extent, a refinement of incremental loss estimates with respect to certain borrower assistance programs. See Consumer Credit Portfolio on pages 82–92 of this Form 10-Q for the net charge-off amounts and rates.
Noninterest expense was $831 million, up by $105 million, or 14%, from the prior year due to an increase in servicing costs.

PCI Loans
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,June 30, 2012, the remaining weighted-average life of the PCI loan portfolio is expected to be 7.98.0 years. The loan balances are expected to decline more rapidly over the next three to four 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.


32

To date the impact of the PCI loans on Real Estate Portfolios’ net income has been negative. This is largely 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.
For further information, see Note 13, PCI loans, on pages 132–133172–173 of this Form 10-Q.


Selected metrics          
 As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions)2012
 2011
 Change 2012
2011
 Change
Loans excluding PCI          
End-of-period loans owned:          
Home equity$72,833
 $82,751
 (12)% $72,833
$82,751
 (12)%
Prime mortgage, including option ARMs42,037
 46,994
 (11) 42,037
46,994
 (11)
Subprime mortgage8,945
 10,441
 (14) 8,945
10,441
 (14)
Other675
 767
 (12) 675
767
 (12)
Total end-of-period loans owned$124,490
 $140,953
 (12) $124,490
$140,953
 (12)
Average loans owned:    

    

Home equity$74,069
 $84,065
 (12) $75,334
$85,478
 (12)
Prime mortgage, including option ARMs42,543
 47,615
 (11) 43,122
48,439
 (11)
Subprime mortgage9,123
 10,667
 (14) 9,304
10,875
 (14)
Other684
 785
 (13) 696
807
 (14)
Total average loans owned$126,419
 $143,132
 (12) $128,456
$145,599
 (12)
PCI loans 
    

    

End-of-period loans owned:    

    

Home equity$21,867
 $23,535
 (7) $21,867
$23,535
 (7)
Prime mortgage14,395
 16,200
 (11) 14,395
16,200
 (11)
Subprime mortgage4,784
 5,187
 (8) 4,784
5,187
 (8)
Option ARMs21,565
 24,072
 (10) 21,565
24,072
 (10)
Total end-of-period loans owned$62,611
 $68,994
 (9) $62,611
$68,994
 (9)
Average loans owned:    

    

Home equity$22,076
 $23,727
 (7) $22,282
$23,947
 (7)
Prime mortgage14,590
 16,456
 (11) 14,783
16,714
 (12)
Subprime mortgage4,824
 5,231
 (8) 4,869
5,266
 (8)
Option ARMs21,823
 24,420
 (11) 22,109
24,765
 (11)
Total average loans owned$63,313
 $69,834
 (9) $64,043
$70,692
 (9)
Total Real Estate Portfolios    

    

End-of-period loans owned:    

    

Home equity$94,700
 $106,286
 (11) $94,700
$106,286
 (11)
Prime mortgage, including option ARMs77,997
 87,266
 (11) 77,997
87,266
 (11)
Subprime mortgage13,729
 15,628
 (12) 13,729
15,628
 (12)
Other675
 767
 (12) 675
767
 (12)
Total end-of-period loans owned$187,101
 $209,947
 (11) $187,101
$209,947
 (11)
Average loans owned:    

    

Home equity$96,145
 $107,792
 (11) $97,616
$109,425
 (11)
Prime mortgage, including option ARMs78,956
 88,491
 (11) 80,014
89,918
 (11)
Subprime mortgage13,947
 15,898
 (12) 14,173
16,141
 (12)
Other684
 785
 (13) 696
807
 (14)
Total average loans owned$189,732
 $212,966
 (11) $192,499
$216,291
 (11)
Average assets$177,698
 $200,116
 (11) $179,976
$203,626
 (12)
Home equity origination volume360
 307
 17 % 672
556
 21 %
Selected metrics     
As of or for the three months ended March 31,(in millions)2012
 2011
 Change
Loans excluding PCI     
End-of-period loans owned:     
Home equity$75,207
 $85,253
 (12)%
Prime mortgage, including option ARMs43,152
 48,552
 (11)
Subprime mortgage9,289
 10,841
 (14)
Other692
 801
 (14)
Total end-of-period loans owned$128,340
 $145,447
 (12)
Average loans owned:    

Home equity$76,600
 $86,907
 (12)
Prime mortgage, including option ARMs43,701
 49,273
 (11)
Subprime mortgage9,485
 11,086
 (14)
Other707
 829
 (15)
Total average loans owned$130,493
 $148,095
 (12)
PCI loans 
    

End-of-period loans owned:    

Home equity$22,305
 $23,973
 (7)
Prime mortgage14,781
 16,725
 (12)
Subprime mortgage4,870
 5,276
 (8)
Option ARMs22,105
 24,791
 (11)
Total end-of-period loans owned$64,061
 $70,765
 (9)
Average loans owned:    

Home equity$22,488
 $24,170
 (7)
Prime mortgage14,975
 16,974
 (12)
Subprime mortgage4,914
 5,301
 (7)
Option ARMs22,395
 25,113
 (11)
Total average loans owned$64,772
 $71,558
 (9)
Total Real Estate Portfolios    

End-of-period loans owned:    

Home equity$97,512
 $109,226
 (11)
Prime mortgage, including option ARMs80,038
 90,068
 (11)
Subprime mortgage14,159
 16,117
 (12)
Other692
 801
 (14)
Total end-of-period loans owned$192,401
 $216,212
 (11)
Average loans owned:    

Home equity$99,088
 $111,077
 (11)
Prime mortgage, including option ARMs81,071
 91,360
 (11)
Subprime mortgage14,399
 16,387
 (12)
Other707
 829
 (15)
Total average loans owned$195,265
 $219,653
 (11)
Average assets$182,254
 $207,175
 (12)
Home equity origination volume312
 249
 25


2333

Credit data and quality statisticsCredit data and quality statisticsCredit data and quality statistics    
As of or for the three months ended March 31, (in millions, except ratios)2012 2011 Change
 As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except ratios)2012 2011 Change 20122011 Change
Net charge-offs excluding PCI loans:              
Home equity$542
 $720
 (25)%$466
 $592
 (21)% $1,008
$1,312
 (23)%
Prime mortgage, including option ARMs131
 161
 (19)114
 198
 (42) 245
359
 (32)
Subprime mortgage130
 186
 (30)112
 156
 (28) 242
342
 (29)
Other5
 9
 (44)4
 8
 (50) 9
17
 (47)
Total net charge-offs$808
 $1,076
 (25)$696
 $954
 (27) $1,504
$2,030
 (26)
Net charge-off rate excluding PCI loans:    

    

    
Home equity2.85% 3.36% 

2.53% 2.83% 

 2.69%3.09%  
Prime mortgage, including option ARMs1.21
 1.32
 

1.08
 1.67
 

 1.14
1.50
  
Subprime mortgage5.51
 6.80
 

4.94
 5.85
 

 5.23
6.33
  
Other2.84
 4.56
 

2.35
 4.01
 

 2.60
4.29
  
Total net charge-off rate excluding PCI loans2.49
 2.95
 

2.21
 2.67
 

 2.35
2.81
  
Net charge-off rate – reported:    

    

    
Home equity2.20% 2.63% 

1.95% 2.20% 

 2.08%2.42%  
Prime mortgage, including option ARMs0.65
 0.71
 

0.58
 0.90
 

 0.62
0.81
  
Subprime mortgage3.63
 4.60
 

3.23
 3.94
 

 3.43
4.26
  
Other2.84
 4.56
 

2.35
 4.01
 

 2.60
4.29
  
Total net charge-off rate – reported1.66
 1.99
 

1.48
 1.80
 

 1.57
1.89
  
30+ day delinquency rate excluding PCI loans(a)
5.32% 6.22% 

5.16% 5.98% 

 5.16%5.98%  
Allowance for loan losses$13,429
 $14,659
 (8)$12,179
 $14,659
 (17) $12,179
$14,659
 (17)
Nonperforming assets(b)(c)
7,738
 8,152
 (5)7,340
 7,729
 (5)% 7,340
7,729
 (5)%
Allowance for loan losses to ending loans retained6.98% 6.78% 

6.51% 6.98% 

 6.51%6.98%  
Allowance for loan losses to ending loans retained excluding PCI loans6.01
 6.68
 

5.20
 6.90
 

 5.20
6.90
  
(a)
The delinquency rate for PCI loans was 21.72%21.38% and 27.36%26.20% at March 31,June 30, 2012 and 2011, respectively.
(b)Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.
(c)For more information on the new reporting of performing junior liens that are subordinate to senior liens that are 90 days or more past due based on new regulatory guidance issued in the first quarter of 2012, see Consumer Credit Portfolio on pages 60-6982–92 of this Form 10-Q.




2434

CARD SERVICES & AUTO
For a discussion of the business profile of Card, see pages 94–97 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 4 of this Form 10–Q.
Selected income statement dataSelected income statement dataSelected income statement data      
Three months ended March 31,Three months ended June 30, Six months ended June 30,
(in millions, except ratios)2012 2011 Change2012 2011 Change 2012 2011 Change
Revenue                
Credit card income$948
 $898
 6 %$1,015
 $1,123
 (10)% $1,963
 $2,021
 (3)%
All other income303
 149
 103
231
 183
 26
 534
 332
 61
Noninterest revenue1,251
 1,047
 19
1,246
 1,306
 (5) 2,497
 2,353
 6
Net interest income3,463
 3,744
 (8)3,279
 3,455
 (5) 6,742
 7,199
 (6)
Total net revenue4,714
 4,791
 (2)4,525
 4,761
 (5) 9,239
 9,552
 (3)
                
Provision for credit losses738
 353
 109
734
 944
 (22) 1,472
 1,297
 13
                
Noninterest expense                
Compensation expense486
 459
 6
490
 448
 9
 976
 907
 8
Noncompensation expense1,447
 1,352
 7
1,512
 1,436
 5
 2,959
 2,788
 6
Amortization of intangibles96
 106
 (9)94
 104
 (10) 190
 210
 (10)
Total noninterest expense2,029
 1,917
 6
2,096
 1,988
 5
 4,125
 3,905
 6
Income before income tax expense1,947
 2,521
 (23)1,695
 1,829
 (7) 3,642
 4,350
 (16)
Income tax expense764
 987
 (23)665
 719
 (8) 1,429
 1,706
 (16)
Net income$1,183
 $1,534
 (23)$1,030
 $1,110
 (7)% $2,213
 $2,644
 (16)%
Financial ratios                
Return on common equity29% 39%  25% 28%   27% 33%  
Overhead ratio43
 40
  46
 42
   45
 41
  

Quarterly Resultsresults
Net income was $1.2$1.0 billion, a decrease of $351$80 million, or 23%7%, compared with the prior year. The decrease reflected a higher provision for credit losses,was driven by a lower reduction in the allowance for loan losses compared with the prior year.
Net revenue was $4.7$4.5 billion, a decrease of $77$236 million, or 2%5%, from the prior year. Net interest income was $3.5$3.3 billion, down $281$176 million, or 8%5%, from the prior year. The decrease was driven by lower average loan balances and narrower loan spreads, partially offset by lower revenue reversals associated with lower net charge-offs. Noninterest revenue was $1.3$1.2 billion, an increasea decrease of $204$60 million, or 19%5%, from the prior year. The increasedecrease was driven by lower partner revenue-sharing, reflecting the impacthigher amortization of the Kohl’s portfolio sale on April 1, 2011, anddirect loan origination costs, partially offset by higher net interchange income, partially offset by lower revenue from fee-based products.income.
The provision for credit losses was $738$734 million,compared with $353$944 million in the prior year. The current-quarter provision reflected lower net charge-offs and a $751 million reduction of $750 million toin the allowance for loan losses due to lower estimated losses. The prior-year provision included a $1.0 billion reduction of $2.0 billion toin the allowance for loan losses. The Credit Card net charge-off rate1 was 4.37%4.32%, down from 6.81%5.81% in the prior year; and the 30+ day delinquency rate1 was 2.55%2.13%, down from 3.55%2.98% in the prior year. The net charge-off rate1 for the quarter would have been 4.03% absent a policy change on restructured loans that do not comply with their modified payment terms, based upon an interpretation of regulatory guidance communicated to the
Firm by the banking regulators. These loans will now charge-off when they are 120 days past due rather than 180 days past due. This change resulted in a one-time acceleration of $91 million in net charge-offs in the current quarter only, and a permanent reduction in the 30+ day delinquency rate which is 0.10% for the current quarter. The one-time acceleration of net charge-offs is offset by a reduction in the allowance for loan losses. The Auto net charge-off rate was 0.28%0.17%, downup from 0.40%0.16% in the prior year.
Noninterest expense was $2.1 billion, an increase of $108 million, or 5%, from the prior year, due to additional expense related to a non-core product that is being exited.
Year-to-date results
Net income was $2.2 billion, a decrease of $431 million, or 16%, compared with the prior year. The decrease was driven by a lower reduction in the allowance for loan losses compared with the prior year.
Net revenue was $9.2 billion, a decrease of $313 million, or 3%, from the prior year. Net interest income was $6.7 billion, down $457 million, or 6%, from the prior year. The decrease was driven by narrower loan spreads and lower average loan balances, partially offset by lower revenue reversals associated with lower net charge-offs. Noninterest revenue was $2.5 billion, an increase of $144 million, or 6%, from the prior year. The increase was driven by higher net interchange income and lower partner revenue-sharing, reflecting the impact of the Kohl’s portfolio sale on April 1,


35

2011, partially offset by higher amortization of direct loan origination costs.
The provision for credit losses was $1.5 billion,compared with $1.3 billion in the prior year. The current-year provision reflected lower net charge-offs and a $1.5 billion reduction in the allowance for loan losses due to lower estimated losses. The prior-year provision included a $3.0 billion reduction in the allowance for loan losses. The Credit Card net charge-off rate1 was 4.34%, down from 6.32% in the prior year. The net charge-off rate1 would have been
 
4.20% absent the policy change on restructured loans that do not comply with their modified payment terms. The Auto net charge-off rate was 0.23%, down from 0.28% in the prior year.
Noninterest expense was $2.0$4.1 billion, an increase of $112$220 million, or 6%, from the prior year, primarily due to an expense related to a non-core product that is being exited.

1 Includes loans held-for-sale, which are non-GAAP financial measures. Management uses this as an additional measure to assess the performance of the portfolio.
Selected metricsAs of or for the three months ended March 31,
(in millions, except headcount and ratios)2012 2011 Change
Selected balance sheet data (period-end)     
Total assets$199,579
 $201,179
 (1)%
Loans:     
Credit Card125,331
 128,803
 (3)
Auto48,245
 47,411
 2
Student13,162
 14,288
 (8)
Total loans$186,738
 $190,502
 (2)
Equity$16,500
 $16,000
 3
Selected balance sheet data (average)     
Total assets$199,449
 $204,441
 (2)
Loans:     
Credit Card127,616
 132,537
 (4)
Auto47,704
 47,690
 —
Student13,348
 14,410
 (7)
Total loans$188,668
 $194,637
 (3)
Equity$16,500
 $16,000
 3
Headcount27,862
 26,777
 4
Credit data and quality statistics     
Net charge-offs:     
Credit Card$1,386
 $2,226
 (38)
Auto33
 47
 (30)
Student69
 80
 (14)
Total net charge-offs$1,488
 $2,353
 (37)
Net charge-off rate:     
Credit Card(a)
4.40% 6.97%  
Auto0.28
 0.40
  
Student2.08
 2.25
  
Total net charge-off rate3.19
 4.98
  


Selected metricsAs of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except headcount and ratios)2012 2011 Change 2012 2011 Change
Selected balance sheet data (period-end)           
Total assets$198,805
 $197,915
 — % $198,805
 $197,915
 — %
Loans:           
Credit Card124,705
 125,523
 (1) 124,705
 125,523
 (1)
Auto48,468
 46,796
 4
 48,468
 46,796
 4
Student12,232
 14,003
 (13) 12,232
 14,003
 (13)
Total loans$185,405
 $186,322
 —
 $185,405
 $186,322
 —
Equity$16,500
 $16,000
 3
 $16,500
 $16,000
 3
Selected balance sheet data (average)           
Total assets$197,301
 $198,044
 —
 $198,375
 $201,225
 (1)
Loans:           
Credit Card125,195
 125,038
 —
 126,405
 128,767
 (2)
Auto48,273
 46,966
 3
 47,989
 47,326
 1
Student12,944
 14,135
 (8) 13,146
 14,272
 (8)
Total loans$186,412
 $186,139
 —
 $187,540
 $190,365
 (1)
Equity$16,500
 $16,000
 3
 $16,500
 $16,000
 3
Headcount27,563
 26,874
 3
 27,563
 26,874
 3
Credit data and quality statistics           
Net charge-offs:           
Credit Card$1,345
 $1,810
 (26) $2,731
 $4,036
 (32)
Auto21
 19
 11
 54
 66
 (18)
Student119
 135
 (12) 188
 215
 (13)
Total net charge-offs$1,485
 $1,964
 (24)% $2,973
 $4,317
 (31)%
Net charge-off rate:           
Credit Card(a)
4.35% 5.82%   4.37% 6.40%  
Auto0.17
 0.16
   0.23
 0.28
  
Student3.70
 3.83
   2.88
 3.04
  
Total net charge-off rate3.22
 4.24
   3.20
 4.61
  

2536

Selected metrics

 As of or for the three months ended March 31, As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except ratios and where otherwise noted) 2012 2011 Change 2012 2011 Change 2012 2011 Change
Delinquency rates                  
30+ day delinquency rate:                  
Credit Card(b)
 2.56% 3.57% 
 2.14% 2.98% 
 2.14% 2.98%  
Auto 0.79
 0.97
 
 0.90
 0.98
 
 0.90
 0.98
  
Student(c)
 2.06
 2.01
 
 1.95
 1.70
 
 1.95
 1.70
  
Total 30+ day delinquency rate 2.07
 2.79
 
 1.80
 2.38
 
 1.80
 2.38
  
90+ day delinquency rate – Credit Card(b)
 1.37
 1.93
 
 1.04
 1.55
 
 1.04
 1.55
  
Nonperforming assets(d)
 $242
 $275
 (12)% $219
 $233
 (6)% $219
 $233
 (6)%
Allowance for loan losses:                  
Credit Card $6,251
 $9,041
 (31) $5,499
 $8,042
 (32) $5,499
 $8,042
 (32)
Auto and Student 1,010
 899
 12
 1,009
 879
 15
 1,009
 879
 15
Total allowance for loan losses $7,261
 $9,940
 (27) $6,508
 $8,921
 (27) $6,508
 $8,921
 (27)
Allowance for loan losses to period-end loans:   

     

        
Credit Card(b)
 5.02% 7.24% 
 4.41% 6.41% 
 4.41% 6.41%  
Auto and Student 1.64
 1.46
 
 1.66
 1.45
 
 1.66
 1.45
  
Total allowance for loan losses to period-end loans 3.91
 5.33
 
 3.51
 4.79
 
 3.51
 4.79
  
Business metrics                  
Credit Card, excluding Commercial Card                  
Sales volume (in billions) $86.9
 $77.5
 12
 $96.0
 $85.5
 12
 $182.9
 $163.0
 12
New accounts opened 1.7
 2.6
 (35) 1.6
 2.0
 (20) 3.3
 4.6
 (28)
Open accounts(e)
 64.2
 91.9
 (30) 63.7
 65.4
 (3) 63.7
 65.4
 (3)
Merchant Services                  
Bank card volume
(in billions)
 $152.8
 $125.7
 22
 $160.2
 $137.3
 17
 $313.0
 $263.0
 19
Total transactions
(in billions)
 6.8
 5.6
 21
 7.1
 5.9
 20
 13.9
 11.5
 21
Auto and Student                  
Origination volume
(in billions)
                  
Auto $5.8
 $4.8
 21
 $5.8
 $5.4
 7
 $11.6
 $10.2
 14
Student 0.1
 0.1
 —
 —
 —
 — % 0.1
 0.1
 — %
(a)
Average credit card loans include loans held-for-sale of $821782 million and $3.0 billion276 million for the three months ended March 31,June 30, 2012 and 2011, respectively, and $801 million and $1.6 billion for the six months ended June 30, 2012 and 2011, respectively. These amounts are excluded when calculating the net charge-off rate.
(b)
Period-end credit card loans include loans held-for-sale of $856112 million and $4.0 billionat March 31, 2012 and 2011, respectively.June 30, 2012. No allowance for loan losses was recorded for these loans. These amounts areThis amount is excluded when calculating delinquency rates and the allowance for loan losses to period-end loans. There were no loans held-for-sale at June 30, 2011.
(c)
Excludes student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $1.0 billion931 million and $968 million at both March 31,June 30, 2012 and 2011, respectively, that are 30 or more days past due. These amounts are excluded as reimbursement of insured amounts is proceeding normally.
(d)
Nonperforming assets exclude student loans insured by U.S. government agencies under the FFELP of $586547 million and $615558 million at March 31,June 30, 2012 and 2011, respectively, that are 90 or more days past due. These amounts are excluded as reimbursement of insured amounts is proceeding normally.
(e)The reduction reflects the impact of portfolio sales.
Card Services supplemental information
 Three months ended March 31,
(in millions)2012 2011 Change
Noninterest revenue$949
 $782
 21 %
Net interest income2,928
 3,200
 (9)
Total net revenue3,877
 3,982
 (3)
      
Provision for credit losses636
 226
 181
      
Total noninterest expense1,636
 1,555
 5
Income before income tax expense1,605
 2,201
 (27)
Net income$979
 $1,343
 (27)



Card Services supplemental information  
 Three months ended June 30, Six months ended June 30,
(in millions)2012 2011 Change 2012 2011 Change
Noninterest revenue$953
 $1,016
 (6)% $1,902
 $1,798
 6 %
Net interest income2,755
 2,911
 (5) 5,683
 6,111
 (7)
Total net revenue3,708
 3,927
 (6) 7,585
 7,909
 (4)
            
Provision for credit losses595
 810
 (27) 1,231
 1,036
 19
            
Total noninterest expense1,703
 1,622
 5
 3,339
 3,177
 5
Income before income tax expense1,410
 1,495
 (6) 3,015
 3,696
 (18)
Net income$860
 $911
 (6)% $1,839
 $2,254
 (18)%



2637

COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 98–100 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 5 of this Form 10-Q.
Selected income statement data    
 Three months ended March 31,
(in millions, except ratios)2012 2011 Change
Revenue     
Lending- and deposit-related fees$276
 $264
 5 %
Asset management, administration and commissions36
 35
 3
All other income(a)
245
 203
 21
Noninterest revenue557
 502
 11
Net interest income1,100
 1,014
 8
Total net revenue(b)
1,657
 1,516
 9
Provision for credit losses77
 47
 64
Noninterest expense     
Compensation expense246
 223
 10
Noncompensation expense345
 332
 4
Amortization of intangibles7
 8
 (13)
Total noninterest expense598
 563
 6
Income before income tax expense982
 906
 8
Income tax expense391
 360
 9
Net income$591
 $546
 8
Revenue by product     
Lending$892
 $837
 7
Treasury services602
 542
 11
Investment banking120
 110
 9
Other43
 27
 59
Total Commercial Banking revenue$1,657
 $1,516
 9
      
IB revenue, gross(c)
$339
 $309
 10
      
Revenue by client segment     
Middle Market Banking$825
 $755
 9
Commercial Term Lending293
 286
 2
Corporate Client Banking337
 290
 16
Real Estate Banking105
 88
 19
Other97
 97
 —
Total Commercial Banking revenue$1,657
 $1,516
 9
Financial ratios     
Return on common equity25% 28% 

Overhead ratio36
 37
 

Selected income statement data          
 Three months ended June 30, Six months ended June 30,
(in millions, except ratios)2012 2011 Change 2012 2011 Change
Revenue           
Lending- and deposit-related fees$264
 $281
 (6)% $540
 $545
 (1)%
Asset management, administration and commissions34
 34
 —
 70
 69
 1
All other income(a)
264
 283
 (7) 509
 486
 5
Noninterest revenue562
 598
 (6) 1,119
 1,100
 2
Net interest income1,129
 1,029
 10
 2,229
 2,043
 9
Total net revenue(b)
1,691
 1,627
 4
 3,348
 3,143
 7
Provision for credit losses(17) 54
 NM
 60
 101
 (41)
Noninterest expense           
Compensation expense235
 219
 7
 481
 442
 9
Noncompensation expense349
 336
 4
 694
 668
 4
Amortization of intangibles7
 8
 (13) 14
 16
 (13)
Total noninterest expense591
 563
 5
 1,189
 1,126
 6
Income before income tax expense1,117
 1,010
 11
 2,099
 1,916
 10
Income tax expense444
 403
 10
 835
 763
 9
Net income$673
 $607
 11
 $1,264
 $1,153
 10
Revenue by product           
Lending$920
 $880
 5
 $1,812
 $1,717
 6
Treasury services603
 556
 8
 1,205
 1,098
 10
Investment banking129
 152
 (15) 249
 262
 (5)
Other39
 39
 —
 82
 66
 24
Total Commercial Banking net revenue$1,691
 $1,627
 4
 $3,348
 $3,143
 7
            
IB revenue, gross(c)
$384
 $442
 (13) $723
 $751
 (4)
            
Revenue by client segment           
Middle Market Banking$833
 $789
 6
 $1,658
 $1,544
 7
Commercial Term Lending291
 286
 2
 584
 572
 2
Corporate Client Banking343
 339
 1
 680
 629
 8
Real Estate Banking114
 109
 5
 219
 197
 11
Other110
 104
 6
 207
 201
 3
Total Commercial Banking net revenue$1,691
 $1,627
 4 % $3,348
 $3,143
 7 %
Financial ratios           
Return on common equity28% 30% 

 27% 29%  
Overhead ratio35
 35
 

 36
 36
  
(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, totaling $9499 million and $6567 million for the three months ended March 31,June 30, 2012 and 2011, respectively, and $193 million and $132 million for the six months ended June 30, 2012 and 2011, respectively.
(c)Represents the total revenue related to investment banking products sold to CB clients.





38

Quarterly results
Net income was $673 million, an increase of $66 million, or 11%, from the prior year. The improvement was driven by a benefit from the provision for credit losses and an increase in net revenue, partially offset by higher expense.
Record net revenue was $1.7 billion, an increase of $64 million, or 4%, from the prior year. Net interest income was $1.1 billion, up by $100 million, or 10%, driven by growth in liability and loan balances, partially offset by spread compression on loan and liability products. Noninterest revenue was $562 million, down by $36 million, or 6%, compared with the prior year, driven by lower investment banking revenue and deposit- and lending-related fees.
Revenue from Middle Market Banking was $833 million, an increase of $44 million, or 6%, from the prior year. Revenue from Commercial Term Lending was $291 million, an increase of $5 million, or 2%. Revenue from Corporate Client Banking was $343 million, an increase of $4 million, or 1%. Revenue from Real Estate Banking was $114 million, an increase of $5 million, or 5%.
The provision for credit losses was a benefit of $17 million, compared with provision for credit losses of $54 million in the prior year. There were net recoveries of $9 million in the current quarter (0.03% net recovery rate), compared with net charge-offs of $40 million (0.16% net charge-off rate) in the prior year. The allowance for loan losses to period end loans retained was 2.20%, down from 2.56% in the prior year. Nonaccrual loans were $917 million, down by $717 million, or 44%, from the prior year, largely due to commercial real estate repayments and loan sales.
Noninterest expense was $591 million, an increase of $45$28 million, or 8%5%, from the prior year, reflecting higher headcount-related expense and regulatory deposit insurance assessments.
Year-to-date results
Net income was $1.3 billion, an increase of $111 million, or 10%, from the prior year. The improvement was driven by an increase in net revenue partially offset by higher expense and an increasea decrease in the provision for credit losses.losses, partially offset by higher expense.
Net revenue was a record $1.7of $3.3 billion, an increase of $141$205 million, or 9%7%, from the prior year. Net interest income was $1.1$2.2 billion, up by $86$186 million, or 8%9%, driven by growth in liability and loan balances, largely offset by spread compression on liability and loan products. Noninterest revenue was $557 million,$1.1 billion, up by $55$19 million, or 11%2%, compared with the prior year, predominantly driven by increased deposit-and lending-related fees, higher investment banking revenue, increased community development investment-related revenue, and higher other fee income, largely offset by lower investment banking revenue. Additionally, prior year results included gains from investments held at fair value.
Revenue from Middle Market Banking was $825 million,$1.7 billion, an increase of $70$114 million, or 9%7%, from the prior year. Revenue from Commercial Term Lending was $293$584 million, an increase of $7$12 million, or 2%, compared with the prior year.. Revenue from Corporate Client Banking was $337$680 million, an increase of $47$51 million, or 16% from the prior year.8%. Revenue from Real Estate Banking was $105$219 million, an increase of $17$22 million, or 19% from the prior year.11%.
The provision for credit losses was $77$60 million, compared with $47$101 million in the prior year. Net charge-offs were $12$3 million (0.04%(0.01% net charge-off rate) compared with net charge-offs of $31$71 million (0.13%(0.14% net charge-off rate) in the prior year. The allowance for loan losses to end-of-period loans retained was 2.32%, down from 2.59% in the prior year. Nonaccrual loans were $1.0 billion, down by $951 million, or 49% from the prior year, as a result of commercial real estate repayments and loans sales.
Noninterest expense was $598 million,$1.2 billion, an increase of $35$63 million, or 6% from the prior year, primarily reflecting higher headcount-related expense.



2739

Selected metrics     
 As of or for the three months ended March 31,
(in millions, except headcount and ratios)2012 2011 Change
Selected balance sheet data (period-end)     
Total assets$161,741
 $140,706
 15%
Loans:     
Loans retained114,969
 99,334
 16
Loans held-for-sale and loans at fair value878
 835
 5
Total loans$115,847
 $100,169
 16
Equity9,500
 8,000
 19
      
Period-end loans by client segment     
Middle Market Banking$46,040
 $38,618
 19
Commercial Term Lending39,314
 37,677
 4
Corporate Client Banking17,670
 12,705
 39
Real Estate Banking8,763
 7,535
 16
Other4,060
 3,634
 12
Total Commercial Banking loans$115,847
 $100,169
 16
      
Selected balance sheet data (average)     
Total assets$161,074
 $140,400
 15
Loans:     
Loans retained112,879
 98,829
 14
Loans held-for-sale and loans at fair value881
 756
 17
Total loans$113,760
 $99,585
 14
Liability balances200,178
 156,200
 28
Equity9,500
 8,000
 19
Average loans by client segment     
Middle Market Banking$45,047
 $38,207
 18
Commercial Term Lending38,848
 37,810
 3
Corporate Client Banking17,514
 12,374
 42
Real Estate Banking8,341
 7,607
 10
Other4,010
 3,587
 12
Total Commercial Banking loans$113,760
 $99,585
 14
      
Headcount5,612
 4,941
 14
Selected metrics           
 As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except headcount and ratios)2012 2011 Change 2012 2011 Change
Selected balance sheet data (period-end)           
Total assets$163,698
 $148,662
 10 % $163,698
 $148,662
 10 %
Loans:           
Loans retained119,946
 102,122
 17
 119,946
 102,122
 17
Loans held-for-sale and loans at fair value547
 557
 (2) 547
 557
 (2)
Total loans$120,493
 $102,679
 17
 $120,493
 $102,679
 17
Equity9,500
 8,000
 19
 9,500
 8,000
 19
            
Period-end loans by client segment           
Middle Market Banking$47,638
 $40,530
 18
 $47,638
 $40,530
 18
Commercial Term Lending40,972
 38,012
 8
 40,972
 38,012
 8
Corporate Client Banking18,839
 13,097
 44
 18,839
 13,097
 44
Real Estate Banking8,819
 7,409
 19
 8,819
 7,409
 19
Other4,225
 3,631
 16
 4,225
 3,631
 16
Total Commercial Banking loans$120,493
 $102,679
 17
 $120,493
 $102,679
 17
            
Selected balance sheet data (average)           
Total assets$163,423
 $143,560
 14
 $162,249
 $141,989
 14
Loans:           
Loans retained117,835
 100,857
 17
 115,357
 99,849
 16
Loans held-for-sale and loans at fair value599
 1,015
 (41) 740
 886
 (16)
Total loans$118,434
 $101,872
 16
 $116,097
 $100,735
 15
Liability balances193,280
 162,769
 19
 196,729
 159,503
 23
Equity9,500
 8,000
 19
 9,500
 8,000
 19
Average loans by client segment           
Middle Market Banking$46,880
 $40,012
 17
 $45,964
 $39,114
 18
Commercial Term Lending40,060
 37,729
 6
 39,454
 37,769
 4
Corporate Client Banking18,588
 13,062
 42
 18,051
 12,720
 42
Real Estate Banking8,808
 7,467
 18
 8,575
 7,537
 14
Other4,098
 3,602
 14
 4,053
 3,595
 13
Total Commercial Banking loans$118,434
 $101,872
 16
 $116,097
 $100,735
 15
            
Headcount5,862
 5,140
 14
 5,862
 5,140
 14
As of or for the three months ended March 31,
(in millions, except headcount and ratios)2012 2011 Change
Credit data and quality statistics                
Net charge-offs$12
 $31
 (61)%
Net (recoveries)/charge-offs$(9) $40
 NM
 $3
 $71
 (96)
Nonperforming assets                
Nonaccrual loans:                
Nonaccrual loans retained(a)
972
 1,925
 (50)881
 1,613
 (45) 881
 1,613
 (45)
Nonaccrual loans held-for-sale and loans held at fair value32
 30
 7
36
 21
 71
 36
 21
 71
Total nonaccrual loans1,004
 1,955
 (49)917
 1,634
 (44) 917
 1,634
 (44)
Assets acquired in loan satisfactions60
 179
 (66)36
 197
 (82) 36
 197
 (82)
Total nonperforming assets1,064
 2,134
 (50)953
 1,831
 (48) 953
 1,831
 (48)
Allowance for credit losses:                
Allowance for loan losses2,662
 2,577
 3
2,638
 2,614
 1
 2,638
 2,614
 1
Allowance for lending-related commitments194
 206
 (6)209
 187
 12
 209
 187
 12
Total allowance for credit losses2,856
 2,783
 3
2,847
 2,801
 2 % 2,847
 2,801
 2 %
Net charge-off rate(b)
0.04% 0.13% 

Net (recovery)/charge-off rate(b)
(0.03)% 0.16%   0.01% 0.14%  
Allowance for loan losses to period-end loans retained
2.32
 2.59
 

2.20
 2.56
   2.20
 2.56
  
Allowance for loan losses to nonaccrual loans retained(a)
274
 134
 

299
 162
   299
 162
  
Nonaccrual loans to total period-end loans0.87
 1.95
 

0.76
 1.59
   0.76
 1.59
  
(a)
Allowance for loan losses of $163143 million and $360289 million was held against nonaccrual loans retained at March 31,June 30, 2012 and 2011, respectively.
(b)Loans held-for-sale and loans at fair value were excluded when calculating the net (recovery)/charge-off rate.



2840

TREASURY & SECURITIES SERVICES
For a discussion of the business profile of TSS, see pages 101–103 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 5 of this Form 10-Q.
Selected income statement dataSelected income statement data    Three months ended June 30, Six months ended June 30,
Three months ended March 31,
(in millions, except ratio data)		2012 2011 Change
(in millions, except ratio data)2012 2011 Change 2012 2011 Change
Revenue                
Lending- and deposit-related fees$286
 $303
 (6)%$287
 $314
 (9)% $573
 $617
 (7)%
Asset management, administration and commissions654
 695
 (6)708
 726
 (2) 1,362
 1,421
 (4)
All other income127
 139
 (9)156
 143
 9
 283
 282
 —
Noninterest revenue1,067
 1,137
 (6)1,151
 1,183
 (3) 2,218
 2,320
 (4)
Net interest income947
 703
 35
1,001
 749
 34
 1,948
 1,452
 34
Total net revenue2,014
 1,840
 9
2,152
 1,932
 11
 4,166
 3,772
 10
Provision for credit losses2
 4
 (50)8
 (2) NM
 10
 2
 400
               

Credit allocation income/(expense)(a)
3
 27
 (89)68
 32
 113
 71
 59
 20
                
Noninterest expense                
Compensation expense732
 715
 2
717
 719
 —
 1,449
 1,434
 1
Noncompensation expense728
 647
 13
760
 719
 6
 1,488
 1,366
 9
Amortization of intangibles13
 15
 (13)14
 15
 (7) 27
 30
 (10)
Total noninterest expense1,473
 1,377
 7
1,491
 1,453
 3
 2,964
 2,830
 5
Income before income tax expense542
 486
 12
721
 513
 41
 1,263
 999
 26
Income tax expense191
 170
 12
258
 180
 43
 449
 350
 28
Net income$351
 $316
 11
$463
 $333
 39
 $814
 $649
 25
Financial ratios                
Return on common equity19% 18%  25% 19%   22% 19% 

Pretax margin ratio27
 26
  34
 27
   30
 26
 

Overhead ratio73
 75
  69
 75
   71
 75
 

Pre-provision profit ratio27
 25
  31
 25
   29
 25
 

Revenue by business                
Worldwide Securities Services (“WSS”)    
Worldwide Securities ServicesWorldwide Securities Services          
Investor Services$783
 $745
 5
$835
 $782
 7
 $1,618
 $1,527
 6
Clearance, Collateral Management and Depositary Receipts179
 204
 (12)243
 220
 10
 422
 424
 —
Total WSS revenue$962
 $949
 1
$1,078
 $1,002
 8
 $2,040
 $1,951
 5
Treasury Services                
Transaction Services$893
 $765
 17
$917
 $785
 17
 $1,810
 $1,550
 17
Trade Finance159
 126
 26
157
 145
 8
 316
 271
 17
Total TS revenue$1,052
 $891
 18
$1,074
 $930
 15 % $2,126
 $1,821
 17 %
(a)IB manages traditional credit exposures related to GCB on behalf of IB and TSS, and IB and TSS share the economics related to the Firm’s GCB clients. Included within this allocation are net revenue, provision for credit losses and expenses. IB recognizes this credit allocation as a component of all other income.


41

Quarterly results
Net income was $351$463 million, an increase of $35$130 million, or 11%39%, from the prior year.
Net revenue was $2.0$2.2 billion, an increase of $174$220 million, or 9%11%, from the prior year. Treasury ServicesTS net revenue was $1.1 billion, an increase of $161$144 million, or 18%15%. The increase was primarily driven by higher deposit balances, and higher trade finance loan volumes. Worldwide Securities Servicesvolumes, and spreads. WSS net revenue was $962 million,$1.1 billion, an increase of 1%$76 million, or 8%, compared with the prior year.year, driven by higher deposit balances.
TSS generated firmwide net revenue of $2.7$2.8 billion, including $1.7 billion by TS; of that amount, $1.1 billion was recorded in TS, $602$603 million in CB,Commercial Banking, and $69$68 million in other lines of business. The remaining $962 million$1.1 billion of firmwide net revenue was recorded in Worldwide Securities Services.WSS.
Noninterest expense was $1.5 billion, an increase of $96$38 million, or 7%3%, from the prior year. The increase was primarily driven by continued expansion into new markets.

Year-to-date results
Net income was $814 million, an increase of $165 million, or 25%, from the prior year.
Net revenue was $4.2 billion, an increase of $394 million, or 10%, from the prior year. TS net revenue was $2.1 billion, an increase of $305 million, or 17%. The increase was primarily driven by higher deposit balances, higher trade finance loan volumes, and spreads. WSS net revenue was $2.0 billion, an increase of $89 million, or 5%, compared with the prior year, driven by higher deposit balances.
TSS generated firmwide net revenue of $5.5 billion, including $3.5 billion by TS; of that amount, $2.1 billion was recorded in TS, $1.2 billion in Commercial Banking, and $137 million in other lines of business. The remaining $2.0 billion of firmwide net revenue was recorded in WSS.
Noninterest expense was $3.0 billion, an increase of $134 million, or 5%, from the prior year. The increase was driven by continued expansion into new markets.

Selected metrics     As of or for the three months ended June 30, As of or for the six months ended June 30,
As of or for the three months ended March 31, (in millions, except headcount data and where otherwise noted)2012 2011 Change
(in millions, except headcount data and where otherwise noted)2012 2011 Change 2012 2011 Change
Selected balance sheet data (period-end)                
Total assets$66,732
 $50,614
 32 %$67,758
 $55,950
 21 % $67,758
 $55,950
 21 %
Loans(a)
41,173
 31,020
 33
42,558
 34,034
 25
 42,558
 34,034
 25
Equity7,500
 7,000
 7
7,500
 7,000
 7
 7,500
 7,000
 7
Selected balance sheet data (average)               

Total assets$64,559
 $47,873
 35
$66,398
 $52,688
 26
 $65,479
 $50,294
 30
Loans(a)
40,538
 29,290
 38
42,213
 33,069
 28
 41,376
 31,190
 33
Liability balances356,964
 265,720
 34
348,102
 302,858
 15
 352,533
 284,392
 24
Equity7,500
 7,000
 7
7,500
 7,000
 7
 7,500
 7,000
 7
    

  �� 

     

Headcount27,765
 28,040
 (1)27,462
 28,230
 (3) 27,462
 28,230
 (3)
WSS business metrics                
Assets under custody (“AUC”) by assets class (period-end)
(in billions)
                
Fixed income$11,332
 $10,437
 9
$11,302
 $10,686
 6
 $11,302
 $10,686
 6
Equity5,365
 5,238
 2
5,025
 5,267
 (5) 5,025
 5,267
 (5)
Other(b)
1,171
 944
 24
1,338
 992
 35
 1,338
 992
 35
Total AUC$17,868
 $16,619
 8
$17,665
 $16,945
 4
 $17,665
 $16,945
 4
Liability balances (average)125,088
 82,724
 51
121,755
 90,204
 35
 123,421
 86,485
 43
TS business metrics                
TS liability balances (average)231,876
 182,996
 27
226,347
 212,654
 6
 229,112
 197,907
 16
Trade finance loans (period-end)35,692
 25,499
 40
35,291
 27,473
 28 % 35,291
 27,473
 28 %
(a)Loan balances include trade finance loans and wholesale overdrafts.
(b)Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and nonsecurities contracts.



2942

Selected metrics     As of or for the three months ended June 30, As of or for the six months ended June 30,
As of or for the three months ended March 31,
(in millions, except ratio data, and where otherwise noted)
2012 2011 Change
(in millions, except ratio data, and where otherwise noted)2012 2011 Change
 2012 2011 Change
Credit data and quality statistics                
Net charge-offs$—
 $—
 NM%
$—
 $—
 NM%
 $—
 $—
 NM%
Nonaccrual loans5
 11
 (55)4
 3
 33
 4
 3
 33
Allowance for credit losses:                
Allowance for loan losses69
 69
 —
79
 74
 7
 79
 74
 7
Allowance for lending-related commitments14
 48
 (71)9
 41
 (78) 9
 41
 (78)
Total allowance for credit losses83
 117
 (29)88
 115
 (23) 88
 115
 (23)
Net charge-off rate—% —%  —% —%   —% —%  
Allowance for loan losses to period-end loans0.17
 0.22
  0.19
 0.22
   0.19
 0.22
  
Allowance for loan losses to nonaccrual loansNM NM  NM  NM   NM  NM  
Nonaccrual loans to period-end loans0.01
 0.04
  0.01
 0.01
   0.01
 0.01
  
International metrics                
Net revenue by geographic region(a)
     
Net revenue(a)
           
Europe/Middle East/Africa$777
 $691
 12
 $1,445
 $1,321
 9
Asia/Pacific$353
 $276
 28
345
 299
 15
 698
 575
 21
Latin America/Caribbean82
 76
 8
72
 80
 (10) 154
 156
 (1)
Europe/Middle East/Africa668
 630
 6
North America911
 858
 6
958
 862
 11
 1,869
 1,720
 9
Total net revenue$2,014
 $1,840
 9
$2,152
 $1,932
 11
 $4,166
 $3,772
 10
Average liability balances(a)
                
Europe/Middle East/Africa$127,173
 $125,911
 1
 $127,484
 $117,501
 8
Asia/Pacific$50,197
 $39,123
 28
50,331
 42,472
 19
 50,264
 40,807
 23
Latin America/Caribbean11,852
 12,720
 (7)10,453
 13,506
 (23) 11,153
 13,115
 (15)
Europe/Middle East/Africa127,794
 108,997
 17
North America167,121
 104,880
 59
160,145
 120,969
 32
 163,632
 112,969
 45
Total average liability balances$356,964
 $265,720
 34
$348,102
 $302,858
 15
 $352,533
 $284,392
 24
Trade finance loans (period-end)(a)
                
Europe/Middle East/Africa$9,577
 $6,184
 55
 $9,577
 $6,184
 55
Asia/Pacific$18,140
 $14,607
 24
18,209
 15,736
 16
 18,209
 15,736
 16
Latin America/Caribbean6,040
 4,014
 50
5,754
 4,553
 26
 5,754
 4,553
 26
Europe/Middle East/Africa9,972
 5,794
 72
North America1,540
 1,084
 42
1,751
 1,000
 75
 1,751
 1,000
 75
Total trade finance loans$35,692
 $25,499
 40
$35,291
 $27,473
 28
 $35,291
 $27,473
 28
AUC (period-end)(in billions)(a)
                
North America$9,998
 $9,901
 1
$10,048
 $9,976
 1
 $10,048
 $9,976
 1
All other regions7,870
 6,718
 17
7,617
 6,969
 9
 7,617
 6,969
 9
Total AUC$17,868
 $16,619
 8
$17,665
 $16,945
 4 % $17,665
 $16,945
 4 %
(a)Total net revenue, average liability balances, trade finance loans and AUC are based on the domicile of the client. In the second quarter of 2012, the methodology for allocating the data by region was refined. Prior period was not revised due to immateriality.

43

Selected metrics     As of or for the three months ended June 30, As of or for the six months ended June 30,
Three months ended March 31,
(in millions, except where otherwise noted)		2012 2011 Change
(in millions, except where otherwise noted)2012 2011 Change 2012 2011 Change
TSS firmwide disclosures(a)
                
TS revenue – reported$1,052
 $891
 18 %$1,074
 $930
 15 % $2,126
 $1,821
 17 %
TS revenue reported in CB602
 542
 11
603
 556
 8
 1,205
 1,098
 10
TS revenue reported in other lines of business69
 63
 10
68
 65
 5
 137
 128
 7
TS firmwide revenue(b)
1,723
 1,496
 15
1,745
 1,551
 13
 3,468
 3,047
 14
WSS revenue962
 949
 1
1,078
 1,002
 8
 2,040
 1,951
 5
TSS firmwide revenue(b)
$2,685
 $2,445
 10
$2,823
 $2,553
 11
 $5,508
 $4,998
 10
TSS total foreign exchange (“FX”) revenue(b)
137
 160
 (14)147
 165
 (11) 284
 325
 (13)
TS firmwide liability balances (average)(c)
432,299
 339,240
 27
419,806
 375,432
 12
 426,053
 357,436
 19
TSS firmwide liability balances (average)(c)
557,142
 421,920
 32
541,382
 465,627
 16
 549,262
 443,894
 24
Number of:               

U.S.$ ACH transactions originated1,019
 992
 3
1,020
 959
 6
 2,039
 1,951
 5
Total U.S.$ clearing volume
(in thousands)		32,696
 30,971
 6
33,980
 32,274
 5
 66,676
 63,245
 5
International electronic funds transfer volume (in thousands)(d)
75,087
 60,942
 23
76,343
 63,208
 21
 151,430
 124,150
 22
Wholesale check volume589
 532
 11
602
 608
 (1) 1,191
 1,140
 4
Wholesale cards issued
(in thousands)(e)
24,693
 23,170
 7
25,346
 23,746
 7 % 25,346
 23,746
 7 %
(a)TSS firmwide metrics include revenue recorded in CB, Consumer & Business Banking and AM lines of business and net TSS FX revenue (it excludes TSS FX revenue recorded in the IB). In order to capture the firmwide impact of TS and TSS products and revenue, management reviews firmwide metrics in assessing financial performance of TSS. Firmwide metrics are necessary in order to understand the aggregate TSS business.
(b)IB executes FX transactions on behalf of TSS customers under revenue sharing agreements. FX revenue generated by TSS customers is recorded in TSS and IB. TSS total FX revenue reported above is the gross (pre-split) FX revenue generated by TSS customers. However, TSS firmwide revenue includes only the FX revenue booked in TSS, i.e., it does not include the portion of TSS FX revenue recorded in IB.
(c)Firmwide liability balances include liability balances recorded in CB.
(d)International electronic funds transfer includes non-U.S. dollar Automated Clearing House (“ACH”) and clearing volume.
(e)Wholesale cards issued and outstanding include stored value, prepaid and government electronic benefit card products.



3044

ASSET MANAGEMENT
For a discussion of the business profile of AM, see pages 104–106 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 5 of this Form 10-Q.
Selected income statement dataSelected income statement data    Selected income statement data          
Three months ended March 31,Three months ended June 30, Six months ended June 30,
(in millions, except ratios)2012 2011 Change2012 2011 Change 2012 2011 Change
Revenue                
Asset management, administration and commissions$1,621
 $1,707
 (5)%$1,701
 $1,818
 (6)% $3,322
 $3,525
 (6)%
All other income266
 313
 (15)151
 321
 (53) 417
 634
 (34)
Noninterest revenue1,887
 2,020
 (7)1,852
 2,139
 (13) 3,739
 4,159
 (10)
Net interest income483
 386
 25
512
 398
 29
 995
 784
 27
Total net revenue2,370
 2,406
 (1)2,364
 2,537
 (7) 4,734
 4,943
 (4)
                
Provision for credit losses19
 5
 280
34
 12
 183
 53
 17
 212
                
Noninterest expense                
Compensation expense1,120
 1,039
 8
1,024
 1,068
 (4) 2,144
 2,107
 2
Noncompensation expense586
 599
 (2)655
 704
 (7) 1,241
 1,303
 (5)
Amortization of intangibles23
 22
 5
22
 22
 —
 45
 44
 2
Total noninterest expense1,729
 1,660
 4
1,701
 1,794
 (5) 3,430
 3,454
 (1)
Income before income tax expense622
 741
 (16)629
 731
 (14) 1,251
 1,472
 (15)
Income tax expense236
 275
 (14)238
 292
 (18) 474
 567
 (16)
Net income$386
 $466
 (17)$391
 $439
 (11) $777
 $905
 (14)
Revenue by client segment                
Private Banking$1,279
 $1,317
 (3)$1,341
 $1,289
 4
 $2,620
 $2,606
 1
Institutional557
 543
 3
537
 694
 (23) 1,094
 1,237
 (12)
Retail534
 546
 (2)486
 554
 (12) 1,020
 1,100
 (7)
Total net revenue$2,370
 $2,406
 (1)$2,364
 $2,537
 (7)% $4,734
 $4,943
 (4)%
Financial ratios                
Return on common equity22% 29%  22% 27%   22% 28%  
Overhead ratio73
 69
  72
 71
   72
 70
  
Pretax margin ratio26
 31
  27
 29
   26
 30
  
Quarterly results
Net income was $386$391 million, a decrease of $80$48 million, or 17%11%, from the prior year. These results reflected higher noninterest expense and lower net revenue.revenue and higher provision for credit losses, partially offset by lower noninterest expense.
Net revenue was $2.4 billion, a decrease of $36$173 million, or 1%7%, from the prior year. Noninterest revenue was $1.9 billion, down by $133$287 million, or 7%13%, primarily due to lower credit-relatedperformance fees, lower valuations of seed capital investments and the effect of lower performance fees,market levels, partially offset by net inflows to products with higher margins and higher valuations of seed capital investments.product inflows. Net interest income was $483$512 million, up by $97$114 million, or 25%29%, primarily due to higher deposit and loan balances, partially offset by narrower deposit spreads.balances.
Revenue from Private Banking was $1.3 billion, down 3%up 4% from the prior year. Revenue from Institutional was $557$537 million, up 3%down 23%. Revenue from Retail was $534$486 million, down 2%12%.
The provision for credit losses was $19$34 million, compared with $5$12 million in the prior year.
 
Noninterest expense was $1.7 billion, an increasea decrease of $69$93 million, or 5%, from the prior year, due to the absence of non-client-related litigation expense and lower performance-based compensation.
Year-to-date results
Net income was $777 million, a decrease of $128 million, or 14%, from the prior year. These results reflected lower net revenue and a higher provision for credit losses, partially offset by lower noninterest expense.
Net revenue was $4.7 billion, a decrease of $209 million, or 4%, from the prior year. Noninterest revenue was $3.7 billion, down by $420 million, or 10%, due to lower performance fees, lower loan-related revenue and the effect of lower market levels, partially offset by net product inflows. Net interest income was $995 million, up by $211 million, or 27%, due to higher deposit and loan balances.
Revenue from Private Banking was $2.6 billion, up 1% from the prior year. Revenue from Institutional was $1.1 billion, down 12%. Revenue from Retail was $1.0 billion, down 7%.


45

The provision for credit losses was $53 million, compared with $17 million in the prior year.
Noninterest expense was $3.4 billion, a decrease of $24 million, or 1%, from the prior year, due to increasedthe absence of
non-client-related litigation expense and lower performance-based compensation partially offset by higher headcount-related expense.expense.


Selected metrics     As of or for the three months ended June 30, As of or for the six months ended June 30,
Business metricsAs of or for the three months ended March 31,
(in millions, except headcount, ranking data and where otherwise noted)2012 2011 Change2012 2011 Change 2012 2011 Change
Number of:                
Client advisors(a)
2,832
 2,719
 4%2,739
 2,719
 1% 2,739
 2,719
 1%
Retirement planning services participants (in thousands)1,926
 1,604
 20
1,960
 1,613
 22
 1,960
 1,613
 22
% of customer assets in 4 & 5 Star Funds(b)
42% 46%  43% 50%   43% 50%  
% of AUM in 1st and 2nd quartiles:(c)
                
1 year64
 57
  65
 56
   65
 56
  
3 years74
 70
  72
 71
   72
 71
  
5 years76
 77
  74
 76
   74
 76
  
Selected balance sheet data (period-end)                
Total assets$96,385
 $71,521
 35
$98,704
 $78,199
 26
 $98,704
 $78,199
 26
Loans(d)
64,335
 46,454
 38
70,470
 51,747
 36
 70,470
 51,747
 36
Equity7,000
 6,500
 8
7,000
 6,500
 8
 7,000
 6,500
 8
Selected balance sheet data (average)                
Total assets$89,582
 $68,918
 30
$96,670
 $74,206
 30
 $93,126
 $71,577
 30
Loans59,311
 44,948
 32
67,093
 48,837
 37
 63,202
 46,903
 35
Deposits127,534
 95,250
 34
128,087
 97,509
 31
 127,811
 96,386
 33
Equity7,000
 6,500
 8
7,000
 6,500
 8
 7,000
 6,500
 8
                
Headcount17,849
 17,203
 4
18,042
 17,963
 —% 18,042
 17,963
 —%
(a)Effective January 1, 2012, the previously disclosed separate metric for client advisors and JPMorgan Securities brokers were combined into one metric that reflects the number of Private Banking client-facing representatives.
(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.
(d)Includes $4.5$6.7 billion of prime mortgage loans reported in the Consumer loan portfolio at March 31,June 30, 2012.


Selected metricsAs of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except ratios)2012 2011 Change 2012 2011 Change
Credit data and quality statistics           
Net charge-offs$28
 $33
 (15)% $55
 $44
 25 %
Nonaccrual loans256
 252
 2
 256
 252
 2
Allowance for credit losses:           
Allowance for loan losses220
 222
 (1) 220
 222
 (1)
Allowance for lending-related commitments6
 9
 (33) 6
 9
 (33)
Total allowance for credit losses226
 231
 (2)% 226
 231
 (2)%
Net charge-off rate0.17% 0.27%   0.18% 0.19%  
Allowance for loan losses to period-end loans0.31
 0.43
   0.31
 0.43
  
Allowance for loan losses to nonaccrual loans86
 88
   86
 88
  
Nonaccrual loans to period-end loans0.36
 0.49
   0.36
 0.49
  

3146

Selected metrics     
Business metricsAs of or for the three months ended March 31,
(in millions, except headcount, ranking data and where otherwise noted)2012 2011 Change
Credit data and quality statistics     
Net charge-offs$27
 $11
 145 %
Nonaccrual loans263
 254
 4
Allowance for credit losses:     
Allowance for loan losses209
 257
 (19)
Allowance for lending-related commitments5
 4
 25
Total allowance for credit losses214
 261
 (18)
Net charge-off rate0.18% 0.10%  
Allowance for loan losses to period-end loans0.32
 0.55
  
Allowance for loan losses to nonaccrual loans79
 101
  
Nonaccrual loans to period-end loans0.41
 0.55
  
Assets under supervision
Assets under supervision were a record $2.0 trillion, an increase of $105$44 billion, or 6%2%, from the prior year. Assets under management were a record $1.4$1.3 trillion, an increase of $52$5 billion, or 4%, from the prior year. Both increases were due toas net inflows to long-term products were offset by the effect
of lower market levels and the impact of higher market levels.net outflows from liquidity products. Custody, brokerage, administration and deposit balances were $631$621 billion, up by $53$39 billion, or 9%7%,
due to custody and deposit and custody inflows
Assets under supervision 
    
March 31,
(in billions)
2012
 2011
 Change
Assets by asset class     
Liquidity$492
 $490
 — %
Fixed income355
 305
 16
Equity and multi-asset417
 421
 (1)
Alternatives118
 114
 4
Total assets under management1,382
 1,330
 4
Custody/brokerage/administration/deposits631
 578
 9
Total assets under supervision$2,013
 $1,908
 6
Assets by client segment     
Private Banking$303
 $293
 3
Institutional732
 711
 3
Retail347
 326
 6
Total assets under management$1,382
 $1,330
 4
Private Banking$830
 $773
 7
Institutional732
 713
 3
Retail451
 422
 7
Total assets under supervision$2,013
 $1,908
 6
Mutual fund assets by asset class     
Liquidity$434
 $436
 —
Fixed income116
 99
 17
Equity and multi-asset167
 173
 (3)
Alternatives8
 8
 —
Total mutual fund assets$725
 $716
 1
inflows.

 Three months ended March 31,
(in billions)2012 2011
Assets under management rollforward   
Beginning balance$1,336
 $1,298
Net asset flows:   
Liquidity(25) (9)
Fixed income11
 16
Equity, multi-asset and alternatives6
 11
Market/performance/other impacts54
 14
Ending balance, March 31$1,382
 $1,330
Assets under supervision rollforward   
Beginning balance$1,921
 $1,840
Net asset flows8
 31
Market/performance/other impacts84
 37
Ending balance, March 31$2,013
 $1,908
Assets under supervision 
    
June 30, (in billions)2012 2011 Change
Assets by asset class     
Liquidity$466
 $476
 (2)%
Fixed income359
 319
 13
Equity and multi-asset401
 430
 (7)
Alternatives121
 117
 3
Total assets under management1,347
 1,342
 —
Custody/brokerage/administration/deposits621
 582
 7
Total assets under supervision$1,968
 $1,924
 2
Assets by client segment     
Private Banking$297
 $291
 2
Institutional702
 708
 (1)
Retail348
 343
 1
Total assets under management$1,347
 $1,342
 —
Private Banking$816
 $776
 5
Institutional702
 709
 (1)
Retail450
 439
 3
Total assets under supervision$1,968
 $1,924
 2
Mutual fund assets by asset class     
Liquidity$408
 $421
 (3)
Fixed income119
 105
 13
Equity and multi-asset160
 176
 (9)
Alternatives7
 9
 (22)
Total mutual fund assets$694
 $711
 (2)%
International metrics As of or for the three months ended March 31,
(in billions, except where otherwise noted) 2012 2011 Change
Total net revenue (in millions)(a)
      
Europe/Middle East/Africa $405
 $439
 (8)%
Asia/Pacific 236
 246
 (4)
Latin America/Caribbean 175
 165
 6
North America 1,554
 1,556
 —
Total net revenue $2,370
 $2,406
 (1)
Assets under management      
Europe/Middle East/Africa $282
 $300
 (6)
Asia/Pacific 112
 115
 (3)
Latin America/Caribbean 41
 35
 17
North America 947
 880
 8
Total assets under management $1,382
 $1,330
 4
Assets under supervision      
Europe/Middle East/Africa $339
 $353
 (4)
Asia/Pacific 152
 155
 (2)
Latin America/Caribbean 101
 88
 15
North America 1,421
 1,312
 8
Total assets under supervision $2,013
 $1,908
 6
 Three months ended June 30, Six months ended June 30,
(in billions)2012 2011 2012 2011
Assets under management rollforward       
Beginning balance$1,382
 $1,330
 $1,336
 $1,298
Net asset flows:       
Liquidity(25) (16) (50) (25)
Fixed income5
 12
 16
 28
Equity, multi-asset and alternatives9
 7
 15
 18
Market/performance/other impacts(24) 9
 30
 23
Ending balance, June 30$1,347
 $1,342
 $1,347
 $1,342
Assets under supervision rollforward       
Beginning balance$2,013
 $1,908
 $1,921
 $1,840
Net asset flows(6) 12
 2
 43
Market/performance/other impacts(39) 4
 45
 41
Ending balance, June 30$1,968
 $1,924
 $1,968
 $1,924

47

International metricsAs of or for the three months ended June 30, As of or for the six months ended June 30,
(in billions, except where otherwise noted)2012 2011 Change 2012 2011 Change
Total net revenue (in millions)(a)
           
Europe/Middle East/Africa$379
 $478
 (21)% $784
 $917
 (15)%
Asia/Pacific230
 257
 (11) 466
 503
 (7)
Latin America/Caribbean166
 251
 (34) 341
 416
 (18)
North America1,589
 1,551
 2
 3,143
 3,107
 1
Total net revenue$2,364
 $2,537
 (7) $4,734
 $4,943
 (4)
Assets under management           
Europe/Middle East/Africa$261
 $298
 (12) $261
 $298
 (12)
Asia/Pacific103
 119
 (13) 103
 119
 (13)
Latin America/Caribbean41
 37
 11
 41
 37
 11
North America942
 888
 6
 942
 888
 6
Total assets under management$1,347
 $1,342
 —
 $1,347
 $1,342
 —
Assets under supervision           
Europe/Middle East/Africa$315
 $353
 (11) $315
 $353
 (11)
Asia/Pacific144
 161
 (11) 144
 161
 (11)
Latin America/Caribbean101
 94
 7
 101
 94
 7
North America1,408
 1,316
 7
 1,408
 1,316
 7
Total assets under supervision$1,968
 $1,924
 2 % $1,968
 $1,924
 2 %
(a)Regional revenue is based on the domicile of the client.



3248

CORPORATE/PRIVATE EQUITY
For a discussion of the business profile of Corporate/Private Equity, see pages 107–108107-108 of JPMorgan Chase’s 2011 Annual Report.Report and the Introduction on page 5 of this Form 10-Q.
Selected income statement dataSelected income statement data    Selected income statement data          
Three months ended March 31,As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions, except headcount)2012
 2011
 Change
2012
 2011
 Change
 2012
 2011
 Change
Revenue                
Principal transactions$113
 $1,298
 (91)%$(3,576) $745
 NM%
 $(4,123) $2,043
 NM%
Securities gains449
 102
 340
1,013
 837
 21
 1,462
 939
 56
All other income1,111
 78
 NM
159
 265
 (40) 1,270
 343
 270
Noninterest revenue1,673
 1,478
 13
(2,404) 1,847
 NM
 (1,391) 3,325
 NM
Net interest income16
 34
 (53)(205) 218
 NM
 (189) 252
 NM
Total net revenue(a)
1,689
 1,512
 12
(2,609) 2,065
 NM
 (1,580) 3,577
 NM
                
Provision for credit losses(9) (10) 10
(11) (9) (22) (20) (19) (5)
                
Noninterest expense                
Compensation expense823
 657
 25
652
 614
 6
 1,475
 1,271
 16
Noncompensation expense(b)
3,328
 1,143
 191
1,317
 2,097
 (37) 4,645
 3,240
 43
Subtotal4,151
 1,800
 131
1,969
 2,711
 (27) 6,120
 4,511
 36
Net expense allocated to other businesses(1,382) (1,238) (12)(1,410) (1,270) (11) (2,792) (2,508) (11)
Total noninterest expense2,769
 562
 393
559
 1,441
 (61) 3,328
 2,003
 66
Income before income tax expense/(benefit)(1,071) 960
 NM
Income/(loss) before income tax expense/(benefit)(3,157) 633
 NM
 (4,888) 1,593
 NM
Income tax expense/(benefit)(508) 238
 NM
(1,380) 131
 NM
 (2,089) 369
 NM
Net income$(563) $722
 NM
Net income/(loss)$(1,777) $502
 NM
 $(2,799) $1,224
 NM
Total net revenue                
Private equity$254
 $699
 (64)$410
 $796
 (48) $664
 $1,495
 (56)
Treasury and CIO(3,434) 1,426
 NM
 (3,667) 2,249
 NM
Corporate1,435
 813
 77
415
 (157) NM
 1,423
 (167) NM
Total net revenue$1,689
 $1,512
 12
$(2,609) $2,065
 NM
 $(1,580) $3,577
 NM
Net income     
Net income/(loss)           
Private equity$134
 $383
 (65)$197
 $444
 (56) $331
 $827
 (60)
Treasury and CIO(2,078) 670
 NM
 (2,305) 1,026
 NM
Corporate(697) 339
 NM
104
 (612) NM
 (825) (629) (31)
Total net income$(563) $722
 NM
Total net income/(loss)$(1,777) $502
 NM
 $(2,799) $1,224
 NM
Total assets (period-end)$713,492
 $591,353
 21
$667,206
 $672,655
 (1) $667,206
 $672,655
 (1)
Headcount22,337
 20,927
 7
23,020
 21,444
 7 % 23,020
 21,444
 7 %
(a)
Total net revenue included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $99118 million and $6469 million for the three months ended March 31,June, 2012 and 2011, respectively, and $217 million and $133 million for the six months ended June 30, 2012 and 2011, respectively.
(b)
Includes litigation expense of $2.5 billion332 million and $363 million1.3 billion for the three months ended March 31,June 30, 2012 and 2011, respectively, and $2.8 billion and $1.6 billion for the six months ended June 30, 2012 and 2011, respectively.

Quarterly results
Net loss was $563 million,$1.8 billion, compared with net income of $722$502 million in the prior year.
Private Equity reported net income of $134$197 million, compared with net income of $383$444 million in the prior year. Net revenue of $254$410 million was down from $699$796 million in the prior year, primarily due to the absence of prior-yearlower gains on sales and lower net valuation gains on private investments.investments, partially offset by higher gains on public securities. Noninterest expense was $44$102 million, a decrease of $69 millionunchanged from the prior year.
Corporate
Treasury and CIO reported a net loss of $697$2.1 billion, compared with net income of $670 million in the prior year. Net revenue was a loss of $3.4 billion, compared with net revenue of $1.4 billion in the prior year. The current quarter loss reflected $4.4 billion of principal transactions losses from the synthetic credit portfolio held by CIO, partially offset by securities gains of $1.0 billion. Net interest income was negative $30 million, compared with a positive $450 million in the prior year, primarily reflecting higher financing costs associated with mortgage-backed securities.


49

Other Corporate reported net income of $104 million, compared with a net loss of $612 million in the prior year. Noninterest revenue was $552 million including a $545 million gain reflecting the expected recovery on a Bear Stearns-related subordinated loan. Noninterest expense of $335 million was down $736 million compared with the prior year. The current quarter included $335 million of litigation expense. The prior year included $1.3 billion of additional litigation expense, which was predominantly for mortgage-related matters.
Year-to-date results
Net loss was $2.8 billion, compared with net income of $1.2 billion in the prior year.
Private Equity reported net income of $331 million, compared with net income of $339$827 million in the prior year. Net revenue of $1.4$664 million was down from $1.5 billion in the prior year, primarily due to lower gains on sales and lower net valuation gains on private investments, partially offset by higher gains on public securities. Noninterest expense was $146 million, down from $215 million in the prior year, primarily due to lower compensation expense.
Treasury and CIO reported a net loss of $2.3 billion, compared with net income of $1.0 billion in the prior year. Net revenue was a loss of $3.7 billion, compared with net revenue of $2.2 billion in the prior year. The current year loss reflected $5.8 billion of principal transactions losses from the synthetic credit portfolio held by CIO, partially offset by securities gains of $1.5 billion. Net interest income was $162 million, compared with $697 million in the prior year, primarily reflecting higher financing costs associated with mortgage-backed securities.
Other Corporate reported a net loss of $825 million, compared with a net loss of $629 million in the prior year. Noninterest revenue of $ 1.7 billion was driven by a $1.1$1.1 billion benefit from the Washington Mutual bankruptcy settlement and securities gains of $449 million.a $545 million gain for the expected recovery on a Bear Stearns-related subordinated loan. Noninterest expense of $2.7$2.9 billion was up $1.6 billion compared with the prior year. The current year included $2.8 billion of litigation expense, predominantly for mortgage-related matters, up from $449 million$1.6 billion in the prior year, primarily reflecting $2.5 billionyear.


50

Treasury and CIO
Treasury and CIO overview
Treasury and CIO are responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding, capital, interest rate and foreign exchange risks, and other structural risks. The risks managed by Treasury and CIO arise from the activities undertaken by the Firm’s six major reportable business segments to serve their respective client bases, which generate both on- and off-balance sheet assets and liabilities.
Treasury is responsible for, among other functions, funds transfer pricing. Funds transfer pricing is used to transfer interest rate risk and foreign exchange risk of additional litigation reserves, predominantlythe Firm to Treasury and CIO and allocate interest income and expense to each business based on market rates. CIO, through its management of the investment portfolio, generates net interest income to pay the lines of business market rates. Any variance (whether positive or negative) between amounts generated by CIO through its investment portfolio activities and amounts paid to or received by the lines of business are retained by CIO, and are not reflected in line of business segment results. Treasury and CIO activities operate in support of the overall Firm.
CIO achieves the Firm’s asset-liability management objectives generally by investing in high quality securities that are managed for mortgage-related matters.the longer-term as part of the Firm’s AFS investment portfolio. Unrealized gains and losses on securities held in the AFS portfolio are recorded in other comprehensive income. For further information about securities in the AFS portfolio, see Note 3 and Note 11 on pages 119–133 and 148–152, respectively, of this Form 10-Q. CIO also uses securities that are not classified within the AFS portfolio, as well as derivatives, to meet the Firm’s
asset-liability management objectives. Securities not classified within the AFS portfolio are recorded in trading assets and liabilities; realized and unrealized gains and losses on such securities are recorded in the principal transactions revenue line of the income statement. For further information about securities included in trading assets and liabilities, see Note 3 on pages 119–133 of this Form 10-Q. Derivatives used by CIO are also classified as trading assets and liabilities. For further information on derivatives, including the classification of realized and unrealized gains and losses, see Note 5 on pages 136-144 of the Form 10-Q.
CIO’s AFS portfolio consists of U.S. and non-U.S. government securities, agency and non-agency mortgage-backed securities, other asset-backed securities and corporate and municipal debt securities. At June 30, 2012, the total CIO AFS portfolio was approximately $323 billion; the average credit rating of the securities comprising the AFS portfolio was AA+ (based upon external ratings where available and, where not available, upon internal ratings which correspond to ratings as defined by S&P and Moody’s). See Note 11 on pages 148–152 of this Form 10-Q for further information on the details of the AFS portfolio.
For further information on liquidity and funding risk, see Liquidity Risk Management on pages 66–72 of this Form 10-Q. For information on interest rate, foreign exchange and other structural risks, and CIO VaR and the Firm’s nontrading interest rate-sensitive revenue at risk, see Market Risk Management on pages 96–102 of this
Form 10-Q.


Treasury and CIO

Selected income statement and balance sheet dataSelected income statement and balance sheet dataSelected income statement and balance sheet data      
As of or for the three months ended March 31,As of or for the three months ended June 30, As of or for the six months ended June 30,
(in millions)2012
 2011
 Change
2012
 2011
 Change
 2012
 2011
 Change
Securities gains(a)
$453
 $102
 344 %$1,013
 $837
 21 % $1,466
 $939
 56 %
Investment securities portfolio (average)361,601
 313,319
 15
359,130
 335,543
 7
 360,366
 324,492
 11
Investment securities portfolio (ending)374,588
 328,013
 14
348,610
 318,237
 10
 348,610
 318,237
 10
Mortgage loans (average)12,636
 11,418
 11
11,012
 12,731
 (14) 11,824
 12,078
 (2)
Mortgage loans (ending)11,819
 12,171
 (3)10,332
 13,243
 (22)% 10,332
 13,243
 (22)%
(a)Reflects repositioning of the Corporate investment securities portfolio.
CIO synthetic credit portfolio
As noted above, CIO’s synthetic credit portfolio incurred losses of $4.4 billion and $5.8 billion for the three and six months ended June 30, 2012, respectively. On July 2, 2012, CIO transferred the synthetic credit portfolio, other
than a portion aggregating to approximately $12 billion of notional, to IB. For further informationdiscussion on the investment securitiessynthetic credit portfolio held by CIO, see Note 3 and Note 11Recent developments on pages 91–100 and 113–117, respectively,10–11 of this Form 10-Q. For further information on CIO VaR and the Firm’s nontrading interest rate-sensitive revenue at risk, see the Market Risk Management section on pages 73–76 of this Form 10-Q.
Private Equity Portfolio

Selected income statement and balance sheet data
 Three months ended March 31,
(in millions)2012
 2011
 Change
Private equity gains/(losses)     
Realized gains$66
 $171
 (61)%
Unrealized gains/(losses)(a)
179
 370
 (52)
Total direct investments245
 541
 (55)
Third-party fund investments83
 186
 (55)
Total private equity gains/(losses)(b)
$328
 $727
 (55)


3351

Private Equity Portfolio

      
Selected income statement and balance sheet data      
 Three months ended June 30, Six months ended June 30,
(in millions)2012
 2011
 Change
 2012
 2011
 Change
Private equity gains/(losses)           
Realized gains$(116) $1,219
 NM%
 $(50) $1,390
 NM%
Unrealized gains/(losses)(a)
589
 (726) NM
 768
 (356) NM
Total direct investments473
 493
 (4) 718
 1,034
 (31)
Third-party fund investments(9) 323
 NM
 74
 509
 (85)
Total private equity gains/(losses)(b)
$464
 $816
 (43)% $792
 $1,543
 (49)%
Private equity portfolio information(c)
  
Direct investments     
(in millions)March 31, 2012 December 31, 2011 Change
Publicly held securities     
Carrying value$889
 $805
 10 %
Cost549
 573
 (4)
Quoted public value931
 896
 4
Privately held direct securities     
Carrying value4,944
 4,597
 8
Cost6,819
 6,793
 —
Third-party fund investments(d)
     
Carrying value2,131
 2,283
 (7)
Cost2,162
 2,452
 (12)
Total private equity portfolio     
Carrying value$7,964
 $7,685
 4
Cost$9,530
 $9,818
 (3)
Private equity portfolio information(c)
  
Direct investments     
(in millions)June 30, 2012 December 31, 2011 Change
Publicly held securities     
Carrying value$863
 $805
 7 %
Cost436
 573
 (24)
Quoted public value909
 896
 1
Privately held direct securities     
Carrying value4,931
 4,597
 7
Cost6,362
 6,793
 (6)
Third-party fund investments(d)
     
Carrying value2,113
 2,283
 (7)
Cost1,952
 2,452
 (20)
Total private equity portfolio     
Carrying value$7,907
 $7,685
 3
Cost$8,750
 $9,818
 (11)%
(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 91–100119–133 of this Form 10-Q.
(d)
Unfunded commitments to third-party private equity funds were $571524 million and $789 million at March 31,June 30, 2012, and December 31, 2011, respectively.
Quarterly results
The carrying value of the private equity portfolio at March 31,June 30, 2012, was $8.07.9 billion, up from $7.7 billion at December 31, 2011. The increase in the portfolio is predominantly driven by new investments and net valuation gains, partially offset by sales of investments and net valuation losses.investments. The portfolio represented 5.6%5.5% of the Firm’s stockholders’ equity less goodwill at March 31,June 30, 2012, down from 5.7% at December 31, 2011.




3452

INTERNATIONAL OPERATIONS
During the three and six months ended March 31,June 30, 2012, and 2011, the Firm recorded approximately $6.22.0 billion and $6.87.5 billion, respectively, of managed revenue derived from clients, customers and counterparties domiciled outside of North America. Of those amounts, approximately 66%4% and 47%, for both periods,respectively, were derived from Europe/Middle East/Africa (“EMEA”); approximately 24%69% and 26%38%, respectively, from Asia/Pacific; and approximately 27% and 15%, respectively, from Latin America/Caribbean.
During the three and six months ended June 30, 2011, the Firm recorded approximately $6.7 billion and $13.5 billion, respectively, of managed revenue derived from clients, customers and counterparties domiciled outside of North America. Of those amounts, approximately 69% and 68%, respectively, were derived from EMEA; approximately 21% and 23%, respectively, from Asia/Pacific; and approximately 10% and 8%9%, respectively, from Latin America/Caribbean. For additional information regarding international operations, see Note 32 on pages 299–300 of
JPMorgan Chase'sChase’s 2011 Annual Report.
International Wholesale Activitieswholesale activities
The Firm is committed to further expanding its wholesale business activities outside of the United States, and it
continues to add additional client-serving bankers, as well as 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 of the United States will continue to 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 they operate, front-office headcount, number of clients, revenue and selected balance-sheet data.

As of or for the three months ended March 31,EMEA Asia/Pacific Latin America/Caribbean
(in millions, except headcount and where otherwise noted)EMEA Asia/Pacific Latin America/Caribbean
Three months ended June 30, 
Six months ended
June 30,
 Three months ended June 30, Six months ended June 30, Three months ended June 30, Six months ended June 30,
20122011 20122011 2012201120122011 20122011 20122011 20122011 20122011 20122011
Revenue(a)
$4,047
$4,479
 $1,518
$1,737
 $606
$569
$74
$4,557
 $3,461
$9,036
 $1,358
$1,414
 $2,876
$3,151
 $549
$668
 $1,155
$1,237
Countries of operation33
34
 16
16
 9
8
33
34
 33
34
 16
16
 16
16
 9
8
 9
8
Total headcount(b)
16,047
16,341
 20,290
19,584
 1,412
1,261
16,087
16,595
 16,087
16,595
 20,558
20,304
 20,558
20,304
 1,370
1,262
 1,370
1,262
Front-office headcount5,933
5,930
 4,193
4,204
 591
506
5,978
6,154
 5,978
6,154
 4,279
4,481
 4,279
4,481
 606
530
 606
530
Significant clients(c)
914
920
 472
463
 160
130
940
928
 940
928
 471
470
 471
470
 161
142
 161
142
Deposits (average)(d)
$180,771
$155,433
 $61,570
$52,388
 $4,778
$5,491
$165,879
$172,218
 $166,722
$163,872
 $59,507
$56,884
 $60,539
$54,648
 $4,608
$5,685
 $4,693
$5,588
Loans (period-end)(e)
36,529
30,360
 30,079
23,144
 28,667
17,745
41,391
33,496
 41,391
33,496
 30,969
25,400
 30,969
25,400
 28,513
21,172
 28,513
21,172
Assets under management (in billions)282
300
 112
115
 41
35
261
298
 261
298
 103
119
 103
119
 41
37
 41
37
Assets under supervision (in billions)339
353
 152
155
 101
88
315
353
 315
353
 144
161
 144
161
 101
94
 101
94
Assets under custody (in billions)6,111
5,198
 1,503
1,366
 256
154
5,925
5,412
 5,925
5,412
 1,434
1,396
 1,434
1,396
 258
161
 258
161
Note: Wholesale internationalInternational wholesale operations is comprised of IB, AM, TSS, CB and CIO/Treasury and CIO, and prior-period amounts have been revised to conform with current allocation methodologies.
(a)Revenue is based predominantly on the domicile of the client, the location from which the client relationship is managed, or the location of the trading desk.
(b)Total headcount includes all employees, including those in service centers, located in the region.
(c)
Significant clients are defined as companies with over $1 million in revenue over a trailing 12-month period in the region (excludes private banking clients).
(d)Deposits are based on the location from which the client relationship is managed.
(e)Loans outstanding are based predominantly on the domicile of the borrower and exclude loans held-for-sale and loans carried at fair value.



3553

BALANCE SHEET ANALYSIS
Selected Consolidated Balance Sheets dataSelected Consolidated Balance Sheets data  Selected Consolidated Balance Sheets data  
(in millions)March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
Assets      
Cash and due from banks$55,383
 $59,602
$44,866
 $59,602
Deposits with banks115,028
 85,279
130,383
 85,279
Federal funds sold and securities purchased under resale agreements240,484
 235,314
255,188
 235,314
Securities borrowed135,650
 142,462
138,209
 142,462
Trading assets:      
Debt and equity instruments370,623
 351,486
331,781
 351,486
Derivative receivables85,377
 92,477
85,543
 92,477
Securities381,742
 364,793
354,595
 364,793
Loans720,967
 723,720
727,571
 723,720
Allowance for loan losses(25,871) (27,609)(23,791) (27,609)
Loans, net of allowance for loan losses695,096
 696,111
703,780
 696,111
Accrued interest and accounts receivable64,833
 61,478
67,939
 61,478
Premises and equipment14,213
 14,041
14,206
 14,041
Goodwill48,208
 48,188
48,131
 48,188
Mortgage servicing rights8,039
 7,223
7,118
 7,223
Other intangible assets3,029
 3,207
2,813
 3,207
Other assets102,625
 104,131
105,594
 104,131
Total assets$2,320,330
 $2,265,792
$2,290,146
 $2,265,792
Liabilities      
Deposits$1,128,512
 $1,127,806
$1,115,886
 $1,127,806
Federal funds purchased and securities loaned or sold under repurchase agreements250,483
 213,532
261,657
 213,532
Commercial paper50,577
 51,631
50,563
 51,631
Other borrowed funds27,298
 21,908
21,689
 21,908
Trading liabilities:      
Debt and equity instruments71,529
 66,718
70,812
 66,718
Derivative payables74,474
 74,977
76,249
 74,977
Accounts payable and other liabilities204,148
 202,895
207,126
 202,895
Beneficial interests issued by consolidated VIEs67,750
 65,977
55,053
 65,977
Long-term debt255,831
 256,775
239,539
 256,775
Total liabilities2,130,602
 2,082,219
2,098,574
 2,082,219
Stockholders’ equity189,728
 183,573
191,572
 183,573
Total liabilities and stockholders’ equity$2,320,330
 $2,265,792
$2,290,146
 $2,265,792
Consolidated Balance Sheets overview
For a description of each of the significant line item captions on the Consolidated Balance Sheets, see pages 110–112 of JPMorgan Chase’s 2011 Annual Report.
JPMorgan Chase’s total assets and total liabilities increased by 2%1% from December 31, 2011. The increase in total assets was predominantly due to higher deposits with banks, and federal funds sold and securities purchased under resale agreements, partially offset by lower trading assets, – debtcash and equity instruments,due from banks, and securities. The increase in total liabilities was predominantly due to higher securities sold under repurchase agreements, partially offset by lower long-term debt, deposits, and other borrowed funds.beneficial
interests issued by consolidated VIEs. The increase in stockholders’ equity was predominantly due to the Firm’s net income.
The following is a discussion of the significant changes in the specific line item captions on the Consolidated Balance Sheets from December 31, 2011. For a description
Cash and due from banks and deposits with banks
The net increase in cash and due from banks and deposits with banks reflected the placement of the specific line captions discussed below, see pages 110-112 of JPMorgan Chase’s 2011 Annual Report.
Deposits with banks
Deposits with banks increased significantly, reflecting the placement ofFirm’s excess funds with various central banks, including Federal Reserve Banks. For additional information, refer to the Liquidity Risk Management discussion on pages 66–72 of this Form 10-Q.
Federal funds sold and securities purchased under resale agreements; and securities borrowed
The net increase in securities purchased under resale agreements and securities borrowed was predominantly due to increased client financing activity in IB, and the deployment of excess cash by Treasury.
Trading assets and liabilities – debt and equity instruments
Trading assets - debt and equity instruments increased, driven by client market-making activity in IB; this resulted in higherdecreased related to lower levels of equity securities, U.S. governmentand corporate debt securities, and non-U.S. government securities,physical commodities. These decreases were partially offset by decreasesan increase in physical commodities.U.S. government securities. For additional information, refer to Note 3 on pages 91–100119–133 of this Form 10-Q.
Trading assets and liabilities – derivative receivables and payables
Derivative receivables and payables decreased predominantly dueprimarily related to interest rate and foreign exchange derivatives activity. Decreasesand credit products. These decreases were partially offset by increased equity derivative balances reflecting market levels during the quarter.balances. Derivative payables increased slightly. For additional information, refer to Derivative contracts on pages 59–60,80–81, and Note 3 and Note 5 on pages 91–100119–133 and 103–109,136–144, respectively, of this Form 10-Q.
Securities
Securities increased,decreased, largely due to paydowns and maturities, as well as repositioning of the portfolio in Corporate in response to changes in the market environment. This repositioning increasedCIO AFS portfolio. These factors decreased the levels of non-U.S. residentialcorporate debt securities and U.S. government agency issued mortgage-backed securities (“MBS”), partially offset by increases in non-U.S. government debt and government debt.residential MBS as well as obligations of U.S. states and municipalities. For additional information related to securities, refer to the discussion in the Corporate/Private Equity segment on pages 33–34,49–52, and Note 3 and Note 11 on pages 91–100119–133 and 113–117,148–152, respectively, of this Form 10-Q.


54

Loans and allowance for loan losses
Loans decreasedincreased slightly, as a result of lower credit card loans, due to seasonalitya higher level of wholesale loans, which was driven by increased client activity across all regions and higher repayment rates; and lowermost businesses. The $19.8 billion increase in wholesale loans was offset largely by a combined $16.0 billion decline in the level of consumer, excluding credit card, and credit card loans. The decline in consumer, excluding credit card loans was due to paydowns, portfolio run-off and charge-offs, and the decline in residential real estate loans. The decreasecredit card loans was offset partially by higher wholesale loans, due to increased client activity across most wholesale businessesseasonality and regions.higher repayment rates.
The allowance for loan losses decreased slightly as a result of a lower credit card allowance, due to improved delinquency trends; and a lowerreduction in the consumer, excluding credit card allowance, largely due to a reduction inand the allowancecredit card allowances, predominantly related to the non-PCIcontinuing trend of improved delinquencies across most consumer portfolios, notably residential real estate portfolio, as estimated losses in that portfolio declined.and credit card. The wholesale allowance for loan losses was relatively unchanged from December 31,


36

2011. For a more detailed discussion of the loan portfolio and the allowance for loan losses, refer to Credit Portfolio and Allowance for Credit Losses on pages 50–72,73–95, and Notes 3, 4, 13 and 14 on pages 91–100, 101–102, 118–119–133, 133–135, 153–175 and 136,176, respectively, of this Form 10-Q.
Accrued interest and accounts receivable
Accrued interest and accounts receivable increased, predominantly due to higher receivables from securities transactions pending settlement and an increase in IB customer margin receivables due to changes in client activity.
Mortgage servicing rights
MSRs increased, predominantlydecreased slightly, as a resultthe combined effects of an increasechanges in market interest rates. In addition,rates and modeled amortization were partially offset by new MSR originations were largely offset by amortization.originations. For additional information on MSRs, see Note 16 on pages 144–146184–186 of this Form 10-Q.
Other intangible assets
Other intangible assets decreased, due to amortization. For additional information on other intangible assets, see Note 16 on pages 186–187 of this Form 10-Q.
Deposits
Deposits increased slightly,decreased, predominantly due to an overall growtha decline in client balances in the level of retail deposits, from the combined effect of seasonal factors, such as tax refundswholesale businesses, particularly in CB and bonus payments, and general growth in business;TSS; partially offset by a decreasegrowth in wholesale deposits from TSS clients.retail deposits. For more information on deposits, refer to the RFS and AM segment discussions on pages 18–2425–34 and 31–32,45–48, respectively; the Liquidity Risk Management discussion on pages 46–50;66–72; and Notes 3 and 17 on pages 91–100119–133 and 147,188, respectively, of this Form 10-Q. For more information on wholesale liability balances in the wholesale businesses, which includes deposits, refer to the CBTSS and TSSCB segment discussions on pages 27–2841–44 and 29–30,38–40, respectively, of this Form 10-Q.
Federal funds purchased and securities loaned or sold under repurchase agreements
Securities loaned or sold under repurchase agreements increased predominantly because ofin IB, reflecting higher client financing of the Firm’s trading assetsactivity and a change in the mix of liabilities. For additional information on the Firm’s Liquidity Risk Management, see pages 46–5066–72 of this Form 10-Q.
Commercial paper and other borrowed funds
Commercial paper decreased slightly due to a decline in the volume of liability balances in sweep accounts related to TSS’s cash management product, partially offset by an increase in commercial paper liabilities sourced from wholesale funding markets. Other borrowed funds increased, predominantly driven by an increase in borrowings due to favorable market rates.remained relatively unchanged. For additional information on the Firm’s Liquidity Risk Management and other borrowed funds, see pages 46–5066–72 of this Form 10-Q.
Beneficial interests issued by consolidated VIEs
Beneficial interests issued by consolidated VIEs increaseddecreased primarily due to new consolidations of municipal bond vehicles partially offset by a reduction in outstanding conduit commercial paper.paper held by third parties and credit card maturities, partially offset by new credit card issuances and consolidations of new municipal bond vehicles. For additional information on Firm-sponsored VIEs and loan securitization trusts, see Off–Balance Sheet Arrangements on pages 38–41,56–59, and Note 15 on pages 137–144177–184 of this Form 10-Q.
Long-term debt
Long-term debt decreased, slightly, predominantly due to net redemptions and maturities of long-term borrowings. For additional information on the Firm’s long-term debt activities, see the Liquidity Risk Management discussion on pages 46–5066–72 of this Form 10-Q.
Stockholders’ equity
Total stockholders’ equity increased, predominantly due to net income; a net increase in accumulated other comprehensive income (“AOCI”), due primarily to reflecting net unrealized market value increases on available-for-sale (“AFS”)AFS securities driven by the tightening of spreads;spreads across the portfolio, partially offset by sales of mortgage-backed securities and non-U.S. government debt; and to net issuances and commitments to issue under the Firm’s employee stock-based compensation plans. The increase was partially offset by the declaration of cash dividends on common and preferred stock and repurchases of common equity.


3755

OFF-BALANCE SHEET ARRANGEMENTS
JPMorgan Chase is involved with several types of off–balance sheet arrangements, including through unconsolidated 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 113–118 of JPMorgan Chase’s 2011 Annual Report.

Special-purpose entities
The most common type of VIE is a special purpose entity (“SPE”).SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are an important part of the financial markets, including the mortgage- and asset-backed securities 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 types of SPEs, see Note 15 on pages 137–144177–184 of this Form 10-Q, and Note 1 on pages 182–183 and Note 16 on pages 256–267 of JPMorgan Chase’s 2011 Annual Report.
Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.
For certain liquidity commitments to SPEs, JPMorgan Chase Bank, N.A., could be required to provide funding if its short-term credit rating were downgraded below specific levels, primarily “P-1,” “A-1” and “F1” for Moody’s, Standard & Poor’s and Fitch, respectively. These liquidity commitments support the issuance of asset-backed commercial paper by both Firm-administered consolidated and third-party-sponsored nonconsolidated SPEs. In the event of a short-term credit rating downgrade, JPMorgan Chase Bank, N.A., absent other solutions, would be required to provide funding to the SPE, if the commercial paper could not be reissued as it matured. The aggregate amounts of commercial paper outstanding, issued by both Firm-administered and third-party-sponsored SPEs, that are held by third parties as of March 31,June 30, 2012, and December 31, 2011, was $18.511.6 billion and $19.7 billion, respectively. In addition, the aggregate amounts of commercial paper outstanding could increase in future periods should clients of the Firm-administered consolidated or third-party-sponsored nonconsolidated SPEs draw down on certain unfunded lending-related commitments. JPMorgan Chase Bank, N.A. had unfunded lending-related commitments to clients to fund an incremental $12.313.0 billion and $11.0 billion at March 31,June 30, 2012, and December 31, 2011, respectively. The Firm could facilitate the refinancing of some of the clients’ assets in order to reduce the funding obligation.

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, see Lending-related commitments on page 59,79, and Note 21 on pages 150–154192–196 of this Form 10-Q, and Lending-related commitments on page 144, and Note 29 on pages 283–289 of JPMorgan Chase’s 2011 Annual Report.

Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale and securitization activities with Fannie Mae and Freddie Mac (the “GSEs”) and other mortgage 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. For additional information regarding loans sold to the GSEs, see Mortgage repurchase liability on pages 115–118 of JPMorgan Chase’s 2011 Annual Report.
The Firm also sells loans in securitization transactions with Ginnie Mae; these loans are typically insured or guaranteed by another government agency. The Firm, in its role as servicer, may elect, but is typically not required, to repurchase delinquent loans securitized by Ginnie Mae, including those that have been sold back to Ginnie Mae subsequent to modification. Principal 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 mortgage 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


38

to which the Firm maintains that certain of the repurchase obligations remain with the FDICFederal Deposit Insurance


56

Corporation (“FDIC”) receivership), approximately $193 billion of principal has been repaid (including $71 billion related to Washington Mutual). In addition, approximately $101108 billion of the principal amount of loans has been liquidated (including $3639 billion related to Washington Mutual), with an average loss severity of 58%59%. Accordingly, the remaining outstanding principal balance of these loans (including Washington Mutual) was, as of March 31,June 30, 2012, approximately $156149 billion, of which $5147 billion was 60 days or more past due. The remaining outstanding principal balance of loans related to Washington Mutual was approximately $5855 billion, of which $1816 billion were 60 days or more past due. For additional information regarding loans sold to private investors, see Mortgage repurchase liability on pages 115–118 of JPMorgan Chase’s 2011 Annual Report.
There have been generalized allegations, as well as specific demands, that the Firm should repurchase loans sold or deposited into private-label securitizations (including claims from insurers that have guaranteed certain obligations of
the securitization trusts). Although the Firm encourages parties to use the contractual repurchase process established in the governing agreements, these private-label repurchase claims have generally manifested themselves through threatened or pending litigation. Accordingly, the liability related to repurchase demands associated with private-label securitizations areis separately evaluated by the Firm in establishing its litigation reserves. For additional information regarding litigation, see Note 23 on pages 154–163196–205 of this Form 10-Q, and Note 31 on pages
290–299 of JPMorgan Chase’s 2011 Annual Report.
Estimated mortgage repurchase liability
The Firm has recognized a mortgage repurchase liability of $3.53.3 billion and $3.6 billion, as of March 31,June 30, 2012, and December 31, 2011, respectively. The Firm’s mortgage repurchase liability is intended to cover losses associated with all loans previously sold in connection with loan sale and securitization transactions with the GSEs, regardless of when those losses occur or how they are ultimately resolved (e.g., respectively.repurchase, make-whole payment). While uncertainties continue to exist with respect to both GSE behavior and the economic environment, the Firm believes that the model inputs and assumptions that it uses to estimate its mortgage repurchase liability are becoming increasingly seasoned and stable. Based on the seasoning and stabilization of the model inputs and taking into consideration its projections regarding future uncertainty, including Agency behavior, the Firm has become increasingly confident in its ability to estimate reliably its mortgage repurchase liability. For these reasons, the Firm believes that its existing mortgage repurchase liability at June 30, 2012 is sufficient to cover probable future repurchase losses arising from loan sale and securitization transactions with the GSEs. For additional information about the process that the Firm uses to estimate its mortgage repurchase liability and the factors it considers in connection with that process, see Mortgage repurchase liability on pages 115–118 of JPMorgan Chase’s 2011 Annual Report.


The following table provides information about outstanding repurchase demands and unresolved mortgage insurance rescission notices, excluding those related to Washington Mutual, at each of the past five quarter-end dates.
Outstanding repurchase demands and unresolved mortgage insurance rescission notices by counterparty type(a)
Outstanding repurchase demands and unresolved mortgage insurance rescission notices by counterparty type(a)
Outstanding repurchase demands and unresolved mortgage insurance rescission notices by counterparty type(a)
(in millions)March 31, 2012 December 31, 2011 September 30, 2011 June 30, 2011 March 31, 2011
June 30,
2012
 
March 31,
2012
 
December 31,
2011
 
September 30,
2011
 
June 30,
2011
GSEs and other(b)
$2,624
 $2,345
 $2,133
 $1,826
 $1,321
GSEs$1,646
 $1,868
 $1,682
 $1,666
 $1,500
Mortgage insurers1,000
 1,034
 1,112
 1,093
 1,240
1,004
 1,000
 1,034
 1,112
 1,093
Other(b)
981
 756
 663
 467
 326
Overlapping population(c)
(116) (113) (155) (145) (127)(125) (116) (113) (155) (145)
Total$3,508
 $3,266
 $3,090
 $2,774
 $2,434
$3,506
 $3,508
 $3,266
 $3,090
 $2,774
(a)Mortgage repurchase demands associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves.
(b)The Firm’s outstanding repurchase demands are largely from the GSEs. Other representsRepresents repurchase demands received from parties other than the GSEs that have been presented to the Firm by trustees who assert authority to present such claims under the terms of the underlying sale or securitization agreement, and excludes repurchase demands asserted in or in connection with litigation. As of June 30, 2012, outstanding repurchase demands largely represent repurchase demands received in prior quarters.
(c)Because the GSEs and others 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 outstanding repurchase demand.


39

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. The Firm expects repurchase demands to remain at elevated levels or to increase if there is a significant increase in private-label repurchase demands outside of litigation.

Quarterly mortgage repurchase demands received by loan origination vintage(a)
57

Quarterly mortgage repurchase demands received by loan origination vintage(a)
Quarterly mortgage repurchase demands received by loan origination vintage(a)
(in millions)March 31,
2012		 December 31,
2011		 September 30,
2011		 June 30,
2011		 March 31,
2011		June 30,
2012		 March 31,
2012		 December 31,
2011		 September 30,
2011		 
June 30,
2011
Pre-2005$41
 $39
 $34
 $32
 $15
$28
 $41
 $39
 $34
 $32
200595
 55
 200
 57
 45
65
 95
 55
 200
 57
2006375
 315
 232
 363
 158
506
 375
 315
 232
 363
2007645
 804
 602
 510
 381
420
 645
 804
 602
 510
2008361
 291
 323
 301
 249
311
 361
 291
 323
 301
Post-2008124
 81
 153
 89
 94
191
 124
 81
 153
 89
Total repurchase demands received$1,641
 $1,585
 $1,544
 $1,352
 $942
$1,521
 $1,641
 $1,585
 $1,544
 $1,352
(a) Mortgage repurchase demands associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves. This table excludes repurchase demands asserted in or in connection with litigation.

Quarterly mortgage insurance rescission notices received by loan origination vintage(a)
Quarterly mortgage insurance rescission notices received by loan origination vintage(a)
Quarterly mortgage insurance rescission notices received by loan origination vintage(a)
(in millions)March 31,
2012		 December 31,
2011		 September 30,
2011		 June 30,
2011		 March 31,
2011		June 30,
2012		 March 31,
2012		 December 31,
2011		 September 30,
2011		 June 30,
2011
Pre-2005$13
 $4
 $3
 $3
 $5
$9
 $13
 $4
 $3
 $3
200519
 12
 15
 24
 32
13
 19
 12
 15
 24
200636
 19
 31
 39
 65
26
 36
 19
 31
 39
200778
 48
 63
 72
 144
121
 78
 48
 63
 72
200832
 26
 30
 31
 49
51
 32
 26
 30
 31
Post-20084
 2
 1
 1
 1
6
 4
 2
 1
 1
Total mortgage insurance rescissions received$182
 $111
 $143
 $170
 $296
$226
 $182
 $111
 $143
 $170
(a)Mortgage insurance rescissions typically result in a repurchase demand from the GSEs. This table includes mortgage insurance rescission notices for which the GSEs or others also have issued a repurchase demand.
Since the beginning of 2010,2011, the Firm’s overall cure rate, excluding Washington Mutual, has been approximately 50%55%. A significant portion of repurchase demands now relate to loans with a longer pay history, which have historically had higher cure rates. Repurchases that have resulted from mortgage insurance rescissions are reflected in the Firm’s overall cure rate. While the actual cure rate may vary from quarter to quarter, the Firm expects that the overall cure rate will remain at approximately 50%-60% for the foreseeable future.
The Firm has not observed a direct relationship between the type of defect that allegedly 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 changes in home prices. Actual principal loss severities on finalized repurchases and “make-whole” settlements to date, excluding 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 originator, the Firm typically has the right to seek a recovery of related repurchase losses from the third-party originator. Estimated and actual third-party recovery rates may vary from quarter to quarter based upon the underlying mix of third-party originators (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 mortgage repurchase liability — including the amount of probable future demands from purchasers, trustees or investors (which is in part based on 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 mortgage repurchase liability is further complicated by historical data that is not necessarily indicative of future expectations 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, mortgage insurers, trustees and investors. While the Firm uses the best information available to it in estimating its mortgage repurchase liability, the estimation process is inherently uncertain imprecise and potentially volatile as additional information is obtained and external factors continue to evolve.imprecise.


4058

The following table summarizes the change in the mortgage repurchase liability for each of the periods presented.
Summary of changes in mortgage repurchase liability(a)
Three months ended March 31,
(in millions)
2012
 2011
Summary of changes in mortgage repurchase liability(a)
Summary of changes in mortgage repurchase liability(a)
Three months ended June 30, Six months ended June 30,
(in millions)2012
 2011
 2012
2011
Repurchase liability at beginning of period$3,557
 $3,285
$3,516
 $3,474
 $3,557
$3,285
Realized losses(b)
(364) (231)(259) (241) (623)(472)
Provision(c)
323
 420
36
 398
 359
818
Repurchase liability at end of period$3,516
(d) 
$3,474
$3,293
(d) 
$3,631
 $3,293
$3,631
(a)Mortgage repurchase demands associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves.
(b)
Includes principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expense. ForMake-whole settlements were $107 million and $126 million for the three months ended March 31,June 30, 2012 and 2011, make-whole settlements wererespectively and $186293 million and $115241 million, for the six months ended June 30, 2012 and 2011, respectively.
(c)
Primarily relates to increases in estimated probable future repurchase demands. Also includesIncludes $2728 million and $1310 million of provision related to new loan sales for the three months ended March 31,June 30, 2012 and 2011, respectively, and $55 million and $23 million for the six months ended June 30, 2012 and 2011, respectively.
(d)
Includes $3217 million at March 31,June 30, 2012, related to future repurchase demands on loans sold by Washington Mutual to the GSEs.

 
The following table summarizes the total unpaid principal balance of repurchases during the periods indicated.
Unpaid principal balance of mortgage loan repurchases(a)
Three months ended March 31,
(in millions)
2012
 2011
Unpaid principal balance of mortgage loan repurchases(a)
Unpaid principal balance of mortgage loan repurchases(a)
Three months ended June 30, 
Six months ended
 June 30,
(in millions)2012
 2011
 2012
 2011
Ginnie Mae(b)
$1,507
 $1,485
$1,619
 $1,228
 $3,126
 $2,713
GSEs and other(c)(d)
379
 216
GSEs(c)
302
 208
 621
 390
Other(c)(d)
47
 39
 107
 73
Total$1,886
 $1,701
$1,968
 $1,475
 $3,854
 $3,176
(a)This table includes: (i) repurchases of mortgage loans due to breaches of representations and warranties, and (ii) loans repurchased from Ginnie Mae loan pools as described in (b) below. This table does not include mortgage insurance rescissions; while the rescission of mortgage insurance typically results in a repurchase demand from the GSEs, the mortgage insurers themselves do not present repurchase demands to the Firm. This table excludes mortgage loan repurchases associated with repurchase demands asserted in or in connection with litigation.
(b)In substantially all cases, these repurchases represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Ginnie Mae guidelines (i.e., they do not result from repurchase demands due to breaches of representations and warranties). The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, the Federal Housing Administration (“FHA”), Rural Housing Services (“RHS”) and/or the U.S. Department of Veterans Affairs (“VA”).
(c)Predominantly all of the repurchases related to demands by GSEs.
(d)
Nonaccrual loans held-for-investment included $478487 million and $347477 million at March 31,June 30, 2012, and December 31, 2011, respectively, of loans repurchased as a result of breaches of representations and warranties.
(d)Represents loans repurchased from parties other than the GSEs, excluding those repurchased in connection with litigation.

For additional information regarding the mortgage
repurchase liability, see Note 21 on pages 150–154192–196 of this Form 10-Q, and Note 29 on pages 283–289 of JPMorgan Chase’s 2011 Annual Report.


4159



CAPITAL MANAGEMENT
The following discussion of JPMorgan Chase’s capital management highlights developments since December 31, 2011, and should be read in conjunction with Capital Management on pages 119–124 of JPMorgan Chase’s 2011 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;
Maintain debt ratings which willthat enable the Firm to optimize its funding mix and liquidity sources while minimizing costs;
Retain flexibility to take advantage of future investment opportunities; and
Build and invest in businesses, even in a highly stressed environment.
Regulatory capital
The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The Office of the Comptroller of the Currency (“OCC”)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,June 30, 2012, and December 31, 2011, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and each met all capital requirements to which it was subject. For more information, see Note 20 on pages 149–150191–192 of this Form 10-Q.
At March 31,June 30, 2012, and December 31, 2011, JPMorgan Chase maintained Tier 1 and Total capital ratios in excess of the well-capitalized standards established by the Federal Reserve, as indicated in the tables below. In addition, the Firm’s Tier 1 common ratio was significantly above the 5% well-capitalized standard established at the time of the Comprehensive Capital Analysis and Review (“CCAR”) process. Tier 1 common, introduced by U.S. banking regulators in 2009, is defined as Tier 1 capital less elements of Tier 1 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, 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 along with the other capital measures to assess and monitor its capital position.
The following table presents the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase at March 31,June 30, 2012, and December 31, 2011. These amounts are determined in accordance with regulations issued by the Federal Reserve.
 
Risk-based capital ratios      
March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
Capital ratios(a)      
Tier 1 capital12.6% 12.3%11.3% 12.3%
Total capital15.6
 15.4
14.0
 15.4
Tier 1 leverage7.1
 6.8
6.7
 6.8
Tier 1 common(a)(b)
10.4
 10.1
9.9
 10.1
(a)The Firm’s capital ratios as of June 30, 2012 have been revised from those previously reported. The determination relates to an adjustment to the Firm's regulatory capital ratios to reflect regulatory guidance regarding a limited number of market risk models used for certain positions held by the Firm during the first half of the year, including the CIO synthetic credit portfolio. The Firm believes that, as a result of portfolio management actions and enhancements it will be making to certain of its market risk models, these adjustments will be significantly reduced by the end of 2012.
(b)The Tier 1 common ratio is Tier 1 common capital divided by risk-weighted assets (“RWA”).
A reconciliation of total stockholders’ equity to Tier 1 common, Tier 1 capital and Total qualifying capital is presented in the table below.
Risk-based capital components and assetsRisk-based capital components and assets  Risk-based capital components and assets  
(in millions)March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
Total stockholders’ equity$189,728
 $183,573
$191,572
 $183,573
Less: Preferred stock7,800
 7,800
7,800
 7,800
Common stockholders’ equity181,928
 175,773
183,772
 175,773
Effect of certain items in AOCI excluded from Tier 1 common(2,544) (970)(2,361) (970)
Less: Goodwill(a)
45,867
 45,873
45,730
 45,873
Fair value DVA on derivative and structured note liabilities related to the Firm’s credit quality1,596
 2,150
2,047
 2,150
Investments in certain subsidiaries and other981
 993
878
 993
Other intangible assets(a)
2,839
 2,871
2,661
 2,871
Tier 1 common128,101
 122,916
130,095
 122,916
Preferred stock7,800
 7,800
7,800
 7,800
Qualifying hybrid securities and noncontrolling interests(b)
19,910
 19,668
10,530
 19,668
Total Tier 1 capital155,811
 150,384
148,425
 150,384
Long-term debt and other instruments qualifying as Tier 221,719
 22,275
20,065
 22,275
Qualifying allowance for credit losses15,681
 15,504
16,691
 15,504
Adjustment for investments in certain subsidiaries and other(72) (75)(47) (75)
Total Tier 2 capital37,328
 37,704
36,709
 37,704
Total qualifying capital$193,139
 $188,088
$185,134
 $188,088
Risk-weighted assets$1,235,256
 $1,221,198
$1,318,734
 $1,221,198
Total adjusted average assets$2,195,625
 $2,202,087
$2,202,487
 $2,202,087
(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. Tier 1 capital and Total capital as of June 30, 2012, do not include approximately $9 billion of outstanding trust preferred capital debt securities, which were redeemed on July 12, 2012.



60

The Firm’s Tier 1 common was $128.1130.1 billion at March 31,June 30, 2012, an increase of $5.27.2 billion from December 31, 2011. The increase was predominantly due to net income (adjusted for DVA) of $5.910.0 billion and net issuances and commitments to issue common stock under the Firm’s employee stock-based compensation plans of $638 million1.1 billion. The increase was partially offset by $1.42.7 billion of dividends on common and preferred stock and $190 million1.6 billion (on a trade-date basis) of repurchases of common stock.stock and warrants. The


42

Firm’s Tier 1 capital was $155.8148.4 billion at March 31,June 30, 2012, an increasea decrease of $5.42.0 billion from December 31, 2011. The increasedecrease in Tier 1 capital reflectedis due to the exclusion of approximately $9 billion of outstanding trust preferred capital debt securities which were redeemed on July 12, 2012, partially offset by 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 Regulatory developments on page 9,pages 11–12, Part II, Item 1A, Risk Factors on page 175,pages 219–222, and Note 20 on pages 149–150191–192 of this Form 10-Q.
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.
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 meetscan meet the requirements of the rule to the satisfaction of its 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 2.5”
During 2011,In June 2012 the U.S. federal banking agencies issued proposals for industry comment to revise the market risk capitalpublished final rules of Basel IIthat will go into effect on January 1, 2013, that would result in additional capital requirements for trading positions and securitizations. The Firm anticipates these rules will be finalized in 2012. It is currently estimated that implementation of these rules could result in approximately a 100 basis point decrease in the Firm’s current Basel I Tier 1 common ratio, but the actual impact upon implementation on the Firm’s capital ratios upon implementation could differ depending on final implementation guidance from the outcome of the final U.S. rules and regulators, as well as
regulatory approval of certain of the Firm’s internal risk models.
Basel III
In addition toJune 2012 the Basel II Framework, in December 2010, the Basel Committee issued the final versionU.S. federal banking agencies published for comment a Notice of Proposed Rulemaking (the “NPR”) for implementing the Capital Accord, commonly referred to as “Basel III”, in the United States. Basel III” which revised Basel II by, among other things, narrowing the definition of capital, and increasing capital requirements for specific exposures, introducing minimum standards for short-term liquidity coverage – the liquidity coverage ratio (“LCR”) – and term funding – the net stable funding ratio (“NSFR”), and establishing an international leverage ratio. Theexposures. Basel
Committee III also announcedincludes higher capital ratio requirements under Basel III, which provideand provides that the Tier 1 common equitycapital requirement will be increased to 7%, comprised of a minimum ratio of 4.5% plus a 2.5% capital conservation buffer.
In June 2011,addition, U.S. federal banking agencies have published proposed risk-based capital floors pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to establish a permanent Basel I floor under Basel II and Basel III capital calculations.
The U.S. federal banking agencies also included as part of the NPR revised prompt corrective action treatment of the existing U.S. leverage ratio and introduced as part of the NPR a new supplemental leverage ratio which includes off-balance sheet assets, such as lending-related commitments and derivative exposures.
In addition, the Basel Committee announced in June 2011 an agreement to require global systemically important banks (“GSIBs”) to maintain Tier 1 common requirements above the 7% minimum in amounts ranging from an additional 1% to an additional 2.5%. The Basel Committee also stated it intended to require certain GSIBs to maintain a further Tier 1 common requirement of an additional 1% under certain circumstances, to act as a disincentive for the GSIB from taking actions that would further increase its systemic importance. The GSIB assessment methodology reflects an approach based on five broad categories: size; interconnectedness;size, interconnectedness, lack of substitutability;substitutability, cross-jurisdictional activity;activity, and complexity.
In addition, U.S. federal banking agencies have published proposed risk-based capital floors pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to establish a permanent Basel I floor under Basel II and Basel III capital calculations.
Estimated Tier 1 common under Basel III rules
The following table presents a comparison of the Firm’s Tier 1 common under Basel I rules to its estimated Tier 1 common under Basel III rules, along with the Firm’s estimated risk-weighted assets and the Tier 1 common ratio under Basel III rules, all of which are non-GAAP financial measures. Tier 1 common under Basel III includes additional adjustments and deductions not included in Basel I Tier 1 common, such as the inclusion of AOCI related to AFS securities and defined benefit pension and other postretirement employee benefit (“OPEB”) plans,plans.
Including the impact of the final Basel 2.5 rules and the deduction ofBasel III NPR, the Firm’s defined benefit pension fund assets.
The Firm estimates that its Tier 1 common ratio under Basel III rules would be 8.2%7.9% as of March 31,June 30, 2012. Excluding these impacts, the Firm estimates that its Tier 1 common ratio under Basel III rules would have been 8.3% as of June 30, 2012. Management considers thisthe Basel III Tier 1 common estimate as a key measure to assess


61

the Firm’s capital position in conjunction with its capital ratios under Basel I requirements, in order to enablerequirements; this measure enables 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.
March 31, 2012
(in millions, except ratios)
 
June 30, 2012
(in millions, except ratios)
 
Tier 1 common under Basel I rules$128,101
$130,095
Adjustments related to AOCI for AFS securities and defined benefit pension and OPEB plans2,529
2,271
Deduction for net defined benefit pension asset(1,833)
All other adjustments(371)(170)
Estimated Tier 1 common under Basel III rules$128,426
$132,196
Estimated risk-weighted assets under Basel III rules(a)(c)
$1,571,960
Estimated Tier 1 common ratio under Basel III rules(b)(c)
8.2%
Estimated risk-weighted assets under Basel III rules(a)
$1,664,351
Estimated Tier 1 common ratio under Basel III rules(b)
7.9%
(a)Key differences in the calculation of risk-weighted assets between Basel I and Basel III include: (1) Basel III credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas Basel I RWA is based on fixed supervisory risk weightings which vary only by counterparty type and asset class; (2) Basel III market risk RWA reflects the new capital requirements related to trading assets and securitizations, which include incremental capital requirements for stress VaR, correlation trading, and re-securitization positions; and (3) Basel III includes RWA for operational risk, whereas Basel I does not.


43

Basel I and Basel III include: (a) Basel III credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters, whereas Basel I RWA is based on fixed supervisory risk weightings which vary only by counterparty type and asset class; (b) Basel III market risk RWA reflects the new capital requirements related to trading assets and securitizations, which include incremental capital requirements for stress VaR, correlation trading, and re-securitization positions; and (c) Basel III includes RWA for operational risk, whereas Basel I does not.
(b)The Tier 1 common ratio is Tier 1 common divided by RWA.
(c)Supersedes Final Basel 2.5 rules include the estimate includedaddition of a comprehensive risk measure (“CRM”) surcharge and revision of standardized risk weights, which represents an estimated $40 billion increase in risk-weighted assets. The CRM surcharge may be eliminated with the Firm’s Form 8-K furnished on April 13, 2012.appropriate regulatory model approval no sooner than March 31, 2014.
The Firm’s estimate of its Tier 1 common ratio under Basel III reflects its current understanding of the Basel III rules based on information currently published by the Basel Committee and U.S. federal banking agencies and on the application of such rules to its businesses as currently conducted, and thereforeconducted; it excludes the impact of any changes the Firm may make in the future to its businesses as a result of implementing the Basel III rules. The Firm’s understanding of the Basel III rules is based on information currently published by
In December 2010, the Basel Committee introduced the minimum standards for short-term liquidity coverage (the liquidity coverage ratio (“LCR”)) and U.S. federal banking agencies.
term funding (the net stable funding ratio (“NSFR”)). The Firm intends to maintain its strong liquidity position in the future as the LCR and NSFR standards of the Basel III rules are implemented, in 2015 and 2018, respectively. In order to do so the Firm believes it may need to modify the liquidity profile of certain of its assets and liabilities. Implementation of the Basel III rules may also cause the Firm to increase prices on, or alter the types of, products it offers to its customers and clients.
The Basel III revisions governing liquidity and capital requirements are subject to prolonged observation and transition periods. The observation periods for both the LCR and NSFR began in 2011, with implementation in 2015 and 2018, respectively. The transition period for banks to meet the revised Tier 1 common requirement will begin in 2013, with implementation on January 1, 2019. The Firm fully expects to be in compliance with the higher Basel III capital
standards, as well as any additional Dodd-Frank Act capital requirements, as they become effective. The additional capital requirements for GSIBs will be phased-in starting January 1, 2016, with full 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 each 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,June 30, 2012, JPMorgan Securities’ net capital, as defined by the Net Capital Rule, was $10.711.8 billion, exceeding the minimum requirement by $9.210.3 billion, and JPMorgan Clearing’s net capital was $7.67.3 billion, exceeding the minimum requirement by $5.55.3 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 U.S. Securities and Exchange Commission 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,June 30, 2012, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements.

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. The growth in economic risk capital during the six months ended June 30, 2012, was predominantly driven by higher operational risk capital due to increased mortgage-related litigation and certain model enhancements.


62
  Quarterly Averages
(in billions) 1Q12
 4Q11
 1Q11
Credit risk $48.9
 $48.2
 $48.6
Market risk 14.1
 13.7
 15.1
Operational risk 11.3
 8.5
 8.3
Private equity risk 6.2
 6.4
 7.2
Economic risk capital 80.5
 76.8
 79.2
Goodwill 48.2
 48.2
 48.8
Other(a)
 49.0
 50.0
 41.4
Total common stockholders’ equity $177.7
 $175.0
 $169.4

  Quarterly Averages
(in billions) 2Q12
 4Q11
 2Q11
Credit risk $49.1
 $48.2
 $47.6
Market risk 15.4
 13.7
 15.4
Operational risk 14.0
 8.5
 8.5
Private equity risk 6.0
 6.4
 7.3
Economic risk capital 84.5
 76.8
 78.8
Goodwill 48.2
 48.2
 48.8
Other(a)
 48.3
 50.0
 46.5
Total common stockholders’ equity $181.0
 $175.0
 $174.1
(a)Reflects additional capital required, in the Firm’s view, to meet its regulatory and debt rating objectives.




44

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 andconsidering capital levels for similarly rated peers.peers, regulatory capital requirements (under Basel III) and economic risk measures. 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.
Line of business equity    
(in billions) March 31,
2012		 December 31,
2011		 June 30,
2012		 December 31,
2011
Investment Bank $40.0
 $40.0
 $40.0
 $40.0
Retail Financial Services 26.5
 25.0
 26.5
 25.0
Card Services & Auto 16.5
 16.0
 16.5
 16.0
Commercial Banking 9.5
 8.0
 9.5
 8.0
Treasury & Securities Services 7.5
 7.0
 7.5
 7.0
Asset Management 7.0
 6.5
 7.0
 6.5
Corporate/Private Equity 74.9
 73.3
 76.8
 73.3
Total common stockholders’ equity $181.9
 $175.8
 $183.8
 $175.8
Line of business equity Quarterly Averages Quarterly Averages
(in billions) 1Q12
 4Q11
 1Q11 2Q12
 4Q11
 2Q11
Investment Bank $40.0
 $40.0
 $40.0
 $40.0
 $40.0
 $40.0
Retail Financial Services 26.5
 25.0
 25.0
 26.5
 25.0
 25.0
Card Services & Auto 16.5
 16.0
 16.0
 16.5
 16.0
 16.0
Commercial Banking 9.5
 8.0
 8.0
 9.5
 8.0
 8.0
Treasury & Securities Services 7.5
 7.0
 7.0
 7.5
 7.0
 7.0
Asset Management 7.0
 6.5
 6.5
 7.0
 6.5
 6.5
Corporate/Private Equity 70.7
 72.5
 66.9
 74.0
 72.5
 71.6
Total common stockholders’ equity $177.7
 $175.0
 $169.4
 $181.0
 $175.0
 $174.1
Effective January 1, 2012, the Firm further revised the capital allocated to certain businesses, reflecting additional refinement of each segment’s estimated Basel III Tier 1 common capital requirements and balance sheet trends. 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.


Capital actions
Dividends
On March 13, 2012, the Board of Directors increased the Firm’s quarterly common stock dividend from $0.25 to $0.30 per share, effective with the dividend paid on April 30, 2012, to shareholders of record on April 5, 2012. The Firm’s common stock dividend policy reflects JPMorgan Chase’s earnings outlook;outlook, desired dividend payout ratio;ratio, capital objectives;objectives, and alternative investment opportunities. The Firm’s current expectation is to return to a payout ratio of approximately 30% of normalized earnings over time.
For information regarding dividend restrictions, see Note 22 and Note 27 on page 276 and 281, respectively, of JPMorgan Chase’s 2011Annual Report.Report.
Common equity repurchases
On March 13, 2012, the Board of Directors authorized a new $15.0 billion common equity (i.e., common stock and warrants) repurchase program, of which up to $12.0 billion is approved for repurchase in 2012 and up to an additional $3.0 billion is approved through the end of the first quarter of 2013. The new program supersedes a $15.0 billion repurchase program approved on March 18, 2011.2011. During the three and six months ended March 31,June 30, 2012, the Firm repurchased (on a trade-date basis) an aggregate of 445 million and 49 million shares of common stock and warrants for $190 million1.4 billion and $1.6 billion, at an average price per sharerespectively. As of $45.45June 30, 2012. As of March 31, 2012,, $14.913.4 billion of authorized repurchase capacity remained under the new program, of which $11.9 billion approved capacity remains for use duringprogram. The Firm did not make any repurchases after May 17, 2012. For additional information regarding repurchases of the four months ended April 30, 2012, the Firm repurchased (on a trade-date basis) an aggregateFirm’s equity securities, see Business outlook, on pages 9–10 of 42 million shares of common stock and warrants, for $1.3 billion.this Form 10-Q.
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 equity — 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 175–176222–223 of this Form 10-Q.10-Q.



4563

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 collaboration, discussion, and escalation isare 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. The Firm’s CEO and Chief Risk Officer (“CRO”) are responsible for setting the overall firmwide risk appetite. The lines of business CEOs and CROs and Corporate/Private Equity senior management are responsible for setting the risk appetite for their respective lines of business, within the Firm’s limits. The Risk Policy Committee of the Firm’s Board of Directors approves the risk appetite policy on behalf of the entire Board of Directors.
Risk governance
The Firm’s risk governance structure is based on the principle that each line of business is responsible for managing the risk inherent in its business, albeit with appropriate corporate oversight. Each line of business risk committee is responsible for decisions regarding the business’ risk strategy, policies and controls. There are nine major risk types identified in the business activities of the Firm: liquidity risk, credit risk, market risk, interest rate risk, country risk, private equity risk, operational risk, legal and fiduciary risk, and reputation risk.
For further discussionOverlaying line of these risks,business risk management are the following corporate functions with risk management-related responsibilities: Risk Management, Treasury and CIO and Legal and Compliance.

Risk Management operates independently of the lines of businesses to provide oversight of firmwide risk management and controls, and is viewed as a partner in achieving appropriate business risk and reward objectives. Risk Management coordinates and communicates with each line of business through the line of business risk committees and CROs to manage risk. The Risk Management function is headed by the Firm’s Chief Risk Officer, who is a member of the Firm’s Operating Committee and who reports to the Chief Executive Officer and is accountable to the Board of Directors, primarily through the Board’s Risk Policy Committee. The Chief Risk Officer is also a member of the line of business risk committees. Within the Firm’s Risk Management function are units responsible for credit risk, market risk, country risk, private equity risk and the governance of operational risk, as well as how theyrisk reporting and risk policy. Risk management is supported by dedicated risk technology and operations functions that are managedresponsible for building the information technology infrastructure used to monitor and manage risk.
Treasury and CIO are responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding, capital, interest rate and foreign exchange risks, and other structural risks.
Legal and Compliance has oversight for legal risk.
In addition to the risk committees of the lines of business and the above-referenced risk management functions, the Firm also has a Finance Committee, an Asset-Liability Committee (“ALCO”) and an Investment Committee and four other risk-related committees — the Firmwide Risk Committee, the Risk Governance Committee, the Global Counterparty Committee and the Markets Meeting. All of these committees are accountable to the Operating Committee. The membership of these committees is composed of senior management of the Firm, including representatives of the lines of business, CIO, Treasury, Risk Management, Finance, Legal, Compliance and other senior executives. The committees meet regularly to discuss a broad range of topics including, for example, current market conditions and other external events, risk exposures, and risk concentrations to ensure that the effects of risk issues are considered broadly across the Firm’s businesses.


64

The Finance Committee, chaired by the Chief Financial Officer, oversees the Firmwide funding, liquidity, capital and balance sheet management strategy, including targeted levels, composition and line of business allocations.
The Asset-Liability Committee, chaired by the Corporate Treasurer, monitors the Firm’s overall interest rate risk and liquidity risk. ALCO is responsible for reviewing and approving the Firm’s liquidity policy and contingency funding plan. ALCO also reviews the Firm’s funds transfer pricing policy (through which lines of business “transfer” interest rate and foreign exchange risk to Treasury), nontrading interest rate-sensitive revenue-at-risk, overall interest rate position, funding requirements and strategy, and the Firm’s securitization programs (and any required liquidity support by the Firm seeof such programs).
The Investment Committee, chaired by the Firm’s Chief Financial Officer, oversees global merger and acquisition activities undertaken by JPMorgan Chase for its own account that fall outside the scope of the Firm’s private equity and other principal finance activities.
The Firmwide Risk Committee and the Risk Governance Committee, chaired by the Firm’s Chief Risk Officer, meet monthly to review cross-line of business issues such as risk appetite, certain business activity and aggregate risk measures, risk policy, risk methodology, risk concentrations, regulatory capital and other regulatory issues, and other topics referred by line of business risk committees. The Risk Governance Committee is also responsible for ensuring that line of business and firmwide risk reporting and compliance with risk appetite levels are monitored periodically, in conjunction with the Firm’s capital assessment process. Line of business risk committees each meet at least on a monthly
basis. Each line of business risk committee is chaired by the line of business CRO and is also attended by individuals from outside the line of business. It is the responsibility of attendees of the line of business risk committees who are members of the Firmwide Risk Committee (including individuals from outside the line of business) to escalate line of business risk topics to the Firmwide Risk Committee.
The Markets Meeting generally convenes weekly, or more frequently as required, to discuss markets and significant risk matters.
The Global Counterparty Committee, chaired by the Firm’s Wholesale Chief Credit Risk Officer, reviews exposures to counterparties when such exposure levels are above portfolio-established thresholds. The Committee meets regularly to review total exposures with these counterparties, with particular focus on counterparty trading exposures, to ensure that such exposures are deemed appropriate and to direct changes in exposure levels as needed.
The Board of Directors exercises its oversight of risk management principally through the Board's Risk Policy Committee and Audit Committee. The Board's Risk Policy Committee oversees senior management risk-related responsibilities, including reviewing management policies and performance against these policies and related benchmarks. The Board's Risk Policy Committee also reviews firm level market risk limits at least annually. The CROs for each line of business meet with the Risk Policy Committee on a regular basis. In addition, in conjunction with the Firm's capital assessment process, the CEO or Chief Risk Officer is responsible for notifying the Risk Policy Committee of any results which are projected to exceed line


65

of business or Firmwide risk appetite tolerances. The CEO or CRO will notify the Chairman of the Board's Risk Policy Committee if certain firmwide limits are modified or exceeded. The Audit Committee is responsible for oversight of guidelines and policies that govern the process by which risk assessment and management is undertaken. In addition, the Audit Committee reviews with management the system of internal controls that is relied upon to provide reasonable assurance of compliance with the Firm’s operational risk management processes.

Risk monitoring and control
The Firm’s ability to properly identify, measure, monitor and report risk is critical to both its soundness and profitability.
Risk identification: The Firm’s exposure to risk through its daily business dealings, including lending and capital markets activities, is identified and aggregated through the Firm’s risk management infrastructure. There are nine major risk types identified in the business activities of the Firm: liquidity risk, credit risk, market risk, interest rate risk, country risk, private equity risk, operational risk, legal and fiduciary risk, and reputation risk.
Risk measurement: The Firm measures risk using a variety of methodologies, including calculating probable loss, unexpected loss and value-at-risk, and by conducting stress tests and making comparisons to external benchmarks. Measurement models and related assumptions are routinely subject to internal model review, empirical validation and benchmarking with the goal of ensuring that the Firm’s risk estimates are reasonable and reflective of the risk of the underlying positions.

Risk monitoring/control: The Firm’s risk management policies and procedures incorporate risk mitigation strategies and include approval limits by customer, product, industry, country and business. These limits are monitored on a daily, weekly and monthly basis, as appropriate.
Risk reporting: The Firm reports risk exposures on both a line of business and a consolidated basis. This information is reported to management on a daily, weekly and monthly basis, as appropriate.
Internal review of CIO’s synthetic credit portfolio
As part of its internal review of CIO’s activities, management concluded that CIO’s risk management had been ineffective in dealing with the growth in size and change in characteristics of the synthetic credit portfolio during the first quarter of 2012. The Firm has taken several steps to address risk management issues, including introducing more granular risk limits for CIO; clarifying the roles among the Model Risk and Development Group within Risk Management, the line of business risk management function and front office personnel in connection with the development, approval, implementation and monitoring of risk models; enhanced risk management talent and resourcing of key support functions in CIO; and enhancing the Firm’s risk governance, including establishing the joint Treasury-CIO-Corporate Risk Committee co-chaired by CIO’s CRO and the Firm’s Chief Investment Officer. The committee meets weekly to monitor risk and has enhanced membership from Treasury and Corporate, including Firm senior management. See Recent developments on pages 125–12710–11 of JPMorgan Chase’s 2011 Annual Report andthis Form 10-Q for further information on the information below.internal review of the CIO synthetic credit portfolio, as well all other steps taken to remediate the issues that had been identified.




LIQUIDITY RISK MANAGEMENT
The following discussion of JPMorgan Chase’s Liquidity Risk Management framework highlights developments since December 31, 2011, and should be read in conjunction with pages 127–132 of JPMorgan Chase’s 2011 Annual Report.
Liquidity is essential to the ability to operate financial services businesses and, therefore, 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 relies on external sources to finance a significant portion of its operations, and the Firm’s funding strategyrisk management is intended to ensure that it will have sufficientthe Firm has the appropriate amount, composition and tenor of funding and liquidity in support of its assets. The primary objective of effective liquidity management is to ensure that the Firm’s core businesses are able to operate in support of client needs and meet contractual and contingent obligations through normal economic cycles as well as during market stress.
The Firm manages liquidity and funding using a diversity of funding sources necessarycentralized, global approach in order to enable itactively manage liquidity for the Firm as a whole, to meet actualmonitor exposures and contingent liabilities during both normal and stress periods.
JPMorgan Chase’s primary sourcesidentify constraints on the transfer of liquidity include a diversified deposit base, which was $1,128.5 billion at March 31, 2012, and access towithin the equity capital marketsFirm, and to long-term unsecuredmaintain the appropriate amount of surplus liquidity as part of the Firm’s overall balance sheet management strategy.
In the context of the Firm’s liquidity management, Treasury is responsible for:
Measuring, managing, monitoring and securedreporting the Firm’s current and projected liquidity sources and uses;
Understanding the liquidity characteristics of the Firm’s assets and liabilities;
Defining and monitoring Firmwide and legal entity liquidity strategies, policies, guidelines, and contingency funding sources, including through asset securitizationsplans;
Managing funding mix and borrowings from Federal Home Loan Banksdeployment of excess short-term cash;
Defining and implementing Funds Transfer Pricing (“FHLBs”FTP”). Additionally, JPMorgan Chase maintains significant amounts across all lines of highly-liquid unencumbered assets. business and regions; and
Defining and addressing the impact of regulatory changes on funding and liquidity.


66

The Firm actively monitorshas a liquidity risk governance framework to review, approve and monitor the availabilityimplementation of liquidity risk policies, and funding inand capital strategies, at the wholesale markets across various geographic regionsFirmwide, regional and in various currencies. The Firm’s ability to generate funding from a broad rangeline of sources in a varietybusiness levels.
Specific risk committees responsible for liquidity risk governance include ALCO and the Finance Committee, as well as lines of geographic locationsbusiness and in a rangeregional asset and liability management committees. For further discussion of tenors is intended to enhance financial flexibility and limit funding concentration risk.the risk committees, see Risk Management on page 64-66 of this Form 10-Q.
Management considers the Firm’s liquidity position to be strong, based on its liquidity metrics as of March 31,June 30, 2012, and believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations.
Liquidity monitoring
Funding
The Firm currently has liquidityfunds its global balance sheet through diverse sources of funding, including a stable deposit franchise as well as secured and unsecured funding in excessthe capital markets. Funding objectives include maintaining diversification, maximizing market access and optimizing funding cost. Access to funding markets is executed regionally through hubs in New York, London, Hong Kong and other locations which enables the Firm to observe and respond effectively to local market dynamics and client needs. The Firm manages and monitors its use of wholesale funding markets to ensure diversification of its projected full-year liquidity needs under bothfunding profile across geographic regions, tenors, currencies, product types and counterparties, using key metrics including: short-term unsecured funding as a percentage of total liabilities, and as a percentage of highly liquid assets; and counterparty concentration.
Sources of funds
A key strength of the Firm is its idiosyncratic stress scenario (which evaluatesdiversified deposit franchise, through the RFS, CB, TSS and AM lines of business, which provides a stable source of funding and limits reliance on the wholesale funding markets. As of June 30, 2012, the Firm’s net funding gap afterdeposits-to-loans ratio was 153%, compared with 156% at December 31, 2011.
As of June 30, 2012, total deposits for the Firm were $1,115.9 billion (53% of total liabilities), compared with $1,127.8 billion (54% of total liabilities) at December 31, 2011. At June 30, 2012, deposits were modestly lower compared with the balance at December 31, 2011, predominantly due to a decrease in client balances in the wholesale businesses, particularly in CB and TSS; this was partially offset by growth in retail deposits.
The Firm typically experiences higher customer deposit inflows at period-ends. Therefore, average deposit balances are more representative of deposit trends. The table below summarizes by line of business average deposits for the three and six months ended June 30, 2012 and 2011, respectively.
 
Average deposits    
 
Three months ended
June 30,
 
Six months ended
June 30,
(in millions)20122011 20122011
Retail Financial Services$409,256
$378,932
 $404,408
$375,379
Commercial Banking179,078
146,037
 181,883
142,730
Treasury & Securities Services322,555
278,879
 324,935
263,066
Asset Management128,087
97,509
 127,811
96,386
Other(a)
54,270
78,546
 56,827
77,718
Total Firm$1,093,246
$979,903
 $1,095,864
$955,279
(a)Includes remaining lines of businesses (i.e., Investment Bank, Card and Corporate/Private Equity).
A significant portion of the Firm’s deposits are retail deposits (37% and 35% at June 30, 2012, and December 31, 2011, respectively), which are considered particularly stable as they are less sensitive to interest rate changes or market volatility. Additionally, the majority of the Firm’s institutional deposits are also considered to be stable sources of funding since they are generated from customers who maintain operating service relationships with the Firm. 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 pages 18-19 and 54–55, respectively, of this Form 10-Q.
Short-term funding
Short-term unsecured funding sources include federal funds and Eurodollars purchased, which represent overnight funds; certificates of deposit; time deposits; commercial paper, and other borrowed funds that generally have maturities of one year or less.
The Firm’s reliance on short-term ratings downgradeunsecured funding sources is limited. A significant portion of the total commercial paper liabilities, approximately 70% as of June 30, 2012, as shown in the table below, were originated from deposits that customers choose to A-2/P-2),sweep into commercial paper liabilities as a cash management product offered by the Firm and are not sourced from wholesale funding markets.
The Firm’s sources of short-term secured funding primarily consist of securities loaned or sold under agreements to repurchase. 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, and constitute a significant portion of the federal funds purchased and securities loaned or sold under purchase agreements. The increase in the balance at June 30, 2012, compared with the balance at December 31, 2011, and the average balance for the three and six months ended June 30, 2012, was predominantly due to higher IB client financing activity, and


67

to a change in the mix of the Firm’s liabilities. The balances associated with securities loaned or sold under agreements to repurchase fluctuate over time due to customers’ investment and financing activities; the Firm’s demand for financing; the ongoing management of the mix of the Firm’s liabilities, including its secured and unsecured financing (for both the investment and market-making portfolios); and other market and portfolio factors.
At June 30, 2012, the balance of total unsecured and secured other borrowed funds remained flat, compared with
the balance at December 31, 2011. The average balance for the three and six months ended June 30, 2012, decreased compared with the same period in the prior year, predominantly driven by maturities of short-term unsecured bank notes and other unsecured borrowings, short-term Federal Home Loan Bank (“FHLB”) advances, and other secured short-term borrowings.
For additional information, see the Balance Sheet Analysis on pages 54–55 and Note 12 on page 153 of this Form
10-Q.


The following table summarizes by source short-term unsecured funding as of June 30, 2012, and December 31, 2011, and average balances for the three and six months ended June 30, 2012 and 2011, respectively.
 June 30, 2012December 31, 2011 
Three months ended
June 30,
 
Six months ended
June 30,
Short-term funding Average Average
(in millions) 20122011 20122011
Commercial paper:        
Wholesale funding$15,228
$4,245
 $13,569
$7,373
 $10,692
$7,874
Client cash management35,335
47,386
 35,222
34,309
 37,883
31,399
Total commercial paper$50,563
$51,631
 $48,791
$41,682
 $48,575
$39,273
         
Securities loaned or sold under agreements to repurchase:        
Securities sold under agreements to repurchase$241,931
$197,789
 $228,043
$251,634
 $222,696
$253,747
Securities loaned18,733
14,214
 19,872
25,777
 17,355
20,547
Total securities loaned or sold under agreements to repurchase(a)(b)
$260,664
$212,003
 $247,915
$277,411
 $240,051
$274,294
         
Other borrowed funds$21,689
$21,908
 $26,310
$36,859
 $25,839
$35,241
(a)Excludes federal funds purchased
(b)Includes long-term structured repurchase agreements of $10.1 billion and $9.3 billion as of June 30, 2012 and December 31, 2011, respectively.

Long-term funding and issuance
Long-term funding provides additional sources of stable funding and liquidity for the Firm. The majority of the Firm’s long-term unsecured funding is issued by the parent holding company to provide maximum flexibility in support of both bank and nonbank subsidiary funding.
The following table summarizes long-term unsecured issuance and maturities or redemption for the three and six months ended June 30, 2012 and 2011, respectively. For additional information, see Note 21 on pages 273-275 of JPMorgan Chase’s 2011 Annual Report.
Long-term unsecured fundingThree months ended June 30, Six months ended June 30,
(in millions)2012 2011 2012 2011
Issuance       
Senior notes issued in the U.S. market$—
 $12,875
 $6,236
 $19,880
Senior notes issued in non-U.S. markets—
 1,400
 2,050
 4,130
Total senior notes—
 14,275
 8,286
 24,010
Trust preferred capital debt securities—
 —
 —
 —
Subordinated debt—
 —
 —
 —
Structured notes2,579
 4,475
 8,792
 7,775
Total long-term unsecured funding – issuance$2,579
 $18,750
 $17,078
 $31,785
        
Maturities/redemptions       
Total senior notes$17,712
 $6,955
 $21,837
 $17,268
Trust preferred capital debt securities452
 —
 452
 —
Subordinated debt—
 —
 1,000
 2,100
Structured notes4,480
 4,502
 11,239
 10,103
Total long-term unsecured funding – maturities/redemptions$22,644
 $11,457
 $34,528
 $29,471

68

Following the Federal Reserve’s announcement on June 7, 2012, of proposed rules which will implement the phase-out of Tier 1 capital treatment for trust preferred capital debt securities, the Firm announced on June 11, 2012, that it would redeem approximately $9.0 billion of trust preferred capital debt securities pursuant to redemption provisions relating to the occurrence of a “Capital Treatment Event” (as defined in the documents governing
those securities). The redemption was completed on July 12, 2012.
The Firm raises secured long-term funding through securitization of consumer credit card loans, residential mortgages, auto loans and student loans as well as under its systemic market stress scenario (which evaluatesthrough advances from the FHLBs, all of which increase funding and investor diversity.

The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemption for the three and six months ended June 30, 2012 and 2011.
 Three months ended June 30, Six months ended June 30,
Long-term secured fundingIssuance Maturities/Redemption Issuance Maturities/Redemption
(in millions)20122011 20122011 20122011 20122011
Credit card securitization$3,850
$1,000
 $8,549
$3,039
 $3,850
$1,000
 $8,603
$9,602
Other securitizations(a)
—
—
 127
116
 —
—
 231
236
FHLB advances6,100
—
 1
5
 6,100
4,000
 4,512
2,546
Total long-term secured funding$9,950
$1,000
 $8,677
$3,160
 $9,950
$5,000
 $13,346
$12,384
(a)Other securitizations includes securitizations of residential mortgages, auto loans and student loans.
The Firm’s netwholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are not considered to be a source of funding gap during a period of severe market stress similar to market conditions in 2008 and assumes thatfor the Firm isand are not uniquely stressed versus its peers).included in the table above. For further description of the client-driven loan securitizations, see Note 15 on pages 177–184 of this Form 10-Q.

Parent holding company and subsidiary funding
Liquidity monitoringThe parent holding company acts as an important source of funding to its subsidiaries. The Firm’s liquidity management is therefore intended to ensure that liquidity at the parent holding company is maintained at levels sufficient to fund the operations of the parent holding company takes into consideration regulatory restrictions that limitand its subsidiaries and affiliates for an extended period of time in a stress environment where access to normal funding sources is disrupted.
To effectively monitor the extent to which bank subsidiaries may extend credit toadequacy of liquidity and funding at the parent holding company, the Firm uses three primary measures:
Number of months of pre-funding: The Firm targets pre-funding of the parent holding company to ensure that both contractual and other nonbank subsidiaries.non-contractual obligations can be met for at least 12 months assuming no access to wholesale funding markets. However, due to conservative liquidity management actions taken by the Firm, the current pre-funding of such obligations is significantly greater than target.
Excess cash: Excess cash is managed to ensure that daily cash requirements can be met in both normal and stressed environments. Excess cash generated by parent holding company issuance activity is usedplaced on deposit with or as advances to purchase liquid collateral through reverse repurchase agreements or is placed with both bank and nonbank subsidiaries or held as liquid collateral purchased through reverse repurchase agreements.
Stress testing: The Firm conducts regular stress testing for the parent holding company and major bank subsidiaries as well as the Firm’s principal U.S. and U.K. broker-dealer subsidiaries to ensure sufficient liquidity
for the Firm in the form of deposits and advances to satisfy a portion of subsidiary funding requirements.stress environment. The Firm’s liquidity management takes into consideration its subsidiaries’ ability to generate replacement funding in the event the parent holding company requires repayment of the aforementioned deposits and advances.
The Firm closely monitors For further information, see 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.“Stress testing” discussion below.
Global Liquidity Reserve
The Global Liquidity Reserve includes cash on deposit at central banks, and cash proceeds reasonably expected to be received in secured financings of highly liquid, unencumbered securities, such as sovereign debt, government-guaranteed corporate debt, U.S. government agency debt, and agency 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 funds from 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 as a result of 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,June 30, 2012, the Global Liquidity Reserve was estimated to be approximately $432414 billion, compared with approximately $379 billion at December 31, 2011. The Global Liquidity Reserve fluctuates due to factors, such as fluctuationschanges in deposits, the Firm’s purchase and investment activities and general market conditions.


69

In addition to the Global Liquidity Reserve, the Firm has significant amounts of other high-quality, marketable


46

securities available to raise liquidity, such as corporate debt and equity securities.
Fundingsecurities available to raise liquidity, if required.
Sources of fundsStress testing
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, 2012, total depositsLiquidity stress tests are intended to ensure sufficient liquidity for the Firm were $1,128.5 billion, compared with $1,127.8 billion at December 31, 2011. The slight increase in deposits was predominantly due to an overall growthunder a variety of adverse conditions. Results of stress tests are therefore considered 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; partially offset by a decrease in wholesale deposits from TSS clients. Average total deposits for the Firm were $1,098.5 billion and $930.4 billion for the three months ended March 31, 2012 and 2011, respectively.
The Firm typically experiences higher customer deposit inflows at period-ends. A significant portionformulation of the Firm’s depositsfunding plan and assessment of its liquidity position. Liquidity outflow assumptions are retail deposits (37%modeled across a range of time horizons and 35% at March 31, 2012,varying degrees of market and December 31, 2011, respectively), whichidiosyncratic stress. Standard stress tests are considered particularly stableperformed on a regular basis and ad hoc stress tests are performed as theyrequired. Stress scenarios are less sensitive to interest rate changes or market volatility. A significant portionproduced for the parent holding company and the Firm’s major bank subsidiaries as well as the Firm’s principal U.S. and U.K. broker-dealer subsidiaries. In addition, separate regional liquidity stress testing is performed.
Liquidity stress tests assume all of the Firm’s wholesale depositscontractual obligations are met and also consideredtake into consideration varying levels of access to be 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, 2012, the Firm’s deposits-to-loans ratio was 157%, compared with 156% at December 31, 2011. 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 pages 14 and 36–37, 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, 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 other short-term secured other borrowed funds. 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.markets. Additionally, assumptions with respect to potential non-contractual and contingent outflows include, but are not limited to, the following:
Short-term
Deposits
◦For bank deposits that have no contractual maturity, the range of potential outflows reflect the type and size
of deposit account, and the nature and extent of the Firm’s relationship with the depositor.
Secured funding
◦Range of haircuts on collateral based on security type and counterparty.
Derivatives
◦Margin calls by exchanges or clearing houses;
◦Collateral calls associated with ratings downgrade triggers and variation margin;
◦Outflows of excess client collateral;
◦Novation of derivative trades.
Unfunded commitments
◦Potential facility drawdowns reflecting type of commitment and counterparty.

Contingency funding plan
The Firm’s reliance on short-term unsecuredcontingency 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,plan (“CFP”), which is generally issued in amounts not less than $100,000reviewed and with maturitiesapproved by ALCO, provides a documented framework for managing both temporary and longer-term unexpected adverse liquidity situations. It sets out a list of 270 daysindicators and metrics that are reviewed on a daily basis to identify the emergence of increased risks 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 were $50.6 billion as of March 31, 2012, compared with $51.6 billion as of December 31, 2011. However, of those totals, $38.4 billion and $47.4 billion as of March 31, 2012, and December 31, 2011, 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 $12.2 billion as of March 31, 2012, compared with $4.2 billion as of December 31, 2011; the average balance of commercial paper liabilities sourced from wholesale funding markets was $7.8 billion and $8.4 billion for the three months ended March 31, 2012 and 2011, respectively.
Securities loaned or sold under agreements to repurchase, which 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 purchase agreements, was $249.2 billion as of March 31, 2012, compared with $212.0 billion as of December 31, 2011; the average balance was $232.2 billion for the three months ended March 31, 2012. The increasevulnerabilities in the balance at March 31, 2012, compared with the balance at December 31, 2011, and the average balance for the three months ended March 31, 2012, was largely driven by higher financing of the Firm’s trading assets and a change in the mix of liabilities.liquidity position. The balances associated with securities loaned or soldCFP identifies alternative contingent liquidity resources that can be accessed 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 market-making portfolios); and other market and portfolio factors.adverse liquidity circumstances.
Total other borrowed funds was $27.3 billion as of March 31, 2012, compared with $21.9 billion as of December 31, 2011; the average balance of other borrowed funds was $25.4 billion and $33.6 billion for the three months ended March 31, 2012 and 2011, respectively. At March 31, 2012, the increase in the balance, compared with the balance at December 31, 2011, was predominantly driven by an increase in borrowings due to favorable market rates. The average balance for the three months ended March 31, 2012, decreased compared with the same period in the prior year, predominantly driven by maturities of short-term unsecured bank notes,



47

short-term FHLB advances, and other secured short-term borrowings.
For additional information, see the Balance Sheet Analysis on pages 36–37 and Note 12 on page 118 of this Form 10-Q.
Long-term funding and issuance
During the three months ended March 31, 2012, the Firm issued $14.5 billion of long-term debt, including $6.3 billion of senior notes issued in the U.S. market, $2.0 billion of senior notes issued in non-U.S. markets, and $6.2 billion of IB structured notes. 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 U.S. markets, $2.7 billion of senior notes issued in non-U.S. markets, and $3.3 billion of IB structured notes. During the three months ended March 31, 2012, $11.9 billion of long-term debt matured or was redeemed, including $6.8 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.
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. During the three months ended March 31, 2012, the Firm did not securitize any loans for funding purposes; $158 million of loan securitizations matured or were redeemed, including $54 million of credit card loan securitizations, $34 million of residential mortgage loan securitizations and $70 million of student loan securitizations. During the three months ended March 31, 2011, the Firm did not securitize any loans for funding purposes; $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, $76 million of student loan securitizations.
In addition, the Firm’s wholesale businesses securitize loans for client-driven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm.
During the three months ended March 31, 2012, the Firm did not borrow any long-term advances from the FHLBs and there were $4.5 billion of maturities. For the three months ended March 31, 2011, the Firm borrowed $4.0 billion in long-term advances from the FHLBs, which was offset by $2.5 billion of maturities.
Cash flows
For the three months ended March 31, 2012 and 2011, cash and due from banks was $55.4 billion and $23.5 billion, respectively. These balances decreased by $4.2 billion and $4.1 billion from December 31, 2011 and 2010, respectively. The following discussion highlights the major activities and transactions that affected JPMorgan Chase’s cash flows for the three months ended March 31, 2012 and 2011, 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 and risk management activities, and market conditions. 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, 2012, net cash provided by operating activities was $4.3 billion. This resulted from a decrease in trading assets - derivative receivables, predominantly due to interest rate and foreign exchange derivatives activity, partially offset by increased equity derivative balances reflecting market levels. Partially offsetting these cash proceeds was an increase in trading assets - debt and equity instruments, driven by client market-making activity in IB. Additionally, cash used to acquire the loans originated and purchased with an initial intent to sell was higher than the cash proceeds received from the sales and paydowns of such loans, and also reflected a lower level of activity over the prior-year period. Net cash was provided by net income after adjustments of noncash items such as depreciation and amortization, provision for credit losses, and stock-based compensation.
For the three months ended March 31, 2011, net cash used in operating activities was $6.0 billion. This resulted from 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; an increase in accrued interest and accounts receivable reflecting higher customer receivables in IB’s Prime Services business due to growth in client activity; and a decrease in trading liabilities-derivative payables, partially offset by decrease in trading assets - derivative receivables, 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. 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 after adjustments of non-cash items such as the provision for credit losses, depreciation and amortization, and stock-based compensation.
Cash flows from investing activities
The Firm’s investing activities predominantly include loans originated to be held for investment, the AFS securities portfolio and other short-term interest-earning assets. For the three months ended March 31, 2012, net cash of $45.4 billion was used in investing activities. This resulted from a significant increase in deposits with banks reflecting the placement of funds with various central banks, including


48

Federal Reserve Banks; net purchases of AFS securities, largely due to repositioning of the portfolio in Corporate in response to changes in the market environment; and an increase in wholesale loans, due to increased client activity across most wholesale businesses and regions. Partially offsetting these increases were lower consumer loans, due to seasonality and higher repayment rates on credit card loans, and paydowns and portfolio run-off of residential real estate loans.
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 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, run-off 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.
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, 2012, net cash provided by financing activities was $35.4 billion. This was driven by an increase in securities loaned or sold under repurchase agreements, predominantly because of higher financing of the Firm’s trading assets and a change in the mix of liabilities; an increase in other borrowed funds predominantly driven by an increase in borrowings due to favorable market rates. Partially offsetting these cash proceeds were a decrease in wholesale deposits from TSS clients; net redemptions and maturities of long-term borrowings; payments of cash dividends on common and preferred stock and repurchases of 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 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.
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 38,56, and Note 5 on pages 103–109, respectively,
136–144, of this Form 10-Q. See “Risk Factors” on pages 219–222 of this Form 10-Q and pages 7–17 of JPMorgan Chase’s 2011 Annual report for additional discussion on the potential impact of credit ratings downgrades on the Firm’s liquidity and funding.
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.



The credit ratings of the parent holding company and eachcertain of the Firm’s significant bankingoperating subsidiaries as of March 31,June 30, 2012, were as follows.
 Short-term debt Senior long-term debt
 Moody’sS&PFitch Moody’sS&PFitch
JPMorgan Chase & Co.P-1A-1F1+F1 Aa3A2AAA-A+
JPMorgan Chase Bank, N.A.P-1A-1F1+F1 Aa1Aa3A+AA-A+
Chase Bank USA, N.A.P-1A-1F1+F1 Aa1Aa3A+AA-A+
J.P. Morgan Securities LLCNRA-1F1NRA+A+

4970

TheOn June 21, 2012, Moody’s downgraded the senior unsecuredlong-term debt ratings of the parent holding company from Moody’s, S&PAa3 to A2, and Fitch on JPMorgan Chasethe long-term deposit and its principal bank subsidiaries remained unchanged at March 31, 2012, from December 31, 2011. At March 31, 2012,senior long-term debt ratings of the Firm’s significant banking subsidiaries from Aa1 to Aa3. All short-term ratings were underaffirmed. The outlook for the parent holding company was left on negative reflecting Moody’s view that government support for U.S. bank holding company creditors is becoming less certain and less predictable. Such ratings actions concluded Moody’s review by Moody’s while S&P and Fitch maintained a stable outlook on the Firm’s ratings.
On February 15, 2012, Moody’s announced that it had placedof 17 banks and securities firms with global capital markets operations, including the Firm, as a result of which all of these institutions were downgraded by various degrees.
Following the disclosure by the Firm, on review for possible downgrade, including JPMorgan Chase. As partMay 10, 2012, of this announcement,losses from the long-termsynthetic credit portfolio held by CIO, on May 11, 2012, S&P revised its outlook on the parent holding company and its banking subsidiaries’ ratings from stable to negative, and affirmed their issuer credit ratings of the FirmA and its major operating entities were placedA+, respectively. Additionally, on review for possible downgrade, while all of the Firm’s short-term ratings were affirmed.
IfMay 11, 2012, Fitch downgraded the Firm’s senior long-term debt ratings were downgradedfrom AA- to A+, its long-term deposit rating from AA to AA- and its short-term debt ratings from F1+ to F1. Fitch also placed all parent and subsidiary long-term ratings on Ratings Watch Negative.
The above mentioned rating actions did not have a material adverse impact on the Firm’s cost of funds and its ability to fund itself. Further downgrades of the Firm’s senior long-term debt ratings by one notch or two notches could result in a downgrade of the Firm’s short-term debt ratings. If this were to occur, the Firm believes its cost of funds would increase; however,could increase and access to certain funding markets could be reduced. The nature and magnitude of the impact of further ratings downgrades depends on numerous contractual and behavioral factors, (which the Firm believes are incorporated in the Firm’s abilityliquidity risk and stress testing metrics). The Firm believes it maintains sufficient liquidity to fund itself would not be materially adversely impacted. withstand any potential decrease in funding capacity due to further ratings downgrades.
JPMorgan Chase’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price.
Rating agencies continue to evaluate various ratings factors, such as regulatory reforms, rating uplift assumptions surrounding government support, and economic uncertainty and sovereign creditworthiness, and their potential impact on ratings of financial institutions. Although the Firm closely monitors and endeavors to manage factors influencing its credit ratings, there is no assurance that its credit ratings will not be changed in the future.

Cash flows
As of June 30, 2012 and 2011, cash and due from banks was $44.9 billion and $30.5 billion, respectively. These balances decreased by $14.7 billion and increased by $2.9 billion from December 31, 2011 and 2010, respectively. The following discussion highlights the major activities and transactions that affected JPMorgan Chase’s cash flows for the six months ended June 30, 2012 and 2011.
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 and risk management activities, and market conditions. 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 six months ended June 30, 2012, net cash provided by operating activities was $46.2 billion. This resulted from a decrease in trading assets–debt and equity instruments driven by lower levels of equity and corporate debt securities, and physical commodities, partially offset by an increase in U.S. government securities; and a decrease in derivative receivables, primarily due to foreign exchange and credit products, partially offset by increased equity derivative balances. Net cash generated from operating activities was higher than net income, partially as a result of adjustments for noncash items such as depreciation and amortization, stock-based compensation and the provision for credit losses. Additionally, cash proceeds received from sales and paydowns of loans was higher than the cash used to acquire such loans originated and purchased with an initial intent to sell, and also reflected a lower level of activity over the prior-year period. Partially offsetting these cash proceeds was an increase in accrued interest and accounts receivables predominantly due to higher receivables from securities transactions pending settlement, and an increase in IB customer margin receivables due to changes in client activity.
For the six months ended June 30, 2011, net cash provided by operating activities was $58.7 billion. This resulted from a decrease in trading assets–debt and equity instruments, driven by client market-making activity in IB, primarily due to declines in U.S. government agency MBS and equity securities, partially offset by an increase in non-U.S. government debt securities; a decrease in trading assets–derivative receivables largely due to a reduction in foreign exchange derivatives, partially offset by an increase in equity derivatives from IB’s market-making activity; and an increase in accounts payable and other liabilities largely due to higher IB customer balances. Partially offsetting these cash proceeds were a decrease in trading liabilities–derivatives payable largely due to the aforementioned


71

reduction of foreign exchange derivatives, partially offset by the increase in equity derivatives; and an increase in accrued interest and accounts receivable largely reflecting higher receivables from securities transactions pending settlement. Net cash generated from operating activities was higher than net income, partially as a result of adjustments for noncash items such as the provision for credit losses, depreciation and amortization, and stock-based compensation. Additionally, cash provided by proceeds from sales and paydowns of loans originated or purchased with an initial intent to sell was slightly higher than cash used to acquire such loans, and also reflected a higher level of activity over the prior year period.
Cash flows from investing activities
The Firm’s investing activities predominantly include loans originated to be held for investment, the AFS securities portfolio and other short-term interest-earning assets. For the six months ended June 30, 2012, net cash of $66.0 billion was used in investing activities. This resulted from a significant increase in deposits with banks reflectingthe placement of the Firm’s excess funds with various central banks, including Federal Reserve Banks; an increase in securities purchased under resale agreements due to the deployment of excess cash by Treasury in the Corporate/Private Equity segment; and an increase in loans due to a higher level of wholesale loans driven by increased client activity across all regions and most businesses. Partially offsetting these cash outflows were a decrease in securities, largely due to paydowns and maturities, as well as repositioning of the CIO AFS portfolio; and a decline in the level of consumer, excluding credit card, loans due to paydowns, portfolio run-off, and credit card loans due to seasonality and higher repayment rates.
For the six months ended June 30, 2011, net cash of $145.8 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 predominantly the result of an overall growth in wholesale clients’ cash management activities in the first six months of 2011, as well as an increase in inflows of short-term wholesale deposits from TSS clients toward the end of June 2011, and an increase in wholesale loans reflecting growth in client activity in all of the Firm’s wholesale businesses. Partially offsetting these cash outflows were a decline in securities purchased under resale agreements, predominantly in IB, reflecting lower client financing activity; a decrease in credit card loans in Card reflecting lower seasonal balances, higher repayment rates, continued runoff of the Washington Mutual portfolio and the sale of the Kohl’s portfolio; and a decrease in loans in RFS reflecting paydowns, portfolio runoff and repayments.
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 six months ended June 30, 2012, net cash provided by financing activities was $4.9 billion. This was driven by
securities loaned or sold under repurchase agreements predominantly in IB, reflecting higher client financing activity and a change in the mix of liabilities. Partially offsetting these cash proceeds were a decrease in deposits, predominantly due to a decline in client balances in the wholesale businesses, particularly in TSS and CB, partially offset by an overall growth in retail deposits; net redemptions and maturities of long-term borrowings; and payments of cash dividends on common and preferred stock and repurchases of common stock and warrants.
For the six months ended June 30, 2011, net cash provided by financing activities was $89.3 billion. This was largely driven by a significant increase in deposits predominantly as a result of an overall growth in wholesale clients’ cash management activities during the first six months of 2011, an increase in inflows of short-term wholesale deposits from TSS clients toward the end of June 2011, and growth in the number of clients and higher balances in CB, AM and RFS (the RFS deposits were net of the attrition related to inactive and low-balance Washington Mutual accounts); an increase in commercial paper and other borrowed funds due to growth in the volume of liability balances in sweep accounts related to TSS’s cash management product; and a modest incremental increase in commercial paper issued in wholesale funding markets. Cash was used to reduce securities sold under repurchase agreements, predominantly in IB, due to lower financings of the Firm’s trading assets as well as lower client financing balances; for 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; for repurchases of common stock and payments of cash dividends on common and preferred stock.




72

CREDIT PORTFOLIO
For a further discussion of the Firm’s Credit Risk Management framework, see pages 132–134 of JPMorgan Chase’s Chase’s 2011Annual Report.Report. For further information regarding the credit risk inherent in the Firm'sFirm’s investment securities portfolio, see Note 11 on pages 113–117148–152 of thethis Form 10-Q.10-Q and Note 12 on pages 225–230 of JPMorgan Chase’s 2011Annual Report.
The following table presents JPMorgan Chase’s credit portfolio as of March 31,June 30, 2012, and December 31, 2011. Total credit exposure was $1.8 trillion at March 31,June 30, 2012, an increase of $15.740.2 billion from December 31, 2011, reflecting increases in lending relatedlending-related commitments of $21.840.7 billion, loans of $3.9 billion and receivables from customers and other of $3.72.6 billion. These increases were partially offset by decreasesa decrease in derivative receivables of $7.1 billion and loans of $2.86.9 billion. The $15.740.2 billion net increase during the first three months of 2012 in total credit exposure during the six months endedJune 30, 2012, reflected an increase in the wholesale portfolio of $22.7 billion52.3
 
billionpartially offset by a decrease in the consumer portfolio of $7.012.2 billion.
The Firm provided credit to and raised capital of over $445890 billion for its commercial and consumer clients during the first threesix months of 2012;endedJune 30, 2012; this included more than $410 billion of credit provided to U.S. small businesses, up 35% compared with the prior year and $1329 billion to more than 780900 not-for-profit and government entities, including states, municipalities, hospitals and universities. The Firm also originated more than 200,000425,000 mortgages and provided credit cards to approximately 1.73.3 million consumers induring the first quarter.six months endedJune 30, 2012. The Firm remains committed to helping homeowners and preventing foreclosures. Since the beginning of 2009,, the Firm has offered more than 1.31.4 million mortgage modifications of which more than 490,000530,000 have achieved permanent modification as of March 31, 2012.June 30, 2012.



50

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 certain loans accounted for at fair value. The Firm also records certain loans accounted for at fair value in trading assets. For further information regarding these loans see Note 3 on pages 119–133 of this Form 10-Q. For additional information on the Firm’s loans and derivative receivables, including the Firm’s accounting policies, see Note 13 and Note 5 on pages 118–135153–175 and 103–109,136–144, respectively, of this Form 10-Q. Average retained loan balances are used for net charge-off rate calculations.10-Q.
Total credit portfolio     Three months ended March 31,     Three months ended June 30, Six months ended June 30,
 Credit exposure 
Nonperforming(b)(c)(d)(e)(f)
 Net charge-offs 
Average annual net charge-off rate(g)
 Credit exposure 
Nonperforming(b)(c)(d)(e)(f)
 Net charge-offs 
Average annual net charge-off rate(g)
 Net charge-offs 
Average annual net charge-off rate(h)
(in millions, except ratios) Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 20122011 20122011 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 20122011 20122011 20122011 20122011
Loans retained $712,898
$718,997
 $10,391
$9,810
 $2,387
$3,720
 1.35%2.22% $723,527
$718,997
 $9,874
$9,810
 $2,278
$3,103
 1.27%1.83% $4,665
$6,823
 1.31%2.02%
Loans held-for-sale 5,781
2,626
 127
110
 —
—
 —
—
 1,034
2,626
 46
110
 —
—
 —
—
 —
—
 —
—
Loans at fair value 2,288
2,097
 87
73
 —
—
 —
—
 3,010
2,097
 148
73
 —
—
 —
—
 —
—
 —
—
Total loans – reported 720,967
723,720
 10,605
9,993
 2,387
3,720
 1.35
2.22
 727,571
723,720
 10,068
9,993
 2,278
3,103
 1.27
1.83
 4,665
6,823
 1.31
2.02
Derivative receivables 85,377
92,477
 317
297
 NA
NA
 NA
NA
 85,543
92,477
 451
297
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Receivables from customers and other 21,235
17,561
 —
—
 —
—
 —
—
 20,131
17,561
 —
—
 —
—
 —
—
 —
—
 —
—
Total credit-related assets 827,579
833,758
 10,922
10,290
 2,387
3,720
 1.35
2.22
 833,245
833,758
 10,519
10,290
 2,278
3,103
 1.27
1.83
 4,665
6,823
 1.31
2.02
Lending-related commitments 997,503
975,662
 756
865
 NA
NA
 NA
NA
 1,016,346
975,662
 565
865
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Assets acquired in loan satisfactions                    
Real estate owned NA
NA
 984
975
 NA
NA
 NA
NA
 NA
NA
 839
975
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Other NA
NA
 47
50
 NA
NA
 NA
NA
 NA
NA
 39
50
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Total assets acquired in loan satisfactions
 NA
NA
 1,031
1,025
 NA
NA
 NA
NA
 NA
NA
 878
1,025
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Total credit portfolio $1,825,082
$1,809,420
 $12,709
$12,180
 $2,387
$3,720
 1.35%2.22% $1,849,591
$1,809,420
 $11,962
$12,180
 $2,278
$3,103
 1.27%1.83% $4,665
$6,823
 1.31%2.02%
Net credit derivative hedges notional(a)
 $(29,572)$(26,240) $(35)$(38) NA
NA
 NA
NA
 
Credit Portfolio Management derivatives notional, net(a)
$(31,201)$(26,240) $(35)$(38) NA
NA
 NA
NA
 NA
NA
 NA
NA
Liquid securities and other cash collateral held against derivatives (18,401)(21,807) NA
NA
 NA
NA
 NA
NA
 (18,973)(21,807) NA
NA
 NA
NA
 NA
NA
 NA
NA
 NA
NA
(a)
Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. Excludes the synthetic credit portfolio held by CIO. For additional information, see Credit derivatives on pages 58–5980–81 and Note 5 on pages 103–109136–144 of this Form 10-Q.10-Q.
(b)Nonperforming includes nonaccrual loans, nonperforming derivatives, commitments that are risk rated as nonaccrual and real estate owned.
(c)
At March 31,June 30, 2012, and December 31, 2011, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $11.811.9 billion and $11.5 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $1.21.3 billion and $954 million, respectively; and (3) student loans insured by U.S. government agencies under the FFELP of $586547 million and $551 million, respectively, that are 90 or more days past due. These amounts were excluded from nonaccrual loans as reimbursement of insured amounts are 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 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.

73

the Federal Financial Institutions Examination Council (“FFIEC”). Credit card loans are 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.
(d)Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.
(e)
At March 31,both June 30, 2012, and December 31, 2011, total nonaccrual loans represented 1.47% and 1.38% of total loans. For more information on newthe reporting of performing junior liens that are subordinate to senior liens that are 90 days or more past due based on new regulatory guidance issued in the first quarter of 2012, see Consumer Credit Portfolio on pages 60–6982–92 of this Form 10-Q.10-Q.
(f)Prior periodto the first quarter of 2012, reported amounts have been revised tohad only included defaulted derivatives; effective in the first quarter of 2012, reported amounts in all periods include both defaulted derivatives andas well as derivatives that have been risk rated as nonperforming; in prior periods only the amount of defaulted derivatives was reported.nonperforming.
(g)
For the three months ended March 31,June 30, 2012 and 2011, net charge-off rates were calculated using average retained loans of $710.2719.9 billion and $680.0680.1 billion, respectively. These average retained loans include average PCI loans of $64.863.3 billion and $71.669.9 billion, respectively. Excluding these PCI loans, the Firm’s total charge-off rates would have been 1.49%1.40% and 2.48%2.04%, respectively.
(h)
For the six months endedJune 30, 2012 and 2011, net charge-off rates were calculated using average retained loans of $715.0 billion and $680.1 billion, respectively. These average retained loans include average PCI loans of $64.1 billion and $70.7 billion, respectively. Excluding these PCI loans, the Firm’s total charge-off rates would have been 1.44% and 2.26%, respectively.

51

WHOLESALE CREDIT PORTFOLIO
As of March 31,June 30, 2012, wholesale exposure (IB, CB, TSS and AM) increased by $22.752.3 billion from December 31, 2011. The overall increase was, primarily driven by increases of $18.336.9 billion in lending-related commitments and $7.919.8 billion in loans due to increased client activity across all regions and $3.7 billion in receivables from customers and other.most businesses. These increases were partially offset by a $7.1 6.9
billion decrease in derivative receivables. The growth in lending-related commitments and loans represented increased client activity across most businesses and regions. The
increase in receivables from customers and other was dueprimarily related to changes in client activity, primarily in IB. The decrease in derivative receivables was predominantly due to interest rate derivatives and foreign exchange derivatives activity. These decreasesand credit products, which were partially offset by increasedan increase in equity derivative balances reflecting market levels during the quarter.balances.


Wholesale credit portfolio      
Credit exposure 
Nonperforming(c)(d)
Credit exposure 
Nonperforming(c)(d)
(in millions)Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011
Loans retained$283,653
$278,395
 $1,941
$2,398
$298,888
$278,395
 $1,804
$2,398
Loans held-for-sale4,925
2,524
 127
110
922
2,524
 46
110
Loans at fair value2,288
2,097
 87
73
3,010
2,097
 148
73
Loans – reported290,866
283,016
 2,155
2,581
302,820
283,016
 1,998
2,581
Derivative receivables85,377
92,477
 317
297
85,543
92,477
 451
297
Receivables from customers and other(a)
21,131
17,461
 —
—
20,024
17,461
 —
—
Total wholesale credit-related assets397,374
392,954
 2,472
2,878
408,387
392,954
 2,449
2,878
Lending-related commitments401,064
382,739
 756
865
419,641
382,739
 565
865
Total wholesale credit exposure$798,438
$775,693
 $3,228
$3,743
$828,028
$775,693
 $3,014
$3,743
Net credit derivative hedges notional(b)
$(29,572)$(26,240) $(35)$(38)
Credit Portfolio Management derivatives notional, net(b)
$(31,201)$(26,240) $(35)$(38)
Liquid securities and other cash collateral held against derivatives(18,401)(21,807) NA
NA
(18,973)(21,807) NA
NA
(a)Predominately includes receivables from customers, which represent margin loans to prime and retail brokerage customers; these are classified in accrued interest and accounts receivable on the Consolidated Balance Sheets.
(b)
Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. Excludes the synthetic credit portfolio held by CIO. For additional information, see Credit derivatives on pages 58–59,80–81, and Note 5 on pages 103–109136–144 of this Form 10-Q.10-Q.
(c)Excludes assets acquired in loan satisfactions.
(d)Prior periodto the first quarter of 2012, reported amounts have been revised tohad only included defaulted derivatives; effective in the first quarter of 2012, reported amounts in all periods include both defaulted derivatives andas well as derivatives that have been risk rated as nonperforming; in prior periods only the amount of defaulted derivatives was reported.nonperforming.



5274

The following table presents summaries ofsummarizes the maturity and ratings profilesprofile of the wholesale portfolio as of March 31,at June 30, 2012, and December 31, 2011. The increase in loans retained was predominately to loans with longer dated maturity profiles. 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 profileWholesale credit exposure – maturity and ratings profile     Wholesale credit exposure – maturity and ratings profile     
Maturity profile(c)
 Ratings profile
Maturity profile(c)
 Ratings profile
March 31, 2012Due in 1 year or lessDue after 1 year through 5 yearsDue after 5 yearsTotal Investment-grade Noninvestment-gradeTotalTotal % of IG
June 30, 2012Due in 1 year or lessDue after 1 year through 5 yearsDue after 5 yearsTotal Investment-grade Noninvestment-gradeTotalTotal % of IG
(in millions, except ratios)Due in 1 year or lessDue after 1 year through 5 yearsDue after 5 yearsTotal AAA/Aaa to BBB-/Baa3 BB+/Ba1 & belowTotalTotal % of IG AAA/Aaa to BBB-/Baa3 BB+/Ba1 & below
Loans retained $198,704
 $84,949
$116,940
$112,717
$69,231
$298,888
 $212,021
 $86,867
$298,888
71%
Derivative receivables 85,377
    85,377
  85,543
    85,543
 
Less: Liquid securities and other cash collateral held against derivatives (18,401)    (18,401)  (18,973)    (18,973) 
Total derivative receivables, net of all collateral9,334
26,441
31,201
66,976
 52,683
 14,293
66,976
79
3,711
32,112
30,747
66,570
 52,120
 14,450
66,570
78
Lending-related commitments150,368
242,826
7,870
401,064
 327,176
 73,888
401,064
82
162,443
247,821
9,377
419,641
 337,789
 81,852
419,641
80
Subtotal270,153
376,540
105,000
751,693
 578,563
 173,130
751,693
77
283,094
392,650
109,355
785,099
 601,930
 183,169
785,099
77
Loans held-for-sale and loans at fair value(a)
 7,213
    7,213
  3,932
    3,932
 
Receivables from customers and other 21,131
    21,131
  20,024
    20,024
 
Total exposure – net of liquid securities and other cash collateral held against derivatives $780,037
    $780,037
  $809,055
    $809,055
 
Net credit derivative hedges notional(b)
$(2,296)$(9,039)$(18,237)$(29,572) $(29,632) $60
$(29,572)100%
Credit Portfolio Management derivatives notional, net(b)
$(2,007)$(19,840)$(9,354)$(31,201) $(31,261) $60
$(31,201)100%
Maturity profile(c)
 Ratings profile
Maturity profile(c)
 Ratings profile
December 31, 2011Due in 1 year or lessDue after 1 year through 5 yearsDue after 5 yearsTotal Investment-grade Noninvestment-gradeTotalTotal % of IGDue in 1 year or lessDue after 1 year through 5 yearsDue after 5 yearsTotal Investment-grade Noninvestment-gradeTotalTotal % of IG
(in millions, except ratios) AAA/Aaa to BBB-/Baa3 BB+/Ba1 & below AAA/Aaa to BBB-/Baa3 BB+/Ba1 & below
Loans retained$113,222
$101,959
$63,214
$278,395
 $197,070
 $81,325
$278,395
71%$113,222
$101,959
$63,214
$278,395
 $197,070
 $81,325
$278,395
71%
Derivative receivables 92,477
    92,477
  92,477
    92,477
 
Less: Liquid securities and other cash collateral held against derivatives (21,807)    (21,807)  (21,807)    (21,807) 
Total derivative receivables, net of all collateral8,243
29,910
32,517
70,670
 57,637
 13,033
70,670
82
8,243
29,910
32,517
70,670
 57,637
 13,033
70,670
82
Lending-related commitments139,978
233,396
9,365
382,739
 310,107
 72,632
382,739
81
139,978
233,396
9,365
382,739
 310,107
 72,632
382,739
81
Subtotal261,443
365,265
105,096
731,804
 564,814
 166,990
731,804
77
261,443
365,265
105,096
731,804
 564,814
 166,990
731,804
77
Loans held-for-sale and loans at fair value(a)
 4,621
    4,621
  4,621
    4,621
 
Receivables from customers and other 17,461
    17,461
  17,461
    17,461
 
Total exposure – net of liquid securities and other cash collateral held against derivatives $753,886
    $753,886
  $753,886
    $753,886
 
Net credit derivative hedges notional(b)
$(2,034)$(16,450)$(7,756)$(26,240) $(26,300) $60
$(26,240)100%
Credit Portfolio Management derivatives notional, net(b)
$(2,034)$(16,450)$(7,756)$(26,240) $(26,300) $60
$(26,240)100%
(a)Represents loans held-for-sale primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b)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. The counterparties to these positions are predominantly investment-grade banks and finance companies. Excludes the synthetic credit portfolio held by CIO.
(c)
The maturity profiles of retained loans and lending-related commitments are based on the remaining contractual maturity. The maturity profiles of derivative receivables are based on the maturity profile of average exposure. For further discussion of average exposure, see Derivative receivables on pages 141–143 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.

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, respectively, which may differ from criticized exposure as defined by bank regulatory agencies. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, decreased 15% to $13.4 billion at June 30, 2012, from $15.8 billion at December 31, 2011. The decrease was primarily related to net repayments.



75

Below are summaries of the top 25 industry exposures as of June 30, 2012, and December 31, 2011.
   30 days or more past due and accruing
loans
Year-to-date net charge-offs/
(recoveries)
Credit Portfolio Management derivatives notional, net (e)
Liquid securities
and other cash collateral held against derivative
receivables
   
   
Noninvestment-grade(d)
 
Credit
exposure(c)
Investment-
grade
NoncriticizedCriticized performingCriticized nonperforming
As of or for the six months ended June 30, 2012
(in millions)
Top 25 industries(a)
         
Banks and finance companies$76,501
$64,301
$11,805
$380
$15
$7
$(18)$(3,812)$(8,604)
Real estate71,487
45,313
22,097
3,206
871
162
31
(136)(499)
Healthcare49,435
39,478
9,704
222
31
34
—
(289)(356)
State and municipal governments(b)
41,668
40,198
1,139
206
125
3
—
(184)(292)
Oil and gas38,826
28,301
10,364
154
7
2
—
(157)(79)
Consumer products33,629
21,655
11,328
635
11
8
(12)(212)(13)
Utilities30,227
24,735
5,229
43
220
—
(8)(295)(427)
Asset managers28,232
24,243
3,870
76
43
9
—
—
(3,539)
Retail and consumer services25,791
16,423
8,892
391
85
8
3
(69)—
Central governments21,676
20,941
594
141
—
—
—
(12,684)(1,294)
Technology20,106
14,275
5,551
280
—
—
—
(96)—
Transportation19,375
14,208
4,974
137
56
10
(3)(143)(1)
Machinery and equipment manufacturing18,081
9,857
8,114
101
9
8
—
—
—
Metals/mining16,406
8,927
7,213
260
6
17
(1)(553)—
Media13,103
7,294
4,854
553
402
5
4
(113)—
Business services13,084
7,289
5,608
146
41
5
16
(42)—
Insurance13,071
10,018
2,508
545
—
3
—
(259)(560)
Telecom services12,581
7,868
3,918
790
5
—
—
(238)(16)
Building materials/construction12,290
5,134
6,410
717
29
4
—
(114)(2)
Chemicals/plastics11,034
6,885
4,000
131
18
4
—
(53)(56)
Automotive10,549
5,663
4,848
37
1
5
—
(703)—
Securities firms and exchanges10,219
8,085
2,120
13
1
—
—
(532)(2,273)
Agriculture/paper manufacturing7,850
4,814
2,925
111
—
10
—
—
—
Aerospace7,182
6,294
814
67
7
—
—
(159)—
Leisure5,678
3,130
1,801
404
343
9
(3)(73)(28)
All other195,991
173,936
20,745
816
494
1,214
5
(10,285)(934)
Subtotal$804,072
$619,265
$171,425
$10,562
$2,820
$1,527
$14
$(31,201)$(18,973)
Loans held-for-sale and loans at fair value3,932
        
Receivables from customers and other20,024
        
Total$828,028
        

76


   30 days or more past due and accruing
loans
Full year net charge-offs/
(recoveries)
Credit Portfolio Management derivatives notional, net(e)
Liquid securities
and other cash collateral held against derivative
receivables
   
   
Noninvestment-grade(d)(f)
 
Credit
exposure(c)
Investment-
grade
NoncriticizedCriticized performingCriticized nonperforming
As of or for the year ended December 31, 2011
(in millions)
Top 25 industries(a)
         
Banks and finance companies$71,440
$59,115
$11,742
$557
$26
$20
$(211)$(3,053)$(9,585)
Real estate67,594
40,921
21,541
4,138
994
411
256
(97)(359)
Healthcare42,247
35,147
6,834
209
57
166
—
(304)(320)
State and municipal governments(b)
41,930
40,565
1,124
111
130
23
—
(185)(147)
Oil and gas35,437
25,004
10,347
58
28
3
—
(119)(88)
Consumer products29,637
19,728
9,440
432
37
3
13
(272)(50)
Utilities28,650
23,557
4,424
162
507
—
76
(105)(359)
Asset managers33,465
28,835
4,530
99
1
24
—
—
(4,807)
Retail and consumer services22,891
14,568
7,798
425
100
15
1
(96)(1)
Central government17,138
16,524
488
126
—
—
—
(9,796)(813)
Technology17,898
12,494
5,086
316
2
—
4
(191)—
Transportation16,305
12,061
4,071
115
58
6
17
(178)—
Machinery and equipment manufacturing16,498
9,014
7,374
100
10
1
(1)(19)—
Metals/mining15,254
8,716
6,389
148
1
6
(19)(423)—
Media11,909
6,853
3,925
670
461
1
18
(188)—
Business services12,408
7,093
5,168
108
39
17
22
(20)(2)
Insurance13,092
9,425
3,063
591
13
—
—
(552)(454)
Telecom services11,552
8,502
2,234
805
11
2
5
(390)—
Building materials/construction11,770
5,175
5,674
917
4
6
(4)(213)—
Chemicals/plastics11,728
7,867
3,720
126
15
—
—
(95)(20)
Automotive9,910
5,699
4,188
23
—
9
(11)(819)—
Securities firms and exchanges12,394
10,799
1,564
30
1
10
73
(395)(3,738)
Agriculture/paper manufacturing7,594
4,888
2,586
120
—
9
—
—
—
Aerospace8,560
7,646
848
66
—
7
—
(208)—
Leisure5,650
3,051
1,781
429
389
1
1
(81)(26)
All other180,660
161,568
17,035
1,381
676
1,099
200
(8,441)(1,038)
Subtotal$753,611
$584,815
$152,974
$12,262
$3,560
$1,839
$440
$(26,240)$(21,807)
Loans held-for-sale and loans at fair value4,621
        
Receivables from customers and other17,461
        
Total$775,693
        
(a)
The industry rankings presented in the table as of December 31, 2011, are based on the industry rankings of the corresponding exposures at June 30, 2012, not actual rankings of such exposures at December 31, 2011.
(b)
In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at June 30, 2012, and December 31, 2011, noted above, the Firm held $16.9 billion and $16.7 billion, respectively, of trading securities and $20.5 billion and $16.5 billion, respectively, of AFS securities issued by U.S. state and municipal governments. For further information, see Note 3 and Note 11 on pages 119–133 and 148–152, respectively, of this Form 10-Q.
(c)Credit exposure is net of risk participations and excludes the benefit of “Credit Portfolio Management derivatives notional, net” held against derivative receivables or loans and “Liquid securities and other cash collateral held against derivative receivables.
(d)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, respectively, which may differ from criticized exposure as defined by regulatory agencies.
(e)Represents the net notional amounts of protection purchased and sold credit derivatives to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices. Credit Portfolio Management derivatives excludes the synthetic credit portfolio held by CIO.
(f)Prior to the first quarter of 2012, reported amounts had only included defaulted derivatives; effective in the first quarter of 2012, reported amounts in all periods include both defaulted derivatives as well as derivatives that have been risk rated as nonperforming.

77

The following table presents the geographic distribution of wholesale credit exposure including nonperforming assets and past due loans as of June 30, 2012, and December 31, 2011. The geographic distribution of the wholesale portfolio is determined based predominantly on the domicile of the borrower.
 Credit exposure NonperformingAssets acquired in loan satisfactions30 days or more past due and accruing loans
June 30, 2012
(in millions)
LoansLending-related commitmentsDerivative receivablesTotal credit exposure 
Nonaccrual loans(a)
DerivativesLending-related commitmentsTotal non- performing credit exposure
Europe/Middle East/Africa$41,391
$71,877
$40,347
$153,615
 $31
$60
$19
$110
$—
$154
Asia/Pacific30,969
21,309
8,935
61,213
 9
13
—
22
—
2
Latin America/Caribbean28,513
22,619
4,565
55,697
 103
69
4
176
—
283
Other North America2,328
7,622
1,610
11,560
 2
—
—
2
—
4
Total non-U.S.103,201
123,427
55,457
282,085
 145
142
23
310
—
443
Total U.S.195,687
296,214
30,086
521,987
 1,659
309
542
2,510
119
1,084
Loans held-for-sale and loans at fair value3,932
—
—
3,932
 194
NA
—
194
NA
—
Receivables from customers and other—
—
—
20,024
 —
NA
NA
—
NA
—
Total$302,820
$419,641
$85,543
$828,028
 $1,998
$451
$565
$3,014
$119
$1,527
 Credit exposure NonperformingAssets acquired in loan satisfactions30 days or more past due and accruing loans
December 31, 2011
(in millions)
LoansLending-related commitmentsDerivative receivablesTotal credit exposure 
Nonaccrual loans(a)
Derivatives(b)
Lending-related commitmentsTotal non- performing credit exposure
Europe/Middle East/Africa$36,637
$60,681
$43,204
$140,522
 $44
$14
$25
$83
$—
$68
Asia/Pacific31,119
17,194
10,943
59,256
 1
42
—
43
—
6
Latin America/Caribbean25,141
20,859
5,316
51,316
 386
—
15
401
3
222
Other North America2,267
6,680
1,488
10,435
 3
—
1
4
—
—
Total non-U.S.95,164
105,414
60,951
261,529
 434
56
41
531
3
296
Total U.S.183,231
277,325
31,526
492,082
 1,964
241
824
3,029
176
1,543
Loans held-for-sale and loans at fair value4,621
—
—
4,621
 183
NA
—
183
NA
—
Receivables from customers and other—
—
—
17,461
 —
NA
NA
—
NA
—
Total$283,016
$382,739
$92,477
$775,693
 $2,581
$297
$865
$3,743
$179
$1,839
(a)
At June 30, 2012, and December 31, 2011, the Firm held an allowance for loan losses of $388 million and $496 million, respectively, related to nonaccrual retained loans resulting in allowance coverage ratios of 22% and 21%, respectively. Wholesale nonaccrual loans represented 0.66% and 0.91% of total wholesale loans at June 30, 2012, and December 31, 2011, respectively.
(b)Prior to the first quarter of 2012, reported amounts had only included defaulted derivatives; effective in the first quarter of 2012, reported amounts in all periods include both defaulted derivatives as well as derivatives that have been risk rated as nonperforming.

78

Loans
In the normal course of business, the Firm provides loans to a variety of wholesale customers, from large corporate and institutional clients to high-net-worth individuals. For further discussion on loans, including information on credit quality indicators, see Note 13 on pages 153–175 of this Form 10-Q.
The Firm actively manages wholesale credit exposure. One way of managing credit risk is through sales of loans and lending-related commitments. During the six months endedJune 30, 2012 and 2011, the Firm sold $2.0 billion and $2.8 billion, respectively, of loans and commitments. These sale activities are not related to the Firm’s securitization activities. For further discussion of securitization activity, see Liquidity Risk Management and Note 15 on pages 66–72 and 177–184, respectively, of this Form 10-Q.
The following table presents the change in the nonaccrual loan portfolio for the six months endedJune 30, 2012 and 2011. Nonaccrual wholesale loans decreased by $583 million from December 31, 2011, primarily reflecting repayments.
Wholesale nonaccrual loan activity  
Six months ended June 30, (in millions) 20122011
Beginning balance $2,581
$6,006
Additions 938
1,311
Reductions:  

Paydowns and other 948
1,974
Gross charge-offs 159
377
Returned to performing status 105
489
Sales 309
901
Total reductions 1,521
3,741
Net additions/(reductions) (583)(2,430)
Ending balance $1,998
$3,576
The following table presents net charge-offs, which are defined as gross charge-offs less recoveries, for the three and six months endedJune 30, 2012 and 2011. The amounts in the table below do not include gains or losses from sales of nonaccrual loans.
Wholesale net charge-offs   
(in millions, except ratios)Three months
ended June 30,		 Six months
ended June 30,
20122011 20122011
Loans – reported     
Average loans retained$292,942
$237,511
 $284,853
$232,058
Net charge-offs9
80
 14
245
Net charge-off rate0.01%0.14% 0.01%0.21%
Receivables from customers
Receivables from customers primarily represent margin loans to prime and retail brokerage clients and are collateralized through a pledge of assets maintained in clients’ brokerage accounts that 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 position may be liquidated by the Firm to meet the minimum collateral requirements.

Wholesale credit exposure – selected industry exposuresLending-related commitments
The Firm focuses onJPMorgan Chase uses lending-related financial instruments, such as commitments and guarantees, to meet the management and diversificationfinancing needs of its industry exposures, with particular attention paidcustomers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligations under these guarantees, and the counterparties subsequently fails to industries with actual or potential credit concerns. Exposures deemed criticized generally represent a ratings profile similarperform according to a ratingthe terms of “CCC+”/“Caa1” and lower, as defined by S&P and Moody’s, respectively, which may differ from criticized exposure as defined by regulatory agencies. Thethese contracts.
In the Firm’s view, the total criticized componentcontractual amount of these wholesale lending-related commitments is not representative of the Firm’s actual credit risk exposure or funding requirements. In determining the amount of credit risk exposure the Firm has to wholesale lending-related commitments, which is used as the basis for allocating credit risk capital to these commitments, the Firm has established a “loan-equivalent” amount for each commitment; this amount represents the portion of the unused commitment or other contingent exposure that is expected, based on average portfolio excluding loans held-for-sale and loans at fair value, decreased 7%historical experience, to become drawn upon in an event of a default by an obligor. The loan-equivalent amount of the Firm’s lending-related commitments was $14.7221.8 billion at March 31, 2012, fromand $15.8206.5 billion at December 31, 2011. The decrease was primarily related to net repayments and loan sales.


53

Below are summaries of the top 25 industry exposures as of March 31,June 30, 2012, and December 31, 2011., respectively.
   30 days or more past due and accruing
loans
Year-to-date net charge-offs/
(recoveries)
Credit derivative hedges(e)
Liquid securities
and other cash collateral held against derivative
receivables
   
   Noninvestment-grade
 
Credit
exposure(d)
Investment-
grade
NoncriticizedCriticized performingCriticized nonperforming
As of or for the three months ended March 31, 2012
(in millions)
Top 25 industries(a)
         
Banks and finance companies$69,816
$57,694
$11,779
$320
$23
$15
$2
$(3,649)$(8,414)
Real estate69,244
42,228
22,339
3,716
961
366
16
(96)(304)
Healthcare42,795
35,498
6,907
293
97
305
—
(314)(248)
State and municipal governments(b)
41,236
39,791
1,207
111
127
50
—
(187)(202)
Oil and gas36,100
25,878
9,979
219
24
—
—
(116)(120)
Utilities30,693
24,560
5,714
153
266
—
(11)(353)(434)
Consumer products30,091
19,933
9,526
602
30
4
(1)(252)(9)
Asset managers28,164
23,902
4,190
69
3
15
—
—
(2,855)
Retail and consumer services23,684
15,210
7,961
407
106
19
(1)(86)(1)
Central governments21,628
21,022
568
—
38
—
—
(10,925)(976)
Transportation18,644
14,152
4,288
143
61
7
(1)(197)—
Technology17,852
11,774
5,818
257
3
—
—
(168)—
Machinery and equipment manufacturing16,979
8,867
7,966
136
10
18
—
—
—
Metals/mining15,745
8,632
6,889
223
1
39
—
(505)—
Insurance13,053
10,243
2,321
489
—
—
—
(388)(820)
Media12,807
7,627
4,158
602
420
5
9
(148)—
Business services12,460
6,878
5,399
152
31
22
1
(20)—
Telecom services12,307
8,852
2,631
814
10
—
—
(338)—
Building materials/construction12,106
5,022
6,128
938
18
24
—
(134)—
Chemicals/plastics11,884
7,816
3,917
130
21
1
—
(68)(30)
Automotive10,054
5,931
4,100
20
3
—
—
(731)—
Securities firms and exchanges10,014
8,214
1,785
13
2
—
—
(404)(2,957)
Aerospace8,354
7,389
900
64
1
—
—
(111)—
Agriculture/paper manufacturing8,012
4,780
3,180
52
—
11
—
-
—
Leisure5,456
2,951
1,685
458
362
5
(3)(78)(22)
All other(c)
190,916
170,234
19,020
1,265
397
920
(6)(10,304)(1,009)
Subtotal$770,094
$595,078
$160,355
$11,646
$3,015
$1,826
$5
$(29,572)$(18,401)
Loans held-for-sale and loans at fair value7,213
        
Receivables from customers and other21,131
        
Total$798,438
        


5479


   30 days or more past due and accruing
loans
Full year net charge-offs/
(recoveries)
Credit derivative hedges(e)
Liquid securities
and other cash collateral held against derivative
receivables
   
   
Noninvestment-grade(f)
 
Credit
exposure(d)
Investment-
grade
NoncriticizedCriticized performingCriticized nonperforming
As of or for the year ended December 31, 2011
(in millions)
Top 25 industries(a)
         
Banks and finance companies$71,440
$59,115
$11,742
$557
$26
$20
$(211)$(3,053)$(9,585)
Real estate67,594
40,921
21,541
4,138
994
411
256
(97)(359)
Healthcare42,247
35,147
6,834
209
57
166
—
(304)(320)
State and municipal governments(b)
41,930
40,565
1,124
111
130
23
—
(185)(147)
Oil and gas35,437
25,004
10,347
58
28
3
—
(119)(88)
Utilities28,650
23,557
4,424
162
507
—
76
(105)(359)
Consumer products29,637
19,728
9,440
432
37
3
13
(272)(50)
Asset managers33,465
28,835
4,530
99
1
24
—
—
(4,807)
Retail and consumer services22,891
14,568
7,798
425
100
15
1
(96)(1)
Central governments17,138
16,524
488
126
—
—
—
(9,796)(813)
Transportation16,305
12,061
4,071
115
58
6
17
(178)—
Technology17,898
12,494
5,086
316
2
—
4
(191)—
Machinery and equipment manufacturing16,498
9,014
7,374
100
10
1
(1)(19)—
Metals/mining15,254
8,716
6,389
148
1
6
(19)(423)—
Insurance13,092
9,425
3,063
591
13
—
—
(552)(454)
Media11,909
6,853
3,925
670
461
1
18
(188)—
Business services12,408
7,093
5,168
108
39
17
22
(20)(2)
Telecom services11,552
8,502
2,234
805
11
2
5
(390)—
Building materials/construction11,770
5,175
5,674
917
4
6
(4)(213)—
Chemicals/plastics11,728
7,867
3,720
126
15
—
—
(95)(20)
Automotive9,910
5,699
4,188
23
—
9
(11)(819)—
Securities firms and exchanges12,394
10,799
1,564
30
1
10
73
(395)(3,738)
Aerospace8,560
7,646
848
66
—
7
—
(208)—
Agriculture/paper manufacturing7,594
4,888
2,586
120
—
9
—
-
—
Leisure5,650
3,051
1,781
429
389
1
1
(81)(26)
All other(c)
180,660
161,568
17,035
1,381
676
1,099
200
(8,441)(1,038)
Subtotal$753,611
$584,815
$152,974
$12,262
$3,560
$1,839
$440
$(26,240)$(21,807)
Loans held-for-sale and loans at fair value4,621
        
Receivables from customers and other17,461
        
Total$775,693
        
(a)
All industry rankings are based on exposure at March 31, 2012. The industry rankings presented in the table as of December 31, 2011, are based on the industry rankings of the corresponding exposures at March 31, 2012, not actual rankings of such exposures at December 31, 2011.
(b)
In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at March 31, 2012, and December 31, 2011, noted above, the Firm held $17.6 billion and $16.7 billion, respectively, of trading securities and $19.3 billion and $16.5 billion, respectively, of AFS securities issued by U.S. state and municipal governments. For further information, see Note 3 and Note 11 on pages 91–100 and 113–117, respectively, of this Form 10-Q.
(c)For further information on the All other category, refer to the discussion on page 140 of JPMorgan Chase’s 2011 Annual Report. All other for credit derivative hedges includes credit default swap (“CDS”) index hedges of CVA.
(d)Credit exposure is net of risk participations and excludes the benefit of credit derivative hedges and collateral held against derivative receivables or loans.
(e)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.
(f)Prior period amounts have been revised to include both defaulted derivatives and derivatives that have been risk rated as nonperforming; in prior periods only the amount of defaulted derivatives was reported.

55

The following table presents the geographic distribution of wholesale credit exposure including nonperforming assets and past due loans as of March 31, 2012, and December 31, 2011. The geographic distribution of the wholesale portfolio is determined based predominantly on the domicile of the borrower.
 Credit exposure NonperformingAssets acquired in loan satisfactions30 days or more past due and accruing loans
March 31, 2012
(in millions)
LoansLending-related commitmentsDerivative receivablesTotal credit exposure 
Nonaccrual loans(a)
DerivativesLending-related commitmentsTotal non- performing credit exposure
Europe/Middle East/Africa$36,529
$67,793
$40,498
$144,820
 $106
$50
$22
$178
$2
$118
Asia/Pacific30,079
18,940
9,783
58,802
 2
41
—
43
—
16
Latin America/Caribbean28,667
22,068
4,786
55,521
 107
13
4
124
—
435
Other North America2,288
7,238
1,625
11,151
 3
—
1
4
—
1
Total non-U.S.97,563
116,039
56,692
270,294
 218
104
27
349
2
570
Total U.S.186,090
285,025
28,685
499,800
 1,723
213
729
2,665
160
1,256
Loans held-for-sale and loans at fair value7,213
—
—
7,213
 214
NA
—
214
NA
—
Receivables from customers and other—
—
—
21,131
 —
NA
NA
—
NA
—
Total$290,866
$401,064
$85,377
$798,438
 $2,155
$317
$756
$3,228
$162
$1,826
 Credit exposure NonperformingAssets acquired in loan satisfactions30 days or more past due and accruing loans
December 31, 2011
(in millions)
LoansLending-related commitmentsDerivative receivablesTotal credit exposure 
Nonaccrual loans(a)
Derivatives(b)
Lending-related commitmentsTotal non- performing credit exposure
Europe/Middle East/Africa$36,637
$60,681
$43,204
$140,522
 $44
$14
$25
$83
$—
$68
Asia/Pacific31,119
17,194
10,943
59,256
 1
42
—
43
—
6
Latin America/Caribbean25,141
20,859
5,316
51,316
 386
—
15
401
3
222
Other North America2,267
6,680
1,488
10,435
 3
—
1
4
—
—
Total non-U.S.95,164
105,414
60,951
261,529
 434
56
41
531
3
296
Total U.S.183,231
277,325
31,526
492,082
 1,964
241
824
3,029
176
1,543
Loans held-for-sale and loans at fair value4,621
—
—
4,621
 183
NA
—
183
NA
—
Receivables from customers and other—
—
—
17,461
 —
NA
NA
—
NA
—
Total$283,016
$382,739
$92,477
$775,693
 $2,581
$297
$865
$3,743
$179
$1,839
(a)
At March 31, 2012, and December 31, 2011, the Firm held an allowance for loan losses of $430 million and $496 million, respectively, related to nonaccrual retained loans resulting in allowance coverage ratios of 22% and 21%, respectively. Wholesale nonaccrual loans represented 0.74% and 0.91% of total wholesale loans at March 31, 2012, and December 31, 2011, respectively.
(b)Prior period amounts have been revised to include both defaulted derivatives and derivatives that have been risk rated as nonperforming; in prior periods only the amount of defaulted derivatives was reported.



56

Loans
In the normal course of business, the Firm provides loans to a variety of wholesale customers, from large corporate and institutional clients to high-net-worth individuals. For further discussion on loans, including information on credit quality indicators, see Note 13 on pages 118–135 of this Form 10-Q.
The Firm actively manages wholesale credit exposure. One way of managing credit risk is through sales of loans and lending-related commitments. During the three months ended March 31, 2012 and 2011, the Firm sold $957 million and $1.5 billion, respectively, of loans and commitments. These sale activities are not related to the Firm’s securitization activities. For further discussion of securitization activity, see Liquidity Risk Management and Note 15 on pages 46–50 and 137–144 respectively, of this Form 10-Q.
The following table presents the change in the nonaccrual loan portfolio for the three months ended March 31, 2012 and 2011. Nonaccrual wholesale loans decreased by $426 million from December 31, 2011, primarily reflecting repayments and loan sales.
Wholesale nonaccrual loan activity  
Three months ended March 31, (in millions) 20122011
Beginning balance $2,581
$6,006
Additions 422
700
Reductions:  

Paydowns and other 416
581
Gross charge-offs 92
243
Returned to performing status 59
152
Sales 281
863
Total reductions 848
1,839
Net additions/(reductions) (426)(1,139)
Ending balance $2,155
$4,867
The following table presents net charge-offs, which are defined as gross charge-offs less recoveries, for the three months ended March 31, 2012 and 2011. The amounts in the table below do not include gains or losses from sales of nonaccrual loans.
Wholesale net charge-offs 
Three months ended March 31,
(in millions, except ratios)
20122011
Loans – reported  
Average loans retained$276,764
$226,554
Net charge-offs/(recoveries)5
165
Net charge-off/(recovery) rate0.01%0.30%
Derivative contracts
In the normal course of business, the Firm uses derivative instruments predominantly for market-making activity.activities. Derivatives enable customers and the Firm to manage exposures to fluctuations in interest rates, currencies and
other markets. The Firm also uses derivative instruments to manage its credit exposure. For further discussion of derivative contracts, see Note 5 on pages 103–109136–144 of this Form 10-Q.10-Q.
The following tables summarize the net derivative receivables for the periods presented.
Derivative receivables  
(in millions)Derivative receivablesDerivative receivables
Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011
Interest rate$41,520
$46,369
$45,481
$46,369
Credit derivatives6,625
6,684
4,468
6,684
Foreign exchange13,056
17,890
12,982
17,890
Equity8,995
6,793
8,103
6,793
Commodity15,181
14,741
14,509
14,741
Total, net of cash collateral85,377
92,477
85,543
92,477
Liquid securities and other cash collateral held against derivative receivables(18,401)(21,807)(18,973)(21,807)
Total, net of all collateral$66,976
$70,670
$66,570
$70,670
Derivative receivables reported on the Consolidated Balance Sheets were $85.485.5 billion and $92.5 billion at March 31,June 30, 2012, and December 31, 2011, respectively. These represent the fair value of the derivative contracts after
giving effect to legally enforceable master netting agreements, cash collateral held by the Firm and the CVA. However, in management’s view, the appropriate measure of current credit risk should take into consideration additional liquid securities (primarily U.S. government and agency securities and other G7 government bonds) and other cash collateral held by the Firm of $18.419.0 billion and $21.8 billion at March 31,June 30, 2012, and December 31, 2011, respectively, that may be used as security when the fair value of the client’s exposure is in the Firm’s favor, as shown in the table above.
In addition to the collateral described in the preceding paragraph the Firm also holds additional collateral (including cash, U.S. government and agency securities, and other G7 government bonds) delivered by clients at the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Though this collateral does not reduce the balances and is not included in the table above, it is available as security against potential exposure that could arise should the fair value of the client’s derivative transactions move in the Firm’s favor. As of March 31,June 30, 2012, and December 31, 2011, the Firm held $19.621.4 billion and $17.6 billion, respectively, of this additional collateral. The derivative receivables fair value, net of all collateral, also do not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, see Note 5 on pages 103–109136–144 of this Form 10-Q.10-Q.


57

The following table summarizes the ratings profile of the Firm’s derivative receivables, net of other liquid securities collateral, for the dates indicated.
Ratings profile of derivative receivables           
Rating equivalentMarch 31, 2012 December 31, 2011June 30, 2012 December 31, 2011

(in millions, except ratios)
Exposure net of all collateral% of exposure net of all collateral Exposure net of all collateral% of exposure net of all collateralExposure net of all collateral% of exposure net of all collateral Exposure net of all collateral% of exposure net of all collateral
AAA/Aaa to AA-/Aa3$20,710
31% $25,100
35%$21,494
32% $25,100
35%
A+/A1 to A-/A314,614
22
 22,942
32
12,723
19
 22,942
32
BBB+/Baa1 to BBB-/Baa317,359
26
 9,595
14
17,903
27
 9,595
14
BB+/Ba1 to B-/B312,123
18
 10,545
15
12,285
19
 10,545
15
CCC+/Caa1 and below2,170
3
 2,488
4
2,165
3
 2,488
4
Total$66,976
100% $70,670
100%$66,570
100% $70,670
100%
As noted above, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm’s derivatives transactions subject to collateral agreements – excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity – was 87%88% as of March 31,June 30, 2012 largely, unchanged compared with88% as of December 31, 2011.
Credit derivatives
Credit derivatives are financial instruments whose value is derived from the credit risk associated with the debt of a third partythird-party issuer (the reference entity) and which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller) when the reference entity suffers a credit event. If no credit event has occurred, the protection seller makes no payments to the protection purchaser.
As a purchaser of credit protection, the Firm has risk that the counterparty providing the credit protection will default. As a seller of credit protection, the Firm has risk


80

that the underlying entity referenced in the contract will be subject to a credit event. Upon the occurrence of a credit event, which may include, among other events, the bankruptcy or failure to pay by, or certain restructurings of the debt of, the reference entity, neither party has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the credit derivative contract and the fair value of the reference obligation at the time of settling the credit derivative contract. The determination as to whether a credit event has occurred is generally made by the relevant International Swaps and Derivatives Association (“ISDA”) Determination Committee, comprised of 10 sell-side and five buy-side ISDA member firms. For a more detailed description of credit derivatives, including other types of credit derivatives and notional amounts, see Credit derivatives in Note 5 on pages 103–109143-144 of this Form 10-Q; and Credit derivatives on pages 143–144 and Credit derivatives in Note 6 on pages 209–210 of JPMorgan Chase’sChase’s 2011Annual Report.
The Firm uses credit derivatives for two primary purposes: first, in its capacity as a market-maker; and second, as an end-user, to manage the Firm’s own credit risk associated with various exposures.
Included in end-user activities are credit derivatives used to mitigate the credit risk associated with traditional lending activities (loans and unfunded commitments) and derivatives counterparty exposure in the Firm’s wholesale businesses (“Credit Portfolio Management” activities). Information on Credit Portfolio Management activities is provided in the table below.
In addition, the Firm uses credit derivatives as an end-user to manage other exposures, including credit risk arising from certain AFS securities and from certain securities held in the Firm’s market making businesses. These credit derivatives are not included in Credit Portfolio Management activities; for further information on these credit derivatives as well as credit derivatives used in the Firm’s capacity as a market maker in credit derivatives, see Credit derivatives Annual Report.in Note 5 on pages 143-144 of this Form 10-Q.
Also not included Credit Portfolio Management activities is the synthetic credit portfolio. The synthetic credit portfolio is a portfolio of index credit derivatives positions that were held by CIO. On July 2, 2012, CIO transferred the synthetic credit portfolio, other than a portion aggregating to approximately $12 billion of notional, to IB. For more information regarding the synthetic credit portfolio, see Recent developments on pages 10–11 and Note 5 on pages 136–144 of this Form 10-Q.



58

Credit portfolioPortfolio Management activities
Credit Portfolio Management derivatives
 
Notional amount of protection
purchased and sold
(in millions)Jun 30, 2012 Dec 31,
2011
Credit derivatives used to manage:   
Loans and lending-related commitments$2,570
 $3,488
Derivative receivables28,690
 22,883
Total protection purchased31,260
 26,371
Total protection sold59
 131
Credit Portfolio Management derivatives notional, net$31,201
 $26,240
Use of single-name and portfolio credit derivatives
 
Notional amount of protection
purchased and sold
(in millions)Mar 31,
2012		 Dec 31,
2011
Credit derivatives used to manage:   
Loans and lending-related commitments$3,325
 $3,488
Derivative receivables26,347
 22,883
Total protection purchased29,672
 26,371
Total protection sold100
 131
Credit derivatives hedges notional, net$29,572
 $26,240

The credit derivatives used by JPMorgan Chase for credit portfolio managementin Credit Portfolio Management activities do not qualify for hedge accounting under U.S. GAAP; these derivatives are reported at fair value, with gains and losses recognized in principal transactions revenue. In contrast, the loans and lending-
relatedlending-related commitments being risk-managed are accounted for on an accrual basis. This asymmetry in accounting treatment, between loans and lending-related commitments and the credit derivatives used in credit portfolio management activities, causes earnings volatility that is not representative, in the Firm’s view, of the true changes in value of the Firm’s overall credit exposure. In addition, the effectiveness of the Firm’s CDS protection as a hedge of the
Firm’s exposures may vary depending upon a number of factors, including the contractual terms of the CDS. The fair value related to the Firm’s credit derivatives used for managing credit exposure, as well as the fair value related to the CVA (which reflects the credit quality of derivatives counterparty exposure), are included in the gains and losses realized on credit derivatives disclosed in the table below. These results can vary from period to period due to market conditions that affect specific positions in the portfolio. For further information on credit derivative protection purchased in the context of country risk, see Country Risk Management on pages 77–79103–105 of this Form 10-Q, and pages 163–165 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.
Net gains and losses on Credit Portfolio Management derivatives
  Three months
ended June 30,		 Six months
ended June 30,
(in millions) 20122011 20122011
Hedges of loans and lending-related commitments $(9)$(31) $(84)$(75)
CVA and hedges of CVA (81)(98) 95
(137)
Net gains/(losses) $(90)$(129) $11
$(212)
Net gains and losses on credit portfolio hedges
Three months ended March 31,
(in millions)
 20122011
Hedges of loans and lending-related commitments $(75)$(44)
CVA and hedges of CVA 176
(39)
Net gains/(losses) $101
$(83)

Lending-related commitments
JPMorgan Chase uses lending-related financial instruments, such as commitments and guarantees, to meet the financing needs of its customers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligations under these guarantees, and the counterparties subsequently fails to perform according to the terms of these contracts.
In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s actual credit risk exposure or funding requirements. In determining the amount of credit risk exposure the Firm has to wholesale lending-related commitments, which is used as the basis for allocating credit risk capital to these commitments, the Firm has established a “loan-equivalent” amount for each commitment; this amount represents the portion of the unused commitment or other contingent exposure that is expected, based on average portfolio historical experience, to become drawn upon in an event of a default by an obligor. The loan-equivalent amount of the Firm’s lending-related commitments was $211.2 billion and $206.5 billion as of March 31, 2012, and December 31, 2011, respectively.


5981

CONSUMER CREDIT PORTFOLIO
JPMorgan Chase’s consumer portfolio consists primarily of residential real estate loans, credit cards, auto loans, business banking loans, and student loans. The Firm’s primary focus is on serving the prime segment of the consumer credit market. For further information on consumer loans, see Note 13 on pages 118–135153–175 of this Form 10-Q.10-Q.
A substantial portion of the consumer loans acquired in the Washington Mutual transaction were identified as PCI based on an analysis of high-risk characteristics, including product type, loan-to-value (“LTV”) ratios, FICO scores and delinquency status. These PCI loans are accounted for on a pool basis, and the pools are considered to be performing. For further information on PCI loans see Note 13 on pages 118–135153–175 of this Form 10-Q.10-Q.
The credit performance of the consumer portfolio across the entire product spectrum improved as the economy expanded incontinued to slowly expand during the first quarter ofsix months ended June 30, 2012, and labor market conditions improved. The general improvement in the economic environment resultedresulting in a reduction in estimated losses, particularly in the residential real estate and credit card portfolios. However, high unemployment remains high relative to the historical norm and continuesweak housing prices continue to result in an elevatednegatively impact the number of residential real estate loans being charged-off. Weak housing prices continue to negatively affectcharged off and the severity of loss recognized on defaulted residential real estate loans. Early-stage (30-89 days delinquent) and late stage (150+ days delinquent)
residential real estate delinquencies, excluding government guaranteed
government-guaranteed loans, continue to decline but remain elevated. The elevated level of the late-stage delinquent loans is due, in part, to loss mitigation activities currently being undertaken and to elongated foreclosure processing timelines. Losses related to these loans continue to be recognized in accordance with the Firm’s standard charge-off practices, but some delinquent loans that would otherwise have been foreclosed upon remain in the mortgage and home equity loan portfolios. In addition to these elevated levels of delinquencies, high unemployment and weak housing prices, uncertainties regarding the ultimate success of loan modifications, and the risk attributes of certain loans within the portfolio (e.g., loans with high LTV ratios, junior lien loans that are subordinate to a delinquent or modified senior lien) continue to contribute to uncertainty regarding overall residential real estate portfolio performance and have been considered in estimating the allowance for loan losses.
Since the global economic crisis began in mid-2007, the Firm has taken actions to reduce risk exposure to consumer loans by tightening both underwriting and loan qualification standards, as well as eliminating certain products and loan origination channels for residential real estate lending. To manage the risk associated with lending-related commitments, the Firm has reduced or canceled certain lines of credit as permitted by law.



6082

The following table presents managed consumer credit-related information (including RFS, Card,, and residential real estate loans reported in the AM business segment and in Corporate/Private Equity) for the dates indicated. For further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 13 on pages 118–135153–175 of this Form 10-Q.10-Q.
Consumer credit portfolio    Three months ended March 31,Consumer credit portfolio    Three months ended June 30, Six months ended June 30,

(in millions, except ratios)
Credit exposure 
Nonaccrual loans(f)(g)
 Net charge-offs 
Average annual net charge-off rate(h)
Credit exposure 
Nonaccrual loans(f)(g)
 Net charge-offs 
Average annual net charge-off rate(h)
 Net charge-offs 
Average annual net charge-off rate(h)
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 20122011 20122011Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 20122011 20122011 20122011 20122011
Consumer, excluding credit card                    
Loans, excluding PCI loans and loans held-for-sale                  
Home equity – senior lien$21,202
$21,765
 $489
$495
 $56
$65
 1.04%1.08%$20,708
$21,765
 $492
$495
 $55
$74
 1.05%1.27% $111
$139
 1.04%1.18%
Home equity – junior lien54,005
56,035
 2,277
792
 486
655
 3.55
4.26
52,125
56,035
 2,123
792
 411
518
 3.12
3.42
 897
1,173
 3.35
3.83
Prime mortgage, including option ARMs76,292
76,196
 3,258
3,462
 134
171
 0.71
0.93
76,064
76,196
 3,139
3,462
 118
199
 0.62
1.07
 252
370
 0.66
1.00
Subprime mortgage9,289
9,664
 1,569
1,781
 130
186
 5.51
6.80
8,945
9,664
 1,544
1,781
 112
156
 4.94
5.85
 242
342
 5.23
6.33
Auto(a)
48,245
47,426
 102
118
 33
47
 0.28
0.40
48,468
47,426
 101
118
 21
19
 0.17
0.16
 54
66
 0.23
0.28
Business banking17,822
17,652
 649
694
 96
119
 2.19
2.86
18,218
17,652
 587
694
 98
117
 2.20
2.74
 194
236
 2.19
2.80
Student and other13,854
14,143
 105
69
 61
86
 1.75
2.29
12,907
14,143
 83
69
 109
130
 3.22
3.50
 170
216
 2.47
2.88
Total loans, excluding PCI loans and loans held-for-sale240,709
242,881
 8,449
7,411
 996
1,329
 1.66
2.14
237,435
242,881
 8,069
7,411
 924
1,213
 1.55
1.96
 1,920
2,542
 1.61
2.05
Loans – PCI(b)
                  
Home equity22,305
22,697
 NA
NA
 NA
NA
 NA
NA
21,867
22,697
 NA
NA
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Prime mortgage14,781
15,180
 NA
NA
 NA
NA
 NA
NA
14,395
15,180
 NA
NA
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Subprime mortgage4,870
4,976
 NA
NA
 NA
NA
 NA
NA
4,784
4,976
 NA
NA
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Option ARMs22,105
22,693
 NA
NA
 NA
NA
 NA
NA
21,565
22,693
 NA
NA
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Total loans – PCI64,061
65,546
 NA
NA
 NA
NA
 NA
NA
62,611
65,546
 NA
NA
 NA
NA
 NA
NA
 NA
NA
 NA
NA
Total loans – retained304,770
308,427
 8,449
7,411
 996
1,329
 1.31
1.66
300,046
308,427
 8,069
7,411
 924
1,213
 1.23
1.53
 1,920
2,542
 1.27
1.60
Loans held-for-sale—
—
 —
—
 —
—
 —
—
—
—
 —
—
 —
—
 —
—
 —
—
 —
—
Total consumer, excluding credit card loans304,770
308,427
 8,449
7,411
 996
1,329
 1.31
1.66
300,046
308,427
 8,069
7,411
 924
1,213
 1.23
1.53
 1,920
2,542
 1.27
1.60
Lending-related commitments                  
Home equity – senior lien(c)
16,248
16,542
      15,956
16,542
          
Home equity – junior lien(c)
25,416
26,408
      24,114
26,408
          
Prime mortgage2,594
1,500
      3,470
1,500
          
Subprime mortgage—
—
      —
—
          
Auto7,127
6,694
      6,869
6,694
          
Business banking10,941
10,299
      11,245
10,299
          
Student and other795
864
      784
864
          
Total lending-related commitments63,121
62,307
      62,438
62,307
          
Receivables from customers(d)
104
100
      107
100
          
Total consumer exposure, excluding credit card367,995
370,834
      362,591
370,834
   ��       
Credit card                  
Loans retained(e)
124,475
132,175
 1
1
 1,386
2,226
 4.40
6.97
124,593
132,175
 1
1
 1,345
1,810
 4.35
5.82
 2,731
4,036
 4.37
6.40
Loans held-for-sale856
102
 —
—
 —
—
 —
—
112
102
 —
—
 —
—
 —
—
 —
—
 —
—
Total credit card loans125,331
132,277
 1
1
 1,386
2,226
 4.40
6.97
124,705
132,277
 1
1
 1,345
1,810
 4.35
5.82
 2,731
4,036
 4.37
6.40
Lending-related commitments(c)
533,318
530,616
    
  
534,267
530,616
    
  
    
Total credit card exposure658,649
662,893
    
  
658,972
662,893
    
  
    
Total consumer credit portfolio$1,026,644
$1,033,727
 $8,450
$7,412
 $2,382
$3,555
 2.21%3.18%$1,021,563
$1,033,727
 $8,070
$7,412
 $2,269
$3,023
 2.14%2.74% $4,651
$6,578
 2.17%2.96%
Memo: Total consumer credit portfolio, excluding PCI$962,583
$968,181
 $8,450
$7,412
 $2,382
$3,555
 2.60%3.77%$958,952
$968,181
 $8,070
$7,412
 $2,269
$3,023
 2.51%3.25% $4,651
$6,578
 2.55%3.52%
(a)
At March 31,June 30, 2012, and December 31, 2011, excluded operating lease–related assets of $4.5 billion and $4.4 billion in both periods., respectively.
(b)Charge-offs are not recorded on PCI loans until actual losses exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. To date, no charge-offs have been recorded for these loans.
(c)Credit card and home equity lending–related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases, without notice as permitted by law.

83

(d)Receivables from customers primarily represent margin loans to retail brokerage customers, which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets.
(e)Includes billed finance chargesaccrued interest and fees net of an allowance for the uncollectible portion of billed and accrued interest and fee income.
(f)
At March 31,June 30, 2012, and December 31, 2011, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $11.811.9 billion and $11.5 billion, respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $586547 million and $551 million, respectively, that are 90 or more days past due. These amounts were excluded from nonaccrual loans as reimbursement of insured amounts are 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.

61

amounts are 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. Under guidance issued by the FFIEC, credit card loans are 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.
(g)Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.
(h)
Average consumer loans held-for-sale were $822782 million and $3.1352 million, respectively, for the three months endedJune 30, 2012 and 2011, and $802 million and $1.7 billion, respectively, for the threesix months ended March 31,June 30, 2012 and 2011.2011. These amounts were excluded when calculating net charge-off rates.
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances declined during the threesix months ended March 31,June 30, 2012, due to paydowns, portfolio run-off and charge-offs. Credit performance has improved across most portfolios but remains under stress.charge-offs and delinquent loans remain above normal levels. The following discussion relates to the specific loan and lending-related categories. PCI loans are generally excluded from individual loan product discussions and are addressed separately below. For further information about the Firm’s consumer portfolio, including information about delinquencies, loan modifications and other credit quality indicators, see Note 13 on pages 118–135153–175 of this Form 10-Q.10-Q.
Home equity: Home equity loans at March 31,June 30, 2012, were $75.272.8 billion, compared with $77.8 billion at December 31, 2011. The decrease in this portfolio primarily reflected loan paydowns and charge-offs. Early-stage delinquencies showed improvement from December 31, 2011, for both senior and junior lien home equity loans;loans, while net charge-offs declined from the same period ofin the prior year. Junior lien nonaccrual loans increased from December 31, 2011, due to the addition of $1.6$1.5 billion of performing junior liens that are subordinate to senior liens that are 90 days or more past due based upon regulatory guidance issued during the first quarter of 2012.
Approximately 20% of the Firm’s home equity portfolio consists of home equity loans (“HELOANs”) and the remainder consists of home equity lines of credit (“HELOCs”). HELOANs are generally fixed-rate, closed-end, amortizing loans, with terms ranging from 3–30 years. Approximately half of the HELOANs are senior liens and the remainder are junior liens. In general, HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period. At the time of origination, the borrower typically selects one of two minimum payment options that will generally remain in effect during the revolving period: a monthly payment of 1% of the outstanding balance, or interest-only payments based on a variable index (typically Prime).
The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty or when the collateral does not support the loan amount. Because the majority of the HELOCs were funded in 2005 or later, a fully-amortizing payment is not required
until 2015 or later for the most significant portion of the HELOC portfolio. The Firm regularly evaluates both the near-term and longer-term repricing risks inherent in its HELOC portfolio to ensure that the allowance for credit losses and its account management practices are appropriate given the portfolio risk profile.
At March 31,June 30, 2012, the Firm estimates that its home equity portfolio contained approximately $3.83.5 billion of current junior lien loans where the borrower has a first mortgage loan that is either delinquent or has been modified (“high-risk seconds”)., compared with $3.7 billion at December 31, 2011. Such loans are considered to pose a higher risk of default than that of junior lien loans for which the senior lien is neither delinquent nor modified. The Firm estimates the balance of its total exposure to high-risk seconds on a quarterly basis using internal data, loan level credit bureau data, which typically provides the delinquency status of the senior lien, as well as information from a database maintained by one of the bank regulatory agencies. The estimated balance of these high-risk seconds may vary from quarter to quarter for reasons such as the movement of related senior liens into and out of the 30+ day delinquency bucket.
Current high risk junior liens    
(in billions) March 31, 2012 June 30, 2012
Modified current senior lien $1.4
  $1.4
 
Senior lien 30 – 89 days delinquent 1.0
  0.8
 
Senior lien 90 days or more delinquent 1.4
 (a) 
 1.3
 (a) 
Total current high risk junior liens $3.8

 $3.5

(a)
Junior liens subordinate to senior liens that are 90 days or more past due are classified as nonaccrual loans. Excludes approximately $200$200 million of junior liens that are performing but not current, which were also placed on nonaccrual in accordance with the regulatory guidance.
Of this estimated $3.83.5 billion balance at June 30, 2012, the Firm owns approximately 5%8% and services approximately 30%26% of the related senior lien loans to these borrowers. The performance of the Firm’s junior lien loans is generally consistent regardless of whether the Firm owns, services or does not own or service the senior lien. The increased probability of default associated with these higher-risk junior lien loans was considered in estimating the allowance for loan losses.
Based upon regulatory guidance, issued in the first quarter of 2012, the Firm is nowbegan reporting performing junior liens that are subordinate to senior liens that are 90 days or more past due as nonaccrual loans.loans in


84

the first quarter of 2012. The prior periodyear was not restated for this policy change. The classification of certain of these higher-risk junior lien loans as nonaccrual at March 31, 2012 did not have an impact on the allowance for loan losses, because as noted above, the Firm has previously considered the risk characteristics of this portfolio of loans in estimating its allowance for loan losses. This policy change had a minimal impact on the Firm’s net interest income during the three and six months ended June 30, 2012, because predominantly all of the reclassified loans are currently making payments.
Mortgage: Mortgage loans at March 31,June 30, 2012, including prime, subprime and loans held-for-sale, were $85.685.0 billion, compared with $85.9 billion at December 31, 2011. Balances declined slightly as paydowns, portfolio run-off and the charge-off or liquidation of delinquent loans were largely offset by new prime mortgage originations and


62

Ginnie Mae loans that the Firm elected to repurchase. Net charge-offs decreased from the same period of the prior year, as a result of improvement in delinquencies, but remained elevated.
Prime mortgages, including option adjustable-rate mortgages (“ARMs”), were $76.376.1 billion at March 31,June 30, 2012, compared with $76.2 billion at December 31, 2011. The increase was due primarily to prime mortgage originations and Ginnie MaeThese loans that the Firm elected to repurchase, partially offset by thewere relatively flat as charge-off or liquidation of delinquent loans, paydowns, and portfolio run-off of option ARM loans.loans were offset by prime mortgage originations and Ginnie Mae loans that the Firm elected to repurchase. Excluding loans insured by U.S. government agencies, both early-stage and late-stage delinquencies showed improvement during the quartersix months ended June 30, 2012, but remained elevated. Nonaccrual loans showed improvement, but also remained elevated as a result of ongoing foreclosure processing delays. Net charge-offs declined year-over-year but remained high.
Option ARM loans, which are included in the prime mortgage portfolio, were $7.27.0 billion and $7.4 billion and represented 9% and 10% of the prime mortgage portfolio at March 31,June 30, 2012, and December 31, 2011, respectively. The decrease in option ARM loans resulted from portfolio run-off. The Firm’s option ARM loans, other than those held in the PCI portfolio, are primarily loans with lower LTV ratios and higher borrower FICO scores. Accordingly, the Firm expects substantially lower losses on this portfolio when compared with the PCI option ARM pool. As of March 31,June 30, 2012, approximately 6% of option ARM borrowers were delinquent, 3% were making interest-only or negatively amortizing payments, and 91% were making amortizing payments (such payments are not necessarily fully amortizing). Approximately 85%84% of borrowers within the portfolio are subject to risk of payment shock due to future payment recast, as only a limited number of these loans have been modified. The cumulative amount of unpaid interest added to the unpaid principal balance due to negative amortization of option ARMs was not material at either March 31,June 30, 2012, or December 31, 2011. The Firm
estimates the following balances of option ARM loans will undergo a payment recast that results in a payment increase: $14372 million in 2012, $595554 million in 2013 and $955881 million in 2014. The option ARM portfolio was acquired by the Firm as part of the Washington Mutual transaction.
Subprime mortgages at March 31,June 30, 2012, were $9.38.9 billion, compared with $9.7 billion at December 31, 2011. The decrease was due to portfolio run-off and the charge-off or liquidation of delinquent loans. Both early-stage and late-stage delinquencies improved from December 31, 2011. However, delinquencies and nonaccrual loans remained at elevated levels. Net charge-offs improved from the same period of the prior year.
Auto: Auto loans at March 31,June 30, 2012, were $48.248.5 billion, compared with $47.4 billion at December 31, 2011. Loan balances increased due to new originations partially offset by paydowns and payoffs. Delinquent and nonaccrual loans have decreased from December 31, 2011. Net charge-offs decreasedincreased slightly for the three months ended June 30, 2012, from the same period of the prior year but remain low as a result of declinesfavorable trends in both loss frequency and loss severity, mainly due to enhanced underwriting standards and a strong used car market. The auto loan portfolio reflected a high concentration of prime-quality credits.
Business banking: Business banking loans at March 31,June 30, 2012, were $17.818.2 billion, compared with $17.7 billion at December 31, 2011. The increase was due to growth in new loan origination volumes. These loans primarily include loans that are collateralized, often with personal loan guarantees, and may also include Small Business Administration guarantees. Delinquent loans and nonaccrual loans showed improvement from December 31, 2011. Net charge-offs declined from the same period of the prior year.
Student and other: Student and other loans at March 31,June 30, 2012, were $13.912.9 billion, compared with $14.1 billion at December 31, 2011. The decrease was primarily due to paydowns and charge-offs of student loans. Other loans primarily include other secured and unsecured consumer loans. Delinquencies and nonaccrualNonaccrual loans increased from December 31, 2011 while charge-offs decreased from the same period of the prior year.
Purchased credit-impaired loans: PCI loans at March 31,June 30, 2012, were $64.162.6 billion, compared with $65.5 billion at December 31, 2011. This portfolio represents loans acquired in the Washington Mutual transaction, which were recorded at fair value at the time of acquisition.
During the first quarter ofsix months endedJune 30, 2012, no additional impairment was recognized in connection with the Firm’s review of the PCI portfolios’ expected cash flows. At both March 31,June 30, 2012, and December 31, 2011, the allowance for loan losses for the home equity, prime mortgage, option ARM and subprime mortgage PCI portfolios was $1.9


85

billion, $1.9 billion, $1.5 billion and $380 million, respectively.
As of March 31,June 30, 2012, approximately 29% of the option ARM PCI loans were delinquent and 45%46% have been modified into fixed-rate, fully amortizing loans. Substantially all of the remaining loans are making amortizing payments, although such payments are not necessarily fully amortizing; in addition, substantially all of these loans are subject to the risk of payment shock due to future payment recast. The cumulative amount of unpaid interest added to the unpaid principal balance of the option ARM PCI pool was $1.0 billion958 million and $1.1 billion at March 31,June 30, 2012, and December 31, 2011, respectively. The Firm estimates the following balances of option ARM PCI loans will undergo a payment recast that results in a payment increase: $1.81.2 billion in 2012 and $379352 million in 2013 and $512469 million in 2014.



63

The following table provides a summary of lifetime principal loss estimates included in both the nonaccretable difference and the allowance for loan losses. Lifetime principal loss estimates, which exclude the effect of foregone interest as a result of loan modifications, were relatively unchanged from December 31, 2011, to March 31, 2012.June 30, 2012. Principal charge-offs will not be recorded on these pools until the nonaccretable difference has been fully depleted.
Summary of lifetime principal loss estimates
Lifetime loss estimates(a)
 
LTD liquidation losses(b)
Summary of lifetime principal loss estimates
Lifetime loss estimates(a)
 
LTD liquidation losses(b)
(in billions)Mar 31,
2012		 Dec 31,
2011		 Mar 31,
2012		 Dec 31,
2011		Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011
Home equity$14.9
 $14.9
 $10.8
 $10.4
$14.9
 $14.9
 $11.1
 $10.4
Prime mortgage4.6
 4.6
 2.5
 2.3
4.4
 4.6
 2.6
 2.3
Subprime mortgage3.7
 3.8
 1.8
 1.7
3.6
 3.8
 1.9
 1.7
Option ARMs11.4
 11.5
 7.1
 6.6
11.4
 11.5
 7.4
 6.6
Total$34.6
 $34.8
 $22.2
 $21.0
$34.3
 $34.8
 $23.0
 $21.0
(a)
Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses only plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses only was $8.37.5 billion and $9.4 billion at March 31,June 30, 2012, and December 31, 2011, respectively.
(b)Life-to-date (“LTD”) liquidation losses represent realization of loss upon loan resolution.
Geographic composition and current estimated LTVs of residential real estate loans: At both March 31,June 30, 2012, and December 31, 2011, California had the greatest concentration of residential real estate loans with 24% of the total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans. Of the total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans, $78.076.6 billion, or 54%, were concentrated in California, New York, Arizona, Florida and Michigan at March 31,June 30, 2012, compared with $79.5 billion, or 54%, at December 31, 2011. The unpaid principal balance of PCI loans concentrated in these five states represented 72% of total PCI loans at both March 31,June 30, 2012, and December 31, 2011.
The current estimated average LTV ratio for residential real estate loans retained, excluding mortgage loans insured by U.S. government agencies and PCI loans, was 84% at March 31,June 30, 2012, compared with 83% at December 31, 2011. Excluding mortgage loans insured by U.S. government agencies and PCI loans, 24%23% of the retained portfolio had a current estimated LTV ratio greater than 100%, and 10% of the retained portfolio had a current estimated LTV ratio greater than 125%
at both March 31,June 30, 2012, compared with 24% and10%, respectively, at December 31, 2011. The decline in home prices since 2007 has had a significant impact on the collateral values underlying the Firm’s residential real estate loan portfolio. In general, the delinquency rate for loans with high LTV ratios is greater than the delinquency rate for loans in which the borrower has equity in the collateral. While a large portion of the loans with current estimated LTV ratios greater than 100% continue to pay and are current, the continued willingness and ability of these borrowers to pay remains uncertain.


86

The following table for PCI loans presents the current estimated LTV ratio, as well as the ratio of the carrying value of the underlying loans to the current estimated collateral value. Because such loans were initially measured at fair value, the ratio of the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratio, which is based on the unpaid principal balance. The estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as estimates.


LTV ratios and ratios of carrying values to current estimated collateral values – PCI loansLTV ratios and ratios of carrying values to current estimated collateral values – PCI loans    LTV ratios and ratios of carrying values to current estimated collateral values – PCI loans    
 March 31, 2012 December 31, 2011 June 30, 2012 December 31, 2011

(in millions,
except ratios)
 Unpaid principal balance
Current estimated
LTV ratio(a)
Net carrying value(c)
Ratio of net
carrying value
to current estimated
collateral value(c)
 
Unpaid principal
balance
Current estimated
LTV ratio(a)
Net carrying value(c)
Ratio of net
carrying value
to current estimated
collateral value(c)
 Unpaid principal balance
Current estimated
LTV ratio(a)
Net carrying value(c)
Ratio of net
carrying value
to current estimated
collateral value(c)
 
Unpaid principal
balance
Current estimated
LTV ratio(a)
Net carrying value(c)
Ratio of net
carrying value
to current estimated
collateral value(c)
Home equity $24,330
117%
(b) 
$20,397
98% $25,064
117%
(b) 
$20,789
97% $23,658
116%
(b) 
$19,959
98% $25,064
117%
(b) 
$20,789
97%
Prime mortgage 15,462
110
 12,852
91 16,060
110
 13,251
91 14,934
109
 12,466
91 16,060
110
 13,251
91
Subprime mortgage 6,965
115
 4,490
74 7,229
115
 4,596
73 6,769
114
 4,404
74 7,229
115
 4,596
73
Option ARMs 25,098
108
 20,611
89 26,139
109
 21,199
89 24,296
107
 20,071
89 26,139
109
 21,199
89
(a)Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated at least quarterly based on home valuation models that utilize nationally recognized home price index valuation estimates; such models incorporate actual data to the extent available and forecasted data where actual data is not available.
(b)Represents current estimated combined LTV for junior home equity liens, which considers all available lien positions related to the property. All other products are presented without consideration of subordinate liens on the property.
(c)
Net carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition and is also net of the allowance for loan losses of $1.9 billion for home equity, $1.9 billion for prime mortgage, $1.5 billion for option ARMs, and $380 million for subprime mortgage at both March 31,June 30, 2012, and December 31, 2011.

64

The current estimated average LTV ratios were 117%116% and 138%135% for California and Florida PCI loans, respectively, at March 31,June 30, 2012, compared with 117% and 140%, respectively, at December 31, 2011. Continued pressure on housing prices in California and Florida have contributed negatively to both the current estimated average LTV ratio and the ratio of net carrying value to current estimated collateral value for loans in the PCI portfolio. Of the PCI portfolio, at both June 30, 2012, and December 31, 2011, 62% had a current estimated LTV ratio greater than 100%, and 31% had a current estimated LTV ratio greater than 125% at both March 31, 2012, and December 31, 2011.
While the current estimated collateral value is greater than the net carrying value of PCI loans, the ultimate performance of this portfolio is highly dependent on borrowers’ behavior and ongoing ability and willingness to continue to make payments on homes with negative equity, as well as on the cost of alternative housing. For further information on the geographic composition and current estimated LTVs of residential real estate – non-PCI and PCI loans, see Note 13 on pages 118–135153–175 of this Form 10-Q.10-Q.
Loan modification activities – residential real estate loans
For both the Firm’s on–balance sheet loans and loans serviced for others, more than 1.31.4 million mortgage modifications have been offered to borrowers and approximately 499,000551,000 have been approved since the beginning of 2009.2009. Of these, more than 490,000530,000 have achieved permanent modification as of March 31, 2012.June 30, 2012. Of the remaining modifications offered, 20%18% are in a trial period or still being reviewed for a modification, while 80%82% have dropped out of the modification program or otherwise were not eligible for final modification.
The Firm is participating in the U.S. Treasury’s Making Home Affordable (“MHA”) programs and is continuing to expand its other loss-mitigation efforts for financially distressed borrowers who do not qualify for the U.S. Treasury’s programs. The MHA programs include the Home Affordable Modification Program (“HAMP”) and the Second Lien Modification Program (“2MP”). The Firm’s other loss-mitigation programs for troubled borrowers who do not qualify for HAMP include the traditional modification programs offered by the GSEs and Ginnie Mae, as well as the Firm’s proprietary modification programs, which include concessions similar to those offered under HAMP and 2MP but with expanded eligibility criteria. In addition, the Firm has offered specific targeted modification programs to higher risk borrowers, many of whom were current on their
mortgages prior to modification. For further information about how loans are modified, see Note 13, Loan modifications, on pages 127–129165–169 of this Form 10-Q.10-Q.


87

Loan modifications under HAMP and under one of the Firm’s proprietary modification programs, which are largely modeled after HAMP, require at least three payments to be made under the new terms during a trial modification period, and must be successfully re-underwritten with income verification before the loan can be permanently modified. In the case of specific targeted modification programs, re-underwriting the loan or a trial modification period is generally not required.required, unless the targeted loan is delinquent at the time of modification. When the Firm modifies home equity lines of credit, future lending commitments related to the modified loans are canceled as part of the terms of the modification.
The primary indicator used by management to monitor the success of the modification programs is the rate at which the modified loans redefault. Modification redefault rates are affected by a number of factors, including the type of loan modified, the borrower’s overall ability and willingness to repay the modified loan and macroeconomic factors. Reduction in payment size for a borrower has shown to be the most significant driver in improving redefault rates.
The performance of modified loans generally differs by product type and also based on whether the underlying loan is in the PCI portfolio, due both to differences in credit quality and in the types of modifications provided. Performance metrics for modifications to the residential real estate portfolio, excluding PCI loans, that have been seasoned more than six months show weighted average redefault rates of 20%21% for senior lien home equity, 15%16% for junior lien home equity, 12%14% for prime mortgages including option ARMs, and 25%26% for subprime mortgages. The cumulative performance metrics for modifications to the PCI residential real estate portfolio seasoned more than six months show weighted average redefault rates of 15%16% for home equity, 16% for prime mortgages, 10%11% for option ARMs and 28% for subprime mortgages. The favorable performance of the option ARM modifications is the result of a targeted proactive program which fixes the borrower’s payment at the current level. The cumulative redefault rates reflect the performance of modifications completed under both HAMP and the Firm’s proprietary modification programs from October 1, 2009, through March 31, 2012.June 30, 2012. However, given the limited experience, ultimate performance of the modifications remainremains uncertain.




65

The following table presents information as of March 31,June 30, 2012, and December 31, 2011, relating to modified on–balance sheet residential real estate loans for which concessions have been granted to borrowers experiencing financial difficulty. Modifications of PCI loans continue to be accounted for and reported as PCI loans, and the impact of the modification is incorporated into the Firm’s quarterly assessment of estimated future cash flows. Modifications of consumer loans other than PCI loans are generally accounted for and reported as troubled debt restructurings (“TDRs”). For further information on TDRs for the three and six months ended March 31,June 30, 2012, see Note 13 on pages 118–135153–175 of this Form 10-Q.10-Q.
Modified residential real estate loansMarch 31, 2012 December 31, 2011Modified residential real estate loans
June 30, 2012 December 31, 2011
(in millions)
On–balance
sheet loans
Nonaccrual on–balance sheet loans(d)
 
On–balance
sheet loans
Nonaccrual on–balance sheet loans(d)
On–balance
sheet loans
Nonaccrual on–balance sheet
 loans(d)
 
On–balance
sheet loans
Nonaccrual on–balance sheet
 loans(d)
Modified residential real estate loans – excluding PCI loans(a)(b)
      
Home equity – senior lien$338
$68
 $335
$77
$560
$77
 $335
$77
Home equity – junior lien706
209
 657
159
762
147
 657
159
Prime mortgage, including option ARMs5,018
888
 4,877
922
6,092
992
 4,877
922
Subprime mortgage3,226
728
 3,219
832
3,484
788
 3,219
832
Total modified residential real estate loans – excluding PCI loans$9,288
$1,893
 $9,088
$1,990
$10,898
$2,004
 $9,088
$1,990
Modified PCI loans(c)
      
Home equity$1,129
NA
 $1,044
NA
$1,222
NA
 $1,044
NA
Prime mortgage5,450
NA
 5,418
NA
6,480
NA
 5,418
NA
Subprime mortgage3,959
NA
 3,982
NA
4,225
NA
 3,982
NA
Option ARMs13,435
NA
 13,568
NA
13,422
NA
 13,568
NA
Total modified PCI loans$23,973
NA
 $24,012
NA
$25,349
NA
 $24,012
NA
(a)Amounts represent the carrying value of modified residential real estate loans.
(b)
At March 31,June 30, 2012, and December 31, 2011, $4.75.4 billion and $4.3 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) were excluded from loans accounted for as TDRs. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. For additional information about sales of loans in securitization transactions with Ginnie Mae, see Note 15 on pages 137–144177–184 of this Form 10-Q.10-Q.
(c)Amounts represent the unpaid principal balance of modified PCI loans.
(d)
Loans modified in a TDR that are on nonaccrual status may be returned to accrual status when repayment is reasonably assured and the borrower has made a minimum of six payments under the new terms. As of March 31,June 30, 2012, and December 31, 2011, nonaccrual loans included $837866 million and $886 million, respectively, of TDRs for which the borrowers had not yet made six payments under the modified terms.terms and other TDRs placed on nonaccrual status under regulatory guidance.


88

Nonperforming assets
The following table presents information as of March 31,June 30, 2012, and December 31, 2011, about consumer, excluding credit card, nonperforming assets.
Nonperforming assets(a)
      
(in millions)Mar 31,
2012		 Dec 31,
2011		Jun 30,
2012		 Dec 31,
2011
Nonaccrual loans(b)(c)
      
Home equity – senior lien$489
 $495
$492
 $495
Home equity – junior lien2,277
 792
2,123
 792
Prime mortgage, including option ARMs3,258
 3,462
3,139
 3,462
Subprime mortgage1,569
 1,781
1,544
 1,781
Auto102
 118
101
 118
Business banking649
 694
587
 694
Student and other105
 69
83
 69
Total nonaccrual loans8,449
 7,411
8,069
 7,411
Assets acquired in loan satisfactions      
Real estate owned831
 802
721
 802
Other38
 44
38
 44
Total assets acquired in loan satisfactions869
 846
759
 846
Total nonperforming assets$9,318
 $8,257
$8,828
 $8,257
(a)
At March 31,June 30, 2012, and December 31, 2011, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $11.811.9 billion and $11.5 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of
days past due; (2) real estate owned insured by U.S. government agencies of $1.2 billion and $954 million, respectively; and (3) student loans insured by U.S. government agencies under the FFELP of $586$1.3 billion and $954 million, respectively; and (3) student loans insured by U.S. government agencies under the FFELP of $547 million and $551 million, respectively, that are 90 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally.
(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 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)
At March 31,June 30, 2012, and December 31, 2011, consumer, excluding credit card nonaccrual loans represented 2.77%2.69% and 2.40%, respectively, of total consumer, excluding credit card loans.
Nonaccrual loans: Total consumer, excluding credit card, nonaccrual loans were $8.48.1 billion at March 31,June 30, 2012, compared with $7.4 billion at December 31, 2011. Nonaccrual loans increasedat June 30, 2012, include $1.61.5 billion at March 31, 2012, as a result of reporting performing junior lien home equity loans that are subordinate to senior liens that are 90 days or more past due as nonaccrual loans based on new regulatory guidance. For more information on the change in reporting of these junior liens, see the home equity portfolio analysis discussion on page 62pages 84–85 of this Form 10-Q.10-Q. The elongated foreclosure processing timelines are expected to continue to result in elevated levels of


66

nonaccrual loans in the residential real estate portfolios. In addition, modified loans have also contributed to the elevated level of nonaccrual loans, since the Firm’s policy requires modified loans that are on nonaccrual to remain on nonaccrual status until payment is reasonably assured and the borrower has made a minimum of six payments under the modified terms. Nonaccrual loans in the residential real estate portfolio totaled $7.67.3 billion at March 31,June 30, 2012, of
which 56%58% were greater than 150 days past due; this compared with nonaccrual residential real estate loans of $6.5 billion at December 31, 2011, of which 69% were greater than 150 days past due. At March 31,both June 30, 2012, and December 31, 2011, modified residential real estate loans of $1.9 billion and $2.0 billion, respectively, were classified as nonaccrual loans, of which $837866 million and $886 million, respectively, had yet to make six payments under their modified terms;terms or were placed on nonaccrual status based on regulatory guidance; the remaining nonaccrual modified loans have redefaulted. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 50% to estimated collateral value at both March 31,June 30, 2012, and December 31, 2011.
Real estate owned (“REO”): REO assets are managed for prompt sale and disposition at the best possible economic value. REO assets are those individual properties where the Firm gains ownership and possession at the completion of the foreclosure process. REO assets, excluding those insured by U.S. government agencies, increaseddecreased by $2981 million from $802 million at December 31, 2011, to $831721 million at March 31, 2012.June 30, 2012.
Mortgage servicing-related matters
The recent financial crisis resulted in unprecedented levels of delinquencies and defaults of 1-4 family residential real estate loans. Such loans require varying degrees of loss mitigation activities. It is the Firm’s goal that foreclosure in these situations be a last resort, and accordingly,accordingly, the Firm has made, and continues to make, significant efforts to help borrowers stay in their homes. Since the third quarter of 2009,2010, the Firm has prevented two foreclosures (throughfor every foreclosure completed; foreclosure-prevention methods include loan modification, short sales and other foreclosure prevention means) for every foreclosure completed.means.
The Firm has a well-defined foreclosure prevention process when a borrower fails to pay on his or her loan. Customer contacts are attemptedThe Firm attempts to contact the borrower multiple times and in various ways in an effort to pursue home retention or other options other than foreclosure. In addition, if the Firm is unable to contact a customer,borrower, the Firm completes various reviews are completed of athe borrower’s facts and circumstances before a foreclosure sale is completed. The delinquency period for the average delinquencyborrower at the time of foreclosure over the last year has been approximately 2123 months.
The high volume of delinquent and defaulted mortgages experienced by the Firm has placed a significant amount of stress on the Firm’s servicing operations. The Firm has made, and is continuing to make, significant changes to its mortgage operations in order to enhance its mortgage
servicing, loss mitigation and foreclosure processes. It has also entered into a global settlement with certain federal and state agencies, and consent ordersConsent Orders with its banking regulators with respect to these matters.
Global settlement with federal and state agencies:On February 9, 2012, the Firm announced that it had agreed to a settlement in principle (the “global settlement”) with a


89

number of federal and state government agencies, including the U.S. Department of Justice, the U.S. Department of Housing and Urban Development, the Consumer Financial Protection Bureau and the State Attorneys General, relating to the servicing and origination of mortgages. The global settlement, which was effectively finalized in the first quarter of 2012, pursuant to the execution of a definitive agreement and subsequent receipt of court approvalbecame effective on April 5, 2012, calls for the Firm to, among other things: (i) make cash payments of approximately $1.1 billion (a, a portion of which will be set aside for payments to borrowers)borrowers (“Cash Settlement Payment”); (ii) provide approximately $500 million of refinancing relief to certain “underwater” borrowers whose loans are owned and servicedserviced by the Firm (“Refi Program”); and (iii) provide approximately $3.7 billion of additional relief for certain borrowers, including reductions of principal on first and second liens, payments to assist with short sales, deficiency balance waivers on past foreclosures and short sales, and forbearance assistance for unemployed homeowners (“Consumer Relief Program”). The Cash Settlement Payment was made on April 13, 2012.
The purpose of the Refi ProgramProgram is to allow eligible borrowers who are current on their Firm-owned mortgage loans to refinance those loans and take advantage of the current low interest rate environment. Borrowers who may be eligible for the Refi Program are those who are unable to refinance their mortgage loans under standard refinancing programs because they have no equity or, in many cases, negative equity in their homes. The initial interest rate on loans refinanced under the Refi Program will be lower than the borrower’s interest rate prior to the refinancing and will be capped at the greater of 100 basis points over Freddie Mac’s then-current Primary Mortgage Market Survey Rate or 5.25%. The terms ofUnder the refinanced loans may provide for a reducedRefi Program, the interest rate on each loan that is refinanced may be reduced either for the remaining life of the loan or for five years. In the latter case,The Firm has determined that it will reduce the interest rate would revert torates on loans that it refinances under the borrower’s contractual interest rate that was in effect prior toRefi Program for the refinancing; any interest rate increase would be capped at 50 basis points per year.remaining lives of those loans. In substance, these refinancings are more similar to loan modifications than traditional refinancings. Whilerefinancings. In the ultimate number and principal balancesecond quarter of loans that will be refinanced under2012, the Refi Program will depend upon the determination of borrower eligibility and borrowers’ responses toFirm commenced sending offers to participate in the Refi Program to the Firm expects to refinance loans with an unpaid principal balance in excessmandatory population of eligible borrowers. A significant portion of the approximately $3 billion within the next three years. The Firm intendsprincipal amount of refinancings expected to introducebe performed under the Refi Program in the second quarterhad been finalized as of 2012.June 30, 2012.


67

The first and second lien loan modifications provided for in the Consumer Relief Program will typically involve principal reductions for borrowers who have negative equity in their homes and who are experiencing financial difficulty. These loan modifications are primarily expected to be performedexecuted under the terms of either MHA (e.g., HAMP,HAMP, 2MP) or one of the Firm’s proprietary modification programs. As of March 31, 2012, theThe Firm had begunbegan to provide relief to borrowers under the Consumer Relief Program.Program in the first quarter of 2012.
If the Firm does not meet certain targets set forth in the global settlement agreement for providing either
refinancings under the Refi Program or other borrower relief under the Consumer Relief Program within certain prescribed time periods, the Firm must instead make additional cash payments. In general, 75% of the targets must be met within twotwo years of the date of the global settlement and 100% must be achieved within three years of that date. The Firm currently expects to file its first quarterly report concerning its compliance with the global settlement with the Office of Mortgage Settlement Oversight in November 2012. The report will include information regarding refinancings completed under the Refi Program and relief provided to borrowers under the Consumer Relief Program, as well as credits earned by the Firm under the global settlement as a result of such actions. The Firm continues to expect that it will meet the targets for providing refinancingrefinancings and other borrower relief well within the prescribed time periods.
The global settlement also requires the Firm to adhere to certain enhanced mortgage servicing standards. The servicing standards include, among other items, the following enhancements to the Firm’s servicing of loans: a pre-foreclosure notice to all borrowers, which will include account information, holder status, and loss mitigation steps taken; enhancements to payment application and collections processes; strengthening procedures for filings in bankruptcy proceedings; deploying specific restrictions on the “dual track” of foreclosure and loss mitigation; standardizing the process for appeal of loss mitigation denials; and implementing certain restrictions on fees, including the waiver of certain fees while a borrower’s loss mitigation application is being evaluated. The Firm has made significant progress in implementing the prescribed servicing standards.
The global settlement releases the Firm from certain further claims by the participating government entities related to servicing activities, including foreclosures and loss mitigation activities; certain origination activities; and certain bankruptcy-related activities. Not included in the global settlement are any claims arising out of securitization activities, including representations made to investors with respect to mortgage-backed securities; criminal claims; and repurchase demands from the GSEs, among other items.
While the Firm expects to incur additional operating costs to comply with portions of thethe global settlement, including the enhanced servicing standards, the Firm’s 2011 results of operations reflected the estimated costs of implementing the global settlement (i.e., the Cash Settlement Payment, the Refi Program and the Consumer Relief Program).settlement. Accordingly, the Firm expects that the financial impact of the global settlement on the Firm’s financial condition and results of operationoperations for 2012 and future periods will not be material. The Firm expects to account for all refinancings performed under the Refi Program and all first and second lien loans modified under the Consumer Relief Program as TDRs. The estimated impacts of both the Refi Program and the Consumer Relief Program have been considered in the Firm’s allowance for


90

loan losses. For additional information, see Allowance for Credit Losses on pages 93–95 of this Form 10-Q.
Also, on February 9, 2012, the Firm entered into agreements with the Federal Reserve and the OCC for the payment of civil money penalties related to conduct that was the subject of consent orders entered into with the banking regulators in April 2011, as discussed further below. The Firm’s payment obligations under those agreements will be deemed satisfied by the Firm’s payments and provisions of relief under the global settlement.
For further information on the global settlement, see Critical Accounting Estimates Used by the Firm on pages 80–82, 107–109, Note 2 on pages 90–91, 117–118, Note 13 on pages 118–135,153–175, and Note 23 on pages 154–163196–205 of this Form 10-Q.10-Q.
Consent Orders: During the second quarter of 2011, the Firm entered into Consent Orders ("Orders"(“Orders”) with banking regulators relating to its residential mortgage servicing, foreclosure and loss-mitigation activities. In the Orders, the regulators have mandated significant changes to the Firm’s servicing and default business and outlined requirements to implement these changes. During 2011, in accordance with the requirements of the Orders, the Firm submitted comprehensive action plans, the plans have been approved, and the Firm has commenced implementation. The plans set forth the steps necessary to ensure the Firm’s residential mortgage servicing, foreclosure and loss-mitigation activities are conducted in accordance with the requirements of the Orders.


68

To date, the Firm has implemented a number of corrective actions including the following:
Established an independent Compliance Committee which meets regularly and monitors progress against the Orders.
Launched a new Customer Assistance Specialist organization for borrowers to facilitate the single point of contact initiative and ensure effective coordination and communication related to foreclosure, loss-mitigation and loan modification.
Enhanced its approach to oversight over third-party vendors for foreclosure or other related functions.
Standardized the processes for maintaining appropriate controls and oversight of the Firm’s activities with respect to the Mortgage Electronic Registration system (“MERS”) and compliance with MERSCORP’s membership rules, terms and conditions.
Strengthened its compliance program so as to ensure mortgage-servicing and foreclosure operations, including loss-mitigation and loan modification, comply with all applicable legal requirements.
Enhanced management information systems for loan modification, loss-mitigation and foreclosure activities.
Developed a comprehensive assessment of risks in servicing operations including, but not limited to,
operational, transaction, legal and reputational risks.
Made technological enhancements to automate and streamline processes for the Firm’s document management, training, skills assessment and payment processing initiatives.
Deployed an internal validation process to monitor progress under the comprehensive action plans.
In addition, pursuant to the Orders, the Firm is required to enhance oversight of its mortgage servicing activities, including oversight by compliance, management and audit personnel and, accordingly, has made and continues to make changes in its organization structure, control oversight and customer service practices.
Pursuant to the Orders, the Firm has retained an independent consultant to conduct a review of its residential foreclosure actions during the period from January 1, 2009, through December 31, 2010 (including foreclosure actions brought in respect of loans being serviced), and to remediate any errors or deficiencies identified by the independent consultant, including, if required, by reimbursing borrowers for any identified financial injury they may have incurred. The borrower
outreach process was launched in the fourth quarter of 2011, and the independent consultant is conducting its review. For additional information, see Mortgage Foreclosure Investigations and Litigation in Note 23 on pages 154–163page 203 of this Form 10-Q.10-Q.

Credit Card
Total credit card loans were $125.3124.7 billion at March 31,June 30, 2012, a decrease of $6.97.6 billion from December 31, 2011, due to seasonality and higher repayment rates.
For the retained credit card portfolio, the 30+ day delinquency rate decreased to 2.56%2.14% at March 31,June 30, 2012, from 2.81% at December 31, 2011. For the three months ended March 31,June 30, 2012 and 2011, the net charge-off rates were 4.40%4.35% and 6.97%5.82% respectively. For the six months endedJune 30, 2012 and 2011, the net charge-off rates were 4.37% and 6.40% respectively. The delinquency trend continued to show improvement. Charge-offs have improved as a result of lower delinquent loans.loans partially offset by a $91 million one-time acceleration in net charge-offs, in the current quarter only, as a result of a policy change on restructured loans that do not comply with their modified payment terms, based upon an interpretation of regulatory guidance communicated to the Firm by the banking regulators. These loans will now charge-off when they are 120 days past due rather than 180 days past due. This change resulted in a permanent reduction in the 30+ day delinquency rate which is 0.10% for the current quarter. The credit card portfolio continues to reflect a well-seasoned, largely rewards-based portfolio that has good U.S. geographic diversification. The greatest geographic concentration of credit card retained loans is in California, which represented 13% of total retained loans at both March 31,


91

June 30, 2012, and December 31, 2011. Loan concentration for the top five states of California, New York, Texas, Florida and Illinois consisted of $50.650.8 billion in receivables, or 41% of the retained loan portfolio, at March 31,June 30, 2012, compared with $53.6 billion, or 40%, at December 31, 2011.
Modifications of credit card loans
At March 31,June 30, 2012, and December 31, 2011, the Firm had $6.55.8 billion and $7.2 billion, respectively, of credit card loans outstanding that have been modified in TDRs. These balances included both credit card loans with modified payment terms and credit card loans that reverted back to their pre-modification payment terms because the cardholder did not comply with the modified payment terms. The decrease in modified credit card loans outstanding from December 31, 2011, was attributable to a reduction in new modifications as well as ongoing payments
and charge-offs on previously modified credit card loans. In the second quarter of 2012, the Firm revised its policy for recognizing charge-offs on restructured loans that do not comply with their modified payment terms. These loans will now charge-off when they are 120 days past due rather than 180 days past due.
Consistent with the Firm’s policy, all credit card loans typically remain on accrual status. However, the Firm establishes an allowance, which is recorded as an offset toagainst loans and interest income, for the estimated uncollectible portion of billed and accrued interest and fee income.
For additional information about loan modification programs to borrowers, see Note 14 on pages 231–252 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.







69

COMMUNITY REINVESTMENT ACT EXPOSUREPORTFOLIO
The Community Reinvestment Act (“CRA”) encourages banks to meet the credit needs of borrowers in all segments of their communities, including neighborhoods with low or moderate incomes. JPMorgan Chase is a national leader in community development by providing loans, investments and community development services in communities across the United States.
At both March 31,June 30, 2012, and December 31, 2011, the Firm’s CRA loan portfolio was approximately $15 billion. At March 31,June 30, 2012, and December 31, 2011, 62%61% and 63%,
 
respectively, of the CRA portfolio were residential mortgage loans; 18%19% and 17%, respectively, were business banking loans; 14%, for both periods, were commercial real estate loans; and 6%, for both periods, were other loans. CRA nonaccrual loans were 5% and 6% of the Firm’s total nonaccrual loans at March 31, 2012, and December 31, 2011, respectively. Netfor both periods. As a percentage of the Firm’s net charge-offs, net charge-offs in the CRA portfolio were 3%2% and 2%3%, respectively, of the Firm’s net charge-offs for the three months ended March 31,June 30, 2012 and 2011.2011, and 3% for both the six months endedJune 30, 2012 and 2011.





92

ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase’s allowance for loan losses covers the wholesale (risk-rated); consumer, excluding credit card; and credit card portfolios (primarily scored). The allowance represents management’s estimate of probable credit losses inherent in the Firm’s loan portfolio. Management also determines an allowance for wholesale and certain consumer, excluding credit card, lending-related commitments.
For a further discussion of the components of the allowance for credit losses, see Critical Accounting Estimates Used by the Firm on pages 80–82107–109 and Note 14 on page 136176 of this Form 10-Q.10-Q.
At least quarterly, the allowance for credit losses is reviewed by the Chief Risk Officer, the Chief Financial Officer and the Controller of the Firm, and discussed with the Risk Policy and Audit Committees of the Board of Directors of the Firm. As of March 31,June 30, 2012, JPMorgan Chase deemed the allowance for credit losses to be appropriate (i.e., sufficient to absorb probable credit losses inherent in the portfolio).

The allowance for credit losses was $26.624.6 billion at March 31,June 30, 2012, a decrease of $1.73.7 billion from $28.3 billion at December 31, 2011.
The consumer, excluding credit card, allowance for loan losses decreased $997 million2.4 billion largelyfrom December 31, 2011, predominantly due to a reduction in the allowance related tofor the non-PCI residential real estate portfolio, predominantly related to the continuing trend of improving delinquencies and nonaccrual loans, which resulted in a lower level of estimated losses based on the Firm’s statistical loss calculation. For the three-month period ended June 30, 2012, the consumer, excluding credit card, allowance for loan losses decreased $1.4 billion, predominantly due to a reduction in the formula-based allowance for the non-PCI residential real estate portfolio, which was largely due to an ongoing trend of improving delinquencies and nonaccrual loans that resulted in a lower level of estimated losses based on the Firm’s statistical loss calculation. Nonaccrual residential real estate loans peaked at the end of 2010, showed signs of stabilization in 2011, and have declined steadily during the first half of 2012. (The foregoing excludes the impact of performing junior lien home equity loans that are subordinate to senior loans that are 90 days or more past due that have been included as mortgage delinquency trends improved. nonaccrual loans beginning in the first quarter of 2012.) Both the three- and six-month periods also included a $488 million reduction attributable to a refinement of the loss estimates associated with the Firm’s compliance with its obligations
under the global settlement, which reflected changes in implementation strategies adopted in the second quarter of 2012. For additional information about delinquencies and nonaccrual loans in the consumer, excluding credit card, loan portfolio, see Consumer Credit Portfolio on pages 82–92 and Note 13 on pages 153–175 of this Form 10-Q.
The credit card allowance for loan losses decreased by $748 million1.5 billion fromsince December 31, 2011, and by approximately $750 million from March 31, 2012. The decreases in each time period included reductions in both the asset-specific allowance and the formula-based allowance. The reductions for both periods in the asset-specific allowance, which relates to loans restructured in TDRs, reflect the changing profile of the TDR portfolio. The volume of new TDRs, which have higher loss rates due to expected redefaults, continues to decrease, and the loss rate on existing TDRs also tends to decrease over time as previously restructured loans season and continue to perform. In addition, effective June 30, 2012, the Firm changed its policy for recognizing charge-offs on restructured loans that do not comply with their modified payment terms based upon an interpretation of regulatory guidance communicated to the Firm by the banking regulators; this policy change resulted in an acceleration of charge-offs against the asset-specific allowance. For the six-month period ended June 30, 2012, the reduction in the formula-based allowance was primarily asdriven by the continuing trend of improving delinquencies and bankruptcies, which resulted in a resultlower level of lower estimated losses related to improved delinquency trends as well asbased on the Firm’s statistical loss calculation, and by lower levels of credit card outstandings. The decrease in the formula-based allowance for the three months ended June 30, 2012 was largely related to this same continuing trend of improving delinquencies. For additional information about delinquencies in the credit card loan portfolio, see Consumer Credit Portfolio on pages 82–92 and Note 13 on pages 153–175 of this Form 10-Q.
The wholesale allowance for loan losses was relatively unchanged from December 31, 2011.
The allowance for lending-related commitments for both the wholesale and consumer, excluding credit card portfolios, which is reported in other liabilities, totaled $750764 million and $673 million at March 31,June 30, 2012, and December 31, 2011, respectively.
The credit ratios in the following table are based on retained loan balances, which exclude loans held-for-sale and loans accounted for at fair value.


7093

Summary of changes in the allowance for credit losses
2012 20112012 2011
Three months ended March 31,Wholesale
Consumer, excluding
credit card
Credit cardTotal Wholesale
Consumer, excluding
credit card
Credit card Total
Six months ended June 30,Wholesale
Consumer, excluding
credit card
Credit cardTotal Wholesale
Consumer, excluding
credit card
Credit card Total
(in millions, except ratios)Wholesale
Consumer, excluding
credit card
Credit cardTotal Wholesale
Consumer, excluding
credit card
Credit card Total 
Allowance for loan losses    
Beginning balance at January 1,$4,316
$16,294
$6,999
$27,609
 $4,761
$16,471
$11,034
$32,266
$4,316
$16,294
$6,999
$27,609
 $4,761
$16,471
$11,034
$32,266
Gross charge-offs92
1,134
1,627
2,853
 253
1,460
2,631
4,344
165
2,188
3,210
5,563
 387
2,817
4,762
7,966
Gross recoveries(87)(138)(241)(466) (88)(131)(405)(624)(151)(268)(479)(898) (142)(275)(726)(1,143)
Net charge-offs5
996
1,386
2,387
 165
1,329
2,226
3,720
14
1,920
2,731
4,665
 245
2,542
4,036
6,823
Provision for loan losses8
2
636
646
 (359)1,329
226
1,196
38
(423)1,231
846
 (414)2,446
1,036
3,068
Other4
(3)2
3
 (3)4
7
8
9
(8)—
1
 (11)12
8
9
Ending balance at March 31,$4,323
$15,297
$6,251
$25,871
 $4,234
$16,475
$9,041
$29,750
Ending balance at June 30,$4,349
$13,943
$5,499
$23,791
 $4,091
$16,387
$8,042
$28,520
Impairment methodology      
Asset-specific(a)
$448
$760
$2,402
$3,610
 $1,030
$1,067
$3,819
$5,916
$407
$1,004
$1,977
$3,388
 $749
$1,049
$3,451
$5,249
Formula-based3,875
8,826
3,849
16,550
 3,204
10,467
5,222
18,893
3,942
7,228
3,522
14,692
 3,342
10,397
4,591
18,330
PCI—
5,711
—
5,711
 —
4,941
—
4,941
—
5,711
—
5,711
 —
4,941
—
4,941
Total allowance for loan losses$4,323
$15,297
$6,251
$25,871
 $4,234
$16,475
$9,041
$29,750
$4,349
$13,943
$5,499
$23,791
 $4,091
$16,387
$8,042
$28,520
Allowance for lending-related commitments      
Beginning balance at January 1,$666
$7
$—
$673
 $711
$6
$—
$717
$666
$7
$—
$673
 $711
$6
$—
$717
Provision for lending-related commitments81
(1)—
80
 (27)—
—
(27)94
—
—
94
 (89)—
—
(89)
Other(4)1
—
(3) (2)—
—
(2)(3)—
—
(3) (2)—
—
(2)
Ending balance at March 31,$743
$7
$—
$750
 $682
$6
$—
$688
Ending balance at June 30,$757
$7
$—
$764
 $620
$6
$—
$626
Impairment methodology      
Asset-specific$187
$—
$—
$187
 $184
$—
$—
$184
$181
$—
$—
$181
 $144
$—
$—
$144
Formula-based556
7
—
563
 498
6
—
504
576
7
—
583
 476
6
—
482
Total allowance for lending-related commitments$743
$7
$—
$750
 $682
$6
$—
$688
$757
$7
$—
$764
 $620
$6
$—
$626
Total allowance for credit losses$5,066
$15,304
$6,251
$26,621
 $4,916
$16,481
$9,041
$30,438
$5,106
$13,950
$5,499
$24,555
 $4,711
$16,393
$8,042
$29,146
Memo:      
Retained loans, end of period$283,653
$304,770
$124,475
$712,898
 $229,648
$320,998
$124,791
$675,437
$298,888
$300,046
$124,593
$723,527
 $244,224
$315,169
$125,523
$684,916
Retained loans, average276,764
306,657
126,795
710,216
 226,544
323,961
129,535
680,040
284,853
304,590
125,604
715,047
 232,058
320,894
127,136
680,088
PCI loans, end of period22
64,061
—
64,083
 56
70,765
—
70,821
15
62,611
—
62,626
 54
68,994
—
69,048
Credit ratios      
Allowance for loan losses to retained loans1.52%5.02%5.02%3.63% 1.84%5.13%7.24%4.40%1.46%4.65%4.41%3.29% 1.68%5.20%6.41%4.16%
Allowance for loan losses to retained nonaccrual loans(b)
223
181
NM
249
 92
192
NM
226
241
173
NM
241
 122
196
NM
243
Allowance for loan losses to retained nonaccrual loans excluding credit card223
181
NM
189
 92
192
NM
157
241
173
NM
185
 122
196
NM
175
Net charge-off rates(c)
0.01
1.31
4.40
1.35
 0.30
1.66
6.97
2.22
0.01
1.27
4.37
1.31
 0.21
1.60
6.40
2.02
Credit ratios, excluding residential real estate PCI loans      
Allowance for loan losses to
retained loans (d)
1.52
3.98
5.02
3.11
 1.84
4.61
7.24
4.10
1.46
3.47
4.41
2.74
 1.68
4.65
6.41
3.83
Allowance for loan losses to
retained nonaccrual loans(b)(d)
223
113
NM
194
 92
135
NM
189
241
102
NM
183
 122
137
NM
201
Allowance for loan losses to
retained nonaccrual loans excluding credit card(b)(d)
223
113
NM
134
 92
135
NM
120
241
102
NM
127
 122
137
NM
133
Net charge-off rates(d)
0.01%1.66%4.40%1.49% 0.30%2.14%6.97%2.48%0.01%1.61%4.37%1.44% 0.21%2.05%6.40%2.26%
(a)Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(b)The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. Under the guidance issued by the FFIEC, credit card loans are 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.
(c)Charge-offs are not recorded on PCI loans until actual losses exceed estimated losses recorded as purchase accounting adjustments at the time of acquisition.
(d)Excludes the impact of PCI loans acquired as part of the Washington Mutual transaction.

7194

Provision for credit losses
For the three and six months ended March 31,June 30, 2012, the provision for credit losses was $726214 million and $940 million, respectively, down 38%88% and 68%, respectively, from the prior year. Theyear periods. For the three and six months endedJune 30, 2012, the consumer, excluding credit card, provision for credit losses was a benefit of $1424 million and $423 million, respectively, compared with $1.31.1 billion inand $2.4 billion, respectively, from the prior-year period,prior year periods, reflecting a reduction in allowance for loan losses due to lower estimated losses in the non-PCI residential real estate portfolio as delinquency trends improved. For the three and six months endedJune 30, 2012, the credit card provision for credit losses was $595 million and $1.2 billion, respectively, compared with $810 million and $1.0 billion, respectively, in the prior-year periods. The credit card provision for the three months ended March 31,June 30, 2012,
decreased from the prior year period as lower charge-offs more than offset a smaller current year reduction in the allowance for loan loss compared with the prior year period. The credit card provision for the six months ended June 30, 2012, increased from the prior year due to a smaller current year reduction in the allowance for loan loss compared with the prior year.
For the three and six months endedJune 30, 2012, the wholesale provision for credit losses was $8943 million and $132 million, respectively, compared with a benefitbenefits of $386117 million and $503 million, respectively, in the prior-year
period. periods. The current period wholesale provision reflected loan growth and other portfolio activity and the prior year wholesale provision reflected a reduction in the allowance for loan loss reserveslosses due to an improvement in the credit environment. The credit card provision for credit losses was $636 million compared with $226 million in the prior year. The current-quarter credit card provision reflected lower net charge-offs and a reduction of $750 million to the allowance for loan losses due to lower estimated losses; the prior-year provision included a reduction of $2.0 billion to the allowance for loan losses.

Three months ended March 31, Provision for loan losses Provision for lending-related commitments Total provision for credit losses
Three months ended June 30, Six months ended June 30,
Provision for loan losses Provision for lending-related commitments Total provision for credit losses Provision for loan losses Provision for lending-related commitments Total provision for credit losses
(in millions) 2012
2011
 2012
2011
 2012
2011
2012
2011
 2012
2011
 2012
2011
 2012
2011
 2012
2011
 2012
2011
Wholesale $8
$(359) $81
$(27) $89
$(386)$30
$(55) $13
$(62) $43
$(117) $38
$(414) $94
$(89) $132
$(503)
Consumer, excluding credit card 2
1,329
 (1)—
 1
1,329
(425)1,117
 1
—
 (424)1,117
 (423)2,446
 —
—
 (423)2,446
Credit card 636
226
 —
—
 636
226
595
810
 —
—
 595
810
 1,231
1,036
 —
—
 1,231
1,036
Total provision for credit losses $646
$1,196
 $80
$(27) $726
$1,169
$200
$1,872
 $14
$(62) $214
$1,810
 $846
$3,068
 $94
$(89) $940
$2,979



7295

MARKET RISK MANAGEMENT
ForMarket risk is the exposure to an adverse change in the market value of portfolios and financial instruments caused by a discussionchange in their market prices.
Market risk management
Market Risk is an independent risk management function that works in close partnership with the lines of business, including Corporate/Private Equity, to identify and monitor market risks throughout the Firm and to define market risk policies and procedures. The market risk function reports to the Firm’s Chief Risk Officer.
Market Risk seeks to control risk, facilitate efficient risk/return decisions, reduce volatility in operating performance and provide transparency into the Firm’s market risk profile for senior management, the Board of Directors and regulators. Market Risk is responsible for the following functions:
Establishing a market risk policy framework
Independent measurement, monitoring and control of line of business market risk
Definition, approval and monitoring of limits
Performance of stress testing and qualitative risk assessments
Risk identification and classification
Each line of business is responsible for the management of the market risks within its units. The independent risk management group responsible for overseeing each line of business ensures that all material market risks are appropriately identified, measured, monitored and managed in accordance with the risk policy framework set out by Market Risk. The Firm’s market risks arise primarily from the activities in IB, Mortgage Production and Servicing, and CIO in Corporate/Private Equity.
IB makes markets in products across fixed income, foreign exchange, equities and commodities markets. This activity gives rise to market risk and may lead to a potential decline in net income as a result of changes in market prices and rates. In addition, IB’s credit portfolio exposes the Firm to market risk related to derivative CVA, hedges of the CVA and the fair value of hedges of the retained loan portfolio. Additional market risk positions result from the DVA taken on certain structured liabilities and derivatives to reflect the credit quality of the Firm; DVA is not included in VaR.
The Firm’s Mortgage Production and Servicing business includes the Firm’s mortgage pipeline and warehouse loans, MSRs and all related hedges. These activities give rise to complex, non-linear interest rate risks, as well as basis risk. Non-linear risk arises primarily from prepayment options embedded in mortgages and changes in the probability of newly originated mortgage commitments actually closing. Basis risk results from differences in the relative movements of the rate indices underlying mortgage exposure and other interest rates.

CIO’s activities, primarily its management of the Firm’s Market Risk Management organization, majorstructural interest rate risk and investing in assets to achieve the Firm’s asset-liability management objectives, give rise to market risk driversdue to changes in foreign exchange rates, credit spreads and classificationinterest rates related to securities and derivatives in the investment portfolio.
Risk measurement
Tools used to measure risk
Because no single measure can reflect all aspects of risks, see pages 158–163 of JPMorgan Chase’s 2011 Annual Report.market risk, the Firm uses various metrics, both statistical and nonstatistical, including:
Value-at-risk
Economic-value stress testing
Nonstatistical risk measures
Loss advisories
Revenue drawdowns
Risk identification for large exposures (“RIFLEs”)
Nontrading interest rate-sensitive revenue-at-risk stress testing
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to estimate the potential loss from adverse market moves. Each business day, as part of its risk management activities, the Firm undertakesmoves in a comprehensive VaR calculation that includes the majority of its materialnormal market risks. VaR provides a consistent cross-business measure of risk profiles and levels of diversification and is used for comparing risks across businesses and monitoring limits. These VaR results are reported to senior management and regulators, and they are utilized in regulatory capital calculations.environment.
The Firm calculateshas one overarching VaR to estimate possible lossesmodel framework used for its current positions usingrisk management purposes across the Firm, which utilizes historical simulation, which measures risk across instruments and portfolios in a consistent, comparable way. The Firm's VaR calculation is highly granular and incorporates numerous risk factors, which are selected based on the risk profile of each portfolio. Thesimulation. Historical simulation is based on data for the previous
12 months. ThisThe framework’s approach assumes that historical changes in market values are representative of the distribution of potential outcomes in the immediate future. VaR is calculated usingassuming a one day time horizonone-day holding period and an expected tail-loss methodology, andwhich approximates a 95% confidence level. This means that, assuming current changes in market values are consistent with the historical changes used in the simulation, the Firm would expect to incur losses greater than that predicted by VaR estimates five times in every 100 trading days, days.
Underlying the overall VaR model framework are individual VaR models that simulate historical market returns for individual products and/or about 12risk factors. As part of the Firm's risk management framework, daily comprehensive VaR model calculations are performed for businesses, whose activities give rise to 13 timesmarket risk, to capture material market risks. These VaR models are granular and incorporate numerous risk factors and inputs to simulate daily changes in market values over the historical period; inputs are selected based on the risk profile of each portfolio. For example, sensitivities and historical time series used to generate daily market values may be different for different products or risk management systems. The VaR model results across all portfolios are aggregated at the Firm level.


96

VaR provides a year. However,consistent framework to measure risk profiles and levels of diversification across product types and is used for aggregating risks across businesses and monitoring limits. These VaR results are reported to senior management and regulators.
The Firm uses VaR as a statistical risk management tool for assessing risk under normal market conditions consistent with the day-to-day risk decisions made by the lines of business. VaR is not used to estimate the impact of stressed market conditions or to manage any impact from potential stress events. The Firm uses economic stress testing and other techniques to capture and manage market risk arising under stressed scenarios, as described further below.
Because VaR is based on historical data, it is an imperfect measure of market risk exposure and potential losses. For example, differences between current and historical market price volatility may result in fewer or greater VaR exceptions than the number indicated by the historical simulation. The VaR measurement also does not provide an estimate of the extent to which losses may exceed VaR results. In addition, based on their reliance on available historical data, limited time horizons, and other factors, VaR measures are inherently limited in their ability to measure
certain risks and to predict losses, particularly those associated with market illiquidity and sudden or severe shifts in market conditions. As a result,VaR cannot be used to determine future losses in the Firm’s market risk positions, the Firm considers other metrics in addition to VaR to monitor and manage its market risk positions.

Separately, the Firm calculates a daily aggregate VaR in accordance with regulatory rules, which is used to derive the Firm’s regulatory VaR based capital requirements. This regulatory VaR model framework currently assumes a ten business day holding period and an expected tail loss methodology, which approximates a 99% confidence level. Regulatory VaR is applied to “covered positions” as defined by the Market Risk Rule, consisting of all positions classified as trading, as well as all foreign exchange and commodity positions, whether or not in the trading account. Certain of these positions (for example, net investment foreign exchange hedging) are not included in the Firm’s internal risk management VaR, while the Firm’s internal risk management VaR includes some positions such as CVA and its related credit hedges that are not included in Regulatory VaR. For further information, see “Capital Management” on pages 60-63 of this Form 10-Q.


The table below shows the results of the Firm’s VaR measure using a 95% confidence level.
Total IB trading VaR by risk type, Credit portfolio VaR and other VaRTotal IB trading VaR by risk type, Credit portfolio VaR and other VaR           Total IB trading VaR by risk type, Credit portfolio VaR and other VaR         
Three months ended March 31,     Three months ended June 30,     Six months ended June 30, 
2012 2011 At March 31,2012 2011 At June 30, Average 
(in millions) Avg.MinMax  Avg.MinMax 20122011 Avg.MinMax  Avg.MinMax 2012 2011 2012 2011 
IB VaR by risk type                                      
Fixed income$60
 $47
 $73
 $49
 $44
 $56
 $69
 $55
 $66
 $53
 $79
 $45
 $36
 $57
 $65
 $37
 $63
 $47
 
Foreign exchange11
 8
 22
 11
 9
 17
 14
 11
 10
 6
 17
 9
 6
 13
 9
 10
 11
 10
 
Equities17
 12
 25
 29
 19
 42
 17
 22
 20
 12
 31
 25
 17
 36
 17
 18
 19
 27
 
Commodities and other21
 16
 27
 13
 8
 20
 16
 10
 13
 11
 16
 16
 11
 24
 12
 13
 17
 15
 
Diversification benefit to IB trading VaR(46)
(a) 
NM
(b) 
NM
(b) 
 (38)
(a) 
  NM
(b) 
  NM
(b) 
 (62)
(a) 
(37)
(a) 
(44)
(a) 
NM
(b) 
NM
(b) 
 (37)
(a) 
  NM
(b) 
  NM
(b) 
 (39)
(a) 
(39)
(a) 
 (46) (38) 
IB trading VaR63
 50
 79
 64
 40
 80
 54
 61
 65
 50
 80
 58
 38
 75
 64
 39
 64
 61
 
Credit portfolio VaR32
 26
 42
 26
 22
 33
 30
 28
 25
 21
 31
 27
 22
 33
 23
 22
 29
 27
 
Diversification benefit to IB trading and credit portfolio VaR(14)
(a) 
NM
(b) 
NM
(b) 
 (7)
(a) 
  NM
(b) 
  NM
(b) 
 (13)
(a) 
(7)
(a) 
(15)
(a) 
NM
(b) 
NM
(b) 
 (8)
(a) 
  NM
(b) 
  NM
(b) 
 (13)
(a) 
(10)
(a) 
 (15) (8) 
Total IB trading and credit portfolio VaR81
 70
 99
 83
 53
 102
 71
 82
 75
 58
 87
 77
 51
 98
 74
 51
  78
 80
 
Other VaR                                    
Mortgage Production and Servicing VaR11
 8
 16
 16
 10
 32
 11
 18
 15
 10
 26
 20
 6
 30
 18
 19
 13
 18
 
Chief Investment Office (“CIO”) VaR(c)
129
 85
 187
 60
 55
 64
 186
 55
 177
 143
 196
 51
 43
 57
 180
 46
 153
(c) 
56
 
Diversification benefit to total other VaR(4)
(a) 
NM
(b) 
NM
(b) 
 (14)
(a) 
  NM
(b) 
  NM
(b) 
 (6)
(a) 
(13)
(a) 
(10)
(a) 
NM
(b) 
NM
(b) 
 (10)
(a) 
  NM
(b) 
  NM
(b) 
 (15)
(a) 
(5)
(a) 
 (7) (12) 
Total other VaR(c)
136
 89
 197
 62
 55
 69
 191
 60
 182
 145
 204
 61
 55
 68
 183
 60
 159
 62
 
Diversification benefit to total IB and other VaR(47)
(a) 
NM
(b) 
NM
(b) 
 (57)
(a) 
  NM
(b) 
  NM
(b) 
 (61)
(a) 
(56)
(a) 
(56)
(a) 
NM
(b) 
NM
(b) 
 (44)
(a) 
  NM
(b) 
  NM
(b) 
 (81)
(a) 
(29)
(a) 
 (51) (51) 
Total IB and other VaR(c)
$170
 $111
 $232
 $88
 $67
 $104
 $201
 $86
 
Total VaR$201
 $160
 $254
 $94
 $82
 $107
 $176
 $82
 $186
 $91
 
(a)Average portfolio VaR and period-end portfolio VaR were 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.
(b)Designated as not meaningful (“NM”), because the minimum and maximum may occur on different days for different risk components, and hence it is not meaningful to compute a portfolio-diversification effect.
(c)Reference is made to Recent developments on pages 10-11 of this Form 10-Q regarding the Firm’s restatement of its 2012 first quarter financial statements. The CIO VaR presented aboveamount has not been recalculated for the period ended March 31, 2012 supersedes the Firm’s VaR disclosures included in its Form 8-K filed on April 13, 2012 and was calculated using a methodology consistent with the methodology used to calculate CIO's VaR in 2011, including the first quarter of 2011 reflectedto reflect the restatement. If it were, however, the Firm believes that the recalculated VaR amount for the six months ended June 30, 2012, would not be materially different from the amount shown in the table above.

7397

VaR Measurement
IB trading VaR includes substantially all market-making and client-driven activities as well as certain risk management activities in IB. This includes the credit spread sensitivities of certain mortgage products and syndicated lending facilities that the Firm intends to distribute. The Firm uses proxies to estimate the VaR for these and other products when daily time series are not available. It is likely that using an actual price-based time series for these products, if available, would affect the VaR results presented. In addition, forFor certain products included in IB trading and credit portfolio VaR, certain risk parameters that do not have daily observable values are not captured, such as correlation risk. The Firm uses alternative methods to capture and measure the impact of parameters not otherwise captured in VaR, including economic-value stress testing, nonstatistical measures and risk identification for large exposures as described further below.
Credit portfolio VaR includes the derivative CVA, hedges of the CVA and the fair value of hedges of the retained loan portfolio, which are reported in principal transactions revenue. However, Credit portfolio VaR does not include the retained portfolio, which is not reported at fair value.
Other VaR includes certain positions employed as part of the Firm’s risk management function within the Chief Investment Office (“CIO”)CIO and in the Mortgage Production and Servicing business. CIO VaR includes positions, primarily in debt securities and credit products,derivatives, which are measured at fair value through earnings, used to manage structuralin connection with CIO’s asset/liability management activities and its management of the Firm’s long-term interest rate, foreign exchange risk and other risks including interest rate, credit and mortgage risks arising from the Firm’s ongoing business activities. structural market risks. Mortgage Production and Servicing VaR includes the Firm’s mortgage pipeline and warehouse loans, MSRs and all related hedges.
As noted above, IB, Credit portfolio and other VaR does not include the retained Credit portfolio, which is not reported at fair value; however, it does include hedges of those positions. It also does not include DVA on derivative and structured liabilities to reflect the credit quality of the Firm; principal investments, (mezzanine financing, tax-oriented investments, etc.);certain foreign exchange positions used for net investment hedging of foreign currency operations, and certainlonger-term securities and investments held by the Corporate/Private Equity line of business, including private equity investments, capital management positions and longer-term investments managed by CIO.CIO that are classified as available for sale. These longer-term positions are managed through the Firm’s nontrading interest rate-sensitive revenue-at-risk and other cash flow-monitoring processes, rather than by using a VaR measure. Principal investing activities (including mezzanine financing, tax-oriented investments, etc.) and Private Equityprivate equity positions are managed using stress and scenario analyses.analyses and are not included in VaR. See the DVA sensitivity table on page 75100 of this
Form 10-Q.10-Q for further details. For a discussion of Corporate/Private Equity, see pages 33–3449–52 of this Form 10-Q.
The Firm'sFirm’s VaR modelsmodel calculations are continuously evaluated and enhanced in response to changes in the composition of the Firm'sFirm’s portfolios, changes in market conditions, and dynamics, improvements in the Firm'sFirm’s modeling techniques, system capabilities, and other factors. For further information, see the Model review in this section on pages 101-102 of this Form 10-Q.
First-quarterSecond-quarter and year-to-date 2012 VaR results
As presented in the table above, average total IB and other VaR was $170 millionincreased for the three and six months ended March 31,June 30, 2012, when compared with $88 million for the comparablerespective 2011 period. The increase in average VaR wasperiods. These increases were primarily driven by an increase in CIO VaR, market movements, and a decrease in diversification benefit across the Firm.
Average total IB trading and credit portfolio VaR for the three and six months ended March 31,June 30, 2012, was $81 million,decreased compared with $83 millionthe respective 2011 periods. These decreases were driven by position changes across all risk types as well as an increase in diversification benefit.
Average CIO VaR for the three and six months ended June 30, 2012, increased from the comparable 2011 period. The decrease in IB trading VaR wasperiods driven by a reduction in exposure in the equity risk component along with an offsetting increase in exposure in the fixed income risk component.
CIO VaR averaged $129 million for the three months ended March 31, 2012, compared with $60 million for the comparable 2011 period. The increase in CIO average VaR was due to changes in the synthetic credit portfolio held by CIO as partand increased market volatility.
CIO VaR at June 30, 2012 was $180 million, predominantly reflecting the synthetic credit portfolio. As noted in Recent developments on pages 10-11 of its managementthe Form 10-Q, the Firm has been actively reducing the risk of structural and other risks arising from the Firm's on-going business activities.synthetic credit portfolio. This reduction in risk did not result in a meaningful reduction in VaR at June 30, 2012 compared to March 31, 2012 because the reduction was partially offset by the effect of the recent market volatility experienced by this portfolio during the quarter.
Average Mortgage Production and Servicing VaR averaged $11 million for the three and six months ended March 31,June 30, 2012, decreased compared with the respective 2011 periods. These decreases were primarily driven by smaller net open interest rate exposure in the MSR Portfolio during the second quarter of 2012 compared with $16 million for the comparable 2011 period. The decrease was primarily driven by position changes in the MSR Portfolio.second quarter of 2011.
The Firm’s average IB and other VaR diversification benefit was $47$56 million or 22% of the sum for the three months ended March 31,June 30, 2012, compared with $57$44 million or 39%32% of the sum for the comparable 2011 period.three months ended June 30, 2011. The Firm’s average IB and other VaR diversification benefit was $51 million or 22% of the sum for the six months ended June 30, 2012, compared with $51 million or 36% of the sum for the six months ended June 30, 2011. In general, over the course of the year, VaR exposure can vary significantly as positions change, market volatility fluctuates and diversification benefits change.
VaR back-testing
The Firm conducts daily back-testing of VaR against its market risk related revenue. For the threesix months ended March 31,June


98

30, 2012, losses were sustained on one day,29 days, of which did not exceedthree days exceeded the VaR measure.measure due to the adverse effect of market movements on risk positions in the synthetic credit portfolio held by CIO.



74

The following histogram illustrates the daily market risk-relatedrisk related gains and losses for IB, CIO and Mortgage Production and Servicing positions for the six months ended June 30, 2012. This market risk-relatedrisk related revenue is defined as the change in value of: principal transactions revenue for IB and CIO (less(excludes Private Equity gains/losses and revenueunrealized and realized gains/losses from longer-term CIO investments)available for sale securities and other investments held for the longer term); trading-relatedmarket-based related net interest income for IB, CIO and Mortgage Production and Servicing;Servicing; IB brokerage commissions, underwriting fees or other revenue; revenue
from syndicated lending facilities that the Firm intends to distribute; and mortgage fees and related income for the Firm’s mortgage pipeline and warehouse loans, MSRs, and all related hedges. Daily firmwide market risk-relatedrisk related revenue excludes gains and losses from DVA.
The chart shows that the Firm posted market risk-relatedrisk related gains on 64101 of the 65130 days in this period, with one daythree days exceeding $200 million. The IB and Credit Portfolio posted market risk related gains on 128 days in the period.
The inset graph looks at those days on which the Firm experienced losses and depicts the amount by which the VaR exceeded the actual loss on each of those days. The IB and Credit Portfolio experienced two loss days and those loss days did not exceed its respective VaR measure.


The histogram for the six months ended June 30, 2012, reflects the year to date losses incurred in the CIO synthetic credit portfolio.
The following table provides information about the gross sensitivity of DVA to a one-basis-point increase in JPMorgan Chase’s credit spreads. This sensitivity represents the impact from a one-basis-point parallel shift in JPMorgan Chase’s entire credit curve. As credit curves do not typically move in a parallel fashion, the sensitivity multiplied by the change in spreads at a single maturity point may not be representative of the actual revenue recognized.

Debit valuation adjustment sensitivity   
(in millions)One basis-point increase
in JPMorgan Chase’s credit spread
March 31, 2012   $35
   
December 31, 2011   35
   







99

Debit valuation adjustment sensitivity   
(in millions)One basis-point increase
in JPMorgan Chase’s credit spread
June 30, 2012   $31
   
December 31, 2011   35
   
Economic-value stress testing
While VaR reflects the risk of loss due to adverse changes in markets using recent historical market behavior as an indicator of losses, stress testing captures the Firm’s exposure to unlikely but plausible events in abnormal markets using multiple scenarios that assume significant
changes in credit spreads, equity prices, interest rates, currency rates or commodity prices. Stress scenarios estimate extreme losses based on assumptions by risk management of potential macroeconomic market stress events, such as an equity market collapse or credit crisis. Scenarios are updated dynamically and may be redefined on an ongoing basis to reflect current market conditions. Along with VaR, stress testing is important in measuring and controlling risk; it enhances understanding of the Firm’s risk profile and loss potential, as stress losses are monitored against limits.risk. Stress testing is also employed in cross-business risk management. Stress-test results, trends and explanations based on current market risk positions are reported to the Firm’s senior management and to the lines of business to allow them to better understand event risk-sensitive positions and manage their risks with more transparency.
Nonstatistical risk measures
Nonstatistical risk measures as well as stress testing include sensitivities to variables used to value positions, such as credit spread sensitivities, interest rate basis point values and market values. These measures provide granular information on the Firm’s market risk exposure. They are aggregated by line-of-business and by risk type, and are used for tactical control and monitoring limits.
Loss advisories and revenue drawdowns
Loss advisories and revenue drawdowns are tools used to highlight trading losses above certain levels of risk tolerance. Revenue drawdown is defined as the decline in net revenue since the year-to-date peak revenue level.
Risk identification for large exposures
Individuals who manage risk positions are responsible for identifying potential losses that could arise from specific, unusual events, such as a potential change in tax legislation, or a particular combination of unusual market moves. This information allows the Firm to monitor further earnings vulnerability not adequately covered by standard risk measures.


Nontrading interest rate-sensitive revenue-at-risk (i.e.
(i.e., “earnings-at-risk”)
The VaR and stress-test measures described above illustrate the total economic sensitivity of the Firm’s Consolidated Balance Sheets to changes in market variables. The effect of interest rate exposure on reported net income is also


75

important. Interest rate risk represents one of the Firm’s significant market risk exposures. This risk arises not only from trading activities but also from the Firm’s traditional banking activities which include extension of loans and credit facilities, taking deposits and issuing debt (i.e., asset/
liability management positions, accrual loans within IB and holding securitiesCIO, and off-balance sheet positions to managepositions). ALCO establishes the Firm’s asset/interest rate risk policies and sets risk guidelines. Treasury, working in partnership with the lines of business, calculates the Firm’s interest rate risk profile weekly and reviews it with senior management.
Interest rate risk for nontrading activities can occur due to a variety of factors, including:
Differences in the timing among the maturity or repricing of assets, liabilities and off-balance sheet instruments. For example, if liabilities reprice more quickly than assets and funding interest rates are declining, earnings will increase initially.
Differences in the amounts of assets, liabilities and off-balance sheet instruments that are repricing at the same time. For example, if more deposit liabilities are repricing than assets when general interest rates are declining, earnings will increase initially.
Differences in the amounts by which short-term and long-term market interest rates change (for example, changes in the slope of the yield curve) because the Firm has the ability to lend at long-term fixed rates and borrow at variable or short-term fixed rates. Based on these scenarios, the Firm’s earnings would be affected negatively by a sudden and unanticipated increase in short-term rates paid on its liabilities (e.g., deposits) without a corresponding increase in long-term rates received on its assets (e.g., loans). Conversely, higher long-term rates received on assets generally are beneficial to earnings, particularly when the increase is not accompanied by rising short-term rates paid on liabilities.
The impact of changes in the maturity of various assets, liabilities or off-balance sheet instruments as interest rates change. For example, if more borrowers than forecasted pay down higher-rate loan balances when general interest rates are declining, earnings may decrease initially.
The Firm manages interest rate exposure related to its assets and liabilities on a consolidated, corporate-wide basis. Business units transfer their interest rate risk to Treasury through a transfer-pricing system, which takes into account the elements of interest rate exposure that can be risk-managed in financial markets. These elements include asset and liability profile. balances and contractual rates of interest, contractual principal payment schedules, expected prepayment experience, interest rate reset dates and maturities, rate indices used for repricing, and any interest rate ceilings or floors for adjustable rate products. All transfer-pricing assumptions are dynamically reviewed.


100

The Firm manages this interest rate risk generally through its investment securities portfolio and related derivatives. The Firm evaluates its nontrading interest rate risk exposure through the stress testing of earnings-at-risk, which measures the extent to which changes in interest rates will affect the Firm’s core net interest income (for a further discussion see Core net interest income on(see page 1317 of this Form 10-Q)10-Q for further discussion of core net interest income) and interest rate-sensitive fees (“nontrading interest rate-sensitive revenue”). Earnings-at-risk excludes the impact of trading activities and MSRs as these sensitivities are captured under VaR. For further discussion on interest rate exposure, see Nontrading interest rate-sensitive revenue-at-risk on pages 161–162 of JPMorgan Chase’s 2011 Annual Report.
The Firm conducts simulations of changes in nontrading interest rate-sensitive revenue under a variety of interest rate scenarios. Earnings-at-risk tests measure the potential change in this revenue, and the corresponding impact to the Firm’s pretax earnings, over the following 12 months. These tests highlight exposures to various interest rate-sensitive factors, such as the rates themselves (e.g., the prime lending rate), pricing strategies on deposits, optionality and changes in product mix. The tests include forecasted balance sheet changes, such as asset sales and securitizations, as well as prepayment and reinvestment behavior. Mortgage prepayment assumptions are based on current interest rates compared with underlying contractual rates, the time since origination, and other factors which are updated periodically based on historical experience and forward market expectations. The amount and pricing assumptions of deposits that have no stated maturity are based on historical performance, the competitive environment, customer behavior, and product mix.
Immediate changes in interest rates present a limited view of risk, and so a number of alternative scenarios are also reviewed. These scenarios include the implied forward curve, nonparallel rate shifts and severe interest rate shocks on selected key rates. These scenarios are intended to provide a comprehensive view of JPMorgan Chase’s earnings-at-risk over a wide range of outcomes.
JPMorgan Chase’s 12-month pretax earnings sensitivity profiles.
(Excludes the impact of trading activities and MSRs)

JPMorgan Chase’s 12-month pretax earnings sensitivity profiles.
(Excludes the impact of trading activities and MSRs)

JPMorgan Chase’s 12-month pretax earnings sensitivity profiles.
(Excludes the impact of trading activities and MSRs)

Immediate change in rates Immediate change in rates 
(in millions)+200bp+100bp-100bp-200bp+200bp+100bp-100bp-200bp
March 31, 2012$3,877
 $2,234
 NM
(a) 
NM
(a) 
June 30, 2012$4,255
 $2,406
 NM
(a) 
NM
(a) 
December 31, 20114,046
 2,326
 NM
(a) 
NM
(a) 
4,046
 2,326
 NM
(a) 
NM
(a) 
(a)Downward 100- and 200-basis-point parallel shocks result in a Federal Fundsfederal funds target rate of zero and negative three- and six-month treasury rates. The earnings-at-risk results of such a low-probability scenario are not meaningful.
The change in earnings at risk from December 31, 2011, resulted from investment portfolio repositioning.higher expected deposit balances. The Firm’s risk to rising rates was largely the result of widening deposit margins, which are currently compressed due to very low short-term interest rates.rates, and ALM investment portfolio positioning.
Additionally, another interest rate scenario used by the Firm — involving a steeper yield curve with long-term rates rising by 100 basis points and short-term rates staying at current
levels — results in a 12-month pretax earnings benefit of $549$625 million. The increase in earnings under this scenario is due to reinvestment of maturing assets at the higher long-term rates, with funding costs remaining unchanged.

Risk monitoring and control
Limits
Market risk is controlled primarily through a series of limits, which reflect the Firm’s risk appetite in the context of the market environment and business strategy. In setting limits, the Firm takes into consideration factors such as the Firm’s overall risk appetite, market volatility, product liquidity, accommodation of client business and management experience. The Firm maintains different levels of limits. Corporate level limits include VaR and stress limits. Similarly, line of business limits include VaR and stress limits and may be supplemented by loss advisories, nonstatistical measurements and profit and loss drawdowns. Limits may also be allocated within the lines of business, as well as the portfolio level.
Limits are established by Market Risk in agreement with the lines of business, and in accordance with the overall risk appetite of the Firm. Limits are reviewed regularly by Market Risk and updated as appropriate, with any changes approved by lines of business management and Market Risk. Senior management, including the Firm’s Chief Executive Officer and Chief Risk Officer, are responsible for reviewing and approving certain of these risk limits on an ongoing basis. All limits that have not been reviewed within specified time periods by Market Risk are escalated to senior management. The lines of business are responsible for adhering to established limits against which exposures are monitored and reported by a group within Market Risk.
Limit breaches are required to be reported by a group within risk management in a timely manner to senior management. Market risk management consults with Firm senior management and lines of business senior management to determine the appropriate course of action required to return to compliance, which may include the reduction in risk in order to remedy the excess. Any limit excesses for three days or longer, or that are over limit by more than 30%, are escalated to senior management and the Firmwide Risk Committee.
Model review
The Firm uses risk management models, including VaR and stress models, for the measurement, monitoring and management of risk positions. Valuation models are employed by the Firm to value certain financial instruments which cannot otherwise be valued using quoted prices. These valuation models may also be employed as inputs to risk management models, for example in VaR and economic stress models. The Firm also makes use of models for a number of other purposes, including the calculation of regulatory capital requirements.
Models are owned by various functions within the Firm based on the specific purposes of such models. For


76101

example, VaR models and certain regulatory capital models are owned by the line-of-business aligned risk management functions. Owners of the models are responsible for the development, implementation and testing of models, as well as referral of models to the Model Review Group (within the Model Risk and Development Group) for review and approval. Once models have been approved, the model owners are required to maintain a robust operating environment and to monitor and evaluate the performance of models on an ongoing basis. It is also their responsibility to enhance models in response to changes in the portfolios and for changes in product and market developments, as well as improvements in available modeling techniques and systems capabilities, and to submit such enhancements to the Model Review Group for review.
The Model Review Group reports within the Model Risk and Development Group, which in turn reports to the Chief Risk Officer. The Model Review Group is independent of the model owners and is responsible for reviewing and approving a wide range of models including risk management, valuation and certain regulatory capital models used by the Firm.
Models are tiered by the model owner based on an internal standard according to their complexity, the exposure associated with the model and the Firm’s reliance on the model. This tiering is subject to the approval of the Model Review Group. The model reviews conducted by the Model Review Group consider a number of factors about the model’s suitability for valuation or risk management of a particular product, or other purposes. The factors considered include the assigned model tier, whether the model accurately reflects the characteristics of the instruments and its significant risks, the selection and reliability of model inputs, consistency with models for similar products, the appropriateness of any model related adjustments, and sensitivity to input parameters and assumptions that cannot be observed from the market. When reviewing a model, the Model Review Group analyzes and challenges the model methodology and the reasonableness of model assumptions and may perform or require additional testing, including back-testing of model outcomes. Model reviews are approved by the appropriate level of management within the Model Review Group based on the relevant tier of the model.
Under the Firm’s model risk policy, new significant valuation, risk management and regulatory capital models, as well as major changes to such models, are required to be
reviewed and approved by the Model Review Group prior to implementation into the operating environment. In addition, previously approved models are reviewed and re-approved periodically. The Model Review Group performs an annual firmwide model risk assessment where developments in the product or market are considered for each model to determine whether it must be reviewed.
In the event that the Model Review Group does not approve a model, escalation to senior management is required and the model owner is required to remediate the model within a time period as agreed upon with the Model Review Group. The model owner is also required to resubmit the model for review to the Model Review Group and to take appropriate actions to mitigate the model risk in the interim. The actions taken will depend on the model that is disapproved and may include, for example, limitation of trading activity. The Firm also ensures that there are other appropriate risk measurement tools in place to augment the model that is subject to remediation.
In limited circumstances, exceptions to the Firm’s model risk policy may be granted by the Model Review Group to allow a model to be used prior to review or approval. Such exceptions have been applied to a small number of models and where this is the case, compensating controls similar to those above have been put in place.
As part of the Firm’s review of the CIO activities, the Firm has taken several steps to enhance the risk management model-related issues identified, including establishing a new team alongside the Model Review Group to review model usage and soundness of the model operational environment. See Recent developments on pages 10–11 of this Form 10-Q for further information on the Firm’s review of the CIO activities, risk management as well as other steps taken to remediate identified issues.
For a summary of valuations based on models, see Critical Accounting Estimates Used by the Firm on pages 107–108 of this Form 10-Q and Note 3 on pages 184–198 of JPMorgan Chase's 2011 Annual Report.
Risk reporting
Nonstatistical risk measures, VaR, loss advisories and limit excesses are reported daily to the lines of business and to senior management. Market risk exposure trends, VaR trends, profit-and-loss changes and portfolio concentrations are reported weekly. Stress-test results are also reported weekly to the lines of business and to senior management.





102

COUNTRY RISK MANAGEMENT
For a discussion of the Firm’s Country Risk Management organization, and country risk identification, measurement, monitoring and control, see pages 163–165 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.
The Firm is exposed to country risk through its wholesale lending, investing, and market-making activities, whether cross-border or locally funded. Country exposure includes activity with both government and private-sector entities in a country. Under the Firm’s internal risk management approach, country exposure is reported based on the country where the majority of the assets of the obligor, counterparty, issuer or guarantor are located or where the majority of its revenue is derived, which may be different than the domicile (legal residence) of the obligor, counterparty, issuer or guarantor. Exposures are generally measured by considering the Firm’s risk to an immediate default of the counterparty or obligor, with zero recovery. Assumptions are sometimes required in determining the measurement and allocation of country exposure, particularly in the case of certain tranched credit derivative products. Different measurement approaches or assumptions would affect the amount of reported country exposure.
The Firm’s internal risk management approachreporting differs from the reporting provided under FFIEC bank regulatory requirements. There are significant reporting differences in reporting methodology, including with respect to the treatment of collateral received and the benefit of credit derivative protection. For further information on the FFIEC’s reporting methodology, see Cross-border outstandings on page 322 of JPMorgan Chase’s Chase’s 2011Form 10-K.10-K.
The following table presents the Firm’s top 20 country exposures (excluding U.S.) based on its internal measurements of exposure.. The selection of countries is based solely on the Firm’s largest total exposures by country, based on the Firm’s internal risk management approach, and does not represent its view of any actual or potentially adverse credit conditions.
 
Top 20 country exposuresTop 20 country exposures  Top 20 country exposures  
 March 31, 2012 June 30, 2012

(in billions)
 
Lending(a)
Trading and investing(b)(c)
Other(d)
Total exposure 
Lending(a)
Trading and investing(b)(c)
Other(d)
Total exposure
United Kingdom $31.5
$72.6
$5.2
$109.3
 $26.1
$46.4
$6.1
$78.6
Germany 33.8
22.9
—
56.7
 31.0
16.0
—
47.0
Netherlands 5.2
27.5
3.0
35.7
France 15.0
32.4
—
47.4
 14.7
20.3
—
35.0
Switzerland 39.6
3.5
0.4
43.5
 27.9
(1.1)0.6
27.4
Netherlands 4.4
36.7
1.8
42.9
Australia 7.5
20.7
—
28.2
 7.8
17.1
—
24.9
Brazil 6.3
14.0
—
20.3
Canada 11.3
6.5
0.4
18.2
 10.4
5.9
0.4
16.7
Brazil 5.5
10.9
—
16.4
India 7.6
7.4
—
15.0
 7.9
6.6
—
14.5
China 8.1
4.1
0.5
12.7
Korea 6.3
7.8
0.3
14.4
 6.7
5.5
0.3
12.5
China 7.4
4.0
0.5
11.9
Japan 3.7
5.7
—
9.4
Hong Kong 4.0
3.4
0.6
8.0
Mexico 2.1
6.8
—
8.9
 2.2
3.9
—
6.1
Italy 3.1
4.9
—
8.0
Hong Kong 3.6
3.9
0.1
7.6
Japan 3.4
3.9
—
7.3
Taiwan 2.7
3.0
—
5.7
Denmark 3.4
2.1
0.1
5.6
Singapore 3.1
1.5
0.8
5.4
Chile 1.5
2.7
0.3
4.5
Russia 2.6
1.3
—
3.9
Malaysia 1.8
3.5
0.5
5.8
 1.5
1.7
0.4
3.6
Taiwan 2.8
3.0
—
5.8
Spain 3.5
2.0
0.1
5.6
Belgium 2.7
2.8
0.1
5.6
Singapore 3.0
1.5
0.9
5.4
(a)
Lending includes loans and accrued interest receivable, net of the allowance for loan losses, deposits with banks, acceptances, other monetary assets, issued letters of credit net of participations, and undrawn commitments to extend credit.
(b)Includes market-making inventory, securities held in AFS accounts and hedging.
(c)
Includes single namesingle-name and portfolioindex and tranched credit derivative products for which one or more of the underlying reference entities is in a country listed in the above table. As ofBeginning on March 31, 2012, the Firm'sFirm’s country risk reporting reflects enhanced measurement of portfoliotranched credit derivative products. The methodology used to decompose this exposurethe tranched credit products into individual countries assumes all the portfolio namesnames in that particular country default at the same time. Changes in this assumption can produce different results.
(d)Includes capital invested in local entities and physical commodity storage.


103

Selected European exposure
Several European countries, including Spain, Italy, Ireland, Portugal and Greece, have been subject to continued credit deterioration due to weaknesses in their economic and fiscal situations. The Firm is closely monitoring its exposures in these countries and believes its nominal exposure to these five countries is modest relative to the Firm’s overall risk exposures and is manageable given the size and types of exposures to each of the countries and the diversification of the aggregate exposure.nominal exposures. The Firm continues to
conduct business and support client activity in these countries and, therefore, the Firm’s aggregate net exposures and sector distribution may vary over time. In addition, the net exposures may be affected by changes in market conditions, including the effects of interest rates and credit spreads on market valuations. The Firm is closely monitoring its exposures in these countries.


77


valuations and may return to more recent historical levels.


The following table presents the Firm’s direct exposure to these five countries at March 31,June 30, 2012, as measured under the Firm’s internal risk management approach.
March 31, 2012
(in billions)
Lending(a)
AFS securities(b)
Trading(c)(d)
Derivative collateral(e)
Portfolio hedging(f)
Total exposure
June 30, 2012
(in billions)
Lending net of Allowance(a)
AFS securities(b)
Trading(c)(d)
Derivative collateral(e)
Portfolio hedging(f)
Total exposure
Spain   
Sovereign$—
$0.5
$(0.4)$—
$(0.1)$—
$—
$0.4
$0.1
$—
$(0.1)$0.4
Non-sovereign3.5
0.3
5.2
(3.0)(0.4)5.6
3.4
0.3
2.5
(2.9)(0.3)3.0
Total Spain exposure$3.5
$0.8
$4.8
$(3.0)$(0.5)$5.6
$3.4
$0.7
$2.6
$(2.9)$(0.4)$3.4
  
Italy  
Sovereign$—
$—
$8.8
$(1.1)$(4.0)$3.7
$—
$—
$8.6
$(1.4)$(4.4)$2.8
Non-sovereign3.1
0.1
2.9
(1.1)(0.7)4.3
2.9
0.1
(1.0)(1.2)(0.5)0.3
Total Italy exposure$3.1
$0.1
$11.7
$(2.2)$(4.7)$8.0
$2.9
$0.1
$7.6
$(2.6)$(4.9)$3.1
  
Other (Ireland, Portugal and Greece)
Ireland 
Sovereign$—
$0.4
$0.3
$—
$(0.7)$—
$—
$0.3
$0.1
$—
$(0.3)$0.1
Non-sovereign1.2
—
(1.0)(1.2)(0.1)(1.1)0.5
—
1.0
(0.4)—
1.1
Total other exposure$1.2
$0.4
$(0.7)$(1.2)$(0.8)$(1.1)
Total Ireland exposure$0.5
$0.3
$1.1
$(0.4)$(0.3)$1.2
 
Portugal 
Sovereign$—
$—
$0.4
$—
$(0.3)$0.1
Non-sovereign0.5
—
(1.3)(0.4)(0.1)(1.3)
Total Portugal exposure$0.5
$—
$(0.9)$(0.4)$(0.4)$(1.2)
 
Greece 
Sovereign$—
$—
$0.1
$—
$—
$0.1
Non-sovereign0.1
—
0.1
(0.6)—
(0.4)
Total Greece exposure$0.1
$—
$0.2
$(0.6)$—
$(0.3)
    
Total exposure$7.8
$1.3
$15.8
$(6.4)$(6.0)$12.5
$7.4
$1.1
$10.6
$(6.9)$(6.0)$6.2
(a)
Lending includes loans and accrued interest receivable, net of the allowance for loan losses, deposits with banks, acceptances, other monetary assets, issued letters of credit net of participations, and undrawn commitments to extend credit. Amounts are presented net of the allowance for credit losses of $136 million (Spain), $67 million (Italy), $2 million (Ireland), $18 million (Portugal), and $24 million (Greece) specifically attributable to these countries. Includes $2.52.1 billion of unfunded lending exposure at March 31, 2012.June 30, 2012. These exposures consist typically of committed, but unused corporate credit agreements, with market-based lending terms and covenants.
(b)
TheBoth the notional and the fair value of AFS securities was $1.31.1 billion at March 31, 2012.June 30, 2012.
(c)
Includes:Primarily includes: $16.817.4 billion of counterparty exposure on derivative and securities financings, $0.91.9 billion of issuer exposure on debt and equity securities held in trading, $2.4$(9.0) billion of single-name CDS and $(4.3)net protection from credit derivatives, including $(7.3) billion of portfolio related to the CIO synthetic credit derivative products for which one or more of the underlying reference entities is in a country listed in the above table.portfolio. Securities financings of approximately $12.011.7 billion were collateralized with approximately $14.114.0 billion of marketable securities as of March 31, 2012.June 30, 2012.
(d)Includes single name and portfolio credit derivative products for which one or more of the underlying reference entities is in a country listed in the above table. As ofBeginning on March 31, 2012, the Firm'sFirm’s country risk reporting reflects enhanced measurement of portfoliotranched credit derivative products. The methodology used to decompose this exposure into individual countries assumes all the portfolio names in that particular country default at the same time. Changes in this assumption can produce different results.
(e)
Includes cash and marketable securities pledged to the Firm, of which approximately 98% of the collateral was cash at March 31, 2012.June 30, 2012.
(f)
Reflects net CDS protection purchased through the Firm’s credit portfolio management activities, which are managed separately from its market-making activities. Predominantly includes single-name CDS and also includes index credit derivatives and short bond positions. It does not include the synthetic credit portfolio held by CIO.
For individual exposures, corporate clients represent approximately 84%83% of the Firm’s non-sovereign exposure in these five countries, and substantially all of the remaining 16%17% of the non-sovereign exposure is to the banking sector.
AsEffect of March 31, 2012,credit derivatives on selected European exposures
Country exposures in the notional amountSelected European table have been reduced through the purchase of credit derivatives on single-name CDS, protection soldindex, and purchased related to these countries was $142.4 billion and $144.3 billion, respectively, on a gross basis, before consideration of counterparty master netting agreements or collateral arrangements. Approximately 30% and 50% of the notional amount of the single-name CDS sold and purchased relates to Spain and Italy, respectively, with the remaining amounts distributed relatively equally among the remaining named European countries. In each of the five countries, the aggregate gross notional amount of single-name protection sold was more than 98% offset by the aggregate gross notional amount of single-name protection purchased on the same reference entities on which the Firm sold protection. The notional amount of single-name CDS protection sold and purchased related to these countries, after consideration of counterparty master netting agreements (which is a measure used by certain market peers and therefore presented for comparative purposes), was $14.5 billion and $16.4 billion, respectively.

The fair value of the single-name CDS protection sold and purchased in the five named European countries as of March 31, 2012, was $14.3 billion and $15.0 billion, respectively, prior to consideration of collateral and master netting agreements, and was $1.8 billion and $2.5 billion, respectively, after consideration of counterparty master netting agreements for single-nametranched credit products. All credit derivatives within the selected European countries.
The Firm’s credit derivative activity ispurchased and sold are presented on a net basis as in the Selected European exposure table because
market-making activities, and to a lesser extent, hedging activities, often result in selling and purchasing protection related to the same underlying reference entity. This presentation reflectsSingle-name CDS and index credit derivatives are measured at the manner in which this exposure is managed,notional amount, net of the fair value of the derivative receivable or payable. Exposures for index credit derivatives are determined by evaluating the relevant country of each of the reference entities underlying the named index, and reflects, inallocating the Firm’s view,applicable amount of the substantial mitigation of counterparty creditnotional and market risk in itsfair value for the index credit derivative activities.to each of those countries. The Firm believes thatmethodology used to decompose tranched credit products into individual countries assumes all the counterparty credit risk on credit derivative purchased protection has been substantially mitigated based on the following characteristics, by notional amount, as of March 31, 2012.
99% is purchased under contracts that require posting of cash collateral;
88% is purchased from investment-grade counterparties domiciled outside of the select European countries;
77% of the protection purchased offsets protection sold on the identical reference entity, with the identical counterparty subject to master netting agreements.


78104

Theportfolio names in that particular country default at the same time. Changes in this assumption can produce different results.
Credit Portfolio Management activities are shown in the “Portfolio hedging” column in the table above and primarily represent single-name credit derivatives, as well as a more limited amount of index credit derivatives and short bond positions used to mitigate the credit risk associated with traditional lending activities and derivative counterparty exposure. In its Credit Portfolio Management activities, the Firm generally seeks to purchase credit protection with a maturity date that is the same or similar to the maturity date on itsof the exposures for which the protection was purchased. However, there are instances where the purchased protection has a shorter maturity date than the maturity date onof the exposure for which the protection was purchased. These exposures are actively monitored and managed by the Firm.
The effectiveness of the Firm’s CDS protection as a hedge of the Firm’s exposures may vary depending upon a number of factors, including the contractual terms of the CDS. For further information about credit derivatives see Credit derivatives on pages 58–59,80–81, and Note 5 on pages 103–109136–144 of this Form 10-Q.10-Q.

The “Trading” column includes approximately $9.0 billion of net purchased protection, including single name, index and tranched credit derivatives that are part of the Firm’s market making activities as well as the synthetic credit portfolio held by CIO. The $9.0 billion of net purchased protection includes the following amounts: $3.1 billion (Spain), $3.3 billion (Italy), $0.2 billion (Ireland), $1.9 billion (Portugal) and $0.5 billion (Greece). These amounts include $7.3 billion of net purchased protection in the synthetic credit portfolio as of June 30, 2012. Based on scheduled maturities and risk reduction actions being taken in the synthetic credit portfolio, the amount of protection provided by the synthetic credit portfolio relative to the five named countries is likely to be substantially reduced over time.
Additional information on single-name credit derivatives
The notional amount of single-name CDS protection sold and purchased related to the five named European countries as of June 30, 2012, was $136.7 billion and $140.3 billion, respectively, prior to consideration of collateral and master netting agreements, and was $13.4 billion and $17.0 billion, respectively, after consideration of master netting agreements for single-name credit derivatives within the selected European countries. Approximately 30% and 50% of the gross notional amount of the single-name CDS sold and purchased relates to Spain and Italy, respectively, with the remaining amounts distributed relatively equally among the remaining named European countries. In each of the five countries, the aggregate gross notional amount of single name protection sold was more than 98% offset by the aggregate gross notional amount of single-name protection purchased on the same reference entities on which the Firm sold protection.
The fair value of single-name CDS protection sold and purchased in the five named European countries as of June 30, 2012, was $16.1 billion and $16.9 billion, respectively, prior to consideration of collateral and master netting agreements, and was $1.9 billion and $2.7 billion, respectively, after consideration of master netting agreements for single-name credit derivatives within the selected European countries.
Counterparty credit risk related to credit derivatives
The Firm’s net presentation reflects the manner in which this exposure is managed, and reflects, in the Firm’s view, the substantial mitigation of counterparty credit and market risk in its credit derivative activities. For example, counterparty credit risk on single-name purchased protection has been substantially mitigated based on the following characteristics, by notional amount, as of June 30, 2012: 99% is purchased under contracts that require posting of cash collateral; 88% is purchased from investment-grade counterparties domiciled outside of the select European countries; and 76% of the protection purchased offsets protection sold on the identical reference entity, with the identical counterparty subject to master netting agreement. Similarly, index credit derivatives are generally executed with investment-grade counterparties domiciled outside of the select European countries and require posting of cash collateral and therefore counterparty credit risk is substantially mitigated.
* * *
During the second quarter of 2012, the economic weaknesses and political uncertainty in Europe deepened, evidenced by increases in certain credit spreads and in Italian and Spanish government bond yields, and in sovereign rating downgrades of Spain. Investor confidence diminished due to the continued uncertainty regarding the unity of the Eurozone and significant fiscal challenges and austerity measures within the selected European countries. The Firm performs multiple stress tests in order to estimate the potential economic loss to its assets and liabilities under a variety of macroeconomic market stress events (See Economic-value stress testing on pages 100–101 of this Form 10-Q). However, stress testing cannot predict the full consequences of a systemic market event, such as what might occur if the situation worsens or a country or countries exits the Eurozone. In addition to disruptions in the capital markets, loss of confidence in the financial services industry, and a slowdown in global economic activity, other potential consequences could include disruptions to foreign exchange, to payment and settlement systems and in the operation of stock exchanges and other clearing systems, as well as other systemic issues. Furthermore, the possible re-denomination of assets and contracts could have a significant impact on exposures in Europe and is not possible to quantify with any certainty. The Firm continues to monitor events in Europe. See, also, Risk Factors on pages 7–17 of JPMorgan Chase’s 2011 Form 10-K.


105

PRIVATE EQUITY RISK MANAGEMENT
For a discussion of Private Equity Risk Management, see page 166 of JPMorgan Chase’s 2011 Annual Report. At March 31,June 30, 2012, and December 31, 2011, the carrying value of the Private Equity portfolio was $8.07.9 billion and
$7.7 billion, respectively, of which $889863 million and $805 million, respectively, represented securities with publicly available market quotations.





OPERATIONAL RISK MANAGEMENT
For a discussion of JPMorgan Chase’s Operational Risk Management, see pages 166–167 of JPMorgan Chase’s 2011 Annual Report.
 





REPUTATION AND FIDUCIARY RISK MANAGEMENT
For a discussion of the Firm’s Reputation and Fiduciary Risk Management, see page 167 of JPMorgan Chase’s 2011 Annual Report.
 






SUPERVISION AND REGULATION
The following discussion should be read in conjunction with Regulatory developments on page 9pages 11–12 of this Form 10-Q, and the Supervision and Regulation section on pages 1–7 of JPMorgan Chase’s Chase’s 2011Form 10-K.10-K.
 
Dividends
At March 31,June 30, 2012, JPMorgan Chase’sChase’s banking subsidiaries could pay, in the aggregate, $9.111.5 billion in dividends to their respective bank holding companies without the prior approval of their relevant banking regulators.



79106

CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase’s accounting policies and use of estimates are integral to understanding its reported results. The Firm’s most complex accounting estimates require management’s judgment to ascertain the appropriate carrying value of assets and liabilities. The Firm has established detailed policies and control procedures intended to ensure that valuation methods, including any judgments made as part of such methods, are well-controlled, independently reviewed and applied consistently from period to period. The methods used and judgments made reflect, among other factors, the nature of the assets or liabilities and the related business and risk management strategies, which may vary across the Firm'sFirm’s businesses and portfolios. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The Firm believes its estimates for determining the carrying value of its assets and liabilities are appropriate. The following is a brief description of the Firm’s critical accounting estimates involving significant valuation judgments.

Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers the retained wholesale and consumer loan portfolios, as well as the Firm’s wholesale and consumer lending-related commitments. The allowance for loan losses is intended to adjust the value of the Firm’s loan assets to reflect probable credit losses inherent in the loan portfolio as of the balance sheet date. Similarly, the allowance for lending-related commitments is established to cover probable credit losses inherent in the lending-related commitments portfolio as of the balance sheet date. For further discussion of the methodologies used in establishing the Firm’s allowance for credit losses, see Allowance for Credit Losses on pages 155–157 and Note 15 on pages 252–255 of JPMorgan Chase’s Chase’s 2011Annual Report;Report; for amounts recorded as of March 31,June 30, 2012 and 2011, see Allowance for Credit Losses on pages 70–7293–95 and Note 14 on page 136176 of this Form 10-Q.10-Q.
As noted in the discussion on page 168 of JPMorgan Chase’s Chase’s 2011Annual Report, the Firm’s allowance for credit losses is sensitive to numerous factors, depending on the portfolio. Changes in economic conditions or in the Firm’s assumptions could affect the Firm’s estimate of probable credit losses inherent in the portfolio at the balance sheet date. For example, deterioration in the following inputs would have the following effects on the Firm’s modeled loss estimates as of March 31,June 30, 2012, without consideration of any offsetting or correlated effects of other inputs in the Firm’s allowance for loan losses:
A one-notch downgrade in the Firm’s internal risk ratings for its entire wholesale loan portfolio could imply an increase in the Firm’s modeled loss estimates of approximately $2.0 billion.
An adverse national home price scenario (reflecting an
 
additionalA 7%5% decline in housing prices when geographically weighted for the PCI portfolio),from current levels could result in an increase in credit loss estimates for PCI loans of approximately $1.7 billion930 million.
The same adverse scenario, weightedA 5% decline in housing prices from current levels for the residential real estate portfolio, excluding PCI loans, could result in an increase to modeled annual loss estimates of approximately $800300 million.
A 50 basis point deterioration in forecasted credit card loss rates could imply an increase to modeled annualized credit card loan loss estimates of approximately $750 million.
The purpose of these sensitivity analyses is to provide an indication of the isolated impacts of hypothetical alternative assumptions on credit loss estimates. The changes in the inputs presented above are not intended to imply management’s expectation of future deterioration of those risk factors.
It is difficult to estimate how potential changes in specific factors might affect the allowance for credit losses because management considers a variety of factors and inputs in estimating the allowance for credit losses. Changes in these factors and inputs may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors may be directionally inconsistent, such that improvement in one factor may offset deterioration in other factors. In addition, it is difficult to predict how changes in specific economic conditions or assumptions could affect borrower behavior or other factors considered by management in estimating the allowance for credit losses. Given the process the Firm follows in evaluating the risk factors related to its loans, including risk ratings, home price assumptions, and credit card loss estimates, management believes that its current estimate of the allowance for credit loss is appropriate.

Fair value of financial instruments, MSRs and commodities inventory
JPMorgan Chase carries a portion of its assets and liabilities at fair value. The majority of such assets and liabilities are measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis, including mortgage, home equity and other loans, where the carrying value is based on the fair value of the underlying collateral.


80

Assets measured at fair value
The following table includes the Firm’s assets measured at fair value and the portion of such assets that are classified within level 3 of the valuation hierarchy. For further information, see Note 3 on pages 91–100119–133 of this
Form 10-Q.


107
 March 31, 2012
(in billions, except ratio data)Total assets at fair valueTotal level 3 assets
Trading debt and equity instruments$370.6
 $30.3
 
Derivative receivables – gross1,642.5
 29.5
 
Netting adjustment(1,557.1) —
 
Derivative receivables – net85.4
 29.5
 
AFS securities381.7
 25.9
 
Loans2.3
 1.8
 
MSRs8.0
 8.0
 
Private equity investments7.6
 6.7
 
Other48.4
 4.5
 
Total assets measured at fair value on a recurring basis
904.0
 106.7
 
Total assets measured at fair value on a nonrecurring basis3.1
 2.5
 
Total assets measured at fair value
$907.1
 $109.2
(a) 
Total Firm assets$2,320.3
   
Level 3 assets reported at fair value as a percentage of total Firm assets  4.7% 
Level 3 assets reported at fair value as a percentage of total Firm assets at fair value  12.0% 

 June 30, 2012
(in billions, except ratio data)Total assets at fair valueTotal level 3 assets
Trading debt and equity instruments$331.8
 $28.8
 
Derivative receivables – gross1,745.5
 28.0
 
Netting adjustment(1,660.0) —
 
Derivative receivables – net85.5
 28.0
 
AFS securities354.6
 26.3
 
Loans3.0
 2.5
 
MSRs7.1
 7.1
 
Private equity investments7.6
 6.7
 
Other53.4
 4.5
 
Total assets measured at fair value on a recurring basis
843.0
 103.9
 
Total assets measured at fair value on a nonrecurring basis2.6
 2.3
 
Total assets measured at fair value
$845.6
 $106.2
(a) 
Total Firm assets$2,290.1
   
Level 3 assets reported at fair value as a percentage of total Firm assets  4.6% 
Level 3 assets reported at fair value as a percentage of total Firm assets at fair value  12.6% 
(a) At March 31, 2012, includedIncluded $55.452.8 billion of level 3 assets, consisting of recurring and nonrecurring assets carried by IB.
Valuation
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Firm has an established and well-documented process for determining fair value. Fair value is based on quoted market prices, where available. If listed prices or quotes are not available for an instrument or a similar instrument, fair value is generally based on models that consider relevant transaction data such as maturity and use as inputs market-based or independently sourced parameters.
Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed models that use significant unobservable inputs and are therefore classified within level 3 of the hierarchy, judgments used to estimate fair value may be significant. are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate model to use. Second, due to the lack of observability of significant inputs, management must assess all relevant empirical data in deriving valuation inputs –— including, but not limited to,for example, transaction details, yield curves, interest rates, prepayment rates, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves. Finally, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the Firm’s credit-worthiness, constraints on liquidity considerations, unobservable
parameters, and unobservable parameters, where relevant.for certain portfolios that meet specified criteria, the size of the net open risk position. The judgments made are typically affected by the type of product and its specific contractual terms, and the level of liquidity for the product or within the market as a whole. For further discussion of changes inthe valuation of level 3 instruments, including unobservable inputs used, see Note 3 on pages 91–100119–133 of this
Form 10-Q.
Imprecision in estimating unobservable market inputs or other factors can affect the amount of revenuegain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm'sFirm’s businesses and portfolios.
The Firm uses various methodologies and assumptions in the determination of fair value. The use of different methodologies or assumptions to determinethose used by the
fair value of certain financial instruments Firm could result in a different estimate of fair value at the reporting date. For a detailed discussion of the Firm's valuation process and hierarchy, and determination of fair value for individual financial instruments, see Note 3 on pages 91–100119–133 of this Form 10-Q and Note 3 on pages 184–198184-198 of JPMorgan Chase’s 2011 Annual Report.

Goodwill impairment
Management applies significant judgment when testing goodwill for impairment. For a description of the significant valuation judgments associated with goodwill impairment, see Goodwill impairment on page 171 of JPMorgan Chase’s 2011 Annual Report.
During the threesix months ended March 31,June 30, 2012, the Firm updated the discounted cash flow valuations of certain consumer lending businesses in RFS and Card, which continue to have elevated risk for goodwill impairment due to their exposure to U.S. consumer credit risk and the effects of economic, regulatory and legislative changes. The assumptions used in the valuation of these businesses includeinclude: (a) estimates of future cash flows for the business (which are dependent on portfolio outstanding loan balances, net interest margin, operating expense, credit losses and the amount of capital necessary given the risk of business activities to meet regulatory capital requirements), and (b) the cost of equity used to discount those cash flows to a present value. Each of these factors requires significant judgment and the assumptions used are based on management’s best estimate and most current projections, including the anticipated effects of regulatory and legislative changes, derived from the Firm’s business forecasting process reviewed with senior management. These projections are consistent with the short-term assumptions discussed in the Business outlook on pages 8–99–10 of this Form 10-Q, and, in the longer term, incorporate a


108

set of macroeconomic assumptions and the Firm’s best estimates of long-term growth and returns of its businesses. Where possible, the Firm uses third-party and peer data to benchmark its assumptions and estimates.
In addition, forthe Firm evaluated the effect of recent increases in the estimated market cost of equity on the estimated value of its capital markets businesses in IB. For its other businesses, the Firm reviewed current conditions (including the estimated effects of regulatory and legislative changes) and prior projections of business performance. Based upon the updated valuations for its consumer lending businesses and reviews, of its other businesses, the Firm concluded that goodwill allocated to all of its reporting units was not impaired at March 31,June 30, 2012. However, the
The fair value of the Firm’s consumer lending businesses in RFS and Card each exceeded their carrying values by less thanapproximately 15% and the associated goodwill of such lines of business remains at an elevated risk of impairment due to each businesses’ exposure to U.S. consumer credit risk and the effects of economic, regulatory and legislative changes.
. Deterioration in economic market conditions, increased estimates of the effects of recent regulatory or legislative changes, or additional regulatory or legislative changes


81

may result in declines in projected business performance beyond management’s current expectations. For example, in RFS, such declines could result from increases in costs to resolve foreclosure-related matters or from deterioration in economic conditions that result in increased credit losses, including decreases in home prices beyond management’s current expectations. In Card, declines in business performance could result from deterioration in economic conditions such as increased unemployment claims or bankruptcy filings that result in increased credit losses or changes in customer behavior that cause decreased account activity or receivable balances.
In addition, the earnings or estimated cost of equity of the Firm’s capital markets businesses could also be affected by regulatory or legislative changes.
Declines in business performance, increases in equity capital requirements, or increases in the estimated cost of equity, could cause the estimated fair values of the Firm’s reporting units or their associated
goodwill to decline, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.
For additional information on goodwill, see Note 16 on pages 144–146184–187 of this Form 10-Q.


Income taxes
For a description of the significant assumptions, judgments and interpretations associated with the accounting for income taxes, see Income taxes on pages 171–172 of JPMorgan Chase’s 2011 Annual Report.
Litigation reserves
For a description of the significant estimates and judgments associated with establishing litigation reserves, see Note 23 on pages 154–163196–205 of this Form 10-Q, and Note 31 on pages 290–299 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.





82109

ACCOUNTING AND REPORTING DEVELOPMENTS
Fair value measurement and disclosures
In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance that amends the requirements for fair value measurement and disclosure. The guidance changes and clarifies certain existing requirements related to portfolios of financial instruments and valuation adjustments, requires additional disclosures for fair value measurements categorized in level 3 of the fair value hierarchy (including disclosure of the range of inputs used in certain valuations), and requires additional disclosures for certain financial instruments that are not carried at fair value. The guidance was effective in the first quarter of 2012, and the Firm adopted the new guidance, effective January 1, 2012. The application of this guidance did not have a material effect on the Firm’s Consolidated Balance Sheets or results of operations.
Accounting for repurchase and similar agreements
In April 2011, the FASB issued guidance that amends the criteria used to assess whether repurchase and similar agreements should be accounted for as financings or sales (purchases) with forward agreements to repurchase (resell). Specifically, the guidance eliminates circumstances in which the lack of adequate collateral maintenance requirements could result in a repurchase agreement being accounted for as a sale. The guidance was effective for new transactions or existing transactions that were modified beginning January 1, 2012. The Firm has accounted for its repurchase and similar agreements as secured financings, and therefore, the application of this guidance did not have an impact on the Firm’s Consolidated Balance Sheets or results of operations.
 
Presentation of other comprehensive income
In June 2011, the FASB issued guidance that modifies the presentation of other comprehensive income in the Consolidated Financial Statements. The guidance requires that items of net income, items of other comprehensive income, and total comprehensive income be presented in one continuous statement or in two separate but consecutive statements. For public companies the guidance is effective for interim and annual reporting periods beginning after December 15, 2011. However, in December 2011, the FASB issued guidance that deferred the presentation requirements relating to reclassifications of items from AOCI and into the income statement. The guidance was effective in the first quarter of 2012, and the Firm adopted the new guidance, effective January 1, 2012. The application of this guidance only affected the presentation of the Consolidated Financial Statements and had no impact on the Firm’s Consolidated Balance Sheets or results of operations.
Balance sheet netting
In December 2011, the FASB issued guidance that requires enhanced disclosures about derivatives and securities financing agreements that are subject to legally enforceable master netting or similar agreements, or that have otherwise been offset on the balance sheet under certain specific conditions that permit net presentation. The guidance will become effective in the first quarter of 2013. The application of this guidance will only affect the disclosure of these instruments and will have no impact on the Firm’s Consolidated Balance Sheets or results of operations.


83110

FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipate,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “believe,” or other words of similar meaning. Forward-looking statements provide JPMorgan Chase’s current expectations or forecasts of future events, circumstances, results or aspirations. JPMorgan Chase’s disclosures in this Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Firm also may make forward-looking statements in its other documents filed or furnished with the Securities and Exchange Commission. In addition, the Firm’s senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others.
All forward-looking statements are, by their nature, subject to risks and uncertainties, many of which are beyond the Firm’s control. JPMorgan Chase’s actual future results may differ materially from those set forth in its forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ from those in the forward-looking statements:
Local, regional and international business, economic and political conditions and geopolitical events;
Changes in laws and regulatory requirements, including as a result of recent financial services legislation;
Changes in trade, monetary and fiscal policies and laws;
Securities and capital markets behavior, including changes in market liquidity and volatility;
Changes in investor sentiment or consumer spending or savings behavior;
Ability of the Firm to manage effectively its liquidity;capital and liquidity, including approval of its capital plans by banking regulators;
Changes in credit ratings assigned to the Firm or its subsidiaries;
Damage to the Firm’s reputation;
Ability of the Firm to deal effectively with an economic slowdown or other economic or market disruption;
Technology changes instituted by the Firm, its counterparties or competitors;
Mergers and acquisitions, including the Firm’s ability to integrate acquisitions;
Ability of the Firm to develop new products and services, and the extent to which products or services previously sold by the Firm (including but not limited to mortgages and asset-backed securities) require the Firm to incur liabilities or absorb losses not contemplated at their initiation or origination;

 
Ability of the Firm to address enhanced regulatory requirements affecting its mortgage business;
Acceptance of the Firm’s new and existing products and services by the marketplace and the ability of the Firm to increase market share;
Ability of the Firm to attract and retain employees;
Ability of the Firm to control expense;
Competitive pressures;
Changes in the credit quality of the Firm’s customers and counterparties;
Adequacy of the Firm’s risk management framework;framework, disclosure controls and procedures and internal control over financial reporting;
Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies;
Ability of the Firm to determine accurate values of certain assets and liabilities;
Occurrence of natural or man-made disasters or calamities or conflicts, including any effect of any such disasters, calamities or conflicts on the Firm’s power generation facilities and the Firm’s other commodity-related activities;
Ability of the Firm to maintain the security of its financial, accounting, technology, data processing and other operating systems and facilities;
The other risks and uncertainties detailed in Part II, Item 1A: Risk Factors on pages 219–222 of this Form 10-Q; Part II, Item 1A: Risk Factors in the Firm’s Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2012; and Part I, Item 1A: Risk Factors in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2011.
Any forward-looking statements made by or on behalf of the Firm speak only as of the date they are made, and JPMorgan Chase does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made. The reader should, however, consult any further disclosures of a forward-looking nature the Firm may make in any subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, or Current Reports on Form 8-K.



84111




JPMorgan Chase & Co.
Consolidated statements of income (unaudited)
 Three months ended March 31,  Three months ended June 30, Six months ended June 30, 
(in millions, except per share data) 2012
 2011
  2012
 2011
 2012
 2011
 
Revenue              
Investment banking fees $1,381
 $1,793
  $1,257
 $1,933
 $2,638
 $3,726
 
Principal transactions 3,382
 4,745
  (427) 3,140
 2,295
 7,885
 
Lending- and deposit-related fees 1,517
 1,546
  1,546
 1,649
 3,063
 3,195
 
Asset management, administration and commissions 3,392
 3,606
  3,461
 3,703
 6,853
 7,309
 
Securities gains(a)
 536
 102
  1,014
 837
 1,550
 939
 
Mortgage fees and related income 2,010
 (487)  2,265
 1,103
 4,275
 616
 
Credit card income 1,316
 1,437
  1,412
 1,696
 2,728
 3,133
 
Other income 1,512
 574
  506
 882
 2,018
 1,456
 
Noninterest revenue 15,046
 13,316
  11,034
 14,943
 25,420
 28,259
 
Interest income 14,701
 15,447
  14,099
 15,632
 28,800
 31,079
 
Interest expense 3,035
 3,542
  2,953
 3,796
 5,988
 7,338
 
Net interest income 11,666
 11,905
  11,146
 11,836
 22,812
 23,741
 
Total net revenue 26,712
 25,221
  22,180
 26,779
 48,232
 52,000
 
              
Provision for credit losses 726
 1,169
  214
 1,810
 940
 2,979
 
              
Noninterest expense              
Compensation expense 8,613
 8,263
  7,427
 7,569
 16,040
 15,832
 
Occupancy expense 961
 978
  1,080
 935
 2,041
 1,913
 
Technology, communications and equipment expense 1,271
 1,200
  1,282
 1,217
 2,553
 2,417
 
Professional and outside services 1,795
 1,735
  1,857
 1,866
 3,652
 3,601
 
Marketing 680
 659
  642
 744
 1,322
 1,403
 
Other expense 4,832
 2,943
  2,487
 4,299
 7,319
 7,242
 
Amortization of intangibles 193
 217
  191
 212
 384
 429
 
Total noninterest expense 18,345
 15,995
  14,966
 16,842
 33,311
 32,837
 
Income before income tax expense 7,641
 8,057
  7,000
 8,127
 13,981
 16,184
 
Income tax expense 2,258
 2,502
  2,040
 2,696
 4,097
 5,198
 
Net income $5,383
 $5,555
  $4,960
 $5,431
 $9,884
 $10,986
 
Net income applicable to common stockholders $5,017
 $5,136
  $4,634
 $5,067
 $9,210
 $10,203
 
Net income per common share data              
Basic earnings per share $1.31
 $1.29
  $1.22
 $1.28
 $2.41
 $2.57
 
Diluted earnings per share 1.31
 1.28
  1.21
 1.27
 2.41
 2.55
 
              
Weighted-average basic shares 3,818.8
 3,981.6
  3,808.9
 3,958.4
 3,813.9
 3,970.0
 
Weighted-average diluted shares 3,833.4
 4,014.1
  3,820.5
 3,983.2
 3,827.0
 3,998.6
 
Cash dividends declared per common share $0.30
 $0.25
  $0.30
 $0.25
 $0.60
 $0.50
 
(a)
The following other-than-temporary impairment losses are included in securities gains for the periods presented.
 Three months ended March 31,   Three months ended June 30, Six months ended June 30, 
 2012
 2011
 
(in millions) 2012
 2011
 2012
 2011
 
Debt securities the Firm does not intend to sell that have credit losses         
Total other-than-temporary impairment losses $(10) $(27)  $(103) $—
 $(113) $(27) 
Losses recorded in/(reclassified from) other comprehensive income 3
 (3)  84
 (13) 87
 (16) 
Total credit losses recognized in income $(7) $(30)  (19) (13) (26) (43) 
Securities the Firm intends to sell (37) —
 (37) —
 
Total other-than-temporary impairment losses recognized in income $(56) $(13) $(63) $(43) 
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.




85112

JPMorgan Chase & Co.
Consolidated statements of comprehensive income (unaudited)
 Three months ended March 31, Three months ended June 30, Six months ended June 30,
(in millions) 2012 2011 2012 2011 2012 2011
Net income $5,383
 $5,555
 $4,960
 $5,431
 $9,884
 $10,986
Other comprehensive income/(loss), after-tax            
Unrealized gains/(losses) on AFS securities 1,574
 (251) (325) 1,021
 1,249
 770
Translation adjustments, net of hedges 127
 24
 (189) 3
 (62) 27
Cash flow hedges (35) (79) 73
 (132) 38
 (211)
Defined benefit pension and OPEB plans 35
 17
 68
 34
 103
 51
Total other comprehensive income/(loss), after-tax 1,701
 (289) (373) 926
 1,328
 637
Comprehensive income $7,084
 $5,266
 $4,587
 $6,357
 $11,212
 $11,623
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.





86113

JPMorgan Chase & Co.
Consolidated balance sheets (unaudited)
(in millions, except share data)March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
Assets      
Cash and due from banks$55,383
 $59,602
$44,866
 $59,602
Deposits with banks115,028
 85,279
130,383
 85,279
Federal funds sold and securities purchased under resale agreements (included $26,259 and $24,891 at fair value)
240,484
 235,314
Securities borrowed (included $12,519 and $15,308 at fair value)
135,650
 142,462
Trading assets (included assets pledged of $106,594 and $89,856)
456,000
 443,963
Securities (included $381,731 and $364,781 at fair value and assets pledged of $92,498 and $94,691)
381,742
 364,793
Loans (included $2,288 and $2,097 at fair value)
720,967
 723,720
Federal funds sold and securities purchased under resale agreements (included $32,862 and $24,891 at fair value)
255,188
 235,314
Securities borrowed (included $11,518 and $15,308 at fair value)
138,209
 142,462
Trading assets (included assets pledged of $101,700 and $89,856)
417,324
 443,963
Securities (included $354,585 and $364,781 at fair value and assets pledged of $90,435 and $94,691)
354,595
 364,793
Loans (included $3,010 and $2,097 at fair value)
727,571
 723,720
Allowance for loan losses(25,871) (27,609)(23,791) (27,609)
Loans, net of allowance for loan losses695,096
 696,111
703,780
 696,111
Accrued interest and accounts receivable64,833
 61,478
67,939
 61,478
Premises and equipment14,213
 14,041
14,206
 14,041
Goodwill48,208
 48,188
48,131
 48,188
Mortgage servicing rights8,039
 7,223
7,118
 7,223
Other intangible assets3,029
 3,207
2,813
 3,207
Other assets (included $17,121 and $16,499 at fair value and assets pledged of $1,206 and $1,316)
102,625
 104,131
Other assets (included $16,550 and $16,499 at fair value and assets pledged of $1,166 and $1,316)
105,594
 104,131
Total assets(a)
$2,320,330
 $2,265,792
$2,290,146
 $2,265,792
Liabilities      
Deposits (included $5,268 and $4,933 at fair value)
$1,128,512
 $1,127,806
Federal funds purchased and securities loaned or sold under repurchase agreements (included $13,241 and $9,517 at fair value)
250,483
 213,532
Deposits (included $5,310 and $4,933 at fair value)
$1,115,886
 $1,127,806
Federal funds purchased and securities loaned or sold under repurchase agreements (included $15,523 and $9,517 at fair value)
261,657
 213,532
Commercial paper50,577
 51,631
50,563
 51,631
Other borrowed funds (included $10,153 and $9,576 at fair value)
27,298
 21,908
Other borrowed funds (included $10,761 and $9,576 at fair value)
21,689
 21,908
Trading liabilities146,003
 141,695
147,061
 141,695
Accounts payable and other liabilities (included $46 and $51 at fair value)
204,148
 202,895
Beneficial interests issued by consolidated variable interest entities (included $1,001 and $1,250 at fair value)
67,750
 65,977
Long-term debt (included $35,473 and $34,720 at fair value)
255,831
 256,775
Accounts payable and other liabilities (included $42 and $51 at fair value)
207,126
 202,895
Beneficial interests issued by consolidated variable interest entities (included $988 and $1,250 at fair value)
55,053
 65,977
Long-term debt (included $31,657 and $34,720 at fair value)
239,539
 256,775
Total liabilities(a)
2,130,602
 2,082,219
2,098,574
 2,082,219
Commitments and contingencies (see Notes 21 and 23 of this Form 10-Q)      
Stockholders’ equity      
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 780,000 shares)
7,800
 7,800
7,800
 7,800
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
4,105
 4,105
4,105
 4,105
Capital surplus94,070
 95,602
94,201
 95,602
Retained earnings92,347
 88,315
95,518
 88,315
Accumulated other comprehensive income/(loss)2,645
 944
2,272
 944
Shares held in RSU Trust, at cost (851,686 and 852,906 shares)
(38) (38)
Treasury stock, at cost (282,911,309 and 332,243,180 shares)
(11,201) (13,155)
Shares held in RSU Trust, at cost (849,580 and 852,906 shares)
(38) (38)
Treasury stock, at cost (308,096,400 and 332,243,180 shares)
(12,286) (13,155)
Total stockholders’ equity189,728
 183,573
191,572
 183,573
Total liabilities and stockholders’ equity$2,320,330
 $2,265,792
$2,290,146
 $2,265,792
(a)The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at March 31,June 30, 2012, and December 31, 2011. The difference between total VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation.
(in millions)March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
Assets      
Trading assets$14,783
 $12,079
$12,774
 $12,079
Loans81,032
 86,754
80,478
 86,754
All other assets2,269
 2,638
2,367
 2,638
Total assets$98,084
 $101,471
$95,619
 $101,471
Liabilities      
Beneficial interests issued by consolidated variable interest entities$67,750
 $65,977
$55,053
 $65,977
All other liabilities1,480
 1,487
1,442
 1,487
Total liabilities$69,230
 $67,464
$56,495
 $67,464
The assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan Chase. At both March 31,June 30, 2012, and December 31, 2011, the Firm provided limited program-wide credit enhancement of $3.1 billion related to its Firm-administered multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 15 on pages 137–144177–184 of this Form 10-Q.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

87114

JPMorgan Chase & Co.
Consolidated statements of changes in stockholders’ equity (unaudited)
 Three months ended March 31, Six months ended June 30,
(in millions, except per share data) 2012 2011 2012 2011
Preferred stock        
Balance at January 1 and March 31 $7,800
 $7,800
Balance at January 1 and June 30 $7,800
 $7,800
Common stock        
Balance at January 1 and March 31 4,105
 4,105
Balance at January 1 and June 30 4,105
 4,105
Capital surplus        
Balance at January 1 95,602
 97,415
 95,602
 97,415
Shares issued and commitments to issue common stock for employee stock-based compensation awards, and related tax effects (1,532) (2,755) (1,163) (2,351)
Balance at March 31 94,070
 94,660
Other (238) (3)
Balance at June 30 94,201
 95,061
Retained earnings        
Balance at January 1 88,315
 73,998
 88,315
 73,998
Net income 5,383
 5,555
 9,884
 10,986
Dividends declared:        
Preferred stock (157) (157) (315) (315)
Common stock ($0.30 and $0.25 per share)
 (1,194) (1,054)
Balance at March 31 92,347
 78,342
Accumulated other comprehensive income/(loss)    
Common stock ($0.60 and $0.50 per share)
 (2,366) (2,057)
Balance at June 30 95,518
 82,612
Accumulated other comprehensive income    
Balance at January 1 944
 1,001
 944
 1,001
Other comprehensive income/(loss) 1,701
 (289)
Balance at March 31 2,645
 712
Other comprehensive income 1,328
 637
Balance at June 30 2,272
 1,638
Shares held in RSU Trust, at cost        
Balance at January 1 and March 31 (38) (53)
Balance at January 1 and June 30 (38) (53)
Treasury stock, at cost        
Balance at January 1 (13,155) (8,160) (13,155) (8,160)
Purchase of treasury stock (216) (95) (1,415) (3,575)
Reissuance from treasury stock 2,170
 3,287
 2,284
 3,451
Balance at March 31 (11,201) (4,968)
Balance at June 30 (12,286) (8,284)
Total stockholders’ equity $189,728
 $180,598
 $191,572
 $182,879
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.



88115

JPMorgan Chase & Co.
Consolidated statements of cash flows (unaudited)
Three months ended March 31,Six months ended June 30,
(in millions)2012 20112012 2011
Operating activities      
Net income$5,383
 $5,555
$9,884
 $10,986
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:      
Provision for credit losses726
 1,169
940
 2,979
Depreciation and amortization1,039
 1,057
2,065
 2,123
Amortization of intangibles193
 217
384
 429
Deferred tax benefit(444) (214)1,470
 679
Investment securities gains(536) (102)(1,550) (939)
Stock-based compensation832
 830
1,441
 1,557
Originations and purchases of loans held-for-sale(9,227) (22,920)(14,867) (41,637)
Proceeds from sales, securitizations and paydowns of loans held-for-sale6,835
 21,773
17,026
 42,444
Net change in:      
Trading assets(4,842) (5,451)28,987
 34,934
Securities borrowed6,826
 4,596
4,267
 2,095
Accrued interest and accounts receivable(3,100) (9,051)(5,972) (10,151)
Other assets(958) 3,673
(3,412) 1,172
Trading liabilities4,113
 (13,879)8,662
 (7,627)
Accounts payable and other liabilities353
 2,396
2,768
 12,993
Other operating adjustments(2,927) 4,372
(5,844) 6,688
Net cash provided by/(used in) operating activities4,266
 (5,979)
Net cash provided by operating activities46,249
 58,725
Investing activities      
Net change in:      
Deposits with banks(29,749) (59,164)(45,149) (148,193)
Federal funds sold and securities purchased under resale agreements(5,218) 5,080
(19,701) 9,195
Held-to-maturity securities:      
Proceeds1
 2
2
 3
Available-for-sale securities:      
Proceeds from maturities32,279
 20,591
63,411
 39,902
Proceeds from sales19,971
 4,373
55,389
 42,994
Purchases(63,368) (39,679)(105,166) (83,322)
Proceeds from sales and securitizations of loans held-for-investment1,375
 1,560
3,696
 7,755
Other changes in loans, net(176) 1,574
(17,192) (14,133)
Net cash used in business acquisitions or dispositions(30) (15)
Net cash received/(used) in business acquisitions or dispositions90
 (14)
All other investing activities, net(447) (132)(1,342) 6
Net cash used in investing activities(45,362) (65,810)(65,962) (145,807)
Financing activities      
Net change in:      
Deposits(4,354) 56,230
(11,165) 110,896
Federal funds purchased and securities loaned or sold under repurchase agreements36,953
 8,835
48,098
 (22,499)
Commercial paper and other borrowed funds4,266
 13,294
(1,088) 12,669
Beneficial interests issued by consolidated variable interest entities2,168
 223
(5,698) (566)
Proceeds from long-term borrowings and trust preferred capital debt securities14,527
 17,056
27,242
 36,855
Payments of long-term borrowings and trust preferred capital debt securities(16,713) (27,250)(48,222) (42,132)
Excess tax benefits related to stock-based compensation276
 765
283
 776
Treasury stock and warrants repurchased(216) (95)(1,653) (3,575)
Dividends paid(1,024) (246)(2,493) (1,565)
All other financing activities, net(531) (1,484)(437) (1,534)
Net cash provided by financing activities35,352
 67,328
4,867
 89,325
Effect of exchange rate changes on cash and due from banks1,525
 363
110
 656
Net decrease in cash and due from banks(4,219) (4,098)
Net (decrease)/increase in cash and due from banks(14,736) 2,899
Cash and due from banks at the beginning of the period59,602
 27,567
59,602
 27,567
Cash and due from banks at the end of the period$55,383
 $23,469
$44,866
 $30,466
Cash interest paid$3,050
 $3,618
$5,805
 $7,544
Cash income taxes (refunded)/paid, net(467) 716
Cash income taxes paid, net844
 4,753
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.




89116

See Glossary of Terms on pages 168–171212–218 of this Form 10-Q for definitions of terms used throughout the Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1 – Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity. For a discussion of the Firm’s business segments, see Note 24 on pages 163–165206–208 of this Form
Form 10-Q.
The accounting and financial reporting policies of JPMorgan Chase and its subsidiaries conform to accounting principles generally accepted in the U.S. (“U.S. GAAP”). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by regulatory authorities.
The unaudited consolidated financial statements prepared in conformity with U.S. GAAP require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense, and the disclosures of contingent assets and liabilities. Actual results could be different from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements, and related notes thereto, included in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the U.S. Securities and Exchange Commission (the “2011 Annual Report”).
Certain amounts reported in prior periods have been reclassified to conform to the current presentation.
Restatement of first quarter 2012 previously-filed interim financial statements
The Firm restated its previously-filed interim financial statements for the quarterly period ended March 31, 2012. The restatement related to valuations of certain positions in the synthetic credit portfolio held by the Firm’s Chief Investment Office (“CIO”) and reduced the Firm’s reported net income by $459 million for the three months ended March 31, 2012. The restatement had no impact on any of the Firm’s Consolidated Financial Statements as of June 30, 2012, and December 31, 2011, or for the three and six months ended June 30, 2012 and 2011. In addition, the restatement had no impact on the Firm’s basic and diluted earnings per common share for the three and six months ended June 30, 2012 and 2011.

Note 2 – Business changes and developments
Increase in common stock dividend
On March 13, 2012, the Board of Directors increased the Firm’s quarterly common stock dividend from $0.25 to $0.30 per share, effective with the dividend paid on April 30, 2012, to shareholders of record on April 5, 2012.
Common equity repurchases
On March 13, 2012, the Board of Directors authorized a $15.0 billion common equity (i.e., common stock and warrants) repurchase program, of which $12.0 billion is approved for repurchase in 2012. The $15.0 billion repurchase program supersedes a $15.0 billion repurchase program approved in 2011.2011. The $15.0 billion authorization
includes shares to be repurchased to offset issuances under the Firm’s employee stock-based incentive plans.
For additional information on repurchases see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on pages 175–176222–223 of this Form 10-Q.10-Q.
Global settlement on servicing and origination of mortgages
On February 9, 2012, the Firm announced that it had agreed to a settlement in principle (the “global settlement”) with a number of federal and state government agencies, including the U.S. Department of Justice (“DOJ”), the U.S. Department of Housing and Urban Development, the Consumer Financial Protection Bureau and the State Attorneys General, relating to the servicing and origination of mortgages. The global settlement, which was effectively finalized in the first quarter of 2012, pursuant to the execution of a definitive agreement and subsequent receipt of court approvalbecame effective on April 5, 2012, calls for the Firm to, among other things: (i) make cash payments of approximately $1.1 billion (a, a portion of which will be set aside for payments to borrowers ("(“Cash Settlement Payment")Payment”); (ii) provide approximately $500 million of refinancing relief to certain “underwater” borrowers whose loans are owned and serviced by the Firm (“Refi Program”); and (iii) provide approximately $3.7 billion of additional relief for certain borrowers, including reductions of principal on first and second liens, payments to assist with short sales, deficiency balance waivers on past foreclosures and short sales, and forbearance assistance for unemployed homeowners (“Consumer Relief Program”). In addition, the global settlement requires the Firm to adhere to certain enhanced mortgage servicing standards. The Cash Settlement Payment was made on April 13, 2012.
As the Firm performs refinancings under the Refi Program and provides relief to borrowers under the Consumer Relief Program, the Firm will receive credits that will reduce its remaining obligation under each of these programs. If the Firm does not meet certain targets set forth in the global settlement agreement for performing suchproviding either refinancings and/under the Refi Program or for providing other borrower relief under the


117

Consumer Relief Program within certain prescribed time periods, the Firm wouldmust instead be required to make an additional cash payment based upon the unmet settlement obligation.payments. In general, 75% of the targets must be met within two years of the date of the global settlement and 100% must be achieved within three years. Asyears of March 31, 2012,that date. The Firm expects to file its first quarterly report concerning its compliance with the Firm had onlyglobal settlement with the Office of Mortgage Settlement Oversight in November 2012. The report will include information regarding refinancings completed under the Refi Program and relief provided to borrowers under the Consumer Relief Program, as well as credits earned a nominal amount of credits in satisfaction of its obligationsby the Firm under the global settlement.settlement as a result of performing such actions.


90

The global settlement releases the Firm from certain further claims by participating government entities related to servicing activities, including foreclosures and loss mitigation activities; certain origination activities; and certain bankruptcy-related activities. Not included in the global settlement are any claims arising out of securitization activities, including representations made to investors respecting mortgage-backed securities (“MBS”);securities; criminal claims; and repurchase demands from the GSEs, among other items.
Also on February 9, 2012, the Firm entered into agreements with the Board of Governors of the Federal Reserve System (“Federal Reserve”) and the Office of the Comptroller of the Currency (“OCC”) for the payment of civil money penalties related to conduct that was the subject of consent orders entered into with the banking regulators in April 2011. The Firm’s payment obligations under those agreements will be deemed satisfied by the Firm’s payments and provisions of relief under the global settlement.
While the Firm expects to incur additional operating costs to comply with portions of the global settlement, including the enhanced servicing standards, the Firm’s prior period2011 results of operations have reflected the estimated costs of the global settlement. Accordingly, the financial impact of the global settlement on thethe Firm’s financial condition and results of operations for the first quarter ofsix months ended June 30, 2012, was not material. For further information on this global settlement, see Loans in Note 13 on pages 118–135153–175 and Mortgage Foreclosure Investigations and Litigation in Note 23 on pages 154–163page 203 of this Form 10-Q.
 
Washington Mutual, Inc. bankruptcy plan confirmation
On February 17, 2012, a bankruptcy court confirmed the joint plan containing the global settlement agreement resolving numerous disputes among Washington Mutual, Inc. (“WMI”), JPMorgan Chase and the Federal Deposit Insurance Corporation (“FDIC”) as well as significant creditor groups (the “WaMu Global Settlement”). The WaMu Global Settlement was finalized on March 19, 2012, pursuant to the execution of a definitive agreement and court approval, and the Firm recognized additional assets, including certain pension-related assets, as well as tax refunds, resulting in a pretax gain of $1.1 billion for the three months ended March 31, 2012. For additional information related to the WaMu Global Settlement, see Washington Mutual Litigations in Note 23 on pages 154–163 page 205 of this Form 10-Q.

Subsequent events
Interchange litigation settlement
In July 2012, the Firm signed a memorandum of understanding to enter into a settlement agreement to resolve the claims of a group of U.S. merchant and retail associations regarding credit card interchange rules and fees. The settlement agreement provides, among other things, that a cash payment of $6.05 billion will be made to the plaintiffs, of which the Firm’s share is approximately 20%. The plaintiffs will also receive an amount equal to ten basis points of interchange for a period of eight months. The eight month period will begin after the court preliminarily approves the settlement agreement. The settlement agreement also provides for modifications to the credit card networks’ (e.g., Visa and MasterCard) rules, including those that prohibit surcharging credit transactions. The settlement agreement is subject to court approval. The Firm expects that the financial impact of the proposed settlement on the Firm’s financial condition and results of operations for the third quarter of 2012 and future periods will not be material. For additional information on this settlement agreement, see Interchange Litigation in Note 23 on page 199 of this Form 10-Q.
Business segment changes
On July 27, 2012, the Firm announced that it will be reorganizing its business segments to reflect the manner in which the segments will be managed. As a result, Retail Financial Services (“RFS”) and Card Services & Auto (“Card”) businesses will be combined to form the Consumer & Community Banking segment. The Investment Bank (“IB”) and Treasury & Securities Services (“TSS”) businesses will be combined to form the Corporate & Investment Bank segment. Asset Management (“AM”) and Commercial Banking (“CB”) will remain unchanged. In addition, Corporate/Private Equity will not be affected.



118

Note 3 – Fair value measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation process
The Firm has an established and well-documented process for determining fair values.
Risk-taking functions are responsible for providing fair value estimates for assets and liabilities carried on the Consolidated Balance Sheet at fair value. A valuation control function, which is independent of the risk-taking function, verifies the fair value estimates leveraging independently derived prices, valuation inputs and other market data, where available.
Where independent prices or inputs are not available, additional review is performed by the valuation control function to ensure the reasonableness of information that cannot be verified to external independent data, and may include: evaluating the limited market activity including client unwinds; benchmarking of valuations inputs to those for similar instruments; decomposition of the valuation of structured instruments into individual components; comparing expected to actual cash flows; review of detailed profit and loss components, which are analyzed over time; review of trends in collateral valuation; and additional levels of management review for larger, more complex holdings.
The valuation control function is also responsible for determining any valuation adjustments that may be required, based on market conditions and other specific facts and circumstances, to ensure that the Firm’s positions are recorded at fair value. Judgment is required to assess the need for valuation adjustments to appropriately reflect counterparty credit quality; the Firm’s creditworthiness; liquidity considerations; unobservable parameters; and, for certain portfolios that meet specified criteria, the size of the net open risk position. The determination of such adjustments follows a consistent framework across the Firm.
Valuation model review and approval
If prices or quotes are not available for an instrument or a similar instrument, fair value is generally determined using valuation models that consider relevant transaction data such as maturity and use as inputs market-based or independently sourced parameters. Where this is the case the price verification process described above is applied to the inputs to those models.
The Firm’s Model Review Group within the Firm’s Model Risk and Development Group, which in turn reports to the Chief Risk Officer, is responsible for reviewing and approving valuation models used by the Firm. Model reviews consider a number of factors about the model’s suitability for valuation of a particular product including whether it accurately reflects the significant risk characteristics of a particular product; the selection and reliability of model inputs; consistency with models for similar products; the appropriateness of any model-related adjustments; and sensitivity to input parameters and assumptions that cannot be observed from the market. In addition, the model reviews consider the reasonableness of model methodology and assumptions, and additional testing is conducted, including back-testing of model outcomes.
All new significant valuation models, as well as major changes to existing models, are reviewed and approved prior to implementation except where specified conditions are met. Previously approved models are reviewed and re-approved periodically.
For a further discussion of the Firm’s valuation methodologies for assets, liabilities and lending-related commitments measured at fair value and the fair value hierarchy, see Note 3 on pages 184–198184-198 of JPMorgan Chase’s 2011 Annual Report.




91119

The following table presents the asset and liabilities reported at fair value as of March 31,June 30, 2012, and December 31, 2011, by major product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy  Fair value hierarchy  
March 31, 2012 (in millions)
Level 1(h)
Level 2(h)
 
Level 3(h)
 Netting adjustmentsTotal fair value
June 30, 2012 (in millions)
Level 1(h)
Level 2(h)
 
Level 3(h)
 Netting adjustmentsTotal fair value
Federal funds sold and securities purchased under resale agreements$—
$26,259
 $—
 $—
$26,259
$—
$32,862
 $—
 $—
$32,862
Securities borrowed—
12,519
 —
 —
12,519
—
11,518
 —
 —
11,518
Trading assets:          
Debt instruments:          
Mortgage-backed securities:          
U.S. government agencies(a)
23,458
5,712
 79
 —
29,249
28,330
7,089
 70
 —
35,489
Residential – nonagency—
2,753
 699
 —
3,452
—
2,468
 671
 —
3,139
Commercial – nonagency—
833
 1,451
 —
2,284
—
884
 1,357
 —
2,241
Total mortgage-backed securities23,458
9,298
 2,229
 —
34,985
28,330
10,441
 2,098
 —
40,869
U.S. Treasury and government agencies(a)
20,011
6,948
 —
 —
26,959
18,465
9,462
 —
 —
27,927
Obligations of U.S. states and municipalities—
15,809
 1,747
 —
17,556
—
15,454
 1,459
 —
16,913
Certificates of deposit, bankers’ acceptances and commercial paper—
4,456
 —
 —
4,456
—
3,741
 —
 —
3,741
Non-U.S. government debt securities24,780
39,654
 81
 —
64,515
22,144
34,042
 70
 —
56,256
Corporate debt securities—
36,309
 5,463
 —
41,772
—
29,312
 5,234
 —
34,546
Loans(b)
—
21,361
 11,144
 —
32,505
—
23,941
 10,915
 —
34,856
Asset-backed securities—
3,939
 7,434
 —
11,373
—
4,195
 6,809
 —
11,004
Total debt instruments68,249
137,774
 28,098
 —
234,121
68,939
130,588
 26,585
 —
226,112
Equity securities111,450
3,339
 1,248
 —
116,037
80,492
3,238
 1,236
 —
84,966
Physical commodities(c)
11,604
5,565
 —
 —
17,169
13,189
4,169
 —
 —
17,358
Other—
2,303
 993
 —
3,296
—
2,390
 955
 —
3,345
Total debt and equity instruments(d)
191,303
148,981
 30,339
 —
370,623
162,620
140,385
 28,776
 —
331,781
Derivative receivables:          
Interest rate782
1,259,624
 6,129
 (1,225,015)41,520
758
1,369,030
 6,816
 (1,331,123)45,481
Credit—
114,759
 11,796
 (119,930)6,625
—
125,372
 10,886
 (131,790)4,468
Foreign exchange718
136,858
 4,039
 (128,559)13,056
2,392
127,174
 3,980
 (120,564)12,982
Equity—
44,317
 5,054
 (40,376)8,995
—
45,239
 4,135
 (41,271)8,103
Commodity367
55,496
 2,512
 (43,194)15,181
386
47,160
 2,186
 (35,223)14,509
Total derivative receivables(e)
1,867
1,611,054
 29,530
 (1,557,074)85,377
3,536
1,713,975
 28,003
 (1,659,971)85,543
Total trading assets193,170
1,760,035
 59,869
 (1,557,074)456,000
166,156
1,854,360
 56,779
 (1,659,971)417,324
Available-for-sale securities:          
Mortgage-backed securities:          
U.S. government agencies(a)
90,898
13,420
 —
 —
104,318
86,375
9,580
 —
 —
95,955
Residential – nonagency—
77,511
 31
 —
77,542
—
72,482
 266
 —
72,748
Commercial – nonagency—
11,386
 180
 —
11,566
—
11,023
 169
 —
11,192
Total mortgage-backed securities90,898
102,317
 211
 —
193,426
86,375
93,085
 435
 —
179,895
U.S. Treasury and government agencies(a)
8,084
3,683
 —
 —
11,767
8,143
3,600
 —
 —
11,743
Obligations of U.S. states and municipalities36
19,048
 258
 —
19,342
36
20,317
 187
 —
20,540
Certificates of deposit—
3,044
 —
 —
3,044
—
2,993
 —
 —
2,993
Non-U.S. government debt securities28,559
24,128
 —
 —
52,687
33,841
19,762
 —
 —
53,603
Corporate debt securities—
60,395
 —
 —
60,395
—
45,615
 —
 —
45,615
Asset-backed securities:          
Collateralized loan obligations—
—
 25,239
 —
25,239
—
—
 25,553
 —
25,553
Other—
13,117
 209
 —
13,326
—
11,894
 139
 —
12,033
Equity securities2,467
38
 —
 —
2,505
2,572
38
 —
 —
2,610
Total available-for-sale securities130,044
225,770
 25,917
 —
381,731
130,967
197,304
 26,314
 —
354,585
Loans—
522
 1,766
 —
2,288
—
490
 2,520
 —
3,010
Mortgage servicing rights—
—
 8,039
 —
8,039
—
—
 7,118
 —
7,118
Other assets:          
Private equity investments(f)
316
573
 6,739
 —
7,628
398
472
 6,702
 —
7,572
All other4,867
229
 4,397
 —
9,493
4,312
218
 4,448
 —
8,978
Total other assets5,183
802
 11,136
 —
17,121
4,710
690
 11,150
 —
16,550
Total assets measured at fair value on a recurring basis$328,397
$2,025,907
(g) 
$106,727
(g) 
$(1,557,074)$903,957
$301,833
$2,097,224
(g) 
$103,881
(g) 
$(1,659,971)$842,967
Deposits$—
$3,617
 $1,651
 $—
$5,268
$—
$3,434
 $1,876
 $—
$5,310
Federal funds purchased and securities loaned or sold under repurchase agreements—
13,241
 —
 —
13,241
—
15,523
 —
 —
15,523
Other borrowed funds—
8,920
 1,233
 —
10,153
—
9,654
 1,107
 —
10,761
Trading liabilities:     

     

Debt and equity instruments(d)
56,596
14,660
 273
 —
71,529
54,598
15,854
 360
 —
70,812
Derivative payables:     

     

Interest rate698
1,220,935
 2,891
 (1,200,289)24,235
891
1,329,012
 3,124
 (1,303,453)29,574
Credit—
117,998
 6,988
 (118,283)6,703
—
128,867
 6,438
 (130,355)4,950
Foreign exchange767
147,519
 5,099
 (137,851)15,534
1,953
137,826
 5,468
 (128,020)17,227
Equity—
41,903
 7,883
 (36,877)12,909
—
40,634
 6,118
 (37,150)9,602
Commodity264
57,108
 3,112
 (45,391)15,093
336
50,098
 2,169
 (37,707)14,896
Total derivative payables(e)
1,729
1,585,463
 25,973
 (1,538,691)74,474
3,180
1,686,437
 23,317
 (1,636,685)76,249
Total trading liabilities58,325
1,600,123
 26,246
 (1,538,691)146,003
57,778
1,702,291
 23,677
 (1,636,685)147,061
Accounts payable and other liabilities—
—
 46
 —
46
—
—
 42
 —
42
Beneficial interests issued by consolidated VIEs—
160
 841
 —
1,001
—
243
 745
 —
988
Long-term debt—
25,920
 9,553
 —
35,473
—
22,801
 8,856
 —
31,657
Total liabilities measured at fair value on a recurring basis$58,325
$1,651,981
 $39,570
 $(1,538,691)$211,185
$57,778
$1,753,946
 $36,303
 $(1,636,685)$211,342

92120




 Fair value hierarchy   
December 31, 2011 (in millions)
Level 1(h)
Level 2(h)
 
Level 3(h)
 Netting adjustmentsTotal fair value
Federal funds sold and securities purchased under resale agreements$—
$24,891
 $—
 $—
$24,891
Securities borrowed—
15,308
 —
 —
15,308
Trading assets:       
Debt instruments:       
Mortgage-backed securities:       
U.S. government agencies(a)
27,082
7,801
 86
 —
34,969
Residential – nonagency—
2,956
 796
 —
3,752
Commercial – nonagency—
870
 1,758
 —
2,628
Total mortgage-backed securities27,082
11,627
 2,640
 —
41,349
U.S. Treasury and government agencies(a)
11,508
8,391
 —
 —
19,899
Obligations of U.S. states and municipalities—
15,117
 1,619
 —
16,736
Certificates of deposit, bankers’ acceptances and commercial paper—
2,615
 —
 —
2,615
Non-U.S. government debt securities18,618
40,080
 104
 —
58,802
Corporate debt securities—
33,938
 6,373
 —
40,311
Loans(b)
—
21,589
 12,209
 —
33,798
Asset-backed securities—
2,406
 7,965
 —
10,371
Total debt instruments57,208
135,763
 30,910
 —
223,881
Equity securities93,799
3,502
 1,177
 —
98,478
Physical commodities(c)
21,066
4,898
 —
 —
25,964
Other—
2,283
 880
 —
3,163
Total debt and equity instruments(d)
172,073
146,446
 32,967
 —
351,486
Derivative receivables:       
Interest rate1,324
1,433,469
 6,728
 (1,395,152)46,369
Credit—
152,569
 17,081
 (162,966)6,684
Foreign exchange833
162,689
 4,641
 (150,273)17,890
Equity—
43,604
 4,132
 (40,943)6,793
Commodity4,561
50,409
 2,459
 (42,688)14,741
Total derivative receivables(e)
6,718
1,842,740
 35,041
 (1,792,022)92,477
Total trading assets178,791
1,989,186
 68,008
 (1,792,022)443,963
Available-for-sale securities:       
Mortgage-backed securities:       
U.S. government agencies(a)
92,426
14,681
 —
 —
107,107
Residential – nonagency—
67,554
 3
 —
67,557
Commercial – nonagency—
10,962
 267
 —
11,229
Total mortgage-backed securities92,426
93,197
 270
 —
185,893
U.S. Treasury and government agencies(a)
3,837
4,514
 —
 —
8,351
Obligations of U.S. states and municipalities36
16,246
 258
 —
16,540
Certificates of deposit—
3,017
 —
 —
3,017
Non-U.S. government debt securities25,381
19,884
 —
 —
45,265
Corporate debt securities—
62,176
 —
 —
62,176
Asset-backed securities:       
Collateralized loan obligations—
116
 24,745
 —
24,861
Other—
15,760
 213
 —
15,973
Equity securities2,667
38
 —
 —
2,705
Total available-for-sale securities124,347
214,948
 25,486
 —
364,781
Loans—
450
 1,647
 —
2,097
Mortgage servicing rights—
—
 7,223
 —
7,223
Other assets:       
Private equity investments(f)
99
706
 6,751
 —
7,556
All other4,336
233
 4,374
 —
8,943
Total other assets4,435
939
 11,125
 —
16,499
Total assets measured at fair value on a recurring basis$307,573
$2,245,722
(g) 
$113,489
(g) 
$(1,792,022)$874,762
Deposits$—
$3,515
 $1,418
 $—
$4,933
Federal funds purchased and securities loaned or sold under repurchase agreements—
9,517
 —
 —
9,517
Other borrowed funds—
8,069
 1,507
 —
9,576
Trading liabilities:       
Debt and equity instruments(d)
50,830
15,677
 211
 —
66,718
Derivative payables:       
Interest rate1,537
1,395,113
 3,167
 (1,371,807)28,010
Credit—
155,772
 9,349
 (159,511)5,610
Foreign exchange846
159,258
 5,904
 (148,573)17,435
Equity—
39,129
 7,237
 (36,711)9,655
Commodity3,114
53,684
 3,146
 (45,677)14,267
Total derivative payables(e)
5,497
1,802,956
 28,803
 (1,762,279)74,977
Total trading liabilities56,327
1,818,633
 29,014
 (1,762,279)141,695
Accounts payable and other liabilities—
—
 51
 —
51
Beneficial interests issued by consolidated VIEs—
459
 791
 —
1,250
Long-term debt—
24,410
 10,310
 —
34,720
Total liabilities measured at fair value on a recurring basis$56,327
$1,864,603
 $43,091
 $(1,762,279)$201,742
(a)
At March 31,June 30, 2012, and December 31, 2011, included total U.S. government-sponsored enterprise obligations of $112.9115.1 billion and $122.4 billion respectively, which were predominantly mortgage-related.

93121

(b)
At March 31,June 30, 2012, and December 31, 2011, included within trading loans were $19.821.8 billion and $20.1 billion, respectively, of residential first-lien mortgages, and $2.42.0 billion and $2.0 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government agencies of $10.812.7 billion and $11.0 billion, respectively, and reverse mortgages of $3.9 billion and $4.0 billion, respectively.
(c)Physical commodities inventories are generally accounted for at the lower of cost or market. “Market” is a term defined in U.S. GAAP as not exceeding fair value subjectless costs to anysell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, adjustments.the cost basis is adjusted for changes in fair value. For a further discussion of ourthe Firm’s hedge accounting relationships, see Note 5 Derivative Instruments, on pages 103–109136–144 of this Form 10-Q. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
(d)Balances reflect the reduction of securities owned (long positions) by the amount of securities sold but not yet purchased (short positions) when the long and short positions have identical Committee on Uniform Security Identification Procedures numbers (“CUSIPs”).
(e)
As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset or liability. Therefore, the balances reported in the fair value hierarchy table are gross of any counterparty netting adjustments. However, if the Firm were to net such balances within level 3, the reduction in the level 3 derivative receivablereceivables and payablepayables balances would be $10.48.4 billion and $11.7 billion at March 31,June 30, 2012, and December 31, 2011, respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances.
(f)
Private equity instruments represent investments within the Corporate/Private Equity line of business. The cost basis of the private equity investment portfolio totaled $9.28.2 billion and $9.5 billion at March 31,June 30, 2012, and December 31, 2011, respectively.
(g)
Includes investments in hedge funds, private equity funds, real estate and other funds that do not have readily determinable fair values. The Firm uses net asset value per share when measuring the fair value of these investments. At March 31,June 30, 2012, and December 31, 2011, the fair values of these investments were $5.15.3 billion and $5.5 billion, respectively, of which $1.11.3 billion and $1.2 billion, respectively were classified in level 2, and $4.0 billion and $4.3 billion, respectively, in level 3.
(h)
For the three and six months ended March 31,June 30, 2012 and 2011, there were no significant transfers between levels 1 and 2.2 and from level 2 into level 3. For the threesix months ended March 31,June 30, 2012, transfers from level 3 into level 2 included $1.2 billion of equity derivative payables based on increased observability of certain structured equity derivatives and $1.3 billion of long-term debt due to a decrease in valuation uncertainty of certain equity structured notes, andnotes. There were no significant transfers from level 23 into level 3 were not significant. For2 during the three months ended March 31,June 30, 2012. For the three and six months ended June 30, 2011, the transfers between levelsfrom level 3 into level 2 and 3 were not significant. All transfers are assumed to occur at the beginning of the reporting period.

Level 3 valuations
The Firm has established and well-documented processes for determining fair value, including for instruments where fair value is estimated using significant unobservable inputs (level 3). For further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments, see Note 3 on pages 184-198 of JPMorgan Chase’s 2011 Annual Report.
Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed models that use significant unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate model to use. Second, due to the lack of observability of significant inputs, management must assess all relevant empirical data in deriving valuation inputs — including, but not limited to, transaction details, yield curves, interest rates, prepayment rates, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves. Finally, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the Firm’s credit worthiness, constraints on liquidity and unobservable
parameters, where relevant. The judgments made are typically affected by the type of product and its specific contractual terms, and the level of liquidity for the product or within the market as a whole.
The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, and the significant unobservable inputs and the range of values for those inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative of the highest and lowest level input used to value the significant instruments within a classification. The input range does not reflect the level of input uncertainty, instead it is driven by the different underlying characteristics of the various instruments within the classification.
For more information on valuation inputs and control, see Note 3 on pages 184-198 of JPMorgan Chase’s 2011 Annual Report.



122

Level 3 inputs(a)
June 30, 2012 (in millions, except for ratios and basis points)    
Product/InstrumentFair valuePrincipal valuation techniqueUnobservable inputsRange of input values
Residential mortgage-backed securities and loans$9,625
Discounted cash flowsYield5 %-20%
  Prepayment speed0 %-25%
   Conditional default rate0 %-75%
   Loss severity0 %-75%
Commercial mortgage-backed securities and loans(b)
2,092
Discounted cash flowsYield5 %-35%
  Prepayment speed0 %-5%
   Conditional default rate0 %-50%
   Loss severity0 %-40%
Corporate debt securities, obligations of U.S. states and municipalities, and other(c)
19,507
Discounted cash flowsCredit spread130 bps
-250 bps
  Yield1 %-30%
  Market comparablesPrice20
-115
Net interest rate derivatives3,692
Option pricingInterest rate correlation(75)%-100%
   Interest rate spread volatility0 %-60%
Net credit derivatives(b)
4,448
Discounted cash flowsCredit correlation20 %-90%
Net foreign exchange derivatives(1,488)Option pricingForeign exchange correlation(75)%-40%
Net equity derivatives(1,983)Option pricingEquity volatility10 %-60%
Net commodity derivatives17
Option pricingCommodity volatility30 %-50%
Collateralized loan obligations(d)
30,834
Discounted cash flowsDefault correlation99%
   Credit spread140 bps
-1000 bps
   Prepayment speed20%
   Conditional default rate2 %-75%
   Loss severity40%-100%
Mortgage servicing rights (“MSRs”)7,118
Discounted cash flowsRefer to Note 16 on pages 184–187 of this Form 10-Q.
Private equity direct investments4,797
Market comparablesEBITDA multiple2.7x
-23.3x
   Liquidity adjustment0 %-40%
Private equity fund investments1,905
Net asset value
Net asset value(f)
 
Long-term debt, other borrowed funds, and deposits(e)
11,839
Option pricingInterest rate correlation(75)%-100%
  Foreign exchange correlation(75)%-40%
  Equity correlation(40)%-85%
  Discounted cash flowsCredit correlation20 %-80%
(a)The categories presented in the table have been aggregated based upon product type which may differ from their classification on the Consolidated Balance Sheet.
(b)
The unobservable inputs and associated input ranges for approximately $1.5 billion in credit derivative receivables and $1.4 billion in credit derivative payables with underlying mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and loans.
(c)
Approximately 18% of instruments in this category include price as an unobservable input. This balance includes certain securities and illiquid trading loans, which are generally valued using comparable prices for similar instruments.
(d)
Collateralized loan obligations (“CLOs”) are securities backed by corporate loans. At June 30, 2012, $25.6 billion of CLOs were held in the AFS securities portfolio and $5.2 billion were included in asset-backed securities held in the trading portfolio. Substantially all of the securities are rated “AAA”, “AA” and “A”. For a further discussion of CLOs held in the AFS securities portfolio, see Note 11 on pages 148–152 of this Form 10-Q.
(e)Long-term debt, other borrowed funds, and deposits include structured notes issued by the Firm that are financial instruments containing embedded derivatives. The estimation of the fair value of structured notes is predominantly based on the derivative features embedded within the instruments. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.
(f)The range has not been disclosed due to the wide range of possible values given the diverse nature of the underlying investments.

Changes in unobservable inputs
The following provides a description of the impact on a fair value measurement of a change in an unobservable input, and the interrelationship between unobservable inputs, where relevant and significant. The impact of changes in inputs may not be independent, therefore the descriptions provided below indicate the impact of a change in an input in isolation. Where relationships exist between two unobservable inputs, those relationships are discussed below. Relationships may also exist between observable and
unobservable inputs (for example, as observable interest rates rise, unobservable prepayment rates decline). Such relationships have not been included in the discussion below. In addition, for each of the individual relationships described below, the inverse relationship would also generally apply.


123

Discount rates and spreads
Yield – The yield of an asset is the interest rate used to discount future cash flows in a discounted cash flow calculation. An increase in the yield, in isolation, would result in a decrease in a fair value measurement.
Credit spread – The credit spread is the amount of additional annualized return over the market interest rate that a market participant would demand for taking exposure to the credit risk of an instrument. The credit spread for an instrument forms part of the discount rate used in a discounted cash flow calculation. Generally an increase in the credit spread would result in a decrease in a fair value measurement.
Performance rates of underlying collateral in collateralized obligations (e.g. MBS, CLOs, etc.)
Prepayment speed – The prepayment speed is a measure of the voluntary unscheduled principal repayments of a prepayable obligation in a collateralized pool. Prepayment speeds generally decline as borrower delinquencies rise. An increase in prepayment speeds, in isolation, would result in a decrease in a fair value measurement of assets valued at a premium to par and an increase in a fair value measurement of assets valued at a discount to par.
Conditional default rate – The conditional default rate is a measure of the reduction in the outstanding collateral balance underlying a collateralized obligation as a result of defaults. While there is typically no direct relationship between conditional default rates and prepayment speeds, collateralized obligations for which the underlying collateral have high prepayment speeds will tend to have lower conditional default rates. An increase in conditional default rates would generally be accompanied by an increase in loss severity and an increase in credit spreads. An increase in the conditional default rate, in isolation, would result in a decrease in a fair value measurement.
Loss severity – The loss severity (the inverse of which is termed the recovery rate) is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance. An increase in loss severity is generally accompanied by an increase in conditional default rates. An increase in the loss severity, in isolation, would result in a decrease in a fair value measurement.
Correlation
Correlation is a measure of the relationship between the movements of two variables (e.g., how the change of one
variable influences change in the other). Correlation is a pricing input for a derivative product where the payoff is driven by one or more underlying risks. Correlation inputs are related to the type of derivative (e.g., interest rate, credit, equity and foreign exchange) due to the nature of the underlying risks. When parameters are positively correlated, an increase for one will result in an increase for the other. When parameters are negatively correlated, an increase for one will result in a decrease for the other. An increase in correlation can result in an increase or a decrease in a fair value measurement. Given a short correlation position, an increase in correlation, in isolation, would generally result in a decrease in a fair value measurement.
Default correlation – Default correlation measures whether the loans that collateralize an issued CLO are more likely to default together or separately. An increase in default correlation would result in a decrease in a fair value measurement of a senior tranche in the capital structure of a collateralized obligation.
Volatility
Volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or index changes in value over time. Volatility is a pricing input for options, including equity options, commodity options, and interest rate spread options. Generally, the higher the volatility of the underlying, the riskier the instrument. Given a long position in an option, an increase in volatility, in isolation, would generally result in an increase in a fair value measurement.
EBITDA multiple
EBITDA multiples refer to the input (often derived from the value of a comparable company) that is multiplied by the historic and/or expected earnings before interest, tax, depreciation and amortization (“EBITDA”) of a company in order to estimate the company’s value. An increase in the EBITDA multiple, in isolation, net of adjustments, would result in an increase in a fair value measurement.
Net asset value
Net asset value is the total value of a fund’s assets less liabilities. An increase in net asset value would result in an increase in a fair value measurement.




124

Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated Balance Sheet amounts (including changes in fair value) for financial instruments classified by the Firm within level 3 of the fair value hierarchy for the three and six months ended March 31,June 30, 2012 and 2011. When a determination is made to classify a financial instrument within level 3, the determination is based on the significance of the unobservable parameters to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable
 
components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Also, the Firm risk-manages the observable components of level 3 financial instruments using securities and derivative positions that are classified within level 1 or 2 of the fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains or losses in the following tables do not reflect the effect of the Firm’s risk management activities related to such level 3 instruments.



94125

Fair value measurements using significant unobservable inputs  Fair value measurements using significant unobservable inputs  
Three months ended
March 31, 2012
(in millions)
Fair value at January 1, 2012Total realized/unrealized gains/(losses) 
Transfers into and/or out of level 3(g)
Fair value at
March 31, 2012
Change in unrealized gains/(losses) related to financial instruments held at Mar. 31, 2012
Purchases(f)
Sales Settlements
Three months ended
June 30, 2012
(in millions)
Fair value at April 1, 2012Total realized/unrealized gains/(losses) 
Transfers into and/or out of level 3(g)
Fair value at
June 30, 2012
Change in unrealized gains/(losses) related to financial instruments held at June 30, 2012
Purchases(f)
Sales Settlements
Assets:                
Trading assets:                
Debt instruments:                
Mortgage-backed securities:                
U.S. government agencies$86
$(12) $5
$—
 $—
$—
 $79
 $(5) $79
$(9) $—
$—
 $—
$—
 $70
 $(4) 
Residential – nonagency796
32
 92
(163) (36)(22) 699
 23
 699
19
 87
(95) (39)—
 671
 3
 
Commercial – nonagency1,758
(77) 112
(240) (11)(91) 1,451
 (79) 1,451
30
 18
(89) (44)(9) 1,357
 21
 
Total mortgage-backed securities2,640
(57) 209
(403) (47)(113) 2,229
 (61) 2,229
40
 105
(184) (83)(9) 2,098
 20
 
Obligations of U.S. states and municipalities1,619
(7) 320
(181) (4)—
 1,747
 (9) 1,747
6
 9
(303) —
—
 1,459
 —
 
Non-U.S. government debt securities104
8
 205
(231) (5)—
 81
 1
 81
(5) 138
(129) (15)—
 70
 —
 
Corporate debt securities6,373
258
 2,316
(1,269) (1,967)(248) 5,463
 115
 5,463
(53) 1,620
(1,436) (238)(122) 5,234
 92
 
Loans12,209
156
 901
(673) (945)(504) 11,144
 129
 11,144
139
 1,312
(619) (985)(76) 10,915
 36
 
Asset-backed securities7,965
230
 824
(1,261) (326)2
 7,434
 198
 7,434
(218) 454
(673) (187)(1) 6,809
 (235) 
Total debt instruments30,910
588
 4,775
(4,018) (3,294)(863) 28,098
 373
 28,098
(91) 3,638
(3,344) (1,508)(208) 26,585
 (87) 
Equity securities1,177
(7) 22
(27) (13)96
 1,248
 (12) 1,248
(70) 90
(30) —
(2) 1,236
 (32) 
Other880
153
 35
(44) (31)—
 993
 159
 993
1
 15
(4) (50)—
 955
 1
 
Total trading assets – debt and equity instruments32,967
734
(b) 
4,832
(4,089) (3,338)(767) 30,339
 520
(b) 
30,339
(160)
(b) 
3,743
(3,378) (1,558)(210) 28,776
 (118)
(b) 
Net derivative receivables:                
Interest rate3,561
1,328
 109
(68) (1,344)(348) 3,238
 580
 3,238
2,027
 191
(30) (1,711)(23) 3,692
 845
 
Credit7,732
(2,354) 78
(18) (630)—
 4,808
 (2,228) 4,808
168
 26
(25) (530)1
 4,448
 249
 
Foreign exchange(1,263)127
 19
(158) 218
(3) (1,060) 89
 (1,060)(632) 26
(20) 201
(3) (1,488) (594) 
Equity(3,105)(720) 333
(383) (9)1,055
 (2,829) (880) (2,829)885
 520
(695) 108
28
 (1,983) 479
 
Commodity(687)6
 53
(6) 23
11
 (600) 1
 (600)(86) (14)71
 622
24
 17
 (31) 
Total net derivative receivables6,238
(1,613)
(b) 
592
(633) (1,742)715
 3,557
 (2,438)
(b) 
3,557
2,362
(b) 
749
(699) (1,310)27
 4,686
 948
(b) 
Available-for-sale securities:                
Asset-backed securities24,958
3
 1,321
(498) (452)116
 25,448
 2
 25,448
(339) 1,849
(649) (617)—
 25,692
 (354) 
Other528
8
 28
(20) (75)—
 469
 5
 469
24
 233
(93) (11)—
 622
 2
 
Total available-for-sale securities25,486
11
(c) 
1,349
(518) (527)116
 25,917
 7
(c) 
25,917
(315)
(c) 
2,082
(742) (628)—
 26,314
 (352)
(c) 
Loans1,647
30
(b) 
127
—
 (119)81
 1,766
 27
(b) 
1,766
546
(b) 
580
—
 (372)—
 2,520
 536
(b) 
Mortgage servicing rights7,223
596
(d) 
573
—
 (353)—
 8,039
 596
(d) 
8,039
(1,119)
(d) 
526
—
 (328)—
 7,118
 (1,119)
(d) 
Other assets:                
Private equity investments6,751
252
(b) 
111
(236) (139)—
 6,739
 167
(b) 
6,739
35
(b) 
348
(6) (368)(46) 6,702
 305
(b) 
All other4,374
(164)
(e) 
356
(19) (150)—
 4,397
 (177)
(e) 
4,397
(59)
(e) 
276
(73) (93)—
 4,448
 (52)
(e) 
                
Fair value measurements using significant unobservable inputs  Fair value measurements using significant unobservable inputs  
Three months ended
March 31, 2012
(in millions)
Fair value at January 1, 2012Total realized/unrealized (gains)/losses 
Transfers into and/or out of level 3(g)
Fair value at
Mar. 31, 2012
Change in unrealized (gains)/losses related to financial instruments held at Mar. 31, 2012
Purchases(f)
SalesIssuancesSettlements
Three months ended
June 30, 2012
(in millions)
Fair value at April 1, 2012Total realized/unrealized (gains)/losses 
Transfers into and/or out of level 3(g)
Fair value at
June 30, 2012
Change in unrealized (gains)/losses related to financial instruments held at June 30, 2012
Purchases(f)
SalesIssuancesSettlements
Liabilities:(a)
                
Deposits$1,418
$131
(b) 
$—
$—
$351
$(136)$(113) $1,651
 $129
(b) 
$1,651
$35
(b) 
$—
$—
$357
$(96)$(71) $1,876
 $34
(b) 
Other borrowed funds1,507
196
(b) 
—
—
384
(845)(9) 1,233
 151
(b) 
1,233
(205)
(b) 
—
—
425
(333)(13) 1,107
 (161)
(b) 
Trading liabilities – debt and equity instruments211
(15)
(b) 
(705)793
—
(11)—
 273
 3
(b) 
273
(2)
(b) 
(695)806
—
(17)(5) 360
 (3)
(b) 
Accounts payable and other liabilities51
—
(e) 
—
—
—
(5)—
 46
 —
(e) 
46
—
 —
—
—
(4)—
 42
 —
 
Beneficial interests issued by consolidated VIEs791
45
(b) 
—
—
36
(31)—
 841
 9
(b) 
841
2
(b) 
—
—
18
(116)—
 745
 3
(b) 
Long-term debt10,310
139
(b) 
—
—
1,124
(1,387)(633) 9,553
 193
(b) 
9,553
(191)
(b) 
—
—
750
(779)(477) 8,856
 (133)
(b) 



95126

Fair value measurements using significant unobservable inputs  Fair value measurements using significant unobservable inputs  
Three months ended
March 31, 2011
(in millions)
Fair value at January 1, 2011Total realized/unrealized gains/(losses) 
Transfers into and/or out of level 3(g)
Fair value at
March 31, 2011
Change in unrealized gains/(losses) related to financial instruments held at Mar. 31, 2011
Purchases(f)
Sales Settlements
Three months ended
June 30, 2011
(in millions)
Fair value at April 1, 2011Total realized/unrealized gains/(losses) 
Transfers into and/or out of level 3(g)
Fair value at
June 30, 2011
Change in unrealized gains/(losses) related to financial instruments held at June 30, 2011
Purchases(f)
Sales Settlements
Assets:                
Trading assets:                
Debt instruments:                
Mortgage-backed securities:                
U.S. government agencies$174
$17
 $21
$(21) $—
$—
 $191
 $(1) $191
$12
 $7
$(18) $(27)$—
 $165
 $(11) 
Residential – nonagency687
71
 259
(168) (67)—
 782
 27
 782
56
 246
(103) (57)(61) 863
 10
 
Commercial – nonagency2,069
16
 346
(482) (64)—
 1,885
 (22) 1,885
31
 219
(262) (30)—
 1,843
 21
 
Total mortgage-backed securities2,930
104
 626
(671) (131)—
 2,858
 4
 2,858
99
 472
(383) (114)(61) 2,871
 20
 
Obligations of U.S. states and municipalities2,257
(14) 284
(555) (1)—
 1,971
 (14) 1,971
14
 272
(414) —
12
 1,855
 18
 
Non-U.S. government debt securities202
3
 130
(143) (5)(74) 113
 4
 113
1
 113
(111) (34)—
 82
 1
 
Corporate debt securities4,946
32
 1,629
(1,075) (6)97
 5,623
 34
 5,623
23
 1,800
(1,820) (111)91
 5,606
 39
 
Loans13,144
131
 888
(1,024) (729)80
 12,490
 12
 12,490
190
 1,726
(1,753) (424)(487) 11,742
 145
 
Asset-backed securities8,460
400
 1,118
(1,057) (57)19
 8,883
 291
 8,883
228
 855
(1,404) (243)—
 8,319
 67
 
Total debt instruments31,939
656
 4,675
(4,525) (929)122
 31,938
 331
 31,938
555
 5,238
(5,885) (926)(445) 30,475
 290
 
Equity securities1,685
70
 37
(74) (330)(21) 1,367
 83
 1,367
170
 61
(125) (46)(19) 1,408
 158
 
Other930
35
 5
(1) (26)—
 943
 35
 943
(4) 14
(11) (34)—
 908
 (5) 
Total trading assets – debt and equity instruments34,554
761
(b) 
4,717
(4,600) (1,285)101
 34,248
 449
(b) 
34,248
721
(b) 
5,313
(6,021) (1,006)(464) 32,791
 443
(b) 
Net derivative receivables:                
Interest rate2,836
519
 128
(83) (915)(15) 2,470
 184
 2,470
1,407
 217
(36) (988)47
 3,117
 720
 
Credit5,386
(853) 1
—
 (146)(15) 4,373
 (1,068) 4,373
301
 1
(3) 65
(4) 4,733
 622
 
Foreign exchange(614)61
 25
—
 482
48
 2
 69
 2
(543) 91
(3) (20)(63) (536) (563) 
Equity(2,446)179
 95
(330) (429)88
 (2,843) 54
 (2,843)(157) 140
(242) (110)9
 (3,203) (13) 
Commodity(805)595
 86
(67) (424)(250) (865) 209
 (865)(306) 49
(30) (117)(5) (1,274) (353) 
Total net derivative receivables4,357
501
(b) 
335
(480) (1,432)(144) 3,137
 (552)
(b) 
3,137
702
(b) 
498
(314) (1,170)(16) 2,837
 413
(b) 
Available-for-sale securities:                
Asset-backed securities13,775
478
 1,109
(4) (342)—
 15,016
 475
 15,016
103
 851
(22) (546)—
 15,402
 103
 
Other512
9
 —
(3) (9)—
 509
 7
 509
(8) —
—
 —
—
 501
 2
 
Total available-for-sale securities14,287
487
(c) 
1,109
(7) (351)—
 15,525
 482
(c) 
15,525
95
(c) 
851
(22) (546)—
 15,903
 105
(c) 
Loans1,466
120
(b) 
84
—
 (283)(16) 1,371
 108
(b) 
1,371
140
(b) 
41
—
 (80)—
 1,472
 126
(b) 
Mortgage servicing rights13,649
(751)
(d) 
758
—
 (563)—
 13,093
 (751)
(d) 
13,093
(960)
(d) 
591
—
 (481)—
 12,243
 (960)
(d) 
Other assets:                
Private equity investments7,862
905
(b) 
328
(139) (103)—
 8,853
 845
(b) 
8,853
777
(b) 
469
(1,906) (171)—
 8,022
 380
(b) 
All other4,179
60
(e) 
409
(3) (86)1
 4,560
 60
(e) 
4,560
(29)
(e) 
300
—
 (352)(30) 4,449
 (29)
(e) 
                
Fair value measurements using significant unobservable inputs  Fair value measurements using significant unobservable inputs  
Three months ended
March 31, 2011
(in millions)
Fair value at January 1, 2011Total realized/unrealized (gains)/losses 
Transfers into and/or out of level 3(g)
Fair value at
Mar. 31, 2011
Change in unrealized (gains)/losses related to financial instruments held at Mar. 31, 2011
Purchases(f)
SalesIssuancesSettlements
Three months ended
June 30, 2011
(in millions)
Fair value at April 1, 2011Total realized/unrealized (gains)/losses 
Transfers into and/or out of level 3(g)
Fair value at
June 30, 2011
Change in unrealized (gains)/losses related to financial instruments held at June 30, 2011
Purchases(f)
SalesIssuancesSettlements
Liabilities:(a)
                
Deposits$773
$(11)
(b) 
$—
$—
$59
$(66)$(1) $754
 $(4)
(b) 
$754
$3
(b) 
$—
$—
$157
$(51)$—
 $863
 $4
(b) 
Other borrowed funds1,384
(31)
(b) 
—
—
577
(88)2
 1,844
 58
(b) 
1,844
5
(b) 
—
—
326
(97)—
 2,078
 5
(b) 
Trading liabilities – debt and equity instruments54
—
(b) 
—
119
—
—
—
 173
 —
(b) 
173
(5)
(b) 
(133)158
—
—
4
 197
 (1)
(b) 
Accounts payable and other liabilities236
(37)
(e) 
—
—
—
(53)—
 146
 4
(e) 
146
(26)
(e) 
—
—
—
(47)—
 73
 1
(e) 
Beneficial interests issued by consolidated VIEs873
(6)
(b) 
—
—
11
(290)—
 588
 (7)
(b) 
588
31
(b) 
—
—
103
(292)—
 430
 6
(b) 
Long-term debt13,044
62
(b) 
—
—
653
(971)239
 13,027
 258
(b) 
13,027
395
(b) 
—
—
603
(491)—
 13,534
 332
(b) 

127

 Fair value measurements using significant unobservable inputs  
Six months ended
June 30, 2012
(in millions)
Fair value at January 1, 2012Total realized/unrealized gains/(losses)    
Transfers into and/or out of level 3(g)
Fair value at
June 30, 2012
Change in unrealized gains/(losses) related to financial instruments held at June 30, 2012
Purchases(f)
Sales Settlements
Assets:             
Trading assets:             
Debt instruments:             
Mortgage-backed securities:             
U.S. government agencies$86
$(21) $5
$—
 $—
$—
 $70
 $(8) 
Residential – nonagency796
51
 179
(258) (75)(22) 671
 27
 
Commercial – nonagency1,758
(47) 130
(329) (55)(100) 1,357
 (55) 
Total mortgage-backed securities2,640
(17) 314
(587) (130)(122) 2,098
 (36) 
Obligations of U.S. states and municipalities1,619
(1) 329
(484) (4)—
 1,459
 —
 
Non-U.S. government debt securities104
3
 343
(360) (20)—
 70
 4
 
Corporate debt securities6,373
205
 3,936
(2,705) (2,205)(370) 5,234
 187
 
Loans12,209
295
 2,213
(1,292) (1,930)(580) 10,915
 189
 
Asset-backed securities7,965
12
 1,278
(1,934) (513)1
 6,809
 (52) 
Total debt instruments30,910
497
 8,413
(7,362) (4,802)(1,071) 26,585
 292
 
Equity securities1,177
(77) 112
(57) (13)94
 1,236
 (54) 
Other880
154
 50
(48) (81)—
 955
 158
 
Total trading assets – debt and equity instruments32,967
574
(b) 
8,575
(7,467) (4,896)(977) 28,776
 396
(b) 
Net derivative receivables:             
Interest rate3,561
3,355
 300
(98) (3,055)(371) 3,692
 828
 
Credit7,732
(2,186) 104
(43) (1,160)1
 4,448
 (1,880) 
Foreign exchange(1,263)(505) 45
(178) 419
(6) (1,488) (505) 
Equity(3,105)165
 853
(1,078) 99
1,083
 (1,983) (405) 
Commodity(687)(80) 39
65
 645
35
 17
 (124) 
Total net derivative receivables6,238
749
(b) 
1,341
(1,332) (3,052)742
 4,686
 (2,086)
(b) 
Available-for-sale securities:             
Asset-backed securities24,958
(336) 3,170
(1,147) (1,069)116
 25,692
 (355) 
Other528
32
 261
(113) (86)—
 622
 7
 
Total available-for-sale securities25,486
(304)
(c) 
3,431
(1,260) (1,155)116
 26,314
 (348)
(c) 
Loans1,647
576
(b) 
707
—
 (491)81
 2,520
 563
(b) 
Mortgage servicing rights7,223
(523)
(d) 
1,099
—
 (681)—
 7,118
 (523)
(d) 
Other assets:             
Private equity investments6,751
287
(b) 
459
(242) (507)(46) 6,702
 436
(b) 
All other4,374
(223)
(e) 
632
(92) (243)—
 4,448
 (218)
(e) 
              
 Fair value measurements using significant unobservable inputs  
Six months ended
June 30, 2012
(in millions)
Fair value at January 1, 2012Total realized/unrealized (gains)/losses    
Transfers into and/or out of level 3(g)
Fair value at
June 30, 2012
Change in unrealized (gains)/losses related to financial instruments held at June 30, 2012
Purchases(f)
SalesIssuancesSettlements
Liabilities:(a)
             
Deposits$1,418
$166
(b) 
$—
$—
$708
$(232)$(184) $1,876
 $155
(b) 
Other borrowed funds1,507
(9)
(b) 
—
—
809
(1,178)(22) 1,107
 (38)
(b) 
Trading liabilities – debt and equity instruments211
(17)
(b) 
(1,400)1,599
—
(28)(5) 360
 (3)
(b) 
Accounts payable and other liabilities51
—
 —
—
—
(9)—
 42
 —
 
Beneficial interests issued by consolidated VIEs791
47
(b) 
—
—
54
(147)—
 745
 12
(b) 
Long-term debt10,310
(52)
(b) 
—
—
1,874
(2,166)(1,110) 8,856
 20
(b) 

128

 Fair value measurements using significant unobservable inputs  
Six months ended
June 30, 2011
(in millions)
Fair value at January 1, 2011Total realized/unrealized gains/(losses)    
Transfers into and/or out of level 3(g)
Fair value at
June 30, 2011
Change in unrealized gains/(losses) related to financial instruments held at June 30, 2011
Purchases(f)
Sales Settlements
Assets:             
Trading assets:             
Debt instruments:             
Mortgage-backed securities:             
U.S. government agencies$174
$29
 $28
$(39) $(27)$—
 $165
 $(12) 
Residential – nonagency687
127
 505
(271) (124)(61) 863
 39
 
Commercial – nonagency2,069
47
 565
(744) (94)—
 1,843
 6
 
Total mortgage-backed securities2,930
203
 1,098
(1,054) (245)(61) 2,871
 33
 
Obligations of U.S. states and municipalities2,257
—
 556
(969) (1)12
 1,855
 (8) 
Non-U.S. government debt securities202
4
 243
(254) (39)(74) 82
 6
 
Corporate debt securities4,946
55
 3,429
(2,895) (117)188
 5,606
 58
 
Loans13,144
321
 2,614
(2,777) (1,153)(407) 11,742
 79
 
Asset-backed securities8,460
628
 1,973
(2,461) (300)19
 8,319
 347
 
Total debt instruments31,939
1,211
 9,913
(10,410) (1,855)(323) 30,475
 515
 
Equity securities1,685
240
 98
(199) (376)(40) 1,408
 380
 
Other930
31
 19
(12) (60)—
 908
 36
 
Total trading assets – debt and equity instruments34,554
1,482
(b) 
10,030
(10,621) (2,291)(363) 32,791
 931
(b) 
Net derivative receivables:             
Interest rate2,836
1,926
 345
(119) (1,903)32
 3,117
 729
 
Credit5,386
(552) 2
(3) (81)(19) 4,733
 (367) 
Foreign exchange(614)(482) 116
(3) 462
(15) (536) (530) 
Equity(2,446)22
 235
(572) (539)97
 (3,203) 49
 
Commodity(805)289
 135
(97) (541)(255) (1,274) (80) 
Total net derivative receivables4,357
1,203
(b) 
833
(794) (2,602)(160) 2,837
 (199)
(b) 
Available-for-sale securities:             
Asset-backed securities13,775
581
 1,960
(26) (888)—
 15,402
 579
 
Other512
1
 —
(3) (9)—
 501
 9
 
Total available-for-sale securities14,287
582
(c) 
1,960
(29) (897)—
 15,903
 588
(c) 
Loans1,466
260
(b) 
125
—
 (363)(16) 1,472
 234
(b) 
Mortgage servicing rights13,649
(1,711)
(d) 
1,349
—
 (1,044)—
 12,243
 (1,711)
(d) 
Other assets:             
Private equity investments7,862
1,682
(b) 
797
(2,045) (274)—
 8,022
 722
(b) 
All other4,179
31
(e) 
709
(3) (438)(29) 4,449
 31
(e) 
              
 Fair value measurements using significant unobservable inputs  
Six months ended
June 30, 2011
(in millions)
Fair value at January 1, 2011Total realized/unrealized (gains)/losses    
Transfers into and/or out of level 3(g)
Fair value at
June 30, 2011
Change in unrealized (gains)/losses related to financial instruments held at June 30, 2011
Purchases(f)
SalesIssuancesSettlements
Liabilities:(a)
             
Deposits$773
$(8)
(b) 
$—
$—
$216
$(117)$(1) $863
 $—
(b) 
Other borrowed funds1,384
(26)
(b) 
—
—
903
(185)2
 2,078
 (4)
(b) 
Trading liabilities – debt and equity instruments54
(5)
(b) 
(133)277
—
—
4
 197
 1
(b) 
Accounts payable and other liabilities236
(63)
(e) 
—
—
—
(100)—
 73
 3
(e) 
Beneficial interests issued by consolidated VIEs873
25
(b) 
—
—
114
(582)—
 430
 (34)
(b) 
Long-term debt13,044
457
(b) 
—
—
1,256
(1,462)239
 13,534
 238
(b) 
(a)
Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 19%17% and 21% at March 31,June 30, 2012, and December 31, 2011, respectively.
(b)Predominantly reported in principal transactions revenue, except for changes in fair value for Retail Financial Services (“RFS”) mortgage loans and lending-related commitments originated with the intent to sell, which are reported in mortgage fees and related income.
(c)
Realized gains/(losses) on available-for-sale (“AFS”) securities, as well as other-than-temporary impairment losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange remeasurement adjustments recorded in income on AFS securities were$96

96129

$(260) million and $330103 million for the three months ended March 31,June 30, 2012 and 2011, and were $(164) million and $434 million for the six months ended June 30, 2012 and 2011, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $(85)(55) million and $156(8) million for the three months ended March 31,June 30, 2012 and 2011, and were $(140) million and $148 million for the six months ended June 30, 2012 and 2011, respectively.
(d)Changes in fair value for RFS mortgage servicing rights are reported in mortgage fees and related income.
(e)PredominantlyLargely reported in other income.
(f)Loan originations are included in purchases.
(g)All transfers into and/or out of level 3 are assumed to occur at the beginning of the reporting period.



Assets and liabilities measured at fair value on a nonrecurring basis
Certain assets, liabilities and unfunded lending-related commitments are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). At March 31, 2012, assets measured at fair value on a nonrecurring basis were $3.1 billion comprised predominantly of loans that had fair value adjustments in the first three months of 2012. At December 31, 2011, assets measured at fair value on a nonrecurring basis were $5.3 billion, comprised predominantly of loans that had fair value adjustments in the twelve months of 2011. At March 31, 2012, $638 million and $2.5 billion of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. At December 31, 2011, $369 million and $4.9 billion of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. Liabilities measured at fair value on a nonrecurring basis were not significant at March 31, 2012, and December 31, 2011. For the three months ended March 31, 2012 and 2011, there were no significant transfers between levels 1, 2, and 3. The total change in the value of assets and liabilities for which a fair value adjustment has been included in the Consolidated Statements of Income for the three months ended March 31, 2012 and 2011, related to financial instruments held at those dates were losses of $534 million and $688 million, respectively; these losses were predominantly associated with loans.
For information about the measurement of impaired collateral-dependent loans, and other loans where the carrying value is based on the fair value of the underlying collateral (e.g., residential mortgage loans charged off in accordance with regulatory guidance), see Note 14 on pages 231–252 of JPMorgan Chase’s 2011 Annual Report.

Valuation
The Firm has an established and well-documented process for determining fair value. Fair value is based on quoted market prices, where available. If listed or quoted prices are not available, fair value is based on internally developed models that consider relevant transaction data such as maturity and use as inputs market-based or independently sourced market parameters. For further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments, see Note 3 on pages 184-198 of JPMorgan Chase’s 2011 Annual Report.
For instruments classified within level 3 of the fair value hierarchy judgments used to estimate fair value may be significant. In arriving at an estimate of fair value for an instrument within level 3, management must first
determine the appropriate model to use. Second, due to the lack of observability of significant inputs, management must assess all relevant empirical data in deriving valuation inputs - including, but not limited to, transaction details, yield curves, interest rates, volatilities, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves. Finally, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the Firm’s credit worthiness, constraints on liquidity and unobservable parameters, where relevant. The judgments made are typically affected by the type of product and its specific contractual terms, and the level of liquidity for the product or within the market as a whole.
The Firm has numerous controls in place to ensure that its valuations are appropriate. An independent model review group reviews the Firm’s valuation models and approves them for use for specific products. All valuation models of the Firm are subject to this review process. A price verification group, independent from the risk-taking functions, ensures observable market prices and market-based parameters are used for valuation whenever possible. For those products with material parameter risk for which observable levels do not exist, an independent review of the assumptions made on pricing is performed. Additional review includes deconstruction of the model valuations for certain structured instruments into their components; benchmarking valuations, where possible, to similar products; validating valuation estimates through actual cash settlement; and detailed review and explanation of recorded gains and losses, which are analyzed daily and over time. Valuation adjustments, which are also determined by the independent price verification group, are based on established policies and applied consistently over time. Any changes to the valuation methodology are reviewed by management to confirm the changes are justified. As markets and products develop and the pricing for certain products becomes more transparent, the Firm continues to refine its valuation methodologies.
Level 3 financial instruments
The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, and the significant unobservable inputs and the range of values for those inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial


97

instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative of the highest and lowest level input used to value the significant instruments within a classification. The input range does not reflect the level of input uncertainty, instead
it is driven by the different underlying characteristics of the various instruments within the classification.
For more information on valuation inputs and control, see Note 3 on pages 184–198 of JPMorgan Chase’s 2011 Annual Report.

Level 3 inputs(a)
March 31, 2012 (in millions, except for ratios and basis points)    
Product/InstrumentFair valuePrincipal valuation techniqueUnobservable inputsRange of input values
Residential mortgage-backed securities and loans$9,488
Discounted cash flowsDiscount rate5 %-25%
  Constant prepayment rate0 %-40%
   Constant default rate0 %-70%
   Loss severity0 %-90%
Commercial mortgage-backed securities and loans(b)
2,166
Discounted cash flowsDiscount rate5 %-45%
  Constant prepayment rate0 %-10%
   Constant default rate0 %-100%
   Loss severity0 %-40%
Corporate debt securities, obligations of U.S. states and municipalities, and other19,725
Discounted cash flowsCredit spread130 bps
-225 bps
  Discount rate1 %-35%
  Consensus pricingPrice25
-115
Net interest rate derivatives3,238
Option pricingInterest rate correlation(75)%-100%
   Interest rate spread volatility0 %-60%
Net credit derivatives(b)
4,808
Discounted cash flowsCredit correlation15 %-75%
Net foreign exchange derivatives(1,060)Option pricingForeign exchange correlation(55)%-45%
Net equity derivatives(2,829)Option pricingEquity volatility20 %-60%
Net commodity derivatives(600)Option pricingCommodity volatility30 %-50%
Collateralized loan obligations(c)
31,040
Discounted cash flows
Default correlation(e)
70 %-99%
   
Recovery lag(f)
18 Months
   
Liquidity spread(g)
150 bps
-250 bps
   Recovery rate0 %-55%
   Default rate0 %-75%
   Prepayment rate10 %-20%
Mortgage servicing rights (“MSRs”)8,039
Discounted cash flowsRefer to Note 16 on pages 144–146 of this Form 10-Q.
Private equity direct investments4,812
Market comparablesEBITDA multiple3.2x
-10.8x
   Liquidity adjustment0 %-40%
Private equity fund investments1,927
Net asset value
Net asset value(h)
 
Long-term debt, other borrowed funds, and deposits(d)
12,437
Option pricingInterest rate correlation(75)%-100%
  Foreign exchange correlation(55)%-45%
  Equity correlation(50)%-75%
  Discounted cash flowsCredit correlation15 %-75%
(a)The categories presented in the table have been aggregated based upon product type which may differ from balance sheet classification.
(b)
The unobservable inputs and associated input ranges for approximately $2.3 billion in credit derivative receivables and $1.6 billion in credit derivative payables with underlying mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and loans.
(c)
CLOs are securities backed by corporate loans. At March 31, 2012, $25.2 billion of CLOs were held in the AFS securities portfolio and $5.8 billion were included in asset-backed securities held in the trading portfolio. Substantially all of the securities are rated "AAA", "AA" and "A." For a further discussion of CLOs held in the AFS securities portfolio, see Note 11 on pages 113–117 of this Form 10-Q.
(d)Long-term debt, other borrowed funds, and deposits include structured notes issued by the Firm that are financial instruments containing embedded derivatives. The estimation of the fair value of structured notes is predominantly based on the derivative features embedded within the instruments. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.
(e)Default correlation measures whether the loans that collateralize an issued CLO are more likely to default together or separately.
(f)Recovery lag is the assumed length of time between an underlying loan default and its liquidation.
(g)Liquidity spread is an adjustment taken to the discount rate to adjust for the level of liquidity in the CLO market.
(h)The range has not been disclosed due to the diverse nature of the underlying investments.

98

Level 3 analysis
The following provides a general description of the impact of a change in an unobservable input on the fair value measurement and the interrelationship of unobservable inputs, where relevant/significant. Interrelationships may also exist between observable and unobservable inputs (for example, as interest rates rise, prepayment rates decline). Such relationships have not been included in the discussion below.
In general, an increase in the discount rate, default rates, loss severity and credit spreads, in isolation, would result in a decrease in the fair value measurement. In addition, an increase in default rates would generally be accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads. For derivatives, given a long position to the parameter, an increase in correlation or volatility, in isolation, would result in an increase in the fair value measurement. For direct private equity investments, an increase in the EBITDA (i.e., earnings before interest, taxes, depreciation and amortization) input, net of adjustments, would result in an increase in the fair value measurement. For each of the individual relationships described above, the inverse relationship would also generally apply.
Consolidated Balance Sheets changes
Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 4.7%4.6% of total Firm assets at March 31,June 30, 2012. Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 12.6% of total Firm assets measured at fair value at June 30, 2012. The following describes significant changes to level 3 assets since December 31, 2011.
For the three months ended March 31,June 30, 2012
Level 3 assets were $106.2 billion at June 30, 2012, reflecting a decrease of $3.0 billion from the first quarter largely related to:
$1.5 billion decrease in derivative receivables, predominantly driven by a reduction in credit derivatives risk positions in the IB and equity market movements; and
$921 million decrease in MSRs. For further discussion of the change, refer to Note 16 on pages 184–187 of this Form 10-Q.
For the six months ended June 30, 2012
Level 3 assets decreased by $9.212.2 billion duringin the first six months of 2012, due to the following:
$5.57.0 billion decrease in derivative receivables predominantly driven bylargely as a result of the impact of tightening ofreference entity credit spreads;spreads on credit derivatives; and
$2.64.2 billion decrease in trading assets – debt and equity instruments, predominantly driven by sales and settlements of loans, corporate debt, and corporate debt.CLOs.
Gains and Losseslosses
Included in the tables for the three months ended March 31,June 30, 2012
$1.62.4 billion of net lossesgains on derivatives, largely related to tightening of credit spreads, partially offset by gains in interest rate derivatives.lock commitments due to increased volumes and declining interest rates; and
$1.1 billion of losses on MSRs. For further discussion of the change, refer to Note 16 on pages 184–187 of this Form 10-Q.
Included in the tables for the three months ended March 31,June 30, 2011
$905960 million of losses on MSRs. For further discussion of the change, refer to Note 16 on pages 184–187 of this Form 10-Q.
Included in the tables for the six months ended June 30, 2012
$749 million of net gains on derivatives, driven by $3.4 billion of gains predominantly on interest rate lock commitments due to increased volumes and declining interest rates, partially offset by $2.2 billion of losses on credit derivatives largely as a result of tightening of reference entity credit spreads.
Included in the tables for the six months ended June 30, 2011
$1.7 billion gain in private equity, predominately driven by net increases in investment valuations and sales in the portfolio;
$1.2 billion of net gains on derivatives, largely driven by net increase in investment valuations ininterest rate derivatives; and
$1.7 billion of losses on MSRs. For further discussion of the portfolio.change, refer to Note 16 on pages 184–187 of this Form 10-Q.
Credit adjustments
When determining the fair value of an instrument, it may be necessary to record a valuation adjustment to arrive at an exit price under U.S. GAAP. Valuation adjustments include, but are not limited to, amounts to reflect counterparty credit quality and the Firm’s own creditworthiness. The
market’s view of the Firm’s credit quality is reflected in credit spreads observed in the credit default swap (“CDS”) market. For a detailed discussion of the valuation adjustments the Firm considers, see the valuation discussion in Note 3 on pages 184–188 of JPMorgan Chase’s 2011 Annual Report.
The following table provides the credit adjustments, excluding the effect of any hedging activity, reflected within the Consolidated Balance Sheets as of the dates indicated.
(in millions)March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
Derivative receivables balance (net of derivatives CVA)$85,377
 $92,477
$85,543
 $92,477
Derivatives CVA(a)
(5,475) (6,936)(5,885) (6,936)
Derivative payables balance (net of derivatives DVA)74,474
 74,977
76,249
 74,977
Derivatives DVA(981) (1,420)(1,321) (1,420)
Structured notes balance (net of structured notes DVA)(b)(c)
50,894
 49,229
47,728
 49,229
Structured notes DVA(1,584) (2,052)(1,999) (2,052)
(a)Derivatives credit valuation adjustments (“CVA”), gross of hedges, includes results managed by the Credit Portfolio and other lines of business within the Investment Bank (“IB”).
(b)Structured notes are recorded within long-term debt, other borrowed funds or deposits on the Consolidated Balance Sheets, depending upon the tenor and legal form of the note.
(c)Structured notes are measured at fair value based on the Firm’s election under the fair value option. For further information on these elections, see Note 4 on pages 101–102 of this Form 10-Q.


130

election under the fair value option. For further information on these elections, see Note 4 on pages 133–135 of this Form 10-Q.
The following table provides the impact of credit adjustments on earnings in the respective periods, excluding the effect of any hedging activity.
Three months ended March 31,Three months ended June 30, Six months ended June 30,
(in millions)2012 20112012 2011 2012 2011
Credit adjustments:          
Derivative CVA(a)
$1,461
 $535
$(410) $(248) $1,051
 $287
Derivative DVA(439) (69)340
 23
 (99) (46)
Structured note DVA(b)
(468) 23
415
 142
 (53) 165
(a)Derivatives CVA, gross of hedges, includes results managed by the Credit Portfolio and other lines of business within IB.
(b)Structured notes are measured at fair value based on the Firm’s election under the fair value option. For further information on these elections, see Note 4 on pages 101–102133–135 of this Form 10-Q.

Assets and liabilities measured at fair value on a nonrecurring basis
Certain assets, liabilities and unfunded lending-related commitments are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). At June 30, 2012, assets measured at fair value on a nonrecurring basis were $2.6 billion comprised predominantly of loans that had fair value adjustments in the first six months of 2012. At December 31, 2011, assets measured at fair value on a nonrecurring basis were $5.3 billion, comprised predominantly of loans that had fair value adjustments during the twelve months of 2011. At June 30, 2012, $296 million and $2.3 billion of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. At December 31, 2011, $369 million and $4.9 billion of these assets were classified in levels 2 and 3 of the fair value hierarchy, respectively. Liabilities measured at fair value on a nonrecurring basis were not significant at June 30, 2012, and December 31, 2011. For the six months ended June 30, 2012 and 2011, there were no significant transfers between levels 1, 2, and 3. The total change in the value of assets and liabilities for which a fair value adjustment has been included in the Consolidated Statements of Income for the three months ended June 30, 2012 and 2011, related to financial instruments held at those dates, were losses of $514 million and $748 million, respectively; and for the six months ended June 30, 2012 and 2011, were losses of $881 million and $1.3 billion, respectively. These losses were predominantly associated with loans.
For information about the measurement of impaired collateral-dependent loans, and other loans where the carrying value is based on the fair value of the underlying collateral (e.g., residential mortgage loans charged off in accordance with regulatory guidance), see Note 14 on pages 231–252 of JPMorgan Chase’s 2011 Annual Report.




99131

Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated Balance Sheets at fair value
The following table presents the carrying values and estimated fair values at March 31,June 30, 2012, of financial assets and liabilities, excluding financial instruments which are carried at fair value on a recurring basis, and information is provided on their classification within the fair value hierarchy. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value, see Note 3 on pages 184–198 of JPMorgan Chase’s 2011 Annual Report.
June 30, 2012 December 31, 2011
March 31, 2012 December 31, 2011 Estimated fair value hierarchy   
(in billions)
Carrying
value
Estimated
fair value
 
Carrying
value
Estimated
fair value
Carrying
value
Level 1Level 2Level 3
Total estimated
fair value
 
Carrying
value
Estimated
fair value
Financial assets      
Cash and due from banks$55.4
$55.4
(a) 
$59.6
$59.6
$44.9
$44.9
$—
$—
$44.9
 $59.6
$59.6
Deposits with banks115.0
115.0
(a) 
85.3
85.3
130.4
113.3
17.1
—
130.4
 85.3
85.3
Accrued interest and accounts receivable64.8
64.8
(b) 
61.5
61.5
67.9
—
64.6
3.3
67.9
 61.5
61.5
Federal funds sold and securities purchased under resale agreements214.2
214.2
(b) 
210.4
210.4
222.3
—
222.3
—
222.3
 210.4
210.4
Securities borrowed123.1
123.1
(b) 
127.2
127.2
126.7
—
126.7
—
126.7
 127.2
127.2
Loans692.8
692.0
(c) 
694.0
693.7
Loans, net of allowance for loan losses(a)
700.8
—
24.7
677.6
702.3
 694.0
693.7
Other47.7
48.2
(b) 
49.8
50.3
52.2
—
44.8
7.8
52.6
 49.8
50.3
Financial liabilities      
Deposits$1,123.2
$1,123.8
(b) 
$1,122.9
$1,123.4
$1,110.6
$—
$1,110.0
$1.1
$1,111.1
 $1,122.9
$1,123.4
Federal funds purchased and securities loaned or sold under repurchase agreements237.2
237.2
(b) 
204.0
204.0
246.1
—
246.1
—
246.1
 204.0
204.0
Commercial paper50.6
50.6
(b) 
51.6
51.6
50.6
—
50.6
—
50.6
 51.6
51.6
Other borrowed funds17.1
17.1
(b) 
12.3
12.3
10.9
—
10.7
0.2
10.9
 12.3
12.3
Accounts payable and other liabilities168.6
168.5
(b) 
166.9
166.8
171.8
—
162.9
8.8
171.7
 166.9
166.8
Beneficial interests issued by consolidated VIEs66.7
67.0
(b) 
64.7
64.9
54.1
—
49.3
4.9
54.2
 64.7
64.9
Long-term debt and junior subordinated deferrable interest debentures220.4
222.2
(b) 
222.1
219.5
207.9
—
203.3
5.0
208.3
 222.1
219.5
(a)Products/instruments are predominantly classified within level 1 of the fair value hierarchy.
(b)Products/instruments are predominantly classified within level 2 of the fair value hierarchy.
(c)Loans are predominantly classified within level 3 of the fair value hierarchy. Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in a loan loss reserve calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm’s methodologies for estimating the fair value of loans and lending-related commitments, see Note 3 on pages 184–198 of JPMorgan Chase’s 2011 Annual Report and pages 97–98119–133 of this Note.
The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated Balance Sheets, nor are they actively traded. The carrying value and estimated fair value of the Firm’s wholesale lending-related commitments were as follows for the periods indicated.
June 30, 2012 December 31, 2011
March 31, 2012 December 31, 2011 Estimated fair value hierarchy   
(in billions)
Carrying value(a)
Estimated fair value 
Carrying value(a)
Estimated fair value
Carrying value(a)
Level 1Level 2Level 3Total estimated fair value 
Carrying value(a)
Estimated fair value
Wholesale lending-related commitments$0.7
$1.9
(b) 
$0.7
$3.4
$0.8
$—
$—
$3.3
$3.3
 $0.7
$3.4
(a)Represents the allowance for wholesale lending-related commitments. Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which are recognized at fair value at the inception of guarantees.
(b)Products/instruments are predominantly classified within level 3 of the fair value hierarchy.
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or cancel these commitments by providing the borrower notice or, in some cases, without notice as permitted by law. For a further discussion of the valuation of lending-related commitments, see pages 97–98page 119 of this Note.

132

Trading assets and liabilities – average balances
Average trading assets and liabilities were as follows for the periods indicated.
 Three months ended March 31, Three months ended June 30, Six months ended June 30,
(in millions) 2012 2011 2012 2011 2012 2011
Trading assets – debt and equity instruments(a)
 $355,335
 $417,463
 $346,708
 $422,715
 $351,021
 $420,103
Trading assets – derivative receivables 90,446
 85,437
 89,345
 82,860
 89,896
 84,141
Trading liabilities – debt and equity instruments(a)(b)
 68,984
 82,919
 69,763
 84,250
 69,374
 83,588
Trading liabilities – derivative payables 76,069
 71,288
 78,704
 66,009
 77,387
 68,634
(a)Balances reflect the reduction of securities owned (long positions) by the amount of securities sold, but not yet purchased (short positions) when the long and short positions have identical CUSIP numbers.
(b)Primarily represent securities sold, not yet purchased.

100

Note 4 – Fair value option
For a discussion of the primary financial instruments for which the fair value option was previously elected, including the basis for those elections and the determination of instrument-specific credit risk, where relevant, see Note 4 on pages 198–200 of JPMorgan Chase’s 2011 Annual Report.
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated Statements of Income for the three and six months ended March 31,June 30, 2012 and 2011, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.
Three months ended March 31,Three months ended June 30,
2012 20112012 2011
(in millions)Principal transactionsOther incomeTotal changes in fair value recorded Principal transactionsOther incomeTotal changes in fair value recordedPrincipal transactionsOther incomeTotal changes in fair value recorded Principal transactionsOther incomeTotal changes in fair value recorded
Federal funds sold and securities purchased under resale agreements$(48)$—
 $(48) $(118)$—
 $(118)$221
$—
 $221
 $121
$—
 $121
Securities borrowed14
—
 14
 9
—
 9
—
—
 —
 (8)—
 (8)
Trading assets:              
Debt and equity instruments, excluding loans364
3
(c) 
367
 164
3
(c) 
167
(26)—
 (26) 107
(4)
(c) 
103
Loans reported as trading assets:              
Changes in instrument-specific credit risk476
18
(c) 
494
 480
—
 480
333
11
(c) 
344
 429
4
(c) 
433
Other changes in fair value(252)1,577
(c) 
1,325
 125
723
(c) 
848
78
1,782
(c) 
1,860
 13
1,371
(c) 
1,384
Loans:              
Changes in instrument-specific credit risk—
—
 —
 (6)—
 (6)(14)—
 (14) (7)—
 (7)
Other changes in fair value25
—
 25
 143
—
 143
550
—
 550
 139
—
 139
Other assets—
(194)
(d) 
(194) —
—
 —
—
(69)
(d) 
(69) —
(42)
(d) 
(42)
Deposits(a)
(160)—
 (160) (17)—
 (17)(1)—
 (1) (93)—
 (93)
Federal funds purchased and securities loaned or sold under repurchase agreements2
—
 2
 35
—
 35
(29)—
 (29) (14)—
 (14)
Other borrowed funds(a)
(475)—
 (475) 217
—
 217
1,322
—
 1,322
 739
—
 739
Trading liabilities9
—
 9
 (3)—
 (3)3
—
 3
 (3)—
 (3)
Beneficial interests issued by consolidated VIEs(6)—
 (6) (34)—
 (34)(24)—
 (24) (55)—
 (55)
Other liabilities—
—
 —
 (3)(2)
(d) 
(5)—
—
 —
 (1)(1)
(d) 
(2)
Long-term debt:              
Changes in instrument-specific credit risk(a)
(419)—
 (419) 54
—
 54
(85)—
 (85) 145
—
 145
Other changes in fair value(b)
(705)—
 (705) (24)—
 (24)313
—
 313
 (93)—
 (93)

133

 Six months ended June 30,
 2012 2011
(in millions)Principal transactionsOther incomeTotal changes in fair value recorded Principal transactionsOther incomeTotal changes in fair value recorded
Federal funds sold and securities purchased under resale agreements$173
$—
 $173
 $3
$—
 $3
Securities borrowed14
—
 14
 1
—
 1
Trading assets:      
 
  
Debt and equity instruments, excluding loans338
3
(c) 
341
 271
(1)
(c) 
270
Loans reported as trading assets:      
 
  
Changes in instrument-specific credit risk809
29
(c) 
838
 909
4
(c) 
913
Other changes in fair value(174)3,359
(c) 
3,185
 138
2,094
(c) 
2,232
Loans:      
 
  
Changes in instrument-specific credit risk(14)—
 (14) (13)—
 (13)
Other changes in fair value575
—
 575
 282
—
 282
Other assets—
(263)
(d) 
(263) —
(42)
(d) 
(42)
Deposits(a)
(161)—
 (161) (110)—
 (110)
Federal funds purchased and securities loaned or sold under repurchase agreements(27)—
 (27) 21
—
 21
Other borrowed funds(a) 
847
—
 847
 956
—
 956
Trading liabilities12
—
 12
 (6)—
 (6)
Beneficial interests issued by consolidated VIEs(30)—
 (30) (89)—
 (89)
Other liabilities—
—
 —
 (4)(3)
(d) 
(7)
Long-term debt:      
 
  
Changes in instrument-specific credit risk(a) 
(504)—
 (504) 199
—
 199
Other changes in fair value(b)
(392)—
 (392) (117)—
 (117)
(a)
Total changes in instrument-specific credit risk related to structured notes were $(468)415 million and $23142 million for the three months ended March 31,June 30, 2012 and 2011, and $(53) million and $165 million for the six months ended June 30, 2012 and 2011, respectively. These totals include adjustments for structured notes classified within deposits and other borrowed funds, as well as long-term debt.
(b)Structured notes are debt instruments with embedded derivatives that are tailored to meet a client’s need. The embedded derivative is the primary driver of risk. Although the risk associated with the structured notes is actively managed, the lossesgains/(losses) reported in this table do not include the income statement impact of such risk management instruments.
(c)Reported in mortgage fees and related income.
(d)Reported in other income.




101134

Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of March 31,June 30, 2012, and December 31, 2011, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.
March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
(in millions)Contractual principal outstanding Fair valueFair value over/(under) contractual principal outstanding Contractual principal outstanding Fair valueFair value over/(under) contractual principal outstandingContractual principal outstanding Fair valueFair value over/(under) contractual principal outstanding Contractual principal outstanding Fair valueFair value over/(under) contractual principal outstanding
Loans(a)
              
Nonaccrual loans              
Loans reported as trading assets$4,691
 $1,008
$(3,683) $4,875
 $1,141
$(3,734)$4,790
 $1,012
$(3,778) $4,875
 $1,141
$(3,734)
Loans775
 55
(720) 820
 56
(764)212
 111
(101) 820
 56
(764)
Subtotal5,466
 1,063
(4,403) 5,695
 1,197
(4,498)5,002
 1,123
(3,879) 5,695
 1,197
(4,498)
All other performing loans              
Loans reported as trading assets36,303
 31,497
(4,806) 37,481
 32,657
(4,824)38,091
 33,844
(4,247) 37,481
 32,657
(4,824)
Loans2,316
 1,813
(503) 2,136
 1,601
(535)2,682
 2,462
(220) 2,136
 1,601
(535)
Total loans$44,085
 $34,373
$(9,712) $45,312
 $35,455
$(9,857)$45,775
 $37,429
$(8,346) $45,312
 $35,455
$(9,857)
Long-term debt              
Principal-protected debt$19,127
(c) 
$19,131
$4
 $19,417
(c) 
$19,890
$473
$17,588
(c) 
$17,198
$(390) $19,417
(c) 
$19,890
$473
Nonprincipal-protected debt(b)
NA
 16,342
NA
 NA
 14,830
NA
NA
 14,459
NA
 NA
 14,830
NA
Total long-term debtNA
 $35,473
NA
 NA
 $34,720
NA
NA
 $31,657
NA
 NA
 $34,720
NA
Long-term beneficial interests              
Principal-protected debt$—
 $—
$—
 $—
 $—
$—
Nonprincipal-protected debt(b)
NA
 1,001
NA
 NA
 1,250
NA
NA
 988
NA
 NA
 1,250
NA
Total long-term beneficial interestsNA
 $1,001
NA
 NA
 $1,250
NA
NA
 $988
NA
 NA
 $1,250
NA
(a)There were no performing loans which were ninety days or more past due as of March 31,June 30, 2012, and December 31, 2011, respectively.
(b)Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note.
(c)Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal payment at maturity.
At March 31,June 30, 2012, and December 31, 2011, the contractual amount of letters of credit for which the fair value option was elected was $3.94.1 billion and $3.9 billion, respectively, with a corresponding fair value of $(80)(78) million and $(5) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 29 on pages 283–289 of JPMorgan Chase’s 2011 Annual Report.


102135

Note 5 – Derivative instruments
JPMorgan Chase makes markets in derivatives for customers and also uses derivatives to hedge or manage its market and credit risk exposures. For a further discussion of the Firm’s use and accounting policies regarding derivative instruments, see Note 6 on pages 202–210202-210 of JPMorgan Chase’s 2011 Annual Report.
The Firm’s disclosures are based on the accounting treatment and purpose of these derivatives. A limited number of the Firm’s derivatives are designated in hedge
accounting relationships and are disclosed according to the type of hedge (fair value hedge, cash flow hedge, or net investment hedge). Derivatives not designated in hedge accounting relationships include certain derivatives that are used to manage certain risks associated with specified assets or liabilities (“specified risk management” positions) as well as derivatives used in the Firm’s market-making businesses or for other purposes.


The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category.
Type of DerivativeUse of DerivativeDesignation and disclosureAffected segment or unit10-Q page reference
Manage identified risk exposures in qualifying hedge accounting relationships:
◦ Interest rateHedge fixed rate assets and liabilitiesFair value hedgeCorporate/PE139
◦ Interest rateHedge floating rate assets and liabilitiesCash flow hedgeCorporate/PE140
◦ Foreign exchangeHedge foreign currency-denominated assets and liabilitiesFair value hedgeCorporate/PE139
◦ Foreign exchangeHedge forecasted revenue and expenseCash flow hedgeCorporate/PE140
◦ Foreign exchangeHedge the value of the Firm’s investments in non-U.S. subsidiariesNet investment hedgeCorporate/PE141
◦ CommodityHedge commodity inventoryFair value hedgeIB139
Manage specifically identified exposures:
◦ Interest rateManage the risk of the mortgage pipeline, warehouse loans and MSRsSpecified risk managementRFS141
◦ CreditManage the credit risk of wholesale lending exposuresSpecified risk managementIB141
◦ Credit(a)
Manage the credit risk of certain AFS securitiesSpecified risk managementCorporate/PE141
◦ CommodityManage the risk of certain commodities-related contracts and investmentsSpecified risk managementIB141
◦Interest rate and foreign exchangeManage the risk of certain other specified assets and liabilitiesSpecified risk managementCorporate/PE141
Make markets in derivatives and other activity:
• VariousMarket-making and related risk managementMarket-making and otherIB141
• VariousOther derivatives, including the synthetic credit portfolioMarket-making and otherIB, Corporate/PE141
(a)Includes a limited number of single-name credit derivatives used to mitigate the credit risk arising from specified AFS securities.

Synthetic credit portfolio
The synthetic credit portfolio is a portfolio of index credit derivatives, including short and long positions, that was held by CIO. On July 2, 2012, CIO transferred the synthetic credit portfolio, other than a portion that aggregated to a notional amount of approximately $12 billion, to IB. Both the portion of the synthetic credit portfolio transferred to IB, as well as the portion retained by CIO, continue to be included in the gains and losses on derivatives related to market-making activities and other derivatives category on page 141 of this Note.


136

Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of March 31,June 30, 2012, and December 31, 2011.
Notional amounts(a)
Notional amounts(b)
(in billions)March 31, 2012
December 31, 2011
June 30, 2012
December 31, 2011
Interest rate contracts  
Swaps$37,382
$38,704
$35,117
$38,704
Futures and forwards9,917
7,888
9,994
7,888
Written options4,005
3,842
3,904
3,842
Purchased options4,102
4,026
4,073
4,026
Total interest rate contracts55,406
54,460
53,088
54,460
Credit derivatives(a)6,164
5,774
6,015
5,774
Foreign exchange contracts  
  
Cross-currency swaps3,211
2,931
3,266
2,931
Spot, futures and forwards4,707
4,512
4,578
4,512
Written options711
674
718
674
Purchased options722
670
729
670
Total foreign exchange contracts9,351
8,787
9,291
8,787
Equity contracts  
Swaps131
119
139
119
Futures and forwards51
38
45
38
Written options527
460
527
460
Purchased options482
405
495
405
Total equity contracts1,191
1,022
1,206
1,022
Commodity contracts  
  
Swaps346
341
316
341
Spot, futures and forwards216
188
207
188
Written options347
310
352
310
Purchased options311
274
311
274
Total commodity contracts1,220
1,113
1,186
1,113
Total derivative notional amounts$73,332
$71,156
$70,786
$71,156
(a)Primarily consists of credit default swaps. For more information on volumes and types of credit derivative contracts, see the Credit derivatives discussion on pages 143–144 of this Note.
(b)Represents the sum of gross long and gross short third-party notional derivative contracts.

While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative transactions, the notional amount is not exchanged; it is used simply as a reference to calculate payments.

103137

Impact of derivatives on the Consolidated Balance Sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated Balance Sheets as of March 31,June 30, 2012, and December 31, 2011, by accounting designation (e.g., whether the derivatives were designated as hedgesin hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables(a)
          
Derivative receivables and payables(a)
Derivative receivables and payables(a)
          
Gross derivative receivables   Gross derivative payables  Gross derivative receivables   Gross derivative payables  
March 31, 2012
(in millions)
Not designated as hedgesDesignated as hedgesTotal derivative receivables 
Net derivative receivables(c)
 Not designated as hedges
Designated
as hedges
Total derivative payables 
Net derivative payables(c)
June 30, 2012
(in millions)
Not designated as hedgesDesignated as hedgesTotal derivative receivables 
Net derivative receivables(c)
 Not designated as hedges
Designated
as hedges
Total derivative payables 
Net derivative payables(c)
Trading assets and liabilities                          
Interest rate$1,259,472
$7,063
 $1,266,535
 $41,520
 $1,222,353
 $2,171
 $1,224,524
 $24,235
$1,370,151
$6,453
 $1,376,604
 $45,481
 $1,330,112
 $2,915
 $1,333,027
 $29,574
Credit126,555
—
 126,555
 6,625
 124,986
 —
 124,986
 6,703
136,258
—
 136,258
 4,468
 135,305
 —
 135,305
 4,950
Foreign exchange(b)
139,071
2,544
 141,615
 13,056
 151,841
 1,544
 153,385
 15,534
131,166
2,380
 133,546
 12,982
 143,964
 1,283
 145,247
 17,227
Equity49,371
—
 49,371
 8,995
 49,786
 —
 49,786
 12,909
49,374
—
 49,374
 8,103
 46,752
 —
 46,752
 9,602
Commodity57,240
1,135
 58,375
 15,181
 59,134
 1,350
 60,484
 15,093
48,402
1,330
 49,732
 14,509
 52,077
 526
 52,603
 14,896
Total fair value of trading assets and liabilities$1,631,709
$10,742
 $1,642,451
 $85,377
 $1,608,100
 $5,065
 $1,613,165
 $74,474
$1,735,351
$10,163
 $1,745,514
 $85,543
 $1,708,210
 $4,724
 $1,712,934
 $76,249
                          
Gross derivative receivables   Gross derivative payables  Gross derivative receivables   Gross derivative payables  
December 31, 2011
(in millions)
Not designated as hedgesDesignated as hedgesTotal derivative receivables 
Net derivative receivables(c)
 Not designated as hedges
Designated
as hedges
Total derivative payables 
Net derivative payables(c)
Not designated as hedgesDesignated as hedgesTotal derivative receivables 
Net derivative receivables(c)
 Not designated as hedges
Designated
as hedges
Total derivative payables 
Net derivative payables(c)
Trading assets and liabilities                          
Interest rate$1,433,900
$7,621
 $1,441,521
 $46,369
 $1,397,625
 $2,192
 $1,399,817
 $28,010
$1,433,900
$7,621
 $1,441,521
 $46,369
 $1,397,625
 $2,192
 $1,399,817
 $28,010
Credit169,650
—
 169,650
 6,684
 165,121
 —
 165,121
 5,610
169,650
—
 169,650
 6,684
 165,121
 —
 165,121
 5,610
Foreign exchange(b)
163,497
4,666
 168,163
 17,890
 165,353
 655
 166,008
 17,435
163,497
4,666
 168,163
 17,890
 165,353
 655
 166,008
 17,435
Equity47,736
—
 47,736
 6,793
 46,366
 —
 46,366
 9,655
47,736
—
 47,736
 6,793
 46,366
 —
 46,366
 9,655
Commodity53,894
3,535
 57,429
 14,741
 58,836
 1,108
 59,944
 14,267
53,894
3,535
 57,429
 14,741
 58,836
 1,108
 59,944
 14,267
Total fair value of trading assets and liabilities$1,868,677
$15,822
 $1,884,499
 $92,477
 $1,833,301
 $3,955
 $1,837,256
 $74,977
$1,868,677
$15,822
 $1,884,499
 $92,477
 $1,833,301
 $3,955
 $1,837,256
 $74,977
(a)
ExcludesBalances exclude structured notes for which the fair value option has been elected. See Note 4 on pages 101–102133–135 of this Form 10-Q for further information.
(b)
Excludes $10 million and $11 million of foreign currency-denominated debt designated as a net investment hedge at March 31, 2012, and December 31, 2011, respectively.. There was no such hedge designation at June 30, 2012.
(c)As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid, respectively, when a legally enforceable master netting agreement exists.


104138

Impact of derivatives on the Consolidated Statements of Income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pretax gains/(losses) recorded on such derivatives and the related hedged items for the three and six months ended March 31,June 30, 2012 and 2011, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the same line item in the Consolidated Statements of Income.
Gains/(losses) recorded in income Income statement impact due to:Gains/(losses) recorded in income Income statement impact due to:
Three months March 31, 2012
(in millions)
DerivativesHedged itemsTotal income statement impact 
Hedge ineffectiveness(e)
Excluded components(f)
Three months June 30, 2012 (in millions)DerivativesHedged itemsTotal income statement impact 
Hedge ineffectiveness(e)
Excluded components(f)
Contract type          
Interest rate(a)
$(375) $488
$113
 $28
$85
$(207) $273
$66
 $7
$59
Foreign exchange(b)
(2,954)
(d) 
2,950
(4) —
(4)4,575
(d) 
(4,521)54
 —
54
Commodity(c)
(2,176) 1,694
(482) 27
(509)1,396
 (1,193)203
 26
177
Total$(5,505) $5,132
$(373) $55
$(428)$5,764
 $(5,441)$323
 $33
$290
          
Gains/(losses) recorded in income Income statement impact due to:Gains/(losses) recorded in income Income statement impact due to:
Three months March 31, 2011
(in millions)
DerivativesHedged items
Total income statement impact 
Hedge ineffectiveness(e)

Excluded components(f)

Three months June 30, 2011 (in millions)DerivativesHedged items
Total income statement impact 
Hedge ineffectiveness(e)

Excluded components(f)

Contract type          
Interest rate(a)
$(718) $800
$82
 $(9)$91
$166
 $(102)$64
 $(17)$81
Foreign exchange(b)
(3,206)
(d) 
3,124
(82) —
(82)(1,239)
(d) 
1,401
162
 —
162
Commodity(c)
(73) 433
360
 (1)361
(401) (97)(498) 3
(501)
Total$(3,997) $4,357
$360
 $(10)$370
$(1,474) $1,202
$(272) $(14)$(258)
 Gains/(losses) recorded in income Income statement impact due to:
Six months June 30, 2012 (in millions)DerivativesHedged itemsTotal income statement impact 
Hedge ineffectiveness(e)
Excluded components(f)
Contract type       
Interest rate(a)
$(582) $761
$179
 $35
$144
Foreign exchange(b)
1,621
(d) 
(1,571)50
 —
50
Commodity(c)
(780) 501
(279) 53
(332)
Total$259
 $(309)$(50) $88
$(138)
        
 Gains/(losses) recorded in income Income statement impact due to:
Six months June 30, 2011 (in millions)DerivativesHedged items
Total income statement impact 
Hedge ineffectiveness(e)

Excluded components(f)

Contract type       
Interest rate(a)
$(552) $698
$146
 $(26)$172
Foreign exchange(b)
(4,445)
(d) 
4,525
80
 —
80
Commodity(c)
(474) 336
(138) 2
(140)
Total$(5,471) $5,559
$88
 $(24)$112
(a)Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate (“LIBOR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income.
(b)Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items, due to changes in spot foreign currency rates, were recorded in principal transactions revenue and net interest income.
(c)Consists of overall fair value hedges of certainphysical commodities inventories.inventories that are generally carried at the lower of cost or market (market approximates fair value). Gains and losses were recorded in principal transactions revenue.
(d)
Included $(2.8)4.5 billion and $(3.2)(1.8) billion for the three months ended March 31,June 30, 2012 and 2011, respectively, and $1.7 billion and $(5.0) billion for the six months ended June 30, 2012 and 2011, respectively, of revenue related to certain foreign exchange trading derivatives designated as fair value hedging instruments.
(e)Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk.
(f)Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. Amounts related to excluded components are recorded in current-period income.


105139

Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pretax gains/(losses) recorded on such derivatives, for the three and six months ended March 31,June 30, 2012 and 2011, respectively. The Firm includes the gain/(loss) on the hedging derivative in the same line item as the offsetting change in cash flows on the hedged item in the Consolidated Statements of Income.
Gains/(losses) recorded in income and other comprehensive income/(loss)(c)
Gains/(losses) recorded in income and other comprehensive income/(loss)(c)
Three months March 31, 2012
(in millions)
Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(d)
Total income statement impactDerivatives – effective portion recorded in OCI
Total change
in OCI
for period
Three months June 30, 2012 (in millions)Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(d)
Total income statement impactDerivatives – effective portion recorded in OCI
Total change
in OCI
for period
Contract type  
Interest rate(a)
$21
$5
$26
$(120)$(141)$7
$—
$7
$140
$133
Foreign exchange(b)
(1)—
(1)79
80
(2)—
(2)(12)(10)
Total$20
$5
$25
$(41)$(61)$5
$—
$5
$128
$123

Gains/(losses) recorded in income and other comprehensive income/(loss)(c)
Gains/(losses) recorded in income and other comprehensive income/(loss)(c)
Three months March 31, 2011
(in millions)
Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(d)
Total income statement impactDerivatives – effective portion recorded in OCITotal change
in OCI
for period
Three months June 30, 2011 (in millions)Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(d)
Total income statement impactDerivatives – effective portion recorded in OCITotal change
in OCI
for period
Contract type  
Interest rate(a)
$94
$3
$97
$(31)$(125)$75
$6
$81
$(103)$(178)
Foreign exchange(b)
22
—
22
18
(4)(7)—
(7)(40)(33)
Total$116
$3
$119
$(13)$(129)$68
$6
$74
$(143)$(211)

 
Gains/(losses) recorded in income and other comprehensive income/(loss)(c)
Six months June 30, 2012 (in millions)Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(d)
Total income statement impactDerivatives – effective portion recorded in OCI
Total change
in OCI
for period
Contract type     
Interest rate(a)
$28
$5
$33
$20
$(8)
Foreign exchange(b)
(3)—
(3)67
70
Total$25
$5
$30
$87
$62

 
Gains/(losses) recorded in income and other comprehensive income/(loss)(c)
Six months June 30, 2011 (in millions)Derivatives – effective portion reclassified from AOCI to income
Hedge ineffectiveness recorded directly in income(d)
Total income statement impactDerivatives – effective portion recorded in OCITotal change
in OCI
for period
Contract type     
Interest rate(a)
$169
$9
$178
$(134)$(303)
Foreign exchange(b)
15
—
15
(22)(37)
Total$184
$9
$193
$(156)$(340)
(a)Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income.
(b)Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily noninterest revenue and compensation expense.
(c)The Firm did not experience any forecasted transactions that failed to occur for the three and six months ended March 31,June 30, 2012 and 2011.
(d)Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
Over the next 12 months, the Firm expects that $1411 million (after-tax) of net gains recorded in accumulated other comprehensive income (“AOCI”) at March 31,June 30, 2012, related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are hedged is 9 years years,, and such transactions primarily relate to core lending and borrowing activities.

106140

Net investment hedge gains and losses
The following table presentpresents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the pretax gains/(losses) recorded on such instruments for the three and six months ended March 31,June 30, 2012 and 2011.
Gains/(losses) recorded in income and
other comprehensive income/(loss)
Gains/(losses) recorded in income and
other comprehensive income/(loss)
2012 20112012 2011
Three months ended March 31,
(in millions)
Excluded components recorded directly
in income(a)
Effective portion recorded in OCI 
Excluded components
recorded directly
in income(a)
Effective portion recorded in OCI
Three months ended June 30,
(in millions)
Excluded components recorded directly
in income(a)
Effective portion recorded in OCI 
Excluded components
recorded directly
in income(a)
Effective portion recorded in OCI
Foreign exchange derivatives $(55) $(267) $(71) $(390) $(80) $480
 $(74) $(383)

 
Gains/(losses) recorded in income and
other comprehensive income/(loss)
 2012 2011
Six months ended June 30,
(in millions)
Excluded components recorded directly
in income(a)
Effective portion recorded in OCI 
Excluded components
recorded directly
in income(a)
Effective portion recorded in OCI
Foreign exchange derivatives $(135) $213
  $(145) $(773)
(a)
Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. Amounts related to excluded components are recorded in current-period income. The Firm measures the ineffectiveness of net investment hedge accounting relationships based on changes in spot foreign currency rates, and therefore there was no ineffectiveness for net investment hedge accounting relationships during the three and six months ended March 31,June 30, 2012 and 2011.





Derivatives gainsGains and losses not designated as hedging instrumentson derivatives used for specified risk management purposes
The following table presents pretax gains/(losses) recorded on a limited number of derivatives, not designated in hedge accounting relationships, that are used to manage risks associated with certain specified risk exposures,assets and liabilities, including thosecertain risks arising from the mortgage pipeline, warehouse loans, MSRs, wholesale loan portfolio, MSRs, certain asset/liability management positionslending exposures, AFS securities, foreign currency-denominated liabilities, and certain commodities-related contracts and investments.
Derivatives gains/(losses)
recorded in income
Derivatives gains/(losses)
recorded in income
Three months ended March 31,
(in millions)
2012
2011
Three months ended June 30, Six months ended June 30,
(in millions)2012
2011
 2012
2011
Contract type    
Interest rate(a)
$536
$75
$2,307
$1,486
 $2,843
$1,562
Credit(b)
(74)(58)(13)(5) (87)(63)
Foreign exchange(c)
5
(8)42
(78) 47
(98)
Commodity(b)
(10)—
Commodity(d)
13
11
 3
—
Total$457
$9
$2,349
$1,414
 $2,806
$1,401
(a)Primarily relates to interest rate derivatives used to hedge the interest rate risks associated with the mortgage pipeline, warehouse loans and MSRs. Gains and losses were recorded predominantly in principal transactions revenue, mortgage fees and related income, and net interest income.
(b)Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm’s wholesale businesses, and single-name credit derivatives used to mitigate credit risk arising from certain AFS securities. These derivatives do not include CIO’s synthetic credit portfolio or credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, both of which are included in gains and losses on derivatives related to market-making activities and other derivatives below. Gains and losses were recorded in principal transactions revenue.
(c)Primarily relates to hedges of the foreign exchange risk of specified foreign currency-denominated liabilities. Gains and losses were recorded in principal transactions revenue and net interest income.
(d)Primarily relates to commodity derivatives used to mitigate energy price risk associated with energy-related contracts and investments. Gains and losses were recorded in principal transactions revenue.
The table above does not include
Gains and losses on derivatives used inrelated to market-making activities orand other derivatives
The Firm makes markets in derivatives in order to meet the needs of customers and uses derivatives to manage enterprisecertain risks associated with net open risk exposurespositions from the Firm’s market-making activities, including the counterparty credit risk arising from market-makingderivative receivables. These derivatives, as well as all other derivatives (including the CIO synthetic credit portfolio) that are not included in the hedge accounting or specified risk management categories above, are included in this category. Gains and other financial intermediation activities.losses on these derivatives are recorded in principal transactions revenue. See Note 6 on page 110pages 144–145 of this Form 10-Q for information on tradingprincipal transactions revenue.

141




Credit risk, liquidity risk and credit-related contingent features
For a more detailed discussion of credit risk, liquidity risk and credit-related contingent features, see Note 6 on pages 202–210 of JPMorgan Chase’s 2011 Annual Report.
The following table shows the aggregate fair value of net derivative payables that contain contingent collateral or termination features that may be triggered upon a downgrade and the associated collateral the Firm has posted in the normal course of business at March 31,June 30, 2012, and December 31, 2011.
Derivative payables containing downgrade triggers
(in millions)March 31, 2012 December 31, 2011 June 30, 2012
December 31, 2011
Aggregate fair value of net derivative payables $20,134
 $16,937
$22,818
$16,937
Collateral posted 18,907
 11,429
19,160
11,429



107

The following table shows the impact of a single-notch and two-notch ratings downgrade to JPMorgan Chase & Co. and its subsidiaries, primarilypredominantly JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), at March 31,June 30, 2012, and December 31, 2011,, related to derivative contracts with contingent collateral or termination features that may be triggered upon a downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined threshold rating of major rating agencies is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral or termination payment requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating provided by major rating agencies.
Liquidity impact of derivative downgrade triggers
March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
(in millions)Single-notch downgradeTwo-notch downgrade Single-notch downgradeTwo-notch downgradeSingle-notch downgradeTwo-notch downgrade Single-notch downgradeTwo-notch downgrade
Amount of additional collateral to be posted upon downgrade$971
$1,696
 $1,460
$2,054
$965
$1,555
 $1,460
$2,054
Amount required to settle contracts with termination triggers upon downgrade

1,142
1,780
 1,054
1,923
1,104
1,783
 1,054
1,923
The following tables show the carrying value of derivative receivables and payables after netting adjustments, and adjustments for collateral held (including cash, U.S. government and agency securities and other G7 government bonds) and transferred as of March 31,June 30, 2012, and December 31, 2011.2011.
Impact of netting adjustments on derivative receivables and payables
Derivative receivables Derivative payablesDerivative receivables Derivative payables
(in millions)March 31, 2012
December 31, 2011
 March 31, 2012
December 31, 2011
June 30, 2012
December 31, 2011
 June 30, 2012
December 31, 2011
Gross derivative fair value$1,642,451
$1,884,499
 $1,613,165
$1,837,256
$1,745,514
$1,884,499
 $1,712,934
$1,837,256
Netting adjustment – offsetting receivables/payables(a)
(1,483,439)(1,710,523) (1,483,439)(1,710,523)(1,581,514)(1,710,523) (1,581,514)(1,710,523)
Netting adjustment – cash collateral received/paid(a)
(73,635)(81,499) (55,252)(51,756)(78,457)(81,499) (55,171)(51,756)
Carrying value on Consolidated Balance Sheets$85,377
$92,477
 $74,474
$74,977
$85,543
$92,477
 $76,249
$74,977
Total derivative collateral
Collateral held Collateral transferredCollateral held Collateral transferred
(in millions)March 31, 2012
December 31, 2011
 March 31, 2012
December 31, 2011
June 30, 2012
December 31, 2011
 June 30, 2012
December 31, 2011
Netting adjustment for cash collateral(a)
$73,635
$81,499
 $55,252
$51,756
$78,457
$81,499
 $55,171
$51,756
Liquid securities and other cash collateral(b)
18,401
21,807
 18,680
19,439
18,973
21,807
 21,772
19,439
Additional liquid securities and cash collateral(c)
19,616
17,613
 10,643
10,824
21,412
17,613
 12,338
10,824
Total collateral for derivative transactions$111,652
$120,919
 $84,575
$82,019
$118,842
$120,919
 $89,281
$82,019
(a)As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists.
(b)Represents cash collateral received and paid that is not subject to a legally enforceable master netting agreement, and liquid securities collateral held and transferred.
(c)Represents liquid securities and cash collateral held and transferred at the initiation of derivative transactions, which is available as security against potential exposure that could arise should the fair value of the transactions move, as well as collateral held and transferred related to contracts that have non-daily call frequency for collateral to be posted, and collateral that the Firm or a counterparty has agreed to return but has not yet settled as of the reporting date. These amounts were not netted against the derivative receivables and payables in the tables above, because, at an individual counterparty level, the collateral exceeded the fair value exposure at both March 31,June 30, 2012, and December 31, 2011.

142

Credit derivatives
For a more detailed discussion of credit risk, liquidity risk and credit-related contingent features,derivatives, see Note 6 on pages 202–210 of JPMorgan Chase’s 2011 Annual Report.
The Firm is both a purchaser and seller of protection in the credit derivatives market and uses these derivatives for two primary purposes. First, in its capacity as a market-maker, the Firm actively manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. Second, as an end-user, the Firm uses credit derivatives to manage credit risk associated with lending exposures (loans and unfunded commitments) and derivatives counterparty exposures in the Firm’s wholesale businesses, and to manage the credit risk arising from certain AFS securities and from certain financial instruments in the Firm’s market-making businesses. In addition, the synthetic credit portfolio is a portfolio of index credit derivatives held by CIO. For more information on the synthetic credit portfolio, see the discussion on page 136 of this Note.
The following tables present a summary of the notional amounts of credit derivatives and credit-related notes the Firm sold and purchased as of March 31,June 30, 2012, and
December 31, 2011. Upon a credit event,
As shown in the Firm as a seller of protection would typically pay out only a percentage oftable below, the full notional amount of net protection sold, as the amount actually required to be paid on the contracts takes into account the recovery value of the reference obligation at the time of settlement. The Firm manages the credit risk on contracts to sell protection by purchasing protection with identical or similar underlying reference entities.instruments (including single-name, portfolio coverage or specified indices). Other purchased protection referenced in the following tables includes credit derivatives boughtpurchased on
related, but reference instruments where the Firm has not sold any protection on the identical reference positions (including indices, portfolio coverage and other reference points)instrument, as well as protection purchased through credit-related notes.
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives, because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value of the reference obligation (which typically reduces the amount actually required to be paid on the credit derivative contract), or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives.






108

Total credit derivatives and credit-related notes
Maximum payout/Notional amountMaximum payout/Notional amount
March 31, 2012 (in millions)
Protection sold
Protection purchased with
identical underlyings(c)
Net protection (sold)/purchased(d)
Other protection purchased(e)
June 30, 2012 (in millions)
Protection sold
Protection purchased with
identical underlyings(c)
Net protection (sold)/purchased(d)
Other protection purchased(e)
Credit derivatives      
Credit default swaps(a)
$(3,072,113) $2,942,724
$(129,389)$32,018
$(2,933,804) $2,905,226
$(28,578)$54,601
Other credit derivatives(b)
(84,042) 7,327
(76,715)25,674
(80,045) 14,312
(65,733)27,031
Total credit derivatives(3,156,155) 2,950,051
(206,104)57,692
(3,013,849) 2,919,538
(94,311)81,632
Credit-related notes(510) —
(510)4,157
(383) —
(383)2,979
Total$(3,156,665) $2,950,051
$(206,614)$61,849
$(3,014,232) $2,919,538
$(94,694)$84,611
      
Maximum payout/Notional amountMaximum payout/Notional amount
December 31, 2011 (in millions)Protection sold
Protection purchased with
identical underlyings(c)
Net protection (sold)/purchased(d)
Other protection purchased(e)
Protection sold
Protection purchased with
identical underlyings(c)
Net protection (sold)/purchased(d)
Other protection purchased(e)
Credit derivatives      
Credit default swaps(a)
$(2,839,492) $2,798,207
$(41,285)$29,139
$(2,839,492) $2,798,207
$(41,285)$29,139
Other credit derivatives(b)
(79,711) 4,954
(74,757)22,292
(79,711) 4,954
(74,757)22,292
Total credit derivatives(2,919,203) 2,803,161
(116,042)51,431
(2,919,203) 2,803,161
(116,042)51,431
Credit-related notes(742) —
(742)3,944
(742) —
(742)3,944
Total$(2,919,945) $2,803,161
$(116,784)$55,375
$(2,919,945) $2,803,161
$(116,784)$55,375
(a)
At March 31,June 30, 2012, and December 31, 2011, included: (1) $10059 million and $131 million of protection sold, respectively, and (2) $29.731.3 billion and $26.4 billion of protection purchased, respectively, related to credit portfolio activity.activity; the synthetic credit portfolio held by CIO is also included.
(b)Primarily consists of total return swaps and CDS options.
(c)Represents the total notional amount of protection purchased where the underlying reference instrument (single-name, portfolio or index)is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(d)Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value.
(e)Represents protection purchased by the Firm through single-name and index CDSon referenced instruments (single-name, portfolio or credit-related notes.index) where the Firm has not sold any protection on the identical reference instrument.

143

The following tables summarize the notional and fair value amounts of credit derivatives and credit-related notes as of March 31,June 30, 2012, and December 31, 2011, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile

Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile

  
Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile

  
March 31, 2012 (in millions)<1 year1–5 years>5 years
Total
notional amount
Fair value(b)
June 30, 2012 (in millions)<1 year1–5 years>5 years
Total
notional amount
Fair value of receivables(b)
Fair value of payables(b)
Net fair value
Risk rating of reference entity  
Investment-grade$(375,391)$(1,322,649)$(454,882)$(2,152,922)$(27,142)$(453,722)$(1,301,837)$(351,934)$(2,107,493)$5,187
$(33,708)$(28,521)
Noninvestment-grade(247,436)(602,887)(153,420)(1,003,743)(64,124)(254,489)(545,399)(106,851)(906,739)18,875
(75,062)(56,187)
Total$(622,827)$(1,925,536)$(608,302)$(3,156,665)$(91,266)$(708,211)$(1,847,236)$(458,785)$(3,014,232)$24,062
$(108,770)$(84,708)
December 31, 2011 (in millions)<1 year1–5 years>5 years
Total
notional amount
Fair value(b)
<1 year1–5 years>5 years
Total
notional amount
Fair value of receivables(b)
Fair value of payables(b)
Net fair value
Risk rating of reference entity  
Investment-grade$(352,215)$(1,262,143)$(345,996)$(1,960,354)$(57,697)$(352,215)$(1,262,143)$(345,996)$(1,960,354)$7,809
$(57,697)$(49,888)
Noninvestment-grade(241,823)(589,954)(127,814)(959,591)(85,304)(241,823)(589,954)(127,814)(959,591)13,212
(85,304)(72,092)
Total$(594,038)$(1,852,097)$(473,810)$(2,919,945)$(143,001)$(594,038)$(1,852,097)$(473,810)$(2,919,945)$21,021
$(143,001)$(121,980)
(a)The ratings scale is based on the Firm’s internal ratings, which generally correspond to ratings as defined by S&P and Moody’s.
(b)Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.

109

Note 6 – Noninterest revenue
For a discussion of the components of and accounting policies for the Firm’s noninterest revenue, see Note 7 on pages 211–212 of JPMorgan Chase’s 2011 Annual Report.
The following table presents the components of investment banking fees.
Three months ended March 31,Three months ended June 30, 
Six months ended
June 30,
(in millions)2012 20112012 2011 2012 2011
Underwriting          
Equity$276
 $379
$250
 $455
 $526
 $834
Debt823
 982
654
 876
 1,477
 1,858
Total underwriting1,099
 1,361
904
 1,331
 2,003
 2,692
Advisory282
 432
353
 602
 635
 1,034
Total investment banking fees$1,381
 $1,793
$1,257
 $1,933
 $2,638
 $3,726
The following table presents all realized and unrealized gains and losses recorded in principal transactions revenue by major underlying type of risk exposures.
This table does not includePrincipal transactions revenue includes realized and unrealized gains and losses recorded on derivatives, other types of revenue, such as net interest income on securities, which are an integral part of the overall performance of the Firm’s client-drivenfinancial instruments, private equity investments, and physical commodities used in market-making and client-driven activities.
In addition, principal transactions revenue also includes certain realized and unrealized gains and losses related to hedge accounting and specified risk management activities.activities disclosed separately in Note 5, including: (a) certain derivatives designated in qualifying hedge accounting relationships (primarily fair value hedges of commodity and foreign exchange risk), (b) certain derivatives used for
specified risk management purposes, primarily to mitigate credit risk, foreign exchange risk and commodity risk, and (c) other derivatives, including the synthetic credit portfolio held by CIO. See Note 5 on pages 136-144 of this Form 10-Q for information on the income statement classification of gains and losses on derivatives.

Three months ended March 31,Three months ended June 30, 
Six months ended
June 30,
(in millions)2012 20112012 2011 2012 2011
Trading revenue by risk exposure          
Interest rate(a)$1,345
 $527
$1,228
 $(305) $2,573
 $222
Credit(b)(324) 1,248
(3,583) 819
 (4,567) 2,067
Foreign exchange548
 560
376
 225
 924
 785
Equity823
 1,039
581
 831
 1,404
 1,870
Commodity(a)(c)
627
 566
617
 732
 1,244
 1,298
Total trading revenue3,019
 3,940
(781) 2,302
 1,578
 6,242
Private equity gains/(losses)(b)(d)
363
 805
354
 838
 717
 1,643
Principal transactions(c)(e)
$3,382
 $4,745
$(427) $3,140
 $2,295
 $7,885
(a)
Includes a $545 million pretax gain reflecting the expected recovery on a Bear Stearns-related subordinated loan.
(b)
Includes losses of $4.4 billion and $5.8 billion on the synthetic credit portfolio for the three and six months ended June 30, 2012, respectively. In June 2012, CIO identified a portion of the synthetic credit portfolio that aggregated to a notional amount of approximately $12 billion; subsequent losses of $240 million are included in these amounts.
(c)Includes realized gains and losses and unrealized losses on physical commodities inventories that are generally carried at the lower of cost or market (market approximates fair value,value), subject to any applicable fair value hedge accounting adjustments, and gains and losses on commodity derivatives and other financial instruments that are carried at fair value through income. Commodity derivatives are frequently used to manage the Firm’s risk exposure to its physical commodities inventories.


144

used to manage the Firm’s risk exposure to its physical commodities inventories. Gains/(losses) related to commodity fairvalue hedges were $203 million and $(498) million for the three months ended June 30, 2012 and 2011, respectively. Gains/(losses) related to commodity fair value hedges were $(279) million and $(138) million for the six months ended June 30, 2012 and 2011, respectively.
(b)(d)Includes revenue on private equity investments held in the Private Equity business within Corporate/Private Equity, as well as those held in other business segments.
(c)(e)
Principal transactions revenue included debit valuation adjustments (“DVA”) related to derivatives and structured liabilities measured at fair value in IB. DVA gains/(losses) were $(907)755 million and $(46)165 million for the three months ended March 31,June 30, 2012 and 2011, and $(152) million and $119 million for the six months ended June 30, 2012 and 2011, respectively.
The following table presents components of asset management, administration and commissions.
Three months ended March 31,Three months ended June 30, 
Six months ended
June 30,
(in millions)2012 20112012 2011 2012 2011
Asset management          
Investment management fees$1,446
 $1,494
$1,499
 $1,655
 $2,945
 $3,149
All other asset management fees162
 144
176
 148
 338
 292
Total asset management fees1,608
 1,638
1,675
 1,803
 3,283
 3,441
          
Total administration fees(a)
535
 551
559
 579
 1,094
 1,130
          
Commission and other fees          
Brokerage commissions655
 763
585
 699
 1,240
 1,462
All other commissions and fees594
 654
642
 622
 1,236
 1,276
Total commissions and fees1,249
 1,417
1,227
 1,321
 2,476
 2,738
Total asset management, administration and commissions$3,392
 $3,606
$3,461
 $3,703
 $6,853
 $7,309
(a)Includes fees for custody, securities lending, funds services and securities clearance.


Note 7 – Interest income and Interest expense
For a description of JPMorgan Chase’s accounting policies regarding interest income and interest expense, see Note 8 on page 212 of JPMorgan Chase’s 2011 Annual Report.
Details of interest income and interest expense were as follows.
Three months ended March 31,Three months ended June 30, Six months ended June 30,
(in millions)201220112012 2011 20122011
Interest income      
Loans$9,102
$9,507
$8,902
 $9,140
 $18,004
$18,647
Securities2,295
2,216
2,101
 2,590
 4,396
4,806
Trading assets2,394
2,885
2,265
 2,966
 4,659
5,851
Federal funds sold and securities purchased under resale agreements651
543
646
 604
 1,297
1,147
Securities borrowed37
47
(12)
(c) 
30
 25
77
Deposits with banks152
101
136
 144
 288
245
Other assets(a)
70
148
61
 158
 131
306
Total interest income14,701
15,447
14,099
 15,632
 28,800
31,079
Interest expense      
Interest-bearing deposits722
922
737
 1,123
 1,459
2,045
Short-term and other liabilities(b)
409
818
513
 890
 922
1,708
Long-term debt1,722
1,588
1,538
 1,581
 3,260
3,169
Beneficial interests issued by consolidated VIEs182
214
165
 202
 347
416
Total interest expense3,035
3,542
2,953
 3,796
 5,988
7,338
Net interest income11,666
11,905
11,146
 11,836
 22,812
23,741
Provision for credit losses726
1,169
214
 1,810
 940
2,979
Net interest income after provision for credit losses$10,940
$10,736
$10,932
 $10,026
 $21,872
$20,762
(a)Predominantly margin loans.
(b)Includes brokerage customer payables.
(c)Negative interest income for the three months ended June 30, 2012, is a result of increased client-driven demand for certain securities combined with the impact of low interest rates.




110145

Note 8 – Pension and other postretirement employee benefit plans
For a discussion of JPMorgan Chase’s pension and other postretirement employee benefit (“OPEB”) plans, see Note 9 on pages 213–222 of JPMorgan Chase’s 2011 Annual Report.

The following table presents the components of net periodic benefit costs reported in the Consolidated Statements of Income for the Firm’s U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans.
 Pension plans   
 U.S. Non-U.S. OPEB plans
Three months ended June 30, (in millions)2012
2011
 2012
2011
 2012
2011
Components of net periodic benefit cost        
Benefits earned during the period$68
$62
 $9
$9
 $—
$—
Interest cost on benefit obligations121
113
 31
35
 11
13
Expected return on plan assets(223)(197) (34)(36) (23)(22)
Amortization:        
Net (gain)/loss73
41
 8
12
 (2)—
Prior service cost/(credit)(10)(11) —
(1) —
(2)
Net periodic defined benefit cost29
8
 14
19
 (14)(11)
Other defined benefit pension plans(a)
3
4
 1
5
 NA
NA
Total defined benefit plans32
12
 15
24
 (14)(11)
Total defined contribution plans107
89
 75
65
 NA
NA
Total pension and OPEB cost included in compensation expense$139
$101
 $90
$89
 $(14)$(11)
Pension plans  Pension plans  
U.S. Non-U.S. OPEB plansU.S. Non-U.S. OPEB plans
Three months ended March 31, (in millions)2012
2011
 2012
2011
 2012
2011
Six months ended June 30, (in millions)2012
2011
 2012
2011
 2012
2011
Components of net periodic benefit cost          
Benefits earned during the period$68
$62
 $10
$9
 $—
$—
$136
$124
 $19
$18
 $—
$—
Interest cost on benefit obligations106
113
 31
33
 11
13
227
226
 62
68
 22
26
Expected return on plan assets(195)(198) (33)(36) (22)(22)(418)(395) (67)(72) (45)(44)
Amortization:       
   
   
Net (gain)/loss72
41
 9
12
 2
—
145
82
 17
24
 —
—
Prior service cost/(credit)(11)(10) —
—
 —
(2)(21)(21) —
(1) —
(4)
Net periodic defined benefit cost40
8
 17
18
 (9)(11)69
16
 31
37
 (23)(22)
Other defined benefit pension plans(a)
4
7
 2
4
 NA
NA
7
11
 3
9
 NA
NA
Total defined benefit plans44
15
 19
22
 (9)(11)76
27
 34
46
 (23)(22)
Total defined contribution plans81
78
 80
78
 NA
NA
188
167
 155
143
 NA
NA
Total pension and OPEB cost included in compensation expense$125
$93
 $99
$100
 $(9)$(11)$264
$194
 $189
$189
 $(23)$(22)
(a)Includes various defined benefit pension plans which are individually immaterial.
The fair values of plan assets for the U.S. defined benefit pension and OPEB plans and for the material non-U.S. defined benefit pension plans were $14.414.0 billion and $3.1 billion, respectively, as of March 31,June 30, 2012, and $11.9 billion and $3.0 billion, respectively, as of December 31, 2011. See Note 19 on page 148pages 189–190 of this Form 10-Q for further information on unrecognized amounts (i.e., net loss and prior service costs/(credit)) reflected in AOCI for the three-monththree and six month periods ended March 31,June 30, 2012 and 2011.
 
The Firm does not anticipate any contribution to the U.S. defined benefit pension plan in 2012 at this time. For 2012, the cost associated with funding benefits under the Firm’s U.S. non-qualified defined benefit pension plans is expected to total $39 million. The 2012 contributions to the non-U.S. defined benefit pension and OPEB plans are expected to be $49 million and $2 million, respectively.
Effective March 19, 2012, JPMorgan Chase Bank, N.A. became the sponsor of the Washington Mutual Pension Plan and it is anticipated that the plan’s net assets will be merged into the JPMorgan Chase Retirement Plan later in 2012.


111146

Note 9 – Employee stock-based incentives

For a discussion of the accounting policies and other information relating to employee stock-based incentives, see Note 10 on pages 222–224 of JPMorgan Chase’s 2011 Annual Report.
The Firm recognized the following noncash compensation expense related to its various employee stock-based incentive plans in its Consolidated Statements of Income.
Three months ended March 31, (in millions) 20122011
Three months ended June 30, Six months ended June 30,
(in millions)2012 2011 2012 2011
Cost of prior grants of restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) that are amortized over their applicable vesting periods $582
$561
$450
 $520
 $1,032
 $1,081
Accrual of estimated costs of RSUs and SARs to be granted in future periods including those to full-career eligible employees 250
269
159
 207
 409
 476
Total noncash compensation expense related to employee stock-based incentive plans $832
$830
$609
 $727
 $1,441
 $1,557
In the first quarter of 2012, in connection with its annual incentive grant, the Firm granted 57 million RSUs and 14 million SARs with weighted-average grant date fair values of $35.62 per RSU and $8.89 per SAR.



























Note 10 – Noninterest expense
The following table presents the components of noninterest expense.
Three months ended March 31,Three months ended June 30, 
Six months ended
June 30,
(in millions)2012 20112012 2011 2012 2011
Compensation expense$8,613
 $8,263
$7,427
 $7,569
 $16,040
 $15,832
Noncompensation expense:          
Occupancy expense961
 978
1,080
 935
 2,041
 1,913
Technology, communications and equipment expense1,271
 1,200
1,282
 1,217
 2,553
 2,417
Professional and outside services1,795
 1,735
1,857
 1,866
 3,652
 3,601
Marketing680
 659
642
 744
 1,322
 1,403
Other expense(a)
4,832
 2,943
2,487
 4,299
 7,319
 7,242
Amortization of intangibles193
 217
191
 212
 384
 429
Total noncompensation expense9,732
 7,732
7,539
 9,273
 17,271
 17,005
Total noninterest expense$18,345
 $15,995
$14,966
 $16,842
 $33,311
 $32,837
(a)
Included litigation expense of $2.7 billion323 million and $1.11.9 billion for the three months ended March 31,June 30, 2012 and 2011, and $3.0 billion and $3.0 billion for the six months ended June 30, 2012 and 2011, respectively.


112147

Note 11 – Securities
Securities are primarily classified as AFS or trading. Securities classified as trading are discussed in Note 3 on pages 119–133 of this Form 10-Q. Predominantly all of the AFS securities portfolio is held by CIO in connection with its asset-liability management objectives. At June 30, 2012, the average credit rating of the debt securities comprising the AFS portfolio was
AA+ (based on external ratings where available and internal ratings which correspond to ratings as defined by S&P and Moody’s). For additional information regarding AFS securities, see Note 12 on pages 225–230 of JPMorgan Chase’s 2011 Annual Report. Trading securities are discussed in Note 3 on pages 91–100 of this Form 10-Q.
Realized gains and losses
The following table presents realized gains and losses and creditother-than-temporary impairment (“OTTI”) losses that were recognized in income from AFS securities.
Three months ended March 31, (in millions)2012
2011
Three months ended June 30, Six months ended June 30,
(in millions)2012
2011
 2012
2011
Realized gains$749
$152
$1,687
$881
 $2,436
$1,033
Realized losses(206)(20)(617)(31) (823)(51)
Net realized gains(a)
543
132
1,070
850
 1,613
982
Credit losses included in securities gains(b)
(7)(30)
Other-than-temporary impairment losses (“OTTI”):   
Credit-related(b)
(19)(13) (26)(43)
Securities the Firm intends to sell(c)

(37)—
 (37)—
Total OTTI losses recognized in income(56)(13) (63)(43)
Net securities gains$536
$102
$1,014
$837
 $1,550
$939
(a)
Proceeds from securities sold were within approximately 4% and 2%of amortized cost for both the three and six months ended March 31,June 30, 2012 and 2011, respectively.2011.
(b)Includes other-than-temporary impairmentOTTI losses recognized in income on certain prime mortgage-backed securities for the three months ended June 30, 2012, certain obligations of U. S.U.S. states and municipalities and prime mortgage-backed securities for the threesix months ended March 31,June 30, 2012, and on certain prime mortgage-backed securities for the three and six months ended March 31,June 30, 2011.
(c)Represents the excess of the amortized cost over the fair value of certain non-U.S. corporate debt securities the Firm intends to sell.
The amortized costs and estimated fair values of AFS and held-to-maturity (“HTM”) securities were as follows for the dates indicated.
March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
(in millions)Amortized costGross unrealized gainsGross unrealized lossesFair value Amortized costGross unrealized gainsGross unrealized lossesFair valueAmortized costGross unrealized gainsGross unrealized lossesFair value Amortized costGross unrealized gainsGross unrealized lossesFair value
Available-for-sale debt securities              
Mortgage-backed securities:              
U.S. government agencies(a)
$99,397
$4,923
$2
 $104,318
 $101,968
$5,141
$2
 $107,107
$90,844
$5,112
$1
 $95,955
 $101,968
$5,141
$2
 $107,107
Residential:              
Prime and Alt-A2,734
60
183
(c) 
2,611
 2,170
54
218
(c) 
2,006
2,687
58
174
(c) 
2,571
 2,170
54
218
(c) 
2,006
Subprime29
—
—
 29
 1
—
—
 1
262
2
—
 264
 1
—
—
 1
Non-U.S.74,518
657
273
 74,902
 66,067
170
687
 65,550
69,735
472
294
 69,913
 66,067
170
687
 65,550
Commercial10,718
852
4
 11,566
 10,632
650
53
 11,229
10,529
670
7
 11,192
 10,632
650
53
 11,229
Total mortgage-backed securities187,396
6,492
462
 193,426
 180,838
6,015
960
 185,893
174,057
6,314
476
 179,895
 180,838
6,015
960
 185,893
U.S. Treasury and government agencies(a)
11,657
115
5
 11,767
 8,184
169
2
 8,351
11,633
111
1
 11,743
 8,184
169
2
 8,351
Obligations of U.S. states and municipalities17,840
1,536
34
 19,342
 15,404
1,184
48
 16,540
19,111
1,526
97
(c) 
20,540
 15,404
1,184
48
 16,540
Certificates of deposit3,044
2
2
 3,044
 3,017
—
—
 3,017
2,989
5
1
 2,993
 3,017
—
—
 3,017
Non-U.S. government debt securities52,206
534
53
 52,687
 44,944
402
81
 45,265
53,223
412
32
 53,603
 44,944
402
81
 45,265
Corporate debt securities(b)
60,537
476
618
 60,395
 63,607
216
1,647
 62,176
45,868
287
540
 45,615
 63,607
216
1,647
 62,176
Asset-backed securities:              
Collateralized loan obligations24,938
455
154
 25,239
 24,474
553
166
 24,861
25,306
387
140
 25,553
 24,474
553
166
 24,861
Other13,204
154
32
 13,326
 15,779
251
57
 15,973
11,919
127
13
 12,033
 15,779
251
57
 15,973
Total available-for-sale debt securities370,822
9,764
1,360
(c) 
379,226
 356,247
8,790
2,961
(c) 
362,076
344,106
9,169
1,300
(c) 
351,975
 356,247
8,790
2,961
(c) 
362,076
Available-for-sale equity securities2,486
23
4
 2,505
 2,693
14
2
 2,705
2,591
20
1
 2,610
 2,693
14
2
 2,705
Total available-for-sale securities$373,308
$9,787
$1,364
(c) 
$381,731
 $358,940
$8,804
$2,963
(c) 
$364,781
$346,697
$9,189
$1,301
(c) 
$354,585
 $358,940
$8,804
$2,963
(c) 
$364,781
Total held-to-maturity securities$11
$1
$—
 $12
 $12
$1
$—
 $13
$10
$1
$—
 $11
 $12
$1
$—
 $13
(a)
Includes total U.S. government-sponsored enterprise obligations with fair values of $86.080.8 billion and $89.3 billion at March 31,June 30, 2012, and December 31, 2011, respectively.
(b)Consists primarily of bank debt including sovereign government-guaranteed bank debt.
(c)
Includes a total of $78166 million and $91 million (pretax) of unrealized losses related to prime mortgage-backed securities and obligations of U. S. states and municipalities for which credit losses have been recognized in income at March 31,June 30, 2012, and prime mortgage-backed securities for which credit losses have been recognized in income at December 31, 2011, respectively. These unrealized losses are not credit-related and remain reported in AOCI.


113148

Securities impairment
The following tables present the fair value and gross unrealized losses for AFS securities by aging category at March 31,June 30, 2012, and December 31, 2011.2011.
Securities with gross unrealized lossesSecurities with gross unrealized losses
Less than 12 months 12 months or more Less than 12 months 12 months or more 
March 31, 2012 (in millions)Fair valueGross unrealized losses Fair valueGross unrealized lossesTotal fair valueTotal gross unrealized losses
June 30, 2012 (in millions)Fair valueGross unrealized losses Fair valueGross unrealized lossesTotal fair valueTotal gross unrealized losses
Available-for-sale debt securities      
Mortgage-backed securities:      
U.S. government agencies$315
$1
 $2,348
$1
$2,663
$2
$646
$1
 $—
$—
$646
$1
Residential:      
Prime and Alt-A283
4
 1,129
179
1,412
183
412
4
 1,062
170
1,474
174
Subprime—
—
 —
—
—
—
—
—
 —
—
—
—
Non-U.S.8,985
112
 12,540
161
21,525
273
13,714
63
 11,806
231
25,520
294
Commercial384
4
 —
—
384
4
744
7
 —
—
744
7
Total mortgage-backed securities9,967
121
 16,017
341
25,984
462
15,516
75
 12,868
401
28,384
476
U.S. Treasury and government agencies7,333
5
 —
—
7,333
5
5,373
1
 —
—
5,373
1
Obligations of U.S. states and municipalities2,155
34
 —
—
2,155
34
1,119
97
 —
—
1,119
97
Certificates of deposit1,430
2
 —
—
1,430
2
1,103
1
 —
—
1,103
1
Non-U.S. government debt securities8,131
52
 499
1
8,630
53
13,982
26
 1,355
6
15,337
32
Corporate debt securities16,259
333
 8,602
285
24,861
618
8,619
119
 13,406
421
22,025
540
Asset-backed securities:      
Collateralized loan obligations5,659
54
 4,181
100
9,840
154
5,499
47
 4,240
93
9,739
140
Other2,927
14
 1,017
18
3,944
32
2,195
5
 859
8
3,054
13
Total available-for-sale debt securities53,861
615
 30,316
745
84,177
1,360
53,406
371
 32,728
929
86,134
1,300
Available-for-sale equity securities4
4
 —
—
4
4
171
1
 —
—
171
1
Total securities with gross unrealized losses$53,865
$619
 $30,316
$745
$84,181
$1,364
$53,577
$372
 $32,728
$929
$86,305
$1,301

 Securities with gross unrealized losses
 Less than 12 months 12 months or more  
December 31, 2011 (in millions)Fair valueGross unrealized losses Fair valueGross unrealized lossesTotal fair valueTotal gross unrealized losses
Available-for-sale debt securities       
Mortgage-backed securities:       
U.S. government agencies$2,724
$2
 $—
$—
$2,724
$2
Residential:       
Prime and Alt-A649
12
 970
206
1,619
218
Subprime—
—
 —
—
—
—
Non-U.S.30,500
266
 25,176
421
55,676
687
Commercial837
53
 —
—
837
53
Total mortgage-backed securities34,710
333
 26,146
627
60,856
960
U.S. Treasury and government agencies3,369
2
 —
—
3,369
2
Obligations of U.S. states and municipalities147
42
 40
6
187
48
Certificates of deposit—
—
 —
—
—
—
Non-U.S. government debt securities11,901
66
 1,286
15
13,187
81
Corporate debt securities22,230
901
 9,585
746
31,815
1,647
Asset-backed securities:       
Collateralized loan obligations5,610
49
 3,913
117
9,523
166
Other4,735
40
 1,185
17
5,920
57
Total available-for-sale debt securities82,702
1,433
 42,155
1,528
124,857
2,961
Available-for-sale equity securities338
2
 —
—
338
2
Total securities with gross unrealized losses$83,040
$1,435
 $42,155
$1,528
$125,195
$2,963

114149

Other-than-temporary impairment
The following table presents creditOTTI losses that are included in the securities gains and losses table above.
Three months ended March 31, (in millions) 2012
 2011
Debt securities the Firm does not intend to sell that have credit losses    
Total other-than-temporary impairment losses(a)
 $(10) $(27)
Losses recorded in/(reclassified from) other comprehensive income 3
 (3)
Total credit losses recognized in income(b)
 $(7) $(30)
 Three months ended June 30, Six months ended June 30,
(in millions)2012
 2011
 2012
 2011
Debt securities the Firm does not intend to sell that have credit losses       
Total OTTI(a)
$(103) $—
 $(113) $(27)
Losses recorded in/(reclassified from) AOCI84
 (13) 87
 (16)
Total credit-related losses recognized in income(b)
$(19) $(13) $(26) $(43)
Securities the Firm intends to sell(c)
(37) —
 (37) —
Total OTTI losses recognized in income$(56) $(13) $(63) $(43)
(a)For initial OTTI, represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, represents additional declines in fair value subsequent to previously recorded OTTI, if applicable.
(b)Represents the credit loss component on certain prime mortgage-backed securities for the three months ended June 30, 2012, certain obligations of U. S. states and municipalities and prime mortgage-backed securities for the threesix months ended March 31,June 30, 2012, and on certain prime mortgage-backed securities for the three and six months ended March 31,June 30, 2011, that the Firm does not intend to sell. Subsequent credit losses may be recorded on securities without a corresponding further decline in fair value if there has been a decline in expected cash flows.
(c)Represents the excess of the amortized cost over the fair value of certain non-U.S. corporate debt securities the Firm intends to sell.
Changes in the credit loss component of credit-impaired debt securities
The following table presents a rollforward for the three and six months ended March 31,June 30, 2012 and 2011, of the credit loss component of OTTI losses that have been recognized in income, related to debt securities that the Firm does not intend to sell.
Three months ended March 31, (in millions)2012
2011
Three months ended June 30, Six months ended June 30,
(in millions)2012
2011
 2012
2011
Balance, beginning of period$708
$632
$715
$662
 $708
$632
Newly credit-impaired securities6
4
14
—
 20
4
Losses reclassified from other comprehensive income on previously credit-impaired securities1
26
5
13
 6
39
Balance, end of period$715
$662
$734
$675
 $734
$675
Gross unrealized losses
Gross unrealized losses have generally decreased since December 31, 2011, including those that have been in an unrealized loss position for 12 months or more. AsExcept for certain securities that the Firm intends to sell for which the unrealized losses have been recognized in income during the second quarter of March 31,2012, as of June 30, 2012, the Firm does not intend to sell the securities with a loss position in AOCI, and it is not likely that the Firm will be required to sell these securities before recovery of their amortized cost basis. Except for the securities reported in the table above for which credit losses have been recognized in income, the
Firm believes that the securities with an unrealized loss in AOCI are not other-than-temporarily impaired as of March 31,June 30, 2012.
Following is a description of the Firm’s principal investmentAFS securities positions with the most significant unrealized losses that have existed for 12 months or more as of March 31,June 30, 2012, and the key assumptions used in the Firm’s estimate of the present value of the cash flows expected to be collected from these investments.
Mortgage-backed securities – Prime and Alt-A nonagency
As of March 31,June 30, 2012, gross unrealized losses related to prime and Alt-A residential mortgage-backed securities issued by private issuers were $183174 million, of which $179170 million related to securities that have been in an unrealized
loss position for 12 months or more. The Firm has previously recognized OTTI on securities that are backed primarily by mortgages with higher credit risk characteristics based on collateral type, vintage and geographic concentration. The remaining securities that have not experienced OTTI generally either do not possess all of these characteristics or have sufficient credit enhancements to protect the investments. These credit enhancements are primarily in the form of subordination, which is a form of structural enhancement where realized losses associated with assets held in the vehicle that issued the securities are allocated to the various tranches of securities and considers the relative priority of claims on the assets and earnings of the issuing vehicle. The average credit enhancements associated with the below investment-grade positions that have experienced OTTI losses and those that have not are 2%7% and 17%, respectively.
The Firm'sFirm’s cash flow estimates are based on a loan-level analysis that considers housing prices, loan-to-value (“LTV”) ratio, loan type, geographical location of the underlying property and unemployment rates, among other factors. The weighted-average underlying conditional default rate on the positions was forecasted to be 23%31%; the related weighted-average loss severity forecast was 49%50%; and estimated voluntary prepayment ratesspeeds ranged from 3% to 17%35%. Based on the results of this analysis, an OTTI loss of $119 million and $20 million was recognized for the three and six months ended March 31,June 30, 2012, respectively, on certain securities due to their higher loss assumptions, and the unrealized loss of $183174 million is considered temporary as management believes that the credit enhancement levels for those securities remain sufficient to support the Firm’s investment.
Mortgage-backed securities – Non-U.S.
As of March 31,June 30, 2012, gross unrealized losses related to non-U.S. residential mortgage-backed securities were $273294 million, of which $161231 million related to securities that have been in an unrealized loss position for 12 months or more. Substantially all of these securities are rated “AAA,” “AA” or “A” and primarily represent mortgage exposures in the United Kingdom and the Netherlands. The key assumptions used in analyzing non-U.S. residential mortgage-backed securities for potential credit losses


150

include credit enhancements, recovery rates,loss severities, conditional default rates, and constant prepayment rates.speeds. Credit enhancement is primarily in the form of subordination and was approximately 10%9% of the outstanding principal balance of securitized mortgage loans, compared with expected lifetime losses of 1% of the outstanding principal. In assessing potential credit losses, assumptions included recovery rates ofthe weighted-average conditional default rate was forecasted to be approximately 60%1%, default rates ofthe related weighted-average loss severity was forecasted at approximately 0.25% to 0.5%30% and constant prepayment rates ofspeeds ranged from 10% to 15%. The unrealized loss is considered temporary, based on management’s assessment that the estimated future cash flows together with the credit enhancement levels for those securities remain sufficient to support the Firm’s investment.


115

Corporate debt securities
As of March 31,June 30, 2012, gross unrealized losses related to corporate debt securities were $618540 million, of which $285421 million related to securities that have been in an unrealized loss position for 12 months or more. Substantially all of the corporate debt securities are currently rated investment-grade, including those in an unrealized loss position. Various factors were considered in assessing whether the Firm expects to recover the amortized cost of corporate debt securities including, but not limited to, the strength of issuer credit ratings, the financial condition of guarantors and the length of time and the extent to which a security’s fair value has been less than its amortized cost. The fair values of securities in an unrealized loss position were on average within approximately 3% of amortized cost. Based on management’s assessment, the Firm expects to recover the entire amortized cost basis of all corporate debt securities that were in an unrealized loss positionthe Firm does not intend to sell as of March 31,June 30, 2012. In addition, during the three and six months ended June 30, 2012, the Firm recorded losses of $$37 million and $$37 million, respectively, on corporate debt securities based on the Firm’s intention to sell certain of these securities.
 
Asset-backed securities – Collateralized loan obligations
As of March 31,June 30, 2012, gross unrealized losses related to CLOs were $154140 million, of which $10093 million related to securities that were in an unrealized loss position for 12 months or more. Overall, unrealized losses have decreased since December 31, 2011, mainly as a result of lower default forecasts andpredominantly due to spread tightening across various asset classes.tightening. Substantially all of these securities are rated “AAA,” “AA” or “A” and have an average credit enhancement of 30%31%. The key assumptions considered in analyzing potential credit losses were underlying loan and debt security defaults and loss severity. BasedFirm assumed conditional default rates of 2%, based on current default trends for the collateral underlying the securities, the Firm assumed initial collateral default rates of 2.5% and 4% beginning in 2012 and thereafter. Further, loss severities were assumed to be 48% for loans and 82% for debt securities. Losses on collateral were estimated to occur approximately 18 months after default. The unrealized loss is considered temporary, based on management’s assessment that the estimated future cash flows together with the credit enhancement levels for those securities remain sufficient to support the Firm'sFirm’s investment.


116151

Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at March 31,June 30, 2012, of JPMorgan Chase’s AFS and HTM securities by contractual maturity.
By remaining maturity
March 31, 2012
(in millions)
Due in one
year or less
Due after one year through five yearsDue after five years through 10 years
Due after
10 years(c)
Total
By remaining maturity
June 30, 2012
(in millions)
Due in one
year or less
Due after one year through five yearsDue after five years through 10 years
Due after
10 years(c)
Total
Available-for-sale debt securities  
Mortgage-backed securities(a)
  
Amortized cost$15
$8,283
$8,605
$170,493
$187,396
$150
$10,159
$8,021
$155,727
$174,057
Fair value16
8,391
8,840
176,179
193,426
150
10,221
8,331
161,193
179,895
Average yield(b)
4.71%3.12%3.01%3.44%3.41%1.51%2.15%2.76%3.51%3.39%
U.S. Treasury and government agencies(a)
  
Amortized cost$7,302
$2,707
$1,411
$237
$11,657
$7,244
$2,705
$1,684
$—
$11,633
Fair value7,304
2,813
1,411
239
11,767
7,245
2,806
1,692
—
11,743
Average yield(b)
0.24%2.29%2.32%2.06%1.00%0.31%2.38%1.30%—%0.94%
Obligations of U.S. states and municipalities  
Amortized cost$61
$322
$1,065
$16,392
$17,840
$562
$429
$759
$17,361
$19,111
Fair value61
346
1,142
17,793
19,342
562
465
805
18,708
20,540
Average yield(b)
3.06%3.65%3.51%4.73%4.63%1.70%6.45%5.67%6.48%6.31%
Certificates of deposit  
Amortized cost$2,926
$118
$—
$—
$3,044
$2,938
$51
$—
$—
$2,989
Fair value2,927
117
—
—
3,044
2,940
53
—
—
2,993
Average yield(b)
4.25%2.52%—%—%4.18%4.48%3.28%—%—%4.46%
Non-U.S. government debt securities  
Amortized cost$19,037
$19,001
$7,971
$6,197
$52,206
$23,341
$18,391
$7,815
$3,676
$53,223
Fair value19,045
19,198
8,149
6,295
52,687
23,352
18,528
8,004
3,719
53,603
Average yield(b)
1.34%2.11%3.11%3.81%2.18%1.18%1.97%2.57%3.09%1.79%
Corporate debt securities  
Amortized cost$19,481
$28,345
$12,706
$5
$60,537
$8,348
$26,083
$11,370
$67
$45,868
Fair value19,468
28,344
12,578
5
60,395
8,338
26,027
11,177
73
45,615
Average yield(b)
2.15%3.30%4.38%5.01%3.15%2.12%3.26%4.40%4.61%3.34%
Asset-backed securities  
Amortized cost$1
$3,295
$17,516
$17,330
$38,142
$1
$3,126
$18,953
$15,145
$37,225
Fair value1
3,338
17,725
17,501
38,565
1
3,141
19,171
15,273
37,586
Average yield(b)
2.35%2.36%2.15%2.61%2.38%2.43%2.01%1.97%2.39%2.14%
Total available-for-sale debt securities  
Amortized cost$48,823
$62,071
$49,274
$210,654
$370,822
$42,584
$60,944
$48,602
$191,976
$344,106
Fair value48,822
62,547
49,845
218,012
379,226
42,588
61,241
49,180
198,966
351,975
Average yield(b)
1.67%2.82%3.06%3.48%3.08%1.45%2.60%2.80%3.68%3.09%
Available-for-sale equity securities  
Amortized cost$—
$—
$—
$2,486
$2,486
$—
$—
$—
$2,591
$2,591
Fair value—
—
—
2,505
2,505
—
—
—
2,610
2,610
Average yield(b)
—%—%—%0.39%0.39%—%—%—%0.43%0.43%
Total available-for-sale securities  
Amortized cost$48,823
$62,071
$49,274
$213,140
$373,308
$42,584
$60,944
$48,602
$194,567
$346,697
Fair value48,822
62,547
49,845
220,517
381,731
42,588
61,241
49,180
201,576
354,585
Average yield(b)
1.67%2.82%3.06%3.45%3.06%1.45%2.60%2.80%3.64%3.07%
Total held-to-maturity securities  
Amortized cost$—
$8
$2
$1
$11
$—
$8
$2
$—
$10
Fair value—
9
2
1
12
—
9
2
—
11
Average yield(b)
—%6.89%6.73%6.48%6.84%—%6.89%6.60%—%6.83%
(a)
U.S. government agencies and U.S. government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase’s total stockholders’ equity at March 31,June 30, 2012.
(b)AverageThe average yield is computedcalculated using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield considersincludes the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
(c)
Includes securities with no stated maturity. Substantially all of the Firm’s residential mortgage-backed securities and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated duration, which reflects anticipated future prepayments based on a consensus of dealers in the market, is approximately three years for agency residential mortgage-backed securities, two years for agency residential collateralized mortgage obligations and fourthree years for nonagency residential collateralized mortgage obligations.

117152

Note 12 – Securities financing activities
For a discussion of accounting policies relating to securities financing activities, see Note 13 on page 231 of JPMorgan Chase’s 2011 Annual Report. For further information regarding securities borrowed and securities lending agreements for which the fair value option has been elected, see Note 4 on pages 101–102133–135 of this Form 10-Q.
The following table details the Firm’s securities financing agreements, all of which are accounted for as collateralized financings during the periods presented.
(in millions)March 31, 2012December 31, 2011June 30, 2012December 31, 2011
Securities purchased under resale agreements(a)
 $240,281
 $235,000
 $254,920
 $235,000
Securities borrowed(b)
 135,650
 142,462
 138,209
 142,462
Securities sold under repurchase agreements(c)
 $231,944
 $197,789
 $241,931
 $197,789
Securities loaned 17,253
 14,214
 18,733
 14,214
(a)
At March 31,June 30, 2012, and December 31, 2011, included resale agreements of $26.332.9 billion and $24.9 billion, respectively, accounted for at fair value.
(b)
At March 31,June 30, 2012, and December 31, 2011, included securities borrowed of $12.511.5 billion and $15.3 billion, respectively, accounted for at fair value.
(c)
At March 31,June 30, 2012, and December 31, 2011, included repurchase agreements of $13.215.5 billion and $9.5 billion, respectively, accounted for at fair value.
The amounts reported in the table above were reduced by $116.3107.0 billion and $115.7 billion at March 31,June 30, 2012, and December 31, 2011, respectively, as a result of agreements
in effect that meet the specified conditions for net presentation under applicable accounting guidance.
For further information regarding assets pledged and collateral received in securities financing agreements, see Note 22 on page 154196 of this Form 10-Q.


Note 13 – Loans
Loan accounting framework
The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. The Firm accounts for loans based on the following categories:
Originated or purchased loans held-for-investment (i.e., “retained”), other than purchased credit-impaired (“PCI”) loans
Loans held-for-sale
Loans at fair value
PCI loans held-for-investment
For a detailed discussion of loans, including accounting policies, see Note 14 on pages 231–252 of JPMorgan Chase’s Chase’s 2011Annual Report.Report. See Note 4 on pages 101–102133–135 of this Form 10-Q for further information on the Firm’s elections of fair value accounting under the fair value option. See Note 3 on pages 91–100119–133 of this Form 10-Q for further information on loans carried at fair value and classified as trading assets.


153

Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine the allowance for loan losses: Wholesale; Consumer, excluding credit card; and Credit card. Within each portfolio segment, the Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class:
Wholesale(a)
 
Consumer, excluding
credit card(b)
 
Credit card(d)
• Commercial and industrial
• Real estate
• Financial institutions
• Government agencies
• Other
 
Residential real estate – excluding PCI
• Home equity – senior lien
• Home equity – junior lien
• Prime mortgage, including
     option ARMs
• Subprime mortgage
Other consumer loans
• Auto(c)
• Business banking(c)
• Student and other
Residential real estate – PCI
• Home equity
• Prime mortgage
• Subprime mortgage
• Option ARMs
 • Credit card loans
(a)Includes loans reported in IB, Commercial Banking (“CB”), Treasury & Securities Services (“TSS”)CB, TSS and Asset Management (“AM”)AM business segments and in Corporate/Private Equity.
(b)
Includes loans reported in RFS, auto and student loans reported in Card, Services & Auto (“Card”), and residential real estate loans reported in the AM business segment and in Corporate/Private Equity.
(c)Includes auto and business banking risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by Card and RFS, respectively, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(d)Prior to January 1, 2012, the Credit card portfolio segment was reported as two classes: Chase, excluding Washington Mutual, and Washington Mutual. The Washington Mutual class is a run-off portfolio that has been declining since the Firm acquired the portfolio in 2008. Effective January 1, 2012, management determined that the Washington Mutual portfolio class is no longer significant, and therefore, the Credit card portfolio segment is now being reported as one class of loans.

118

The following table summarizes the Firm’s loan balances by portfolio segment.
 March 31, 2012 December 31, 2011 June 30, 2012 December 31, 2011

(in millions)
 Wholesale
Consumer, excluding
credit card
Credit
card(a)
Total Wholesale
Consumer, excluding
credit card
Credit
card(a)
Total  Wholesale
Consumer, excluding
credit card
Credit
card(a)
Total Wholesale
Consumer, excluding
credit card
Credit
card(a)
Total 
Retained $283,653
$304,770
$124,475
$712,898
(b) 
 $278,395
$308,427
$132,175
$718,997
(b) 
 $298,888
$300,046
$124,593
$723,527
(b) 
 $278,395
$308,427
$132,175
$718,997
(b) 
Held-for-sale 4,925
—
856
5,781
 2,524
—
102
2,626
  922
—
112
1,034
 2,524
—
102
2,626
 
At fair value 2,288
—
—
2,288
 2,097
—
—
2,097
  3,010
—
—
3,010
 2,097
—
—
2,097
 
Total $290,866
$304,770
$125,331
$720,967
 $283,016
$308,427
$132,277
$723,720
  $302,820
$300,046
$124,705
$727,571
 $283,016
$308,427
$132,277
$723,720
 
(a)Includes billed finance charges and fees net of an allowance for uncollectible amounts.
(b)
Loans (other than PCI loans and those for which the fair value option has been selected) are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs of $2.6 billion and $2.7 billion at both March 31,June 30, 2012, and December 31, 2011., respectively.

154

The following table providestables provide information about the carrying value of retained loans purchased, retained loans sold and retained loans reclassified to held-for-sale during the periods indicated. These tables exclude loans recorded at fair value. On an ongoing basis, the Firm manages its exposure to credit risk. Selling loans is one way that the Firm reduces its credit exposures.
 2012 2011 2012 2011
Three months ended March 31,
(in millions)
 WholesaleConsumer, excluding credit cardCredit cardTotal WholesaleConsumer, excluding credit cardCredit cardTotal 
Three months ended June 30,
(in millions)		 WholesaleConsumer, excluding credit cardCredit cardTotal WholesaleConsumer, excluding credit cardCredit cardTotal 
Purchases $321
$1,759
$—
$2,080
 $123
$1,992
$—
$2,115
  $253
$1,854
$—
$2,107
 $218
$1,668
$—
$1,886
 
Sales 863
357
—
1,220
 877
257
—
1,134
  809
985
—
1,794
 805
401
—
1,206
 
Retained loans reclassified to held-for-sale 62
—
923
985
 177
—
1,912
2,089
  55
—
120
175
 123
—
—
123
 
  2012 2011
Six months ended June 30,
(in millions)		 WholesaleConsumer, excluding credit cardCredit cardTotal  WholesaleConsumer, excluding credit cardCredit cardTotal 
Purchases $574
$3,613
$—
$4,187
  $341
$3,660
$—
$4,001
 
Sales 1,672
1,342
—
3,014
  1,682
658
—
2,340
 
Retained loans reclassified to held-for-sale 117
—
1,043
1,160
  300
—
1,912
2,212
 
The following table provides information about gains/(losses) on loan sales by portfolio segment.
Three months ended March 31, (in millions)20122011
Three months ended June 30, Six months ended June 30,
(in millions)20122011 20122011
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
    
Wholesale$32
$61
$36
$80
 $68
$141
Consumer, excluding credit card32
25
42
28
 74
53
Credit card(18)(20)6
(4) (12)(24)
Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments$46
$66
Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)$84
$104
 $130
$170
(a)Excludes sales related to loans accounted for at fair value.




119155

Wholesale loan portfolio
Wholesale loans include loans made to a variety of customers from large corporate and institutional clients to certain high-net worth individuals. The primary credit
quality indicator for wholesale loans is the risk rating
assigned each loan. For further information on these risk ratings, see Notes 14 and 15 on pages 231–255 of JPMorgan Chase’s Chase’s 2011Annual Report.

Report.


The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
(in millions, except ratios)
Commercial
and industrial
 Real estate
Commercial and industrial Real estate 
(in millions, except ratios)
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 
 
Investment-grade$52,476
$52,428
 $35,299
$33,920
$57,669
 $52,428
 $38,077
 $33,920
 
Noninvestment-grade:           
Noncriticized41,499
38,644
 17,040
15,972
44,984
 38,644
 15,918
 15,972
 
Criticized performing(a)2,333
2,254
 3,599
3,906
2,078
 2,254
 3,120
 3,906
 
Criticized nonaccrual(a)781
889
 809
886
775
 889
 765
 886
 
Total noninvestment-grade44,613
41,787
 21,448
20,764
47,837
 41,787
 19,803
 20,764
 
Total retained loans$97,089
$94,215
 $56,747
$54,684
$105,506
 $94,215
 $57,880
 $54,684
 
% of total criticized to total retained loans(a)3.21%3.34% 7.77%8.76%2.70% 3.34% 6.71% 8.76% 
% of nonaccrual loans to total retained loans(a)0.80
0.94
 1.43
1.62
0.73
 0.94
 1.32
 1.62
 
Loans by geographic distribution(a)(b)
           
Total non-U.S.$31,122
$30,813
 $2,099
$1,497
$33,082
 $30,813
 $1,749
 $1,497
 
Total U.S.65,967
63,402
 54,648
53,187
72,424
 63,402
 56,131
 53,187
 
Total retained loans$97,089
$94,215
 $56,747
$54,684
$105,506
 $94,215
 $57,880
 $54,684
 
           
Loan delinquency(b)(c)
           
Current and less than 30 days past due and still accruing$95,824
$93,060
 $55,572
$53,387
$104,582
 $93,060
 $56,953
 $53,387
 
30–89 days past due and still accruing460
266
 321
327
120
 266
 117
 327
 
90 or more days past due and still accruing(c)(d)
24
—
 45
84
29
 —
 45
 84
 
Criticized nonaccrual(a)781
889
 809
886
775
 889
 765
 886
 
Total retained loans$97,089
$94,215
 $56,747
$54,684
$105,506
 $94,215
 $57,880
 $54,684
 
(a)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, respectively, which may differ from criticized exposure as defined by regulatory agencies.
(b)The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b)(c)
The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations rather than relying on the past due status, which is generally a lagging indicator of credit quality. For a discussion of more significant risk factors, see Note 14 on page 235 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.
(c)(d)Represents loans that are considered well-collateralized and therefore still accruing interest.
(d)(e)Other primarily includes loans to SPEs and loans to private banking clients. See Note 1 on pages 182–183 of JPMorgan Chase’s 2011 Annual Report for additional information on SPEs.
The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment for the periods indicated. For further information on real estate loans, see Note 14 on pages 231–252 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.

(in millions, except ratios)
Multi-family Commercial lessorsMultifamily Commercial lessors 
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 
Real estate retained loans$33,516
$32,524
 $15,311
$14,444
$35,225
 $32,524
 $15,087
 $14,444
 
Criticized exposure(a)2,221
2,451
 1,750
1,662
1,869
 2,451
 1,621
 1,662
 
% of criticized exposure to total real estate retained loans(a)6.63%7.54% 11.43%11.51%5.31% 7.54% 10.74% 11.51% 
Criticized nonaccrual(a)$396
$412
 $302
$284
$346
 $412
 $306
 $284
 
% of criticized nonaccrual to total real estate retained loans(a)1.18%1.27% 1.97%1.97%0.98% 1.27% 2.03% 1.97% 

(a)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, respectively, which may differ from criticized exposure as defined by regulatory agencies.




120156


(table continued from previous page)




Financial institutions Government agencies 
Other(e)
 Total retained loans 
Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 
                
$28,696
 $28,804
 $7,881
 $7,421
 $79,698
 $74,497
 $212,021
 $197,070
 
                
8,797
 9,132
 376
 378
 9,231
 7,583
 79,306
 71,709
 
186
 246
 4
 4
 369
 808
 5,757
 7,218
 
17
 37
 12
 16
 235
 570
 1,804
 2,398
 
9,000
 9,415
 392
 398
 9,835
 8,961
 86,867
 81,325
 
$37,696
 $38,219
 $8,273
 $7,819
 $89,533
 $83,458
 $298,888
 $278,395
 
0.54% 0.74% 0.19% 0.26% 0.67% 1.65% 2.53% 3.45% 
0.05
 0.10
 0.15
 0.20
 0.26
 0.68
 0.60
 0.86
 
                
$28,670
 $29,996
 $1,090
 $583
 $38,610
 $32,275
 $103,201
 $95,164
 
9,026
 8,223
 7,183
 7,236
 50,923
 51,183
 195,687
 183,231
 
$37,696
 $38,219
 $8,273
 $7,819
 $89,533
 $83,458
 $298,888
 $278,395
 
                
                
$37,661
 $38,129
 $8,258
 $7,780
 $88,103
 $81,802
 $295,557
 $274,158
 
18
 51
 3
 23
 1,176
 1,072
 1,434
 1,739
 
—
 2
 —
 —
 19
 14
 93
 100
 
17
 37
 12
 16
 235
 570
 1,804
 2,398
 
$37,696
 $38,219
 $8,273
 $7,819
 $89,533
 $83,458
 $298,888
 $278,395
 


Financial
 institutions
 Government agencies 
Other(d)
 
Total
retained loans
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011
           
$26,720
$28,804
 $7,420
$7,421
 $76,789
$74,497
 $198,704
$197,070
           
8,647
9,132
 375
378
 8,572
7,583
 76,133
71,709
239
246
 5
4
 699
808
 6,875
7,218
23
37
 14
16
 314
570
 1,941
2,398
8,909
9,415
 394
398
 9,585
8,961
 84,949
81,325
$35,629
$38,219
 $7,814
$7,819
 $86,374
$83,458
 $283,653
$278,395
0.74%0.74% 0.24%0.26% 1.17%1.65% 3.11%3.45%
0.06
0.10
 0.18
0.20
 0.36
0.68
 0.68
0.86
           
$26,999
$29,996
 $648
$583
 $36,695
$32,275
 $97,563
$95,164
8,630
8,223
 7,166
7,236
 49,679
51,183
 186,090
183,231
$35,629
$38,219
 $7,814
$7,819
 $86,374
$83,458
 $283,653
$278,395
           
           
$35,576
$38,129
 $7,750
$7,780
 $85,164
$81,802
 $279,886
$274,158
30
51
 50
23
 873
1,072
 1,734
1,739
—
2
 —
—
 23
14
 92
100
23
37
 14
16
 314
570
 1,941
2,398
$35,629
$38,219
 $7,814
$7,819
 $86,374
$83,458
 $283,653
$278,395









(table continued from previous page)
Commercial construction and development Other Total real estate loans
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011
$3,187
$3,148
 $4,733
$4,568
 $56,747
$54,684
260
297
 177
382
 4,408
4,792
8.16%9.43% 3.74%8.36% 7.77%8.76%
$34
$69
 $77
$121
 $809
$886
1.07%2.19% 1.63%2.65% 1.43%1.62%
Commercial construction and development Other Total real estate loans 
Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 
$3,055
 $3,148
 $4,513
 $4,568
 $57,880
 $54,684
 
196
 297
 199
 382
 3,885
 4,792
 
6.42% 9.43% 4.41% 8.36% 6.71% 8.76% 
$22
 $69
 $91
 $121
 $765
 $886
 
0.72% 2.19% 2.02% 2.65% 1.32% 1.62% 



121157

Wholesale impaired loans and loan modifications
Wholesale impaired loans include loans that have been placed on nonaccrual status and/or that have been modified in a troubled debt restructuring (“TDR”). All impaired loans are evaluated for an asset-specific allowance as described in Note 14 on page 136176 of this Form 10-Q.10-Q.
The table below provides information about the Firm’s wholesale impaired loans.

(in millions)
Commercial
and industrial
 Real estate 
Financial
institutions
 
Government
 agencies
 Other 
Total
retained loans
Commercial
and industrial
 Real estate 
Financial
institutions
 
Government
 agencies
 Other 
Total
retained loans
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011
Impaired loans                      
With an allowance$642
$828
 $594
$621
 $10
$21
 $14
$16
 $178
$473
 $1,438
$1,959
$640
$828
 $569
$621
 $5
$21
 $12
$16
 $111
$473
 $1,337
$1,959
Without an allowance(a)
244
177
 225
292
 13
18
 —
—
 138
103
 620
590
258
177
 214
292
 11
18
 —
—
 126
103
 609
590
Total impaired loans
$886
$1,005
 $819
$913
 $23
$39
 $14
$16
 $316
$576
 $2,058
$2,549
$898
$1,005
 $783
$913
 $16
$39
 $12
$16
 $237
$576
 $1,946
$2,549
Allowance for loan losses related to impaired loans$239
$276
 $97
$148
 $3
$5
 $8
$10
 $101
$77
 $448
$516
$250
$276
 $119
$148
 $3
$5
 $7
$10
 $28
$77
 $407
$516
Unpaid principal balance of impaired loans(b)
1,537
1,705
 997
1,124
 47
63
 15
17
 480
1,008
 3,076
3,917
1,577
1,705
 948
1,124
 33
63
 13
17
 370
1,008
 2,941
3,917
(a)When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, then the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
(b)
Represents the contractual amount of principal owed at March 31,June 30, 2012, and December 31, 2011. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on purchased loans.
The following table presents the Firm’s average impaired loans for the periods indicated.
Three months ended March 31, (in millions)20122011
Three months
ended June 30,		 Six months
ended June 30,
(in millions)20122011 20122011
Commercial and industrial$918
$1,553
$892
$1,426
 $905
$1,486
Real estate875
2,730
850
2,101
 865
2,421
Financial institutions28
94
20
67
 24
81
Government agencies16
22
12
23
 14
22
Other395
637
299
635
 347
635
Total(a)
$2,232
$5,036
$2,073
$4,252
 $2,155
$4,645
(a)
The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the three and six months ended March 31,June 30, 2012 and 2011.2011.


158

Loan modifications
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All TDRs are reported as impaired loans in the tables above. For further information, see Note 14 on pages 233–234 and 238–239 of JPMorgan Chase’s Chase’s 2011Annual Report. Report.
The following table provides information about the Firm’s wholesale loans that have been modified in TDRs as of the dates presented.

(in millions)
Commercial
and industrial
 Real estate 
Financial
institutions
 
Government
 agencies
 Other 
Total
retained loans
Commercial
and industrial
 Real estate 
Financial
institutions
 
Government
 agencies
 Other 
Total
retained loans
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011
Loans modified in troubled debt restructurings$419
$531
 $148
$176
 $—
$2
 $13
$16
 $84
$25
 $664
$750
Loans modified in TDRs$464
$531
 $121
$176
 $—
$2
 $11
$16
 $19
$25
 $615
$750
TDRs on nonaccrual status314
415
 116
128
 —
—
 13
16
 82
19
 525
578
341
415
 88
128
 —
—
 11
16
 18
19
 458
578
Additional commitments to lend to borrowers whose loans have been modified in TDRs15
147
 —
—
 —
—
 —
—
 —
—
 15
147
201
147
 —
—
 —
—
 —
—
 —
—
 201
147


159

TDR activity rollforward
The following table reconcilestables reconcile the beginning and ending balances of wholesale loans modified in TDRs for the periodperiods presented and providesprovide information regarding the nature and extent of modifications during the period.those periods.
Three months ended March 31,
(in millions)
 Commercial and industrial Real estate 
Other (b)
 Total
2012 2011 2012 2011 2012 2011 2012 2011
Three months ended June 30,
(in millions)		 Commercial and industrial Real estate 
Other (b)
 Total
2012 2011 2012 2011 2012 2011 2012 2011
Beginning balance of TDRs $531
 $212
 $176
 $907
 $43
 $24
 $750
 $1,143
 $419
 $156
 $148
 $270
 $97
 $23
 $664
 $449
New TDRs 4
 $9
 3
 40
 63
 —
 70
 49
 52
 $573
 7
 20
 3
 6
 62
 599
Increases to existing TDRs 1
 2
 —
 —
 —
 —
 1
 2
 19
 17
 —
 4
 —
 —
 19
 21
Charge-offs post-modification (9) (6) (2) (142) —
 —
 (11) (148) (6) —
 —
 —
 (7) —
 (13) —
Sales and other(a)
 (108) (61) (29) (535) (9) (1) (146) (597) (20) (63) (34) (5) (63) (1) (117) (69)
Ending balance of TDRs $419
 $156
 $148
 $270
 $97
 $23
 $664
 $449
 $464
 $683
 $121
 $289
 $30
 $28
 $615
 $1,000

Six months ended June 30,
(in millions)		 Commercial and industrial Real estate 
Other (b)
 Total
 2012 2011 2012 2011 2012 2011 2012 2011
Beginning balance of TDRs $531
 $212
 $176
 $907
 $43
 $24
 $750
 $1,143
New TDRs 56
 $582
 10
 60
 66
 6
 132
 648
Increases to existing TDRs 20
 19
 —
 4
 —
 —
 20
 23
Charge-offs post-modification (15) (6) (2) (142) (7) —
 (24) (148)
Sales and other(a)
 (128) (124) (63) (540) (72) (2) (263) (666)
Ending balance of TDRs $464
 $683
 $121
 $289
 $30
 $28
 $615
 $1,000
(a)
Sales and other are largely sales and paydowns, but also includes $23 million and $78 million of performing loans restructured at market rates that were removed from the reported TDR balance of $17 million and noneduring the three months ended March 31,June 30, 2012 and 2011, respectively, and $40 million and $78 million during the six months endedJune 30, 2012 and 2011, respectively.
(b)Includes loans to Financial institutions, Government agencies and Other.

122



Financial effects of modifications and redefaults
Loans modified as TDRs are typically term or payment extensions and, to a lesser extent, deferrals of principal and/or interest on commercial and industrial and real estate loans. For the three months ended March 31,June 30, 2012 and 2011, the average term extension granted on loans with term or payment extensions was 0.91.3 years and 2.33.6 years, respectively. The weighted-average remaining term for all loans modified during these periods was 4.12.8 years and 2.65.3 years, respectively. DuringFor the threesix months ended March 31,June 30, 2012 and 2011 wholesale, the average term extension granted on loans with term or payment extensions was 1.3 years and 3.5 years, respectively. The weighted-average remaining term for all loans modified during these periods was 3.6 years and 5.1 years, respectively. Wholesale TDR loans that redefaulted within one year of the modification were $4730 million and $4241 million during the three months endedJune 30, 2012 and 2011, respectively, and $76 million and $83 million during the six months endedJune 30, 2012 and 2011, respectively. A payment default is deemed to occur when the borrower has not made a loan payment by its scheduled due date after giving effect to any contractual grace period.



160

Consumer, excluding credit card loan portfolio
Consumer loans, excluding credit card loans, consist primarily of residential mortgages, home equity loans and lines of credit, auto loans, business banking loans, and student and other loans, with a primary focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by junior liens and mortgage loans with interest-only payment options to predominantly prime borrowers, as well as certain payment-option loans originated by Washington Mutual that may result in negative amortization.
The table below provides information about consumer retained loans by class, excluding the Credit card loan portfolio segment.
(in millions)Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011
Residential real estate – excluding PCI  
Home equity:  
Senior lien$21,202
$21,765
$20,708
$21,765
Junior lien54,005
56,035
52,125
56,035
Mortgages:  
Prime, including option ARMs76,292
76,196
76,064
76,196
Subprime9,289
9,664
8,945
9,664
Other consumer loans  
Auto48,245
47,426
48,468
47,426
Business banking17,822
17,652
18,218
17,652
Student and other13,854
14,143
12,907
14,143
Residential real estate – PCI  
Home equity22,305
22,697
21,867
22,697
Prime mortgage14,781
15,180
14,395
15,180
Subprime mortgage4,870
4,976
4,784
4,976
Option ARMs22,105
22,693
21,565
22,693
Total retained loans$304,770
$308,427
$300,046
$308,427
 
Delinquency rates are a primary credit quality indicator for consumer loans, excluding credit card. Other indicators that are taken into consideration for consumer loans, excluding credit card, include:
For residential real estate loans, including both non-PCI and PCI portfolios: The current estimated LTV ratio, or the combined LTV ratio in the case of loans with a junior lien,lien; the geographic distribution of the loan collateral,collateral; and the borrowers’ current or “refreshed” FICO score.
For scored auto, scored business banking and student loans: GeographicThe geographic distribution of the loans.
For risk-rated business banking and auto loans: RiskThe risk rating of the loan,loan; the geographic considerations relevant to the loanloan; and whether the loan is considered to be criticized and/or nonaccrual.
For all business banking loans: The industry specific conditions relevant to the loans.
For further information on consumer credit quality indicators, see Note 14 on pages 231–252 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.
Residential real estate – excluding PCI loans
The following tables provide information by class for residential real estate – excluding PCI retained loans in the Consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzing certain credit statistics applicable to the Firm’s residential real estate – excluding PCI loans portfolio: (i) junior lien home equity loans may be fully charged off when the loan becomes 180 days past due, the borrower is either unable or unwilling to repay the loan, and the value of the collateral does not support the repayment of the loan, resulting in relatively high charge-off rates for this product class; and (ii) the lengthening of loss-mitigation timelines may result in higher delinquency rates for loans carried at estimated collateral value that remain on the Firm’s Consolidated Balance Sheets.


123161

Residential real estate – excluding PCI loans

             
Home equityHome equity 

(in millions, except ratios)
Senior lien Junior lienSenior lien Junior lien 
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		 Dec 31,
2011		Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 
Loan delinquency(a)
             
Current$20,472
$20,992
 $52,697
 $54,533
$19,976
 $20,992
 $50,898
 $54,533
 
30–149 days past due352
405
 1,077
 1,272
348
 405
 1,018
 1,272
 
150 or more days past due378
368
 231
 230
384
 368
 209
 230
 
Total retained loans$21,202
$21,765
 $54,005
 $56,035
$20,708
 $21,765
 $52,125
 $56,035
 
% of 30+ days past due to total retained loans3.44%3.55% 2.42% 2.68%3.53% 3.55% 2.35% 2.68% 
90 or more days past due and still accruing$—
$—
 $—
 $—
$—
 $—
 $—
 $—
 
90 or more days past due and government guaranteed(b)
—
—
 —
 —
—
 —
 —
 —
 
Nonaccrual loans489
495
 2,277
(g) 
792
492
 495
 2,123
(g) 
 792
 
Current estimated LTV ratios(c)(d)(e)
             
Greater than 125% and refreshed FICO scores:             
Equal to or greater than 660$317
$341
 $6,309
 $6,463
$279
 $341
 $5,984
 $6,463
 
Less than 660152
160
 2,000
 2,037
133
 160
 1,815
 2,037
 
101% to 125% and refreshed FICO scores:             
Equal to or greater than 660652
663
 8,359
 8,775
633
 663
 8,054
 8,775
 
Less than 660247
241
 2,428
 2,510
235
 241
 2,242
 2,510
 
80% to 100% and refreshed FICO scores:             
Equal to or greater than 6601,771
1,850
 10,878
 11,433
1,735
 1,850
 10,511
 11,433
 
Less than 660593
601
 2,537
 2,616
553
 601
 2,437
 2,616
 
Less than 80% and refreshed FICO scores:             
Equal to or greater than 66014,908
15,350
 18,585
 19,326
14,627
 15,350
 18,267
 19,326
 
Less than 6602,562
2,559
 2,909
 2,875
2,513
 2,559
 2,815
 2,875
 
U.S. government-guaranteed—
—
 —
 —
—
 —
 —
 —
 
Total retained loans$21,202
$21,765
 $54,005
 $56,035
$20,708
 $21,765
 $52,125
 $56,035
 
Geographic region             
California$3,002
$3,066
 $12,402
 $12,851
$2,937
 $3,066
 $11,959
 $12,851
 
New York2,972
3,023
 10,635
 10,979
2,948
 3,023
 10,342
 10,979
 
Florida967
992
 2,893
 3,006
942
 992
 2,784
 3,006
 
Illinois1,460
1,495
 3,649
 3,785
1,441
 1,495
 3,542
 3,785
 
Texas2,901
3,027
 1,764
 1,859
2,777
 3,027
 1,672
 1,859
 
New Jersey677
687
 3,132
 3,238
673
 687
 3,042
 3,238
 
Arizona1,303
1,339
 2,452
 2,552
1,267
 1,339
 2,356
 2,552
 
Washington702
714
 1,828
 1,895
691
 714
 1,771
 1,895
 
Ohio1,694
1,747
 1,270
 1,328
1,649
 1,747
 1,218
 1,328
 
Michigan1,016
1,044
 1,349
 1,400
991
 1,044
 1,297
 1,400
 
All other(f)
4,508
4,631
 12,631
 13,142
4,392
 4,631
 12,142
 13,142
 
Total retained loans$21,202
$21,765
 $54,005
 $56,035
$20,708
 $21,765
 $52,125
 $56,035
 
(a)
Individual delinquency classifications included mortgage loans insured by U.S. government agencies as follows: current includes $3.12.8 billion and $3.0 billion; 30–149 days past due includes $2.02.3 billion and $2.3 billion; and 150 or more days past due includes $10.710.8 billion and $10.3 billion at March 31,June 30, 2012, and December 31, 2011, respectively.
(b)
These balances, which are 90 days or more past due but insured by U.S. government agencies, are excluded from nonaccrual loans. In predominately all cases, 100% of the principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. These amounts are excluded from nonaccrual loans because reimbursement of insured and guaranteed amounts is proceeding normally. At March 31,June 30, 2012, and December 31, 2011, these balances included $7.37.6 billion and $7.0 billion, respectively, of loans that are no longer accruing interest because interest has been curtailed by the U.S. government agencies although, in predominantly all cases, 100% of the principal is still insured. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate.
(c)Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates.
(d)Junior lien represents combined LTV, which considers all available lien positions related to the property. All other products are presented without consideration of subordinate liens on the property.
(e)Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm at least on a quarterly basis.
(f)
At March 31,June 30, 2012, and December 31, 2011, included mortgage loans insured by U.S. government agencies of $15.815.9 billion and $15.6 billion, respectively.
(g)
Includes $1.61.5 billion of performing junior liens at March 31,June 30, 2012, that are subordinate to senior liens that are 90 days or more past due; such junior liens are now being reported as nonaccrual loans based upon regulatory guidance issued in the first quarter of 2012. Of the total, $1.41.3 billion were current at March 31, 2012.June 30, 2012. Prior periods have not been restated.
(h)
At March 31,June 30, 2012, and December 31, 2011, excluded mortgage loans insured by U.S. government agencies of $12.713.0 billion and $12.6 billion, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.


124162

(table continued from previous page)
Mortgages   
Prime, including option ARMs  Subprime Total residential real estate – excluding PCI 
Mar 31,
2012		 Dec 31,
2011		  Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		 Dec 31,
2011		 
            
$60,051
 $59,855
  $7,425
$7,585
 $140,645
 $142,965
 
2,980
 3,475
  740
820
 5,149
 5,972
 
13,261
 12,866
  1,124
1,259
 14,994
 14,723
 
$76,292
 $76,196
  $9,289
$9,664
 $160,788
 $163,660
 
4.59%
(h) 
4.96%
(h) 
 20.07%21.51% 4.61%
(h) 
4.97%
(h) 
$—
 $—
  $—
$—
 $—
 $—
 
11,841
 11,516
  —
—
 11,841
 11,516
 
3,258
 3,462
  1,569
1,781
 7,593
 6,530
 
            
            
$3,137
 $3,168
  $361
$367
 $10,124
 $10,339
 
1,323
 1,416
  1,007
1,061
 4,482
 4,674
 
            
4,601
 4,626
  502
506
 14,114
 14,570
 
1,672
 1,636
  1,219
1,284
 5,566
 5,671
 
            
8,730
 9,343
  801
817
 22,180
 23,443
 
2,331
 2,349
  1,446
1,556
 6,907
 7,122
 
            
34,281
 33,849
  1,854
1,906
 69,628
 70,431
 
4,375
 4,225
  2,099
2,167
 11,945
 11,826
 
15,842
 15,584
  —
—
 15,842
 15,584
 
$76,292
 $76,196
  $9,289
$9,664
 $160,788
 $163,660
 
            
$17,887
 $18,029
  $1,409
$1,463
 $34,700
 $35,409
 
10,457
 10,200
  1,180
1,217
 25,244
 25,419
 
4,448
 4,565
  1,142
1,206
 9,450
 9,769
 
3,889
 3,922
  372
391
 9,370
 9,593
 
2,862
 2,851
  290
300
 7,817
 8,037
 
2,045
 2,042
  441
461
 6,295
 6,428
 
1,164
 1,194
  190
199
 5,109
 5,284
 
1,852
 1,878
  203
209
 4,585
 4,696
 
432
 441
  225
234
 3,621
 3,750
 
890
 909
  236
246
 3,491
 3,599
 
30,366
 30,165
  3,601
3,738
 51,106
 51,676
 
$76,292
 $76,196
  $9,289
$9,664
 $160,788
 $163,660
 
Mortgages     
Prime, including option ARMs  Subprime  Total residential real estate – excluding PCI  
Jun 30,
2012		  Dec 31,
2011		  Jun 30,
2012		  Dec 31,
2011		  Jun 30,
2012		  Dec 31,
2011		  
                  
$59,722
  $59,855
  $7,204
  $7,585
  $137,800
  $142,965
  
3,187
  3,475
  686
  820
  5,239
  5,972
  
13,155
  12,866
  1,055
  1,259
  14,803
  14,723
  
$76,064
  $76,196
  $8,945
  $9,664
  $157,842
  $163,660
  
4.36%
(h) 
 4.96%
(h) 
 19.46%  21.51%  4.44%
(h) 
 4.97%
(h) 
 
$—
  $—
  $—
  $—
  $—
  $—
  
11,940
  11,516
  —
  —
  11,940
  11,516
  
3,139
  3,462
  1,544
  1,781
  7,298
  6,530
  
                  
                  
$3,011
  $3,168
  $324
  $367
  $9,598
  $10,339
  
1,304
  1,416
  899
  1,061
  4,151
  4,674
  
                  
4,417
  4,626
  484
  506
  13,588
  14,570
  
1,636
  1,636
  1,189
  1,284
  5,302
  5,671
  
                  
8,359
  9,343
  764
  817
  21,369
  23,443
  
2,354
  2,349
  1,448
  1,556
  6,792
  7,122
  
                  
34,796
  33,849
  1,761
  1,906
  69,451
  70,431
  
4,328
  4,225
  2,076
  2,167
  11,732
  11,826
  
15,859
  15,584
  —
  —
  15,859
  15,584
  
$76,064
  $76,196
  $8,945
  $9,664
  $157,842
  $163,660
  
                  
$17,602
  $18,029
  $1,360
  $1,463
  $33,858
  $35,409
  
10,683
  10,200
  1,143
  1,217
  25,116
  25,419
  
4,475
  4,565
  1,117
  1,206
  9,318
  9,769
  
3,856
  3,922
  364
  391
  9,203
  9,593
  
2,896
  2,851
  274
  300
  7,619
  8,037
  
2,055
  2,042
  427
  461
  6,197
  6,428
  
1,146
  1,194
  181
  199
  4,950
  5,284
  
1,807
  1,878
  192
  209
  4,461
  4,696
  
424
  441
  214
  234
  3,505
  3,750
  
886
  909
  227
  246
  3,401
  3,599
  
30,234
  30,165
  3,446
  3,738
  50,214
  51,676
  
$76,064
  $76,196
  $8,945
  $9,664
  $157,842
  $163,660
  


125163

The following table represents the Firm’s delinquency statistics for junior lien home equity loans and lines as of March 31,June 30, 2012, and December 31, 2011.
 Delinquencies     Delinquencies    
March 31, 2012
(in millions, except ratios)
 30–89 days past due 90–149 days past due 150+ days past due Total loans Total 30+ day delinquency rate
June 30, 2012
(in millions, except ratios)		 30–89 days past due 90–149 days past due 150+ days past due Total loans Total 30+ day delinquency rate
HELOCs:(a)
                    
Within the revolving period(b)
 $546
 $239
 $175
 $45,990
 2.09% $506
 $240
 $166
 $44,358
 2.06%
Within the required amortization period 39
 15
 18
 1,764
 4.08
 41
 14
 19
 1,908
 3.88
HELOANs 156
 82
 38
 6,251
 4.42
 144
 73
 24
 5,859
 4.11
Total $741
 $336
 $231
 $54,005
 2.42% $691
 $327
 $209
 $52,125
 2.35%
  Delinquencies    
December 31, 2011
(in millions, except ratios)		 30–89 days past due 90–149 days past due 150+ days past due Total loans Total 30+ day delinquency rate
HELOCs:(a)
          
Within the revolving period(b)
 $606
 $314
 $173
 $47,760
 2.29%
Within the required amortization period 45
 19
 15
 1,636
 4.83
HELOANs 188
 100
 42
 6,639
 4.97
Total $839
 $433
 $230
 $56,035
 2.68%
(a) In general, HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period.
(b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty or when the collateral does not support the loan amount.
Home equity lines of credit (“HELOCs”) within the required amortization period and home equity loans (“HELOANs”) have higher delinquency rates than do HELOCs within the revolving period. That is primarily because the fully-amortizing payment required for those products is higher than the minimum payment options available for HELOCs within the revolving period. The higher delinquency rates
associated with amortizing HELOCs and HELOANs are factored into the loss estimates produced by the Firm’s delinquency roll-rate methodology, which estimates defaults based on the current delinquency status of a portfolio.


Impaired loans

The table below sets forth information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 14 on page 134176 of this Form 10-Q.10-Q.
Home equity Mortgages 
Total residential
 real estate
– excluding PCI
Home equity Mortgages 
Total residential
 real estate
– excluding PCI

(in millions)
Senior lien Junior lien 
Prime, including
option ARMs
 Subprime Senior lien Junior lien 
Prime, including
option ARMs
 Subprime 
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011
Impaired loans                  
With an allowance$322
$319
 $627
$622
 $4,487
$4,332
 $3,062
$3,047
 $8,498
$8,320
$544
$319
 $684
$622
 $5,545
$4,332
 $3,298
$3,047
 $10,071
$8,320
Without an allowance(a)
16
16
 79
35
 531
545
 164
172
 790
768
16
16
 78
35
 547
545
 186
172
 827
768
Total impaired loans(b)
$338
$335
 $706
$657
 $5,018
$4,877
 $3,226
$3,219
 $9,288
$9,088
$560
$335
 $762
$657
 $6,092
$4,877
 $3,484
$3,219
 $10,898
$9,088
Allowance for loan losses related to impaired loans$110
$80
 $207
$141
 $4
$4
 $209
$366
 $530
$591
$191
$80
 $188
$141
 $162
$4
 $273
$366
 $814
$591
Unpaid principal balance of impaired loans(c)
444
433
 1,085
994
 6,446
6,190
 4,872
4,827
 12,847
12,444
684
433
 1,191
994
 7,629
6,190
 5,116
4,827
 14,620
12,444
Impaired loans on nonaccrual status68
77
 209
159
 888
922
 728
832
 1,893
1,990
77
77
 147
159
 992
922
 788
832
 2,004
1,990
(a)When discounted cash flows or
Represents collateral-dependent residential mortgage loans that are charged off to the fair value of the underlying collateral value equals or exceeds the recorded investment in the loan, the loan does not require an allowance.     This typically occurs when an impaired loan has been partially charged off.less cost to sell.
(b)
At March 31,June 30, 2012, and December 31, 2011, $4.75.4 billion and $4.3 billion, respectively, of loans modified subsequent to repurchase from Government National Mortgage Association (“Ginnie Mae”) in accordance with the standards of the appropriate government agency (i.e., Federal Housing Administration (“FHA”), U.S. Department of Veterans Affairs (“VA”), Rural Housing Services (“RHS”)) were excluded from loans accounted for as TDRs. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure.
(c)
Represents the contractual amount of principal owed at March 31,June 30, 2012, and December 31, 2011. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs, net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.


126164

The following table presents average impaired loans and the related interest income reported by the Firm.
Three months ended March 31,Average impaired loans 
Interest income on
impaired loans(a)
 
Interest income on impaired
loans on a cash basis(a)
Three months ended June 30,Average impaired loans 
Interest income on
impaired loans(a)
 
Interest income on impaired
loans on a cash basis(a)
(in millions)20122011 20122011 2012201120122011 20122011 20122011
Home equity          
Senior lien$336
$242
 $3
$3
 $1
$—
$390
$274
 $3
$2
 $—
$1
Junior lien686
361
 6
4
 1
—
734
488
 7
4
 1
1
Mortgages          
Prime, including option ARMs4,949
2,616
 49
26
 5
3
5,469
3,540
 55
33
 5
3
Subprime3,216
2,868
 42
34
 4
3
3,394
3,047
 45
37
 6
3
Total residential real estate – excluding PCI$9,187
$6,087
 $100
$67
 $11
$6
$9,987
$7,349
 $110
$76
 $12
$8
Six months ended June 30,Average impaired loans 
Interest income on
impaired loans(a)
 
Interest income on impaired
loans on a cash basis(a)
(in millions)20122011 20122011 20122011
Home equity        
Senior lien$363
$258
 $6
$5
 $1
$1
Junior lien710
425
 13
8
 2
1
Mortgages        
Prime, including option ARMs5,209
3,081
 104
59
 10
6
Subprime3,305
2,958
 87
71
 10
6
Total residential real estate – excluding PCI$9,587
$6,722
 $210
$143
 $23
$14
(a)
Generally, interest income on loans modified in TDRs is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms. As of March 31,June 30, 2012 and 2011, $837866 million and $640938 million, respectively, were loans on which the borrowers had not yet made six payments under their modified terms.terms and other TDRs placed on nonaccrual status under regulatory guidance.


Loan modifications
In accordance with the terms of the global settlement, which was finalized in the first quarter ofbecame effective on April 5, 2012, the Firm expects to provide approximately $500 million of refinancing relief to certain “underwater” borrowers under the Refi Program and to provide approximately $3.7 billion of additional relief for certain borrowers under the Consumer Relief Program, including reductions of principal on first and second liens.
The purpose of the Refi Program is to allow eligible borrowers who are current on their mortgage loans to refinance their existing loans; such borrowers are otherwise unable to do so because they have no equity or, in many cases, negative equity in their homes. The terms ofUnder the refinanced loans may provide for a reducedRefi Program, the interest rate on each loan that is refinanced may be reduced either for the remaining life of the loan or for five years. The Firm has determined that it will reduce the interest rates on loans that it refinances under the Refi Program for the remaining lives of those loans. Most of the refinancings are not expected to result in term extensions and so, in that regard, are more similar to loan modifications than to traditional refinancings. The Firm intendsA significant portion of the refinancings expected to introducebe performed under the Refi Program in the second quarterhad been finalized as of 2012.June 30, 2012.
 
As of March 31, 2012, the
The Firm had beguncontinues to modify first and second lien loans under the Consumer Relief Program. These loan modifications are primarily expected to be performedexecuted under the terms of either the U.S. Treasury'sTreasury’s Making Home Affordable (“MHA”) programs (e.g., HAMP, 2MP) or one of the Firm’s proprietary modification programs. For further information on thisthe global settlement, see Business Changeschanges and Developmentsdevelopments in Note 2 on pages of 90–91117–118 and Mortgage Foreclosure Investigations and Litigation in Note 23 on pages 154–163page 203 of this Form 10-Q.10-Q.
Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There were no additional commitments to lend to borrowers whose residential real estate loans, excluding PCI loans, have been modified in TDRs. For further information, see Note 14 on pages 233–234 and 243–245 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.



165

TDR activity rollforward
The following tables reconcile the beginning and ending balances of residential real estate loans, excluding PCI loans, modified in TDRs for the periods presented.
Three months ended March 31,
(in millions)
Home equity Mortgages 
Total residential
real estate – (excluding PCI)
Senior lien Junior lien Prime, including option ARMs Subprime 
20122011 20122011 20122011 20122011 20122011
Three months ended June 30,
(in millions)		Home equity Mortgages 
Total residential
real estate – (excluding PCI)
Senior lien Junior lien Prime, including option ARMs Subprime 
20122011 20122011 20122011 20122011 20122011
Beginning balance of TDRs$335
$226
 $657
$283
 $4,877
$2,084
 $3,219
$2,751
 $9,088
$5,344
$338
$257
 $706
$425
 $5,018
$3,269
 $3,226
$2,989
 $9,288
$6,940
New TDRs(a)
12
37
 96
168
 281
1,260
 122
342
 511
1,807
231
46
 93
152
 1,209
614
 362
234
 1,895
1,046
Charge-offs post-modification(b)
(5)(3) (17)(15) (34)(23) (51)(65) (107)(106)(4)(4) (6)(25) (26)(33) (43)(52) (79)(114)
Foreclosures and other liquidations
(e.g., short sales)		—
—
 (3)(3) (29)(16) (37)(18) (69)(37)—
—
 (2)(2) (28)(25) (23)(17) (53)(44)
Principal payments and other(4)(3) (27)(8) (77)(36) (27)(21) (135)(68)(5)(2) (29)(12) (81)(65) (38)(25) (153)(104)
Ending balance of TDRs$338
$257
 $706
$425
 $5,018
$3,269
 $3,226
$2,989
 $9,288
$6,940
$560
$297
 $762
$538
 $6,092
$3,760
 $3,484
$3,129
 $10,898
$7,724
Permanent modifications$296
$234
 $695
$409
 $4,768
$2,990
 $3,067
$2,754
 $8,826
$6,387
$527
$261
 $756
$517
 $5,808
$3,390
 $3,333
$2,843
 $10,424
$7,011
Trial modifications$42
$23
 $11
$16
 $250
$279
 $159
$235
 $462
$553
$33
$36
 $6
$21
 $284
$370
 $151
$286
 $474
$713
Six months ended June 30,
(in millions)		Home equity Mortgages 
Total residential
real estate – (excluding PCI)
Senior lien Junior lien Prime, including option ARMs Subprime 
20122011 20122011 20122011 20122011 20122011
Beginning balance of TDRs$335
$226
 $657
$283
 $4,877
$2,084
 $3,219
$2,751
 $9,088
$5,344
New TDRs(a)
243
83
 189
320
 1,490
1,874
 484
576
 2,406
2,853
Charge-offs post-modification(b)
(9)(7) (23)(40) (60)(56) (94)(117) (186)(220)
Foreclosures and other liquidations
(e.g., short sales)		—
—
 (5)(5) (57)(41) (60)(35) (122)(81)
Principal payments and other(9)(5) (56)(20) (158)(101) (65)(46) (288)(172)
Ending balance of TDRs$560
$297
 $762
$538
 $6,092
$3,760
 $3,484
$3,129
 $10,898
$7,724
Permanent modifications$527
$261
 $756
$517
 $5,808
$3,390
 $3,333
$2,843
 $10,424
$7,011
Trial modifications$33
$36
 $6
$21
 $284
$370
 $151
$286
 $474
$713
(a)Any permanent modification of a loan previously reported as a new TDR as the result of a trial modification is not also reported as a new TDR.
(b)Includes charge-offs on unsuccessful trial modifications.

127166

Nature and extent of modifications
MHA, as well as the Firm’s proprietary modification programs, generally provide various concessions to financially troubled borrowers including, but not limited to,
 
interest rate reductions, term or payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of the original agreement.

The following table providestables provide information about how residential real estate loans, excluding PCI loans, were modified during the periodperiods presented.
Three months ended March 31,Home equity Mortgages 
Total residential
real estate -
(excluding PCI)
Senior lien Junior lien Prime, including option ARMs Subprime 
20122011 20122011 20122011 20122011 20122011
Three months ended June 30,Home equity Mortgages 
Total residential
real estate -
(excluding PCI)
Senior lien Junior lien Prime, including option ARMs Subprime 
20122011 20122011 20122011 20122011 20122011
Number of loans approved for a trial modification, but not permanently modified92
101
 209
76
 485
129
 552
287
 1,338
593
185
66
 161
59
 632
85
 636
179
 1,614
389
Number of loans permanently modified230
181
 1,816
2,699
 950
3,981
 1,190
753
 4,186
7,614
2,467
346
 2,048
2,557
 3,754
1,717
 4,654
1,332
 12,923
5,952
Concession granted:(a)
                  
Interest rate reduction63%74% 95%97% 79%20% 82%84% 85%56%87%78% 86%95% 87%52% 68%80% 80%78%
Term or payment extension96
80
 69
83
 82
59
 68
69
 73
69
34
79
 84
80
 63
63
 35
72
 51
73
Principal and/or interest deferred10
6
 20
21
 36
7
 13
16
 22
13
3
4
 16
20
 15
19
 6
18
 10
18
Principal forgiveness22
5
 7
21
 23
—
 31
5
 19
8
3
10
 11
26
 15
3
 38
13
 21
16
Other(b)
8
41
 7
8
 19
86
 3
31
 9
51
2
36
 6
9
 43
60
 6
29
 16
30
Six months ended June 30,Home equity Mortgages 
Total residential
real estate -
(excluding PCI)
Senior lien Junior lien Prime, including option ARMs Subprime 
20122011 20122011 20122011 20122011 20122011
Number of loans approved for a trial modification, but not permanently modified248
151
 303
133
 870
209
 900
448
 2,321
941
Number of loans permanently modified2,697
527
 3,864
5,256
 4,704
5,698
 5,844
2,085
 17,109
13,566
Concession granted:(a)
              
Interest rate reduction85%77% 90%96% 85%30% 71%82% 81%65%
Term or payment extension40
79
 76
81
 67
60
 41
71
 56
71
Principal and/or interest deferred4
5
 18
20
 19
11
 7
17
 13
15
Principal forgiveness5
8
 9
24
 16
1
 37
10
 20
11
Other(b)
3
38
 5
9
 36
78
 6
30
 14
42
(a)
As a percentage of the number of loans modified. The sum of the percentages exceeds 100% because predominantly all of the modifications include more than one type of concession.
(b)Represents variable interest rate to fixed interest rate modifications.

167

Financial effects of modifications and redefaults
The following table providestables provide information about the financial effects of the various concessions granted in modifications of residential real estate loans, excluding PCI, and also about redefaults of certain loans modified in TDRs for the periodperiods presented.
Three months ended March 31,
(in millions, except weighted-average data and number of loans)
Home equity Mortgages Total residential real estate – (excluding PCI)
Senior lien Junior lien Prime, including option ARMs Subprime 
20122011 20122011 20122011 20122011 20122011
Three months ended June 30,
(in millions, except weighted-average data and number of loans)		Home equity Mortgages Total residential real estate – (excluding PCI)
Senior lien Junior lien Prime, including option ARMs Subprime 
20122011 20122011 20122011 20122011 20122011
Weighted-average interest rate of loans with interest rate reductions – before TDR6.93%7.33% 5.63%5.38% 5.90%6.12% 8.17%8.25% 6.55%6.50%7.27%7.29% 5.65%5.55% 6.28%6.24% 7.61%8.29% 6.68%6.72%
Weighted-average interest rate of loans with interest rate reductions – after TDR3.39
3.37
 1.67
1.35
 2.59
2.88
 3.72
3.73
 2.79
2.75
4.87
3.74
 1.99
1.52
 3.99
2.93
 4.42
3.61
 4.07
2.89
Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR20
17
 21
21
 26
25
 24
24
 25
24
19
17
 21
20
 25
25
 23
23
 24
23
Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR29
29
 33
35
 36
31
 32
35
 34
32
30
31
 32
35
 35
36
 32
36
 34
36
Charge-offs recognized upon permanent modification$1
$—
 $6
$35
 $14
$18
 $5
$3
 $26
$56
$1
$—
 $6
$39
 $9
$16
 $7
$5
 $23
$60
Principal deferred1
—
 8
9
 52
27
 13
11
 74
47
2
2
 7
11
 60
32
 20
15
 89
60
Principal forgiven3
—
 4
19
 35
1
 43
3
 85
23
2
1
 7
25
 65
4
 138
12
 212
42
Number of loans that redefaulted within one year of permanent modification(a)
68
40
 411
182
 248
316
 374
685
 1,101
1,223
84
45
 356
205
 232
272
 437
475
 1,109
997
Balance of loans that redefaulted within one year of permanent modification(a)
$5
$4
 $16
$6
 $67
$89
 $41
$107
 $129
$206
$6
$3
 $12
$11
 $72
$79
 $47
$71
 $137
$164
Six months ended June 30,
(in millions, except weighted-average data and number of loans)		Home equity Mortgages Total residential real estate – (excluding PCI)
Senior lien Junior lien Prime, including option ARMs Subprime 
20122011 20122011 20122011 20122011 20122011
Weighted-average interest rate of loans with interest rate reductions – before TDR7.24%7.33% 5.64%5.46% 6.20%6.19% 7.79%8.27% 6.66%6.62%
Weighted-average interest rate of loans with interest rate reductions – after TDR4.74
3.62
 1.84
1.44
 3.70
2.91
 4.25
3.65
 3.76
2.83
Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR20
17
 21
21
 25
25
 24
23
 24
24
Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR30
30
 32
35
 35
33
 32
35
 34
34
Charge-offs recognized upon permanent modification$2
$—
 $12
$74
 $23
$34
 $12
$8
 $49
$116
Principal deferred4
2
 14
20
 101
59
 31
26
 150
107
Principal forgiven4
1
 11
44
 93
5
 175
15
 283
65
Number of loans that redefaulted within one year of permanent modification(a)
140
83
 724
369
 458
563
 733
1,069
 2,055
2,084
Balance of loans that redefaulted within one year of permanent modification(a)
$10
$7
 $26
$17
 $130
$162
 $81
$163
 $247
$349
(a)Represents loans permanently modified in TDRs that experienced a payment default in the period presented, and for which the payment default occurred within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which they defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels.

128168

Approximately 85% of the trial modifications approved on or after July 1, 2010 (the approximate date on which substantial revisions were made to the HAMP program), that are seasoned more than six months have been successfully converted to permanent modifications.
The primary performance indicator for TDRs is the rate at which modified loans redefault. At March 31,June 30, 2012, the cumulative redefault rates of residential real estate loans, excluding PCI loans, based upon permanent modifications completed after October 1, 2009 that are seasoned more than six months are 20%21% for senior lien home equity, 15%16% for junior lien home equity, 12%14% for prime mortgages
including option ARMs, and 25%26% for subprime mortgages.
At March 31,June 30, 2012, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were 6.7 years, 6.6 years, 9.1 years and 7.35.6 years for senior lien home equity, 6.7 years for junior lien home equity,9.2 years for prime mortgage, including option ARMs and 7.2 years for subprime mortgage, respectively.mortgage. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and involuntary (i.e., foreclosures and other forced liquidations).




Other consumer loans
The tables below provide information for other consumer retained loan classes, including auto, business banking and student loans.
(in millions, except ratios)Auto Business banking Student and other Total other consumer Auto Business banking Student and other Total other consumer 
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		 Dec 31,
2011		 Mar 31,
2012		 Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 Jun 30,
2012		 Dec 31,
2011		 
Loan delinquency(a)
                        
Current$47,866
$46,891
 $17,364
$17,173
 $12,530
 $12,905
 $77,760
 $76,969
 $48,034
$46,891
 $17,775
$17,173
 $11,731
 $12,905
 $77,540
 $76,969
 
30–119 days past due374
528
 283
326
 851
 777
 1,508
 1,631
 429
528
 273
326
 706
 777
 1,408
 1,631
 
120 or more days past due5
7
 175
153
 473
 461
 653
 621
 5
7
 170
153
 470
 461
 645
 621
 
Total retained loans$48,245
$47,426
 $17,822
$17,652
 $13,854
 $14,143
 $79,921
 $79,221
 $48,468
$47,426
 $18,218
$17,652
 $12,907
 $14,143
 $79,593
 $79,221
 
% of 30+ days past due to total retained loans0.79%1.13% 2.57%2.71% 2.01%
(d) 
1.76%
(d) 
1.40%
(d) 
1.59%
(d) 
0.90%1.13% 2.43%2.71% 1.90%
(d) 
1.76%
(d) 
1.41%
(d) 
1.59%
(d) 
90 or more days past due and still accruing (b)
$—
$—
 $—
$—
 $586
 $551
 $586
 $551
 $—
$—
 $—
$—
 $547
 $551
 $547
 $551
 
Nonaccrual loans102
118
 649
694
 105
 69
 856
 881
 101
118
 587
694
 83
 69
 771
 881
 
Geographic region                        
California$4,569
$4,413
 $1,449
$1,342
 $1,253
 $1,261
 $7,271
 $7,016
 $4,744
$4,413
 $1,621
$1,342
 $1,176
 $1,261
 $7,541
 $7,016
 
New York3,722
3,616
 2,765
2,792
 1,379
 1,401
 7,866
 7,809
 3,708
3,616
 2,806
2,792
 1,304
 1,401
 7,818
 7,809
 
Florida1,928
1,881
 372
313
 642
 658
 2,942
 2,852
 1,951
1,881
 436
313
 590
 658
 2,977
 2,852
 
Illinois2,601
2,496
 1,367
1,364
 835
 851
 4,803
 4,711
 2,561
2,496
 1,398
1,364
 785
 851
 4,744
 4,711
 
Texas4,511
4,467
 2,700
2,680
 1,008
 1,053
 8,219
 8,200
 4,564
4,467
 2,723
2,680
 929
 1,053
 8,216
 8,200
 
New Jersey1,879
1,829
 374
376
 454
 460
 2,707
 2,665
 1,887
1,829
 375
376
 431
 460
 2,693
 2,665
 
Arizona1,521
1,495
 1,146
1,165
 308
 316
 2,975
 2,976
 1,597
1,495
 1,141
1,165
 287
 316
 3,025
 2,976
 
Washington749
735
 176
160
 246
 249
 1,171
 1,144
 765
735
 190
160
 235
 249
 1,190
 1,144
 
Ohio2,648
2,633
 1,526
1,541
 862
 880
 5,036
 5,054
 2,592
2,633
 1,468
1,541
 821
 880
 4,881
 5,054
 
Michigan2,256
2,282
 1,388
1,389
 624
 637
 4,268
 4,308
 2,166
2,282
 1,387
1,389
 583
 637
 4,136
 4,308
 
All other21,861
21,579
 4,559
4,530
 6,243
 6,377
 32,663
 32,486
 21,933
21,579
 4,673
4,530
 5,766
 6,377
 32,372
 32,486
 
Total retained loans$48,245
$47,426
 $17,822
$17,652
 $13,854
 $14,143
 $79,921
 $79,221
 $48,468
$47,426
 $18,218
$17,652
 $12,907
 $14,143
 $79,593
 $79,221
 
Loans by risk ratings(c)
                        
Noncriticized$7,474
$6,775
 $12,028
$11,749
 NA
 NA
 $19,502
 $18,524
 $7,746
$6,775
 $12,547
$11,749
 NA
 NA
 $20,293
 $18,524
 
Criticized performing161
166
 774
817
 NA
 NA
 935
 983
 172
166
 727
817
 NA
 NA
 899
 983
 
Criticized nonaccrual6
3
 505
524
 NA
 NA
 511
 527
 4
3
 456
524
 NA
 NA
 460
 527
 
(a)Loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) are included in the delinquency classifications presented based on their payment status.
(b)These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of insured amounts is proceeding normally.
(c)For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or nonaccrual.
(d)
March 31,June 30, 2012, and December 31, 2011, excluded loans 30 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $1.0 billion931 million and $989 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

129169

Other consumer impaired loans and loan modifications
The tables below set forth information about the Firm’s other consumer impaired loans, including risk-rated business banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.

(in millions)
Auto Business banking 
Total other consumer(c)
Auto Business banking 
Total other consumer(c)
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011
Impaired loans          
With an allowance$92
$88
 $679
$713
 $771
$801
$86
$88
 $630
$713
 $716
$801
Without an allowance(a)
—
3
 —
—
 —
3
—
3
 —
—
 —
3
Total impaired loans$92
$91
 $679
$713
 $771
$804
$86
$91
 $630
$713
 $716
$804
Allowance for loan losses related to impaired loans$14
$12
 $216
$225
 $230
$237
$13
$12
 $177
$225
 $190
$237
Unpaid principal balance of impaired loans(b)
128
126
 784
822
 912
948
121
126
 728
822
 849
948
Impaired loans on nonaccrual status42
41
 522
551
 564
592
39
41
 473
551
 512
592
(a)When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, then the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged off and/or there have been interest payments received and applied to the loan balance.
(b)
Represents the contractual amount of principal owed at March 31,June 30, 2012, and December 31, 2011. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the principal balance; net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.
(c)
There were no impaired student and other loans at March 31,June 30, 2012, and December 31, 2011.

The following table presents average impaired loans for the periods presented.
Three months ended March 31,
(in millions)
Average impaired loans(b)
20122011

(in millions)
Average impaired loans(b)
Three months ended June 30, Six months ended June 30,
20122011 20122011
Auto$92
$99
$88
$92
 $90
$95
Business banking688
772
646
764
 667
768
Total other consumer(a)
$780
$871
$734
$856
 $757
$863
(a)
There were no impaired student and other loans for the three or six months ended March 31,June 30, 2012 and 2011.2011.
(b)
The related interest income on impaired loans, including those on a cash basis, was not material for the three or six months ended March 31,June 30, 2012 and 2011.2011.

Loan modifications
The following table provides information about the Firm’s other consumer loans modified in TDRs. All of these TDRs are reported as impaired loans in the tables above.
(in millions)Auto Business banking 
Total other consumer(c)
Auto Business banking 
Total other consumer(c)
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011
Loans modified in troubled debt restructurings(a)(b)
$91
$88
 $378
$415
 $469
$503
$86
$88
 $366
$415
 $452
$503
TDRs on nonaccrual status41
38
 221
253
 262
291
39
38
 209
253
 248
291
(a)These modifications generally provided interest rate concessions to the borrower or deferral of principal repayments.
(b)
Additional commitments to lend to borrowers whose loans have been modified in TDRs as of March 31,June 30, 2012, and December 31, 2011, were immaterial.
(c)
There were no student and other loans modified in TDRs at March 31,June 30, 2012, and December 31, 2011.

170

TDR activity rollforward
The following table reconcilestables reconcile the beginning and ending balances of other consumer loans modified in TDRs for the periodperiods presented.
Three months ended March 31,
(in millions)
Auto Business banking Total other consumer
20122011 20122011 20122011
Three months ended June 30,
(in millions)		Auto Business banking Total other consumer
20122011 20122011 20122011
Beginning balance of TDRs$88
$91
 $415
$395
 $503
$486
$91
$90
 $378
$408
 $469
$498
New TDRs17
13
 13
56
 30
69
10
12
 21
62
 31
74
Charge-offs(2)(2) (3)(1) (5)(3)(2)(1) (2)(1) (4)(2)
Foreclosures and other liquidations—
—
 —
—
 —
—
—
—
 —
(2) —
(2)
Principal payments and other(12)(12) (47)(42) (59)(54)(13)(13) (31)(38) (44)(51)
Ending balance of TDRs$91
$90
 $378
$408
 $469
$498
$86
$88
 $366
$429
 $452
$517
Six months ended June 30,
(in millions)		Auto Business banking Total other consumer
20122011 20122011 20122011
Beginning balance of TDRs$88
$91
 $415
$395
 $503
$486
New TDRs27
25
 34
118
 61
143
Charge-offs(4)(3) (5)(2) (9)(5)
Foreclosures and other liquidations—
—
 —
(2) —
(2)
Principal payments and other(25)(25) (78)(80) (103)(105)
Ending balance of TDRs$86
$88
 $366
$429
 $452
$517



130

Financial effects of modifications and redefaults
For auto loans, TDRs typically occur in connection with the bankruptcy of the borrower. In these cases, the loan is modified with a revised repayment plan that typically incorporates interest rate reductions and, to a lesser extent, principal forgiveness.
For business banking loans, concessions are dependent on individual borrower circumstances and can be of a short-term nature for borrowers who need temporary relief or longer term for borrowers experiencing more fundamental financial difficulties. Concessions are predominantly term or payment extensions, but also may include interest rate reductions.
For the three months ended March 31, 2012 and 2011, the interest rates on auto loans modified in TDRs were reduced on average from 9.98% to 4.46% and from 11.69% to 5.57%, respectively, and the interest rates on business banking loans modified in TDRs were reduced on average from 7.96% to 6.15% and from 7.33% to 5.54%, respectively. For business banking loans, the weighted-average remaining term of all loans modified in TDRs during the three months ended March 31, 2012 and 2011, increased from 1.4 years to 3.5 years and from 1.5 years to 2.9 years, respectively. For all periods presented, principal forgiveness related to auto loans was immaterial.
The balance of business banking loans modified in TDRs that experienced a payment default, during the three months ended March 31, 2012 and 2011, and for which the payment default occurred within one year of the modification, was $1114 million and $2421 million, during the three months endedJune 30, 2012 and 2011, respectively, and $25 million and $45 million, during the six months endedJune 30, 2012 and 2011, respectively; the corresponding balance of redefaulted auto loans modified in TDRs was insignificant. A payment default is deemed to occur as follows: (1) for scored auto and business banking loans, when the loan is two payments past due; and (2) for risk-rated business banking loans and auto loans, when the borrower has not made a loan payment by its scheduled due date after giving effect to the contractual grace period, if any.


The following table provides information about the financial effects of the various concessions granted in modifications of other consumer loans for the periods presented.
 Three months ended June 30, Six months ended June 30,
Auto Business banking Auto Business banking
20122011 20122011 20122011 20122011
Weighted-average interest rate of loans with interest rate reductions – before TDR12.55%11.61% 8.24%7.45% 10.99%11.65% 8.14%7.40%
Weighted-average interest rate of loans with interest rate reductions – after TDR5.10
5.86
 6.03
5.62
 4.71
5.71
 6.07
5.59
Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDRNM
NM
 0.7
1.7
 NM
NM
 1.0
1.6
Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDRNM
NM
 1.9
2.5
 NM
NM
 2.5
2.7

131171

Purchased credit-impaired loans
For a detailed discussion of PCI loans, including the related accounting policies, see Note 14 on pages 231–252 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.

Residential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.

(in millions, except ratios)
Home equity Prime mortgage Subprime mortgage Option ARMs Total PCIHome equity Prime mortgage Subprime mortgage Option ARMs Total PCI
Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		 Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011
Carrying value(a)
$22,305
$22,697
 $14,781
$15,180
 $4,870
$4,976
 $22,105
$22,693
 $64,061
$65,546
$21,867
$22,697
 $14,395
$15,180
 $4,784
$4,976
 $21,565
$22,693
 $62,611
$65,546
Related allowance for loan losses(b)
1,908
1,908
 1,929
1,929
 380
380
 1,494
1,494
 5,711
5,711
1,908
1,908
 1,929
1,929
 380
380
 1,494
1,494
 5,711
5,711
Loan delinquency (based on unpaid principal balance)                  
Current$22,132
$22,682
 $11,973
$12,148
 $4,439
$4,388
 $17,703
$17,919
 $56,247
$57,137
$21,518
$22,682
 $11,620
$12,148
 $4,366
$4,388
 $17,260
$17,919
 $54,764
$57,137
30–149 days past due955
1,130
 810
912
 673
782
 1,266
1,467
 3,704
4,291
858
1,130
 758
912
 629
782
 1,207
1,467
 3,452
4,291
150 or more days past due1,243
1,252
 2,679
3,000
 1,853
2,059
 6,129
6,753
 11,904
13,064
1,282
1,252
 2,556
3,000
 1,774
2,059
 5,829
6,753
 11,441
13,064
Total loans$24,330
$25,064
 $15,462
$16,060
 $6,965
$7,229
 $25,098
$26,139
 $71,855
$74,492
$23,658
$25,064
 $14,934
$16,060
 $6,769
$7,229
 $24,296
$26,139
 $69,657
$74,492
% of 30+ days past due to total loans9.03%9.50% 22.56%24.36% 36.27%39.30% 29.46%31.45% 21.72%23.30%9.05%9.50% 22.19%24.36% 35.50%39.30% 28.96%31.45% 21.38%23.30%
Current estimated LTV ratios (based on unpaid principal balance)(c)(d)
                  
Greater than 125% and refreshed FICO scores:                  
Equal to or greater than 660$5,683
$5,915
 $2,236
$2,313
 $468
$473
 $2,394
$2,509
 $10,781
$11,210
$5,616
$5,915
 $2,094
$2,313
 $446
$473
 $2,190
$2,509
 $10,346
$11,210
Less than 6603,235
3,299
 2,206
2,319
 1,870
1,939
 4,173
4,608
 11,484
12,165
3,092
3,299
 2,175
2,319
 1,773
1,939
 4,025
4,608
 11,065
12,165
101% to 125% and refreshed FICO scores:                  
Equal to or greater than 6605,178
5,393
 3,211
3,328
 443
434
 3,836
3,959
 12,668
13,114
5,106
5,393
 3,127
3,328
 442
434
 3,665
3,959
 12,340
13,114
Less than 6602,223
2,304
 2,248
2,314
 1,419
1,510
 3,727
3,884
 9,617
10,012
2,112
2,304
 2,136
2,314
 1,365
1,510
 3,575
3,884
 9,188
10,012
80% to 100% and refreshed FICO scores:                  
Equal to or greater than 6603,392
3,482
 1,601
1,629
 357
372
 3,665
3,740
 9,015
9,223
3,271
3,482
 1,507
1,629
 348
372
 3,490
3,740
 8,616
9,223
Less than 6601,265
1,264
 1,340
1,457
 1,129
1,197
 2,961
3,035
 6,695
6,953
1,208
1,264
 1,331
1,457
 1,130
1,197
 2,972
3,035
 6,641
6,953
Lower than 80% and refreshed FICO scores:                  
Equal to or greater than 6602,358
2,409
 1,237
1,276
 202
198
 2,165
2,189
 5,962
6,072
2,292
2,409
 1,184
1,276
 199
198
 2,167
2,189
 5,842
6,072
Less than 660996
998
 1,383
1,424
 1,077
1,106
 2,177
2,215
 5,633
5,743
961
998
 1,380
1,424
 1,066
1,106
 2,212
2,215
 5,619
5,743
Total unpaid principal balance$24,330
$25,064
 $15,462
$16,060
 $6,965
$7,229
 $25,098
$26,139
 $71,855
$74,492
$23,658
$25,064
 $14,934
$16,060
 $6,769
$7,229
 $24,296
$26,139
 $69,657
$74,492
Geographic region (based on unpaid principal balance)                  
California$14,677
$15,091
 $8,803
$9,121
 $1,612
$1,661
 $13,100
$13,565
 $38,192
$39,438
$14,282
$15,091
 $8,477
$9,121
 $1,566
$1,661
 $12,715
$13,565
 $37,040
$39,438
New York1,147
1,179
 998
1,018
 685
709
 1,508
1,548
 4,338
4,454
1,120
1,179
 969
1,018
 675
709
 1,483
1,548
 4,247
4,454
Florida2,221
2,307
 1,187
1,265
 753
812
 2,967
3,201
 7,128
7,585
2,164
2,307
 1,136
1,265
 724
812
 2,812
3,201
 6,836
7,585
Illinois542
558
 482
511
 384
411
 659
702
 2,067
2,182
529
558
 475
511
 373
411
 642
702
 2,019
2,182
Texas437
455
 162
168
 397
405
 132
140
 1,128
1,168
417
455
 158
168
 388
405
 125
140
 1,088
1,168
New Jersey456
471
 433
445
 281
297
 938
969
 2,108
2,182
444
471
 424
445
 277
297
 907
969
 2,052
2,182
Arizona454
468
 243
254
 120
126
 336
362
 1,153
1,210
439
468
 237
254
 114
126
 327
362
 1,117
1,210
Washington1,329
1,368
 370
388
 156
160
 624
649
 2,479
2,565
1,293
1,368
 356
388
 152
160
 604
649
 2,405
2,565
Ohio31
32
 77
79
 109
114
 104
111
 321
336
29
32
 76
79
 105
114
 100
111
 310
336
Michigan78
81
 229
239
 181
187
 253
268
 741
775
75
81
 226
239
 176
187
 252
268
 729
775
All other2,958
3,054
 2,478
2,572
 2,287
2,347
 4,477
4,624
 12,200
12,597
2,866
3,054
 2,400
2,572
 2,219
2,347
 4,329
4,624
 11,814
12,597
Total unpaid principal balance$24,330
$25,064
 $15,462
$16,060
 $6,965
$7,229
 $25,098
$26,139
 $71,855
$74,492
$23,658
$25,064
 $14,934
$16,060
 $6,769
$7,229
 $24,296
$26,139
 $69,657
$74,492
(a)Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b)Management concluded as part of the Firm’s regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in a decrease in expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
(c)Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions related to the property.
(d)Refreshed FICO scores, which the Firm obtains at least quarterly, represent each borrower’s most recent credit score.

132172

Approximately 20% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or HELOCs. The following table representstables represent delinquency statistics for PCI junior lien home equity loans and lines of credit based on unpaid principal balance as of March 31,June 30, 2012, and December 31, 2011.
 Delinquencies     Delinquencies    
March 31, 2012
(in millions, except ratios)
 30–89 days past due 90–149 days past due 150+ days past due Total loans Total 30+ day delinquency rate
June 30, 2012
(in millions, except ratios)
 30–89 days past due 90–149 days past due 150+ days past due Total loans Total 30+ day delinquency rate
HELOCs:(a)
                    
Within the revolving period(b)
 $419
 $240
 $539
 $17,610
 6.80% $376
 $217
 $574
 $17,010
 6.86%
Within the required amortization period(c)
 17
 9
 8
 483
 7.04
 21
 11
 11
 549
 7.83
HELOANs 43
 24
 45
 1,265
 8.85
 40
 21
 43
 1,203
 8.65
Total $479
 $273
 $592
 $19,358
 6.94% $437
 $249
 $628
 $18,762
 7.00%
 Delinquencies     Delinquencies    
December 31, 2011
(in millions, except ratios)
 30–89 days past due 90–149 days past due 150+ days past due Total loans Total 30+ day delinquency rate 30–89 days past due 90–149 days past due 150+ days past due Total loans Total 30+ day delinquency rate
HELOCs:(a)
                    
Within the revolving period(b)
 $500
 $296
 $543
 $18,246
 7.34% $500
 $296
 $543
 $18,246
 7.34%
Within the required amortization period(c)
 16
 11
 5
 400
 8.00
 16
 11
 5
 400
 8.00
HELOANs 53
 29
 44
 1,327
 9.50
 53
 29
 44
 1,327
 9.50
Total $569
 $336
 $592
 $19,973
 7.50% $569
 $336
 $592
 $19,973
 7.50%
(a)
In general, HELOCs are revolving loans for a 10-year10-year period, after which time the HELOC converts to a loan with a 20-year20-year amortization period.
(b)Substantially all undrawn HELOCs within the revolving period have been closed.
(c)Predominantly all of these loans have been modified to provide a more affordable payment to the borrower.
The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the three and six months ended March 31,June 30, 2012 and 2011, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining life of the PCI loan portfolios. This table excludes the cost to fund the PCI portfolios, and therefore does not represent net interest income expected to be earned on these portfolios.
Three months ended March 31,
(in millions, except ratios)
Total PCI
20122011
(in millions, except ratios)Total PCI
Three months ended June 30, Six months ended June 30,
20122011 20122011
Beginning balance$19,072
$19,097
$19,717
$18,816
 $19,072
$19,097
Accretion into interest income(658)(704)(638)(706) (1,296)(1,410)
Changes in interest rates on variable-rate loans(140)(32)(33)(181) (173)(213)
Other changes in expected cash flows(a)
1,443
455
521
154
 1,964
609
Balance at March 31$19,717
$18,816
Balance at June 30$19,567
$18,083
 $19,567
$18,083
Accretable yield percentage4.48%4.29%4.45%4.36% 4.47%4.32%
(a)Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model and periodically updates model assumptions.
For the three and six months ended March 31,June 30, 2012, other changes in expected cash flows were principally driven by the impact of modifications, but also related to changes in prepayment assumptions. For the three and six months ended March 31,June 30, 2011, other changes in expected cash flows were principally driven by changes in prepayment assumptions.
The factors that most significantly affect estimates of gross cash flows expected to be collected, and accordingly the accretable yield balance, include: (i) changes in the benchmark interest rate indices for variable-rate products such as option ARM and home equity loans; and (ii) changes in prepayment assumptions.
 
Since the date of acquisition, the decrease in the accretable yield percentage has been primarily related to a decrease in interest rates on variable-rate loans and, to a lesser extent, extended loan liquidation periods. Certain events, such as extended loan liquidation periods, affect the timing of expected cash flows but not the amount of cash expected to be received (i.e., the accretable yield balance). Extended loan liquidation periods reduce the accretable yield percentage because the same accretable yield balance is recognized against a higher-than-expected loan balance over a longer-than-expected period of time.



133173

Credit card loan portfolio
The Credit card portfolio segment includes credit card loans originated and purchased by the Firm, including those acquired in the Washington Mutual transaction. Prior to January 1, 2012, the Credit card portfolio segment was reported as two classes: Chase, excluding Washington Mutual, and Washington Mutual. The Washington Mutual class is a run-off portfolio that has been declining since the Firm acquired the portfolio in 2008. Effective January 1, 2012, management determined that the Washington Mutual portfolio class is no longer significant, and therefore, the Credit card portfolio segment is now being reported as one class of loans. Delinquency rates are the primary credit quality indicator for credit card loans. The geographic distribution of the loans provides insight as to the credit quality of the portfolio based on the regional economy. While the borrower’s credit score is another general indicator of credit quality, because the borrower’s credit score tends to be a lagging indicator, the Firm does not use credit scores as a primary indicator of credit quality. For more information on credit quality indicators, see Note 14 on pages 231–252 of JPMorgan Chase’s Chase’s 2011Annual Report.Report. The Firm generally originates new card accounts to prime consumer borrowers. However, certain cardholders’ FICO scores may change over time, depending on the performance of the cardholder and changes in credit score technology.
 
The table below sets forth information about the Firm’s credit card loans.
(in millions, except ratios) Mar 31,
2012		Dec 31,
2011		Jun 30,
2012		Dec 31,
2011
Loan delinquency   
Current and less than 30 days past due
and still accruing		 $121,282
$128,464
$121,931
$128,464
30–89 days past due and still accruing 1,491
1,808
1,369
1,808
90 or more days past due and still
accruing		 1,701
1,902
1,292
1,902
Nonaccrual loans 1
1
1
1
Total retained credit card loans $124,475
$132,175
$124,593
$132,175
Loan delinquency ratios   
% of 30+ days past due to total retained
loans		 2.56%2.81%2.14%2.81%
% of 90+ days past due to total retained
loans		 1.37
1.44
1.04
1.44
Credit card loans by geographic region   
California $16,567
$17,598
$16,659
$17,598
New York 9,962
10,594
9,995
10,594
Texas 9,783
10,239
9,866
10,239
Florida 7,182
7,583
7,037
7,583
Illinois 7,115
7,548
7,205
7,548
New Jersey 5,222
5,604
5,259
5,604
Ohio 4,852
5,202
4,877
5,202
Pennsylvania 4,430
4,779
4,426
4,779
Michigan 3,720
3,994
3,705
3,994
Virginia 3,100
3,298
3,097
3,298
All other 52,542
55,736
52,467
55,736
Total retained credit card loans $124,475
$132,175
$124,593
$132,175
Percentage of portfolio based on carrying value with estimated refreshed FICO scores(a)
   
Equal to or greater than 660 81.5%81.4%84.0%81.4%
Less than 660 18.5
18.6
16.0
18.6
(a)Refreshed FICO scores are estimated based on a statistically significant random sample of credit card accounts in the credit card portfolio for the periodperiods shown. The Firm obtains refreshed FICO scores at least quarterly.



134

Credit card impaired loans and loan modifications
For a detailed discussion of impaired credit card loans, including credit card loan modifications, see Note 14 on pages 231–252 of JPMorgan Chase’s Chase’s 2011Annual Report. Report.


174

The table below sets forth information about the Firm’s impaired credit card loans. All of these loans are considered to be impaired as they have been modified in TDRs.
(in millions) Mar 31,
2012		Dec 31,
2011		 Jun 30,
2012		Dec 31,
2011
Impaired credit card loans with an allowance(a)(b)
    
Credit card loans with modified payment terms(c)
 $5,561
$6,075
 $5,116
$6,075
Modified credit card loans that have reverted to pre-modification payment terms(d)
 963
1,139
 678
1,139
Total impaired credit card loans $6,524
$7,214
 $5,794
$7,214
Allowance for loan losses related to impaired credit card loans $2,402
$2,727
 $1,977
$2,727
(a)The carrying value and the unpaid principal balance are the same for credit card impaired loans.
(b)There were no impaired loans without an allowance.
(c)Represents credit card loans outstanding to borrowers enrolled in a credit card modification program as of the date presented.
(d)
Represents credit card loans that were modified in TDRs but that have subsequently reverted back to the loans’ pre-modification payment terms. At March 31,June 30, 2012, and December 31, 2011, $646404 million and $762 million, respectively, of loans have reverted back to the pre-modification payment terms of the loans due to noncompliance with the terms of the modified loans. Based on the Firm’s historical experience a substantial portion of these loans is expected to be charged-off in accordance with the Firm’s standard charge-off policy. The remaining $317274 million and $377 million at March 31,June 30, 2012, and December 31, 2011, respectively, of these loans are to borrowers who have successfully completed a short-term modification program. The Firm continues to report these loans as TDRs since the borrowers’ credit lines remain closed.
The following table presents average balances of impaired credit card loans and interest income recognized on those loans.
Three months ended March 31,  
(in millions) 20122011
Average impaired credit card loans $6,845
$9,494
Interest income on impaired credit card loans 89
130
  Three months
ended June 30,		 Six months
ended June 30,
(in millions) 20122011 20122011
Average impaired
  credit card loans
 $6,196
$8,864
 $6,520
$9,177
Interest income
  on impaired
  credit card loans
 80
121
 169
251
Loan modifications
JPMorgan Chase may offer one of a number of loan modification programs to credit card borrowers who are experiencing financial difficulty. The Firm has short-term programs for borrowers who may be in need of temporary relief, and long-term programs for borrowers who are experiencing a more fundamental level of financial difficulties. Most of the credit card loans have been modified under long-term programs. Modifications under long-term programs involve placing the customer on a fixed payment plan, generally for 60 months. Modifications under all short- and long-term programs typically include reducing the interest rate on the credit card. Certain borrowers enrolled in a short-term modification program may be given the option to re-enroll in a long-term program. Substantially all modifications are considered to be TDRs.
If the cardholder does not comply with the modified payment terms, then the credit card loan agreement reverts
back to its pre-modification payment terms. Assuming that the cardholder does not begin to perform in accordance with those payment terms, the loan continues to age and will ultimately be charged-off in accordance with the Firm’s standard charge-off policy. In addition, if a borrower successfully completes a short-term modification program, then the loan reverts back to its pre-modification payment terms. However, in most cases, the Firm does not reinstate the borrower’s line of credit.
The following table provides information regarding the nature and extent of modifications of credit card loans for the periods presented.
Three months ended March 31,
(in millions)
 New enrollments
20122011
 New enrollments
 Three months
ended June 30,		 Six months
ended June 30,
(in millions) 20122011 20122011
Short-term programs $31
$55
 $16
$33
 $47
$89
Long-term programs 480
826
 408
619
 888
1,445
Total new enrollments $511
$881
 $424
$652
 $935
$1,534

Financial effects of modifications and redefaults
The following tables providetable provides information about the financial effects of the concessions granted on credit card loans modified in TDRs and redefaults for the period presented.
Three months ended March 31,
(in millions, except weighted-average data)
 20122011
(in millions, except weighted-average data) Three months
ended June 30,		 Six months
ended June 30,
20122011 20122011
Weighted-average interest rate of loans – before TDR 16.46%16.35% 15.25%16.11% 15.91%16.25%
Weighted-average interest rate of loans – after TDR 5.52
5.27
 5.17
5.14
 5.36
5.22
Loans that redefaulted within one year of modification(a)
 $97
$199
 $81
$204
 $178
$403
(a)Represents loans modified in TDRs that experienced a payment default in the period presented, and for which the payment default occurred within one year of the modification. The amounts presented represent the balance of such loans as of the end of the quarter in which they defaulted.
For credit card loans modified in TDRs, payment default is deemed to have occurred when the loans become two payments past due. At the time of default, a loan is removed from the modification program and reverts back to its pre-modification terms. Based on historical experience, a substantial portion of these loans areis expected to be charged-off in accordance with the Firm’s standard charge-off policy.In the second quarter of 2012, the Firm revised its policy for recognizing charge-offs on restructured loans that do not comply with their modified payment terms. These loans will now charge-off when they are 120 days past due rather than 180 days past due.
Also based on historical experience, the estimated weighted-average ultimate default rate for modified credit card loans was 35.72%35.95% at March 31,June 30, 2012, and 35.47% at December 31, 2011.2011

.


135175

Note 14 – Allowance for credit losses
For detailed discussion of the allowance for credit losses and the related accounting policies, see Note 15 on pages 252–255 JPMorgan Chase’s 2011Annual Report.Report.

Allowance for credit losses and loans and lending-related commitments by impairment methodology
The table below summarizes information about the allowance for loan losses, loans by impairment methodology, the allowance for lending-related commitments and lending-related commitments by impairment methodology.
2012 20112012 2011
Three months ended March 31,
(in millions)
WholesaleConsumer, excluding credit card Credit card Total WholesaleConsumer, excluding credit card Credit card Total
Six months ended June 30,
(in millions)		WholesaleConsumer, excluding credit card Credit card Total WholesaleConsumer, excluding credit card Credit card Total
Allowance for loan losses                      
Beginning balance at January 1,$4,316
$16,294
 $6,999
 $27,609
 $4,761
$16,471
 $11,034
 $32,266
$4,316
$16,294
 $6,999
 $27,609
 $4,761
$16,471
 $11,034
 $32,266
Gross charge-offs92
1,134
 1,627
 2,853
 253
1,460
 2,631
 4,344
165
2,188
 3,210
 5,563
 387
2,817
 4,762
 7,966
Gross recoveries(87)(138) (241) (466) (88)(131) (405) (624)(151)(268) (479) (898) (142)(275) (726) (1,143)
Net charge-offs5
996
 1,386
 2,387
 165
1,329
 2,226
 3,720
14
1,920
 2,731
 4,665
 245
2,542
 4,036
 6,823
Provision for loan losses8
2
 636
 646
 (359)1,329
 226
 1,196
38
(423) 1,231
 846
 (414)2,446
 1,036
 3,068
Other4
(3) 2
 3
 (3)4
 7
 8
9
(8) —
 1
 (11)12
 8
 9
Ending balance at March 31,$4,323
$15,297
 $6,251
 $25,871
 $4,234
$16,475
 $9,041
 $29,750
Ending balance at June 30,$4,349
$13,943
 $5,499
 $23,791
 $4,091
$16,387
 $8,042
 $28,520
                      
Allowance for loan losses by impairment methodology                      
Asset-specific(a)
$448
$760
 $2,402
(d) 
$3,610
 $1,030
$1,067
 $3,819
(d) 
$5,916
$407
$1,004
 $1,977
(b) 
$3,388
 $749
$1,049
 $3,451
(b) 
$5,249
Formula-based3,875
8,826
 3,849
 16,550
 3,204
10,467
 5,222
 18,893
3,942
7,228
 3,522
 14,692
 3,342
10,397
 4,591
 18,330
PCI—
5,711
 —
 5,711
 —
4,941
 —
 4,941
—
5,711
 —
 5,711
 —
4,941
 —
 4,941
Total allowance for loan losses$4,323
$15,297
 $6,251
 $25,871
 $4,234
$16,475
 $9,041
 $29,750
$4,349
$13,943
 $5,499
 $23,791
 $4,091
$16,387
 $8,042
 $28,520
                      
Loans by impairment methodology                      
Asset-specific$2,058
$10,059
 $6,524
 $18,641
 $4,498
$7,254
 $9,236
 $20,988
$1,946
$11,614
 $5,794
 $19,354
 $3,380
$7,858
 $8,484
 $19,722
Formula-based281,573
230,650
 117,951
 630,174
 225,094
242,979
 115,555
 583,628
296,927
225,821
 118,799
 641,547
 240,790
238,317
 117,039
 596,146
PCI22
64,061
 —
 64,083
 56
70,765
 —
 70,821
15
62,611
 —
 62,626
 54
68,994
 —
 69,048
Total retained loans$283,653
$304,770
 $124,475
 $712,898
 $229,648
$320,998
 $124,791
 $675,437
$298,888
$300,046
 $124,593
 $723,527
 $244,224
$315,169
 $125,523
 $684,916
                      
Impaired collateral-dependent loans                      
Net charge-offs(b)
$24
$29
 $—
 $53
 $27
$25
 $—
 $52
$46
$51
 $—
 $97
 $59
$53
 $—
 $112
Carrying value(b)
790
849
(c) 
—
 1,639
 1,221
864
(c) 
—
 2,085
671
887
 —
 1,558
 1,144
863
 —
 2,007
                      
Allowance for lending-related commitments                      
Beginning balance at January 1,$666
$7
 $—
 $673
 $711
$6
 $—
 $717
$666
$7
 $—
 $673
 $711
$6
 $—
 $717
Provision for lending-related commitments81
(1) —
 80
 (27)—
 —
 (27)94
—
 —
 94
 (89)—
 —
 (89)
Other(4)1
 —
 (3) (2)—
 —
 (2)(3)—
 —
 (3) (2)—
 —
 (2)
Ending balance at March 31,$743
$7
 $—
 $750
 $682
$6
 $—
 $688
Ending balance at June 30,$757
$7
 $—
 $764
 $620
$6
 $—
 $626
                      
Allowance for lending-related commitments by impairment methodology                      
Asset-specific$187
$—
 $—
 $187
 $184
$—
 $—
 $184
$181
$—
 $—
 $181
 $144
$—
 $—
 $144
Formula-based556
7
 —
 563
 498
6
 —
 504
576
7
 —
 583
 476
6
 —
 482
Total allowance for lending-related commitments$743
$7
 $—
 $750
 $682
$6
 $—
 $688
$757
$7
 $—
 $764
 $620
$6
 $—
 $626
                      
Lending-related commitments by impairment methodology                      
Asset-specific$756
$—
 $—
 $756
 $895
$—
 $—
 $895
$565
$—
 $—
 $565
 $793
$—
 $—
 $793
Formula-based400,308
63,121
 533,318
 996,747
 354,666
64,560
 565,813
 985,039
419,076
62,438
 534,267
 1,015,781
 364,896
64,649
 535,625
 965,170
Total lending-related commitments$401,064
$63,121
 $533,318
 $997,503
 $355,561
$64,560
 $565,813
 $985,934
$419,641
$62,438
 $534,267
 $1,016,346
 $365,689
$64,649
 $535,625
 $965,963
(a)Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(b)Prior periods have been revised to conform with the current presentation.
(c)Includes collateral-dependent residential mortgage loans that are charged off to the fair value of the underlying collateral less cost to sell. These loans are considered collateral-dependent under regulatory guidance because they involve modifications where an interest-only period is provided or a significant portion of principal is deferred.
(d)The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.

136176

Note 15 – Variable interest entities
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of variable interest entities (“VIEs”), see Note 1 on pages 182–183 of JPMorgan Chase’s 2011 Annual Report.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment.
Line-of-BusinessTransaction TypeActivityForm 10-Q page reference
CardCredit card securitization trustsSecuritization of both originated and purchased credit card receivables137177
 Other securitization trustsSecuritization of originated automobile and student loans137–139177–179
RFSMortgage securitization trustsSecuritization of originated and purchased residential mortgages137–139177–179
IBMortgage and other securitization trustsSecuritization of both originated and purchased residential and commercial mortgages, automobile and student loans137–139177–179
 
Multi-seller conduits
Investor intermediation activities:
Assist clients in accessing the financial markets in a cost-efficient manner and structures transactions to meet investor needs139179
 Municipal bond vehicles 139–140179–180
 Credit-related note and asset swap vehicles 140180
The Firm also invests in and provides financing and other services to VIEs sponsored by third parties, as described on page 140pages 180-181 of this Note and Note 16 on page 263 of JPMorgan Chase’s 2011 Annual Report.

Significant Firm-sponsored variable interest entities
Credit card securitizations
For a more detailed discussion of JPMorgan Chase’s involvement with credit card securitizations, see Note 16 on page 257 of JPMorgan Chase'sChase’s 2011 Annual Report.
As a result of the Firm’s continuing involvement, the Firm is considered to be the primary beneficiary of its Firm-sponsored credit card securitization trusts. This includes the Firm’s primary card securitization trust, Chase Issuance Trust. See the table on page 141181 of this Note for further information on consolidated VIE assets and liabilities.
 
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and purchased residential mortgages, commercial mortgages and other consumer loans (including automobile and student loans) primarily in its IB and RFS business.Card businesses. Depending on the particular transaction, as well as the respective business involved, the Firm may act as the servicer of the loans and/or retain certain beneficial interest in the securitization trusts.
For a detailed discussion of the Firm’s involvement with Firm-sponsored mortgage and other securitization trusts, as well as the accounting treatment relating to such trusts, see Note 16 on pages 257–259 of JPMorgan Chase'sChase’s 2011 Annual Report.


137177

The following table presents the total unpaid principal amount of assets held in Firm-sponsored securitization entities, including those in which the Firm has continuing involvement and those that are consolidated by the Firm. Continuing involvement includes servicing the loans; holding senior interests or subordinated interests; recourse or guarantee arrangements; and derivative transactions. In certain instances, the Firm’s only continuing involvement is servicing the loans. See Securitization activity on pages 141–142181–182 of this Note for further information regarding the Firm’s cash flows with and interests retained in nonconsolidated VIEs.
Principal amount outstanding 
JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(d)(e)(f)
Principal amount outstanding 
JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(d)(e)(f)
March 31, 2012(a) (in billions)
Total assets held by securitization VIEs
Assets
held in consolidated securitization VIEs
Assets held in nonconsolidated securitization VIEs with continuing involvement Trading assetsAFS securitiesTotal interests held by JPMorgan Chase
June 30, 2012(a) (in billions)
Total assets held by securitization VIEs
Assets
held in consolidated securitization VIEs
Assets held in nonconsolidated securitization VIEs with continuing involvement Trading assetsAFS securitiesTotal interests held by JPMorgan Chase
Securitization-related      
Residential mortgage:      
Prime(b)
$125.3
$2.5
$98.7
 $0.6
$—
$0.6
$118.7
$3.4
$93.1
 $0.6
$—
$0.6
Subprime36.9
1.3
33.5
 —
—
—
35.9
1.2
29.0
 —
—
—
Option ARMs30.0
0.3
29.8
 —
—
—
28.7
0.3
28.4
 —
—
—
Commercial and other(c)
134.8
—
92.5
 1.3
2.0
3.3
132.9
—
89.0
 1.5
2.2
3.7
Student4.1
4.1
—
 —
—
—
4.0
4.0
—
 —
—
—
Total$331.1
$8.2
$254.5
 $1.9
$2.0
$3.9
$320.2
$8.9
$239.5
 $2.1
$2.2
$4.3

 Principal amount outstanding 
JPMorgan Chase interest in securitized assets in nonconsolidated VIEs(d)(e)(f)
December 31, 2011(a) (in billions)
Total assets held by securitization VIEsAssets held in consolidated securitization VIEsAssets held in nonconsolidated securitization VIEs with continuing involvement Trading assetsAFS securitiesTotal interests held by JPMorgan Chase
Securitization-related       
Residential mortgage:       
Prime(b)
$129.9
$2.7
$101.0
 $0.6
$—
$0.6
Subprime39.4
1.4
35.8
 —
—
—
Option ARMs31.4
0.3
31.1
 —
—
—
Commercial and other(c)
139.3
—
93.3
 1.7
2.0
3.7
Student4.1
4.1
—
 —
—
—
Total$344.1
$8.5
$261.2
 $2.3
$2.0
$4.3
(a)Excludes U.S. government agency securitizations. See page 140182 of this Note for information on the Firm’s loan sales to U.S. government agencies.
(b)Includes Alt-A loans.
(c)Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third parties. The Firm generally does not retain a residual interest in its sponsored commercial mortgage securitization transactions.
(d)
The table above excludes the following: retained servicing (see Note 16 on pages 144–146184–187 of this Form 10-Q for a discussion of MSRs); securities retained from loans sales to U.S. government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 5 on pages 103–109136–144 of this Form 10-Q for further information on derivatives); senior and subordinated securities of $278188 million and $4825 million, respectively, at March 31,June 30, 2012, and $110 million and $8 million, respectively, at December 31, 2011, which the Firm purchased in connection with IB’s secondary market-making activities.
(e)Includes interests held in re-securitization transactions.
(f)
As of March 31,June 30, 2012, and December 31, 2011, 72%66% and 68%, respectively, of the Firm’s retained securitization interests, which are carried at fair value, were risk-rated “A” or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $134141 million and $136 million of investment-grade and $444438 million and $427 million of noninvestment-grade retained interests at March 31,June 30, 2012, and December 31, 2011, respectively. The retained interests in commercial and other securitizations trusts consisted of $3.23.5 billion and $3.4 billion of investment-grade and $138158 million and $283 million of noninvestment-grade retained interests at March 31,June 30, 2012, and December 31, 2011, respectively.

138178

Residential mortgages
For a more detailed description of the Firm’s involvement with residential mortgage securitizations, see Note 16 on page 259 of JPMorgan Chase'sChase’s 2011 Annual Report.
At March 31,June 30, 2012, and December 31, 2011, the Firm did not consolidate the assets of certain Firm-sponsored residential mortgage securitization VIEs, in which the Firm had continuing involvement, primarily due to the fact that the Firm did not hold an interest in these trusts that could potentially be significant to the trusts. See the table on page 141181 of this Note for more information on the consolidated residential mortgage securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
IB originates and securitizes commercial mortgage loans, and engages in underwriting and trading activities involving the securities issued by securitization trusts. For a more detailed description of the Firm’s involvement with commercial mortgage and other consumer securitizations, see Note 16 on page 259 of JPMorgan Chase’s 2011 Annual Report. See the table on the previous page of this Note for more information on the consolidated commercial mortgage securitizations, and the table on the previous page of this Note for further information on interests held in nonconsolidated securitizations.
Re-securitizations
For a more detailed description of JPMorgan Chase'sChase’s
participation in re-securitization transactions, see Note 16 on pages 259–260 of JPMorgan Chase'sChase’s 2011 Annual Report.
During the three and six months ended March 31,June 30, 2012, and 2011, the Firm transferred $2.93.1 billion and $8.86.0 billion, respectively, of securities to agency VIEs, and zero and $241 million, respectively, of securities to private-label VIEs. During the three and six months ended June 30, 2011, the Firm transferred $8.5 billion and $17.3 billion, respectively, of securities to agency VIEs, and zero and $192 million, respectively, of securities to private-label VIEs.
As of March 31,June 30, 2012, and December 31, 2011, the Firm did not consolidate any agency re-securitizations. As of March 31,June 30, 2012, and December 31, 2011, the Firm consolidated $152145 million and $348 million, respectively, of assets, and $45 million and $139 million, respectively, of liabilities of private-label re-securitizations. See the table on page 139181 of this Note for more information on the consolidated re-securitization transactions.
 
As of March 31,June 30, 2012, and December 31, 2011, total assets of nonconsolidated Firm-sponsored private-label re-securitization entities were $3.71.5 billion and $3.3 billion, respectively. At March 31,June 30, 2012, and December 31, 2011, the Firm held approximately $2.83.0 billion and $3.6 billion, respectively, of interests in nonconsolidated agency re-securitization entities, and $76 million and $14 million, respectively, of senior and subordinated interests in nonconsolidated private-label re-securitization entities. See the table on page 138178 of this Note for further information on interests held in nonconsolidated securitizations.
Multi-seller conduits
For a more detailed description of JPMorgan Chase’s principal involvement with Firm-administered multi-seller conduits, see Note 16 on page 260 of JPMorgan Chase'sChase’s 2011 Annual Report.
In the normal course of business, JPMorgan Chase trades and invests in commercial paper, including commercial paper issued by the Firm-administered multi-seller conduits. The Firm held $9.817.3 billion and $11.3 billion of the commercial paper issued by the Firm-administered multi-seller conduits at March 31,June 30, 2012, and December 31, 2011, which was eliminated in consolidation. The Firm’s investments were not driven by market illiquidity and the Firm is not obligated under any agreement to purchase the commercial paper issued by the Firm-administered multi-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity and credit enhancement provided by the Firm have been eliminated in consolidation. The Firm provides lending-related commitments to certain clients of the Firm-administered multi-seller conduits. The unfunded portion of these commitments was $12.112.9 billion and $10.8 billion at March 31,June 30, 2012, and December 31, 2011, respectively, which are reported as off-balance sheet lending-related commitments. For more information on off-balance sheet lending-related commitments, see Note 21 on pages 150–154192–196 of this Form 10-Q.
VIEs associated with investor intermediation activities
Municipal bond vehicles
For a more detailed description of JPMorgan Chase’s principal involvement with municipal bond vehicles, see Note 16 on pages 260–261 of JPMorgan Chase'sChase’s 2011 Annual Report.



139179

The Firm’s exposure to nonconsolidated municipal bond VIEs at March 31,June 30, 2012, and December 31, 2011, including the ratings profile of the VIEs’ assets, was as follows.
(in billions)Fair value of assets held by VIEsLiquidity facilities
Excess/(deficit)(a)
Maximum exposureFair value of assets held by VIEsLiquidity facilities
Excess/(deficit)(a)
Maximum exposure
Nonconsolidated municipal bond vehicles  
March 31, 2012$13.8
$7.9
$5.9
$7.9
June 30, 2012$14.1
$8.0
$6.1
$8.0
December 31, 201113.5
7.9
5.6
7.9
13.5
7.9
5.6
7.9
Ratings profile of VIE assets(b)
Fair value of assets held by VIEsWt. avg. expected life of assets (years)
Ratings profile of VIE assets(b)
Fair value of assets held by VIEsWt. avg. expected life of assets (years)
Investment-grade Noninvestment- gradeInvestment-grade Noninvestment- grade
(in billions, except where otherwise noted)AAA to AAA-AA+ to AA-A+ to A-BBB+ to BBB- BB+ and belowAAA to AAA-AA+ to AA-A+ to A-BBB+ to BBB- BB+ and below
March 31, 2012$1.5
$11.5
$0.7
$—
 $0.1
$13.8
6.3
June 30, 2012$1.6
$11.6
$0.8
$—
 $0.1
$14.1
6.2
December 31, 20111.5
11.2
0.7
—
 0.1
13.5
6.6
1.5
11.2
0.7
—
 0.1
13.5
6.6
(a)Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
(b)The ratings scale is based on the Firm’s internal risk ratings and is presented on an S&P-equivalent basis.

Credit-related note and asset swap vehicles
For a more detailed description of JPMorgan Chase’s principal involvement with credit-related note and asset swap vehicles, see Note 16 on pages 261–263 of JPMorgan Chase'sChase’s 2011 Annual Report.
Exposure to nonconsolidated credit-related note and asset swap VIEs at March 31,June 30, 2012, and December 31, 2011, was as follows.
March 31, 2012
(in billions)
Net derivative receivables
Trading assets(a)
Total
exposure(b)
Par value of collateral held by VIEs(c)
June 30, 2012
(in billions)
Net derivative receivables
Total
exposure(a)
Par value of collateral held by VIEs(b)
Credit-related notes  
Static structure$0.6
$—
$0.6
$7.6
$1.0
$1.0
$5.3
Managed structure2.0
0.1
2.1
7.4
2.6
2.6
6.4
Total credit-related notes2.6
0.1
2.7
15.0
3.6
3.6
11.7
Asset swaps0.6
—
0.6
8.4
0.9
0.9
7.5
Total$3.2
$0.1
$3.3
$23.4
$4.5
$4.5
$19.2
 
December 31, 2011
(in billions)
Net derivative receivables
Trading assets(a)
Total
exposure(b)
Par value of collateral held by VIEs(c)
Net derivative receivables
Total
exposure(a)
Par value of collateral held by VIEs(b)
Credit-related notes    
Static structure$1.0
$—
$1.0
$9.1
$1.0
$1.0
$9.1
Managed structure2.7
—
2.7
7.7
2.7
2.7
7.7
Total credit-related notes3.7
—
3.7
16.8
3.7
3.7
16.8
Asset swaps0.6
—
0.6
8.6
0.6
0.6
8.6
Total$4.3
$—
$4.3
$25.4
$4.3
$4.3
$25.4
(a)Trading assets principally comprise notes issued by VIEs, which from time to time are held as part of the termination of a deal or to support limited market-making.
(b)On–balance sheet exposure that includes net derivative receivables and trading assets – debt and equity instruments.
(c)(b)The Firm’s maximum exposure arises through the derivatives executed with the VIEs; the exposure varies over time with changes in the fair value of the derivatives. The Firm relies on the collateral held by the VIEs to pay any amounts due under the derivatives; the vehicles are structured at inception so that the par value of the collateral is expected to be sufficient to pay amounts due under the derivative contracts.

The Firm consolidated credit-related note vehicles with collateral fair values of $400421 million and $231 million, at March 31,June 30, 2012, and December 31, 2011, respectively. These consolidated VIEs included some that were structured by the Firm, where the Firm provides the credit
derivative, and some that have been structured by third parties where the Firm is not the credit derivative provider. The Firm consolidated these vehicles, because it held positions in these entities that provided the Firm with control of certain vehicles. The Firm did not consolidate any asset swap vehicles at March 31,June 30, 2012, and December 31, 2011.
VIEs sponsored by third parties
The Firm also invests in and provides financing and other services to VIEs sponsored by third parties, as described on page 263 of JPMorgan Chase'sChase’s 2011 Annual Report.
Investment in a third-party credit card securitization trust
The Firm holds an interest in a third-party-sponsored VIE, which is a credit card securitization trust that owns credit card receivables issued by a national retailer. The interest is classified as a loan and has a fair value of approximately $1.5 billion and $1.0 billion at March 31,June 30, 2012, and December 31, 2011, respectively. The Firm is not the primary beneficiary of the trust as the Firm does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. As of December 31, 2011, the Firm also had an interest in the VIE that was classified as AFS securities that had a fair value of $2.9 billion. This interest was repurchased by the national retailer on January 26, 2012; at the time of repurchase, the Firm recognized in income $85 million of securities gains previously recorded as unrealized gains in OCI. For more information on AFS securities and loans, see Notes 11 andNote 13 on pages 113–117 and 118–135, respectively,153–175 of this Form 10-Q.

VIE used in FRBNY transaction
In conjunction with the Bear Stearns merger, in June 2008, the Federal Reserve Bank of New York (“FRBNY”) took control, through an LLC formed for this purpose, of a portfolio of $30.0 billion in assets, based on the value of the portfolio as of March 14, 2008. The assets of the LLC were funded by a $28.85 billion term loan from the FRBNY and a $1.15 billion subordinated loan from JPMorgan Chase. The JPMorgan Chase loan is subordinated to the FRBNY loan and will bear the first $1.15 billion of any losses of the portfolio. Any remaining assets in the portfolio after repayment of the FRBNY loan, repayment of the JPMorgan Chase loan and the expense of the LLC will be for the account of the FRBNY. The extent to which the FRBNY and JPMorgan Chase loans will be repaid will depend on the value of the assets in the portfolio and the liquidation


140180


strategy directed by the FRBNY. The Firm does not consolidate the LLC, as it does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. In June 2012, the FRBNY loan was repaid in full and the Firm received a partial repayment
of its loan. Therefore, during the three and six months ended June 30, 2012, JPMorgan Chase recognized a pretax gain of $545 million and $565 million, respectively, reflecting the expected recovery on the $1.15 billion subordinated loan plus contractual interest.

Consolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of March 31,June 30, 2012, and December 31, 2011.
Assets LiabilitiesAssets Liabilities
March 31, 2012 (in billions)Trading assets –
debt and equity instruments		Loans
Other(c) 
Total
assets(d)
 
Beneficial interests in
VIE assets(e)
Other(f)
Total
liabilities
June 30, 2012 (in billions)Trading assets –
debt and equity instruments		Loans
Other(c) 
Total
assets(d)
 
Beneficial interests in
VIE assets(e)
Other(f)
Total
liabilities
VIE program type      
Firm-sponsored credit card trusts$—
$47.2
$0.8
$48.0
 $32.5
$—
$32.5
$—
$46.3
$0.7
$47.0
 $27.7
$—
$27.7
Firm-administered multi-seller conduits—
27.5
0.2
27.7
 17.8
—
17.8
—
28.0
0.2
28.2
 10.8
—
10.8
Municipal bond vehicles12.3
—
0.2
12.5
 12.3
—
12.3
10.5
—
0.2
10.7
 11.4
—
11.4
Mortgage securitization entities(a)
1.2
2.2
—
3.4
 2.1
1.3
3.4
1.2
2.2
—
3.4
 2.1
1.2
3.3
Other(b)
1.3
4.1
1.1
6.5
 3.0
0.2
3.2
1.1
4.0
1.2
6.3
 3.1
0.2
3.3
Total$14.8
$81.0
$2.3
$98.1
 $67.7
$1.5
$69.2
$12.8
$80.5
$2.3
$95.6
 $55.1
$1.4
$56.5
      
Assets LiabilitiesAssets Liabilities
December 31, 2011 (in billions)Trading assets –
debt and equity instruments		Loans
Other(c) 
Total
assets(d)
 
Beneficial interests in
VIE assets(e)
Other(f)
Total
liabilities
Trading assets –
debt and equity instruments		Loans
Other(c) 
Total
assets(d)
 
Beneficial interests in
VIE assets(e)
Other(f)
Total
liabilities
VIE program type      
Firm-sponsored credit card trusts$—
$50.7
$0.8
$51.5
 $32.5
$—
$32.5
$—
$50.7
$0.8
$51.5
 $32.5
$—
$32.5
Firm-administered multi-seller conduits—
29.7
0.2
29.9
 18.7
—
18.7
—
29.7
0.2
29.9
 18.7
—
18.7
Municipal bond vehicles9.2
—
0.1
9.3
 9.2
—
9.2
9.2
—
0.1
9.3
 9.2
—
9.2
Mortgage securitization entities(a)
1.4
2.3
—
3.7
 2.3
1.3
3.6
1.4
2.3
—
3.7
 2.3
1.3
3.6
Other(b)
1.5
4.1
1.5
7.1
 3.3
0.2
3.5
1.5
4.1
1.5
7.1
 3.3
0.2
3.5
Total$12.1
$86.8
$2.6
$101.5
 $66.0
$1.5
$67.5
$12.1
$86.8
$2.6
$101.5
 $66.0
$1.5
$67.5
(a)Includes residential and commercial mortgage securitizations as well as re-securitizations.
(b)
Primarily comprises student loan securitization entities. The Firm consolidated $4.14.0 billion and $4.1 billion of student loan securitization entities as of March 31,June 30, 2012, and December 31, 2011, respectively.
(c)Includes assets classified as cash, derivative receivables, AFS securities, and other assets within the Consolidated Balance Sheets.
(d)The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total assets and total liabilities recognized for consolidated VIEs represents the Firm’s interest in the consolidated VIEs for each program type.
(e)
The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated Balance Sheets titled, “Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests do not have recourse to the general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $37.732.9 billion and $39.7 billion at March 31,June 30, 2012, and December 31, 2011, respectively. The maturities of the long-term beneficial interests as of March 31,June 30, 2012, were as follows: $17.310.9 billion under one year, $14.916.6 billion between one and five years, and $5.55.4 billion over five years.
(f)Includes liabilities classified as accounts payable and other liabilities on the Consolidated Balance Sheets.

Supplemental information on loan securitizations
The Firm securitizes and sells a variety of loans, including residential mortgage, credit card, automobile, student and commercial (primarily related to real estate) loans, as well as debt securities. The primary purposes of these securitization transactions are to satisfy investor demand and to generate liquidity for the Firm.


 

Securitization activity
The following tables provide information related to the Firm’s securitization activities for the three and six months ended March 31,June 30, 2012 and 2011, related to assets held in JPMorgan Chase-sponsored securitization entities that were not consolidated by the Firm, and sale accounting was achieved based on the accounting rules in effect at the time of the securitization.






141181

Three months ended March 31,Three months ended June 30, Six months ended June 30,
2012 20112012 2011 2012 2011
(in millions, except rates)
Residential mortgage(c)(d)
Commercial and other(e)
 
Residential mortgage(c)(d)
Commercial and other(e)
Residential mortgage(c)(d)
Commercial and other(e)
 
Residential mortgage(c)(d)
Commercial and other(e)
 
Residential mortgage(c)(d)
Commercial and other(e)
 
Residential mortgage(c)(d)
Commercial and other(e)
Principal securitized$—
$—
 $—
$1,493
$—
$2,914
 $—
$1,447
 $—
$2,914
 $—
$2,940
All cash flows during the period:          
Proceeds from new securitizations(a)
$—
$—
 $—
$1,558
$—
$2,914
 $—
$1,530
 $—
$2,914
 $—
$3,088
Servicing fees collected180
1
 226
1
171
1
 186
1
 351
2
 412
2
Purchases of previously transferred financial assets (or the underlying collateral)(b)
59
—
 391
—
52
—
 305
—
 111
—
 696
—
Cash flows received on the interests that continue to be held by the Firm52
43
 67
47
55
40
 63
37
 108
64
 132
81
(a)
Proceeds from commercial mortgage securitizations were received in the form of securities. For the three and six months ended March 31, 2011,June 30, 2012, $1.32.9 billion and $2172.9 billion, respectively, of commercial mortgage securitizations were classified in level 2 of the fair value hierarchy. For the three and six months ended June 30, 2011, $1.2 billion and $328 million, respectively, and $2.5 billion and $545 million, respectively, of commercial mortgage securitizations were classified in levels 2 and 3 of the fair value hierarchy, respectively.hierarchy.
(b)Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation and warranties and servicer clean-up calls.
(c)Includes prime, Alt-A, subprime, and option ARMs, and re-securitizations.ARMs. Excludes sales for which the Firm did not securitize the loan (including loans sold to Ginnie Mae, Fannie Mae and Freddie Mac).
(d)There were no residential mortgage securitizations during the three and six months ended March 31,June 30, 2012 and 2011.
(e)Includes commercial and student loan securitizations. There were no commercial and other securitizations during the three months ended March 31, 2012.

Loans sold to agencies and other third-party-sponsored securitization entities
In addition to the amounts reported in the securitization activity tables above, the Firm, in the normal course of business, sells originated and purchased mortgage loans on a nonrecourse basis, predominantly to Ginnie Mae, Fannie Mae and Freddie Mac (the “Agencies”). These loans are sold primarily for the purpose of securitization by the Agencies, which also provide credit enhancement of the loans through certain guarantee provisions. The Firm does not consolidate these securitization vehicles as it is not the primary beneficiary. For a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans with the purchaser. See Note 21 on pages 150–154192–196 of this Form 10-Q for additional information about the Firm’s loans sales- and securitization-related indemnifications.
The following table summarizes the activities related to loans sold to U.S. government-sponsored agencies and third-party-sponsored securitization entities.
Three months ended March 31,Three months ended June 30,Six months ended June 30,
(in millions)201220112012201120122011
Carrying value of loans sold(a)(b)
$39,959
$39,247
$44,131
$32,609
$84,090
$71,856
Proceeds received from loan sales as cash548
340
1,412
565
1,960
905
Proceeds from loans sales as securities(c)
38,874
38,172
42,251
31,511
81,125
69,683
Total proceeds received from loan sales$39,422
$38,512
$43,663
$32,076
$83,085
$70,588
Gains on loan sales35
22
56
30
91
52
(a)Predominantly to U.S. government agencies.
(b)MSRs were excluded from the above table. See Note 16 on pages 144–146184–187 of this Form 10-Q for further information on originated MSRs.
(c)Predominantly includes securities from U.S. government agencies that are generally sold shortly after receipt.


182

Options to repurchase delinquent loans
In addition to the Firm’s obligation to repurchase certain loans due to material breaches of representations and warranties as discussed in Note 21 on pages 150–154192–196 of this Form 10-Q, the Firm also has the option to repurchase delinquent loans that it services for Ginnie Mae, as well as for other U.S. government agencies in certain arrangements. The Firm typically elects to repurchase delinquent loans from Ginnie Mae as it continues to service them and/or manage the foreclosure process in accordance with the applicable requirements, and such loans continue to be insured or guaranteed. When the Firm’s repurchase option becomes exercisable, such loans must be reported on the Consolidated Balance Sheets as a loan with a corresponding liability. As of March 31,June 30, 2012, and December 31, 2011, the Firm had recorded on its Consolidated Balance Sheets $15.9 billion and $15.7 billion, respectively, of loans that either had been repurchased or for which the Firm had an option to repurchase. Predominately all of the amounts presented above relate to loans that have been repurchased from Ginnie Mae. Additionally, real estate owned resulting from voluntary repurchases of loans was $1.21.3 billion and $1.0 billion as of March 31,June 30, 2012, and December 31, 2011, respectively. Substantially all of these loans and real estate owned are insured or guaranteed by U.S. government agencies, and where applicable, reimbursement is proceeding normally. For additional information, refer to Note 13 on pages 118–135153–175 of this Form 10-Q and Note 14 on pages 231–252 of JPMorgan Chase'sChase’s 2011 Annual Report.


142

JPMorgan Chase’s interest in securitized assets held at fair value
The following table outlines the key economic assumptions used to determine the fair value, as of March 31,June 30, 2012, and December 31, 2011, of certain of the Firm’s retained interests in nonconsolidated VIEs (other than MSRs), that are valued using modeling techniques. The table also outlines the sensitivities of those fair values to immediate 10% and 20% adverse changes in assumptions used to determine fair value. For a discussion of MSRs, see Note 16 on pages 144–146184–187 of this Form 10-Q.
Commercial and otherCommercial and other
(in millions, except rates and where otherwise noted)
March 31,
2012
December 31,
2011
June 30,
2012
 
December 31,
2011
JPMorgan Chase interests in securitized assets(a)(b)
$3,311
$3,663
$3,666
 $3,663
Weighted-average life
(in years)
2.8
3.0
5.4
 3.0
Weighted-average constant prepayment rate(c)
—%—%—% —%
  CPR
  CPR
  CPR
   CPR
Impact of 10% adverse change$—
$—
$—
 $—
Impact of 20% adverse change—
—
—
 —
Weighted-average loss assumption—%0.2%0.4% 0.2%
Impact of 10% adverse change$(20)$(61)$6
 $(61)
Impact of 20% adverse change(36)(119)(51) (119)
Weighted-average discount rate16.0%28.2%3.8% 28.2%
Impact of 10% adverse change$(38)$(75)$(54) $(75)
Impact of 20% adverse change(68)(136)(105) (136)
(a)
The Firm’s interests in prime mortgage securitizations were $578579 million and $555 million, as of March 31,June 30, 2012, and December 31, 2011, respectively. These include retained interests in Alt-A loans and re-securitization transactions. The Firm’s interests in subprime mortgage securitizations were $2850 million and $31 million, as of March 31,June 30, 2012, and December 31, 2011, respectively. Additionally, the Firm had interests in option ARM mortgage securitizations of $2325 million and $23 million at March 31,June 30, 2012, and December 31, 2011, respectively.
(b)Includes certain investments acquired in the secondary market but predominantly held for investment purposes.
(c)CPR: constant prepayment rate.

The sensitivity analysis in the preceding table is hypothetical. Changes in fair value based on a 10% or 20% variation in assumptions generally cannot be extrapolated easily, because the relationship of the change in the assumptions to the change in fair value may not be linear. Also, in the table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might counteract or magnify the sensitivities. The above sensitivities also do not reflect risk management practices the Firm may undertake to mitigate such risks.


143183

Loan delinquencies and liquidation losses

The table below includes information about components of nonconsolidated securitized financial assets, in which the Firm has continuing involvement, and delinquencies as of March 31,June 30, 2012, and December 31, 2011, respectively; and liquidation losses for the three and six months ended March 31,June 30, 2012 and 2011, respectively.
    Liquidation losses    Liquidation losses
Securitized assets 90 days past due Three months ended March 31,Securitized assets 90 days past due Three months ended June 30, Six months ended June 30,
(in millions)March 31, 2012December 31, 2011 March 31, 2012December 31, 2011 20122011June 30, 2012December 31, 2011 June 30, 2012December 31, 2011 20122011 20122011
Securitized loans(a)
            
Residential mortgage:            
Prime mortgage(b)
$98,743
$101,004
 $22,263
$24,285
 $1,699
$1,490
$93,158
$101,004
 $20,520
$24,285
 $2,125
$1,244
 $3,824
$2,734
Subprime mortgage33,444
35,755
 12,848
14,293
 801
1,000
28,959
35,755
 10,732
14,293
 320
616
 1,121
1,616
Option ARMs29,775
31,075
 8,197
9,999
 616
443
28,425
31,075
 8,036
9,999
 634
465
 1,250
908
Commercial and other92,529
93,336
 4,262
4,836
 229
204
88,994
93,336
 3,625
4,836
 292
250
 521
454
Total loans securitized(c)
$254,491
$261,170
 $47,570
$53,413
 $3,345
$3,137
$239,536
$261,170
 $42,913
$53,413
 $3,371
$2,575
 $6,716
$5,712
(a)
Total assets held in securitization-related SPEs were $331.1320.2 billion and $344.1 billion, respectively, at March 31,June 30, 2012, and December 31, 2011. The $254.5239.5 billion and $261.2 billion, respectively, of loans securitized at March 31,June 30, 2012, and December 31, 2011, excludes: $68.471.8 billion and $74.4 billion, respectively, of securitized loans in which the Firm has no continuing involvement, and $8.28.9 billion and $8.5 billion, respectively, of loan securitizations consolidated on the Firm’s Consolidated Balance Sheets at March 31,June 30, 2012, and December 31, 2011.
(b)Includes Alt-A loans.
(c)Includes securitized loans that were previously recorded at fair value and classified as trading assets.


Note 16 – Goodwill and other intangible assets
For a discussion of the accounting policies related to goodwill and other intangible assets, see Note 17 on pages 267–271 of JPMorgan Chase'sChase’s 2011 Annual Report.
Goodwill and other intangible assets consist of the following:
(in millions)
June 30,
2012
December 31, 2011
Goodwill$48,131
$48,188
Mortgage servicing rights7,118
7,223
Other intangible assets:  
Purchased credit card relationships$466
$602
Other credit card-related intangibles434
488
Core deposit intangibles472
594
Other intangibles1,441
1,523
Total other intangible assets$2,813
$3,207
(in millions)March 31, 2012December 31, 2011
Goodwill$48,208
$48,188
Mortgage servicing rights8,039
7,223
Other intangible assets:  
Purchased credit card relationships$535
$602
Other credit card-related intangibles467
488
Core deposit intangibles533
594
Other intangibles1,494
1,523
Total other intangible assets$3,029
$3,207

The following table presents goodwill attributed to the business segments.
(in millions)June 30, 2012December 31, 2011
Investment Bank$5,226
$5,276
Retail Financial Services16,483
16,489
Card Services & Auto14,520
14,507
Commercial Banking2,863
2,864
Treasury & Securities Services1,668
1,668
Asset Management6,994
7,007
Corporate/Private Equity377
377
Total goodwill$48,131
$48,188
(in millions)March 31, 2012December 31, 2011
Investment Bank$5,275
$5,276
Retail Financial Services16,484
16,489
Card Services & Auto14,530
14,507
Commercial Banking2,863
2,864
Treasury & Securities Services1,669
1,668
Asset Management7,010
7,007
Corporate/Private Equity377
377
Total goodwill$48,208
$48,188


The following table presents changes in the carrying amount of goodwill.
Three months ended March 31,
(in millions)
2012 2011
Three months ended June 30, Six months ended June 30,
(in millions)2012 2011 2012 2011
Balance at beginning of period(a)
$48,188
 $48,854
$48,208
 $48,856
 $48,188
 $48,854
Changes during the period from:          
Business combinations10
 (5)10
 11
 20
 6
Dispositions—
 —
(4) —
 (4) —
Other(b)
10
 7
(83) 15
 (73) 22
Balance at March 31,(a)
$48,208
 $48,856
Balance at June 30(a)
$48,131
 $48,882
 $48,131
 $48,882
(a)Reflects gross goodwill balances as the Firm has not recognized any impairment losses to date.
(b)Includes foreign currency translation adjustments and other tax-related adjustments.

184

Goodwill was not impaired at March 31,June 30, 2012, or December 31, 2011, nor was any goodwill written off due to impairment during the threesix months ended March 31,June 30, 2012 and 2011.
The goodwill impairment test is based upon a comparison between the carrying value and fair value of a reporting unit. The Firm uses the reporting units’ allocated equity plus goodwill capital as a proxy for the carrying amounts of equity for the reporting units in the goodwill impairment testing. Reporting unit equity is determined on a similar basis as the allocation of equity to the Firm’s lines of businesses, which primarily considers stand-alone peer comparisons and regulatory capital requirements (under Basel III), although economic risk capital is also considered. Proposed line of business equity levels are incorporated into the Firm’s annual budget process, which is reviewed by the Firm’s Board of Directors. Allocated equity is further reviewed on a periodic basis and updated as needed. For a discussion of the primary method used to estimate the fair values of the reporting units, see Impairment testing on page 268 of JPMorgan Chase’s 2011 Annual Report.
While no impairment of goodwill was recognized, therecognized, the Firm’s consumer lending businesses in RFS and Card remain at an elevated risk offor goodwill impairment due to their exposure to U.S. consumer credit risk and the effects of economic,
regulatory and legislative changes. In addition, recent increases in the market cost of equity have affected the estimated value of the Firm’s capital markets businesses in IB. Declines in business performance, increases in equity capital requirements, or increases in the estimated cost of equity, could cause the estimated fair values of the Firm'sFirm’s reporting units or their associated goodwill to decline, which could result in a material impairment charge to earnings in a future period related to some portion of the associated goodwill.


144

Mortgage servicing rights
Mortgage servicing rights represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual servicing and ancillary fee income. MSRs are either purchased from third parties or recognized upon sale or securitization of mortgage loans if servicing is retained. For a further description of the MSR asset, interest rate risk management, and the valuation of MSRs, see Note 17 on pages 267–271of JPMorgan Chase’s 2011 Annual Report and Note 3 on pages 91–100119–133 of this Form 10-Q.


The following table summarizes MSR activity for the three and six months ended March 31,June 30, 2012 and 2011.
Three months March 31,
(in millions, except where otherwise noted)
2012
 2011
Three months ended June 30, Six months ended June 30, 
(in millions, except where otherwise noted)2012 2011 2012 2011
Fair value at beginning of period$7,223
 $13,649
$8,039
 $13,093
 $7,223
 $13,649
MSR activity          
Originations of MSRs572
 757
524
 562
 1,096
 1,319
Purchase of MSRs1
 1
2
 29
 3
 30
Disposition of MSRs—
 —
—
 —
 —
 —
Changes due to modeled amortization(353) (563)(328) (481) (681) (1,044)
Net additions and amortization220
 195
198
 110
 418
 305
Changes due to market interest rates644
 379
(1,195) (932) (551) (553)
Other changes in valuation due to inputs and assumptions(a)
(48) (1,130)76
 (28) 28
 (1,158)
Total change in fair value of MSRs(b)
596
 (751)(1,119) (960) (523) (1,711)
Fair value at March 31(c)
$8,039
 $13,093
Change in unrealized gains/(losses) included in income related to MSRs held at March 31$596
 $(751)
Fair value at June 30(c)
$7,118
 $12,243
 $7,118
 $12,243
Change in unrealized gains/(losses) included in income related to MSRs held at June 30$(1,119) $(960) $(523) $(1,711)
Contractual service fees, late fees and other ancillary fees included in income$1,033
 $1,025
$949
 $983
 $1,982
 $2,008
Third-party mortgage loans serviced at March 31 (in billions)$892
 $963
Servicer advances at March 31 (in billions)(d)
$11.2
 $10.8
Third-party mortgage loans serviced at June 30 (in billions)$868
 $949
 $868
 $949
Servicer advances at June 30 (in billions)(d)
$10.2
 $10.9
 $10.2
 $10.9
(a)Represents the aggregate impact of changes in model inputs and assumptions such as costs to service, home prices, mortgage spreads, ancillary income, and assumptions used to derive prepayment speeds, as well as changes to the valuation models themselves.
(b)
Includes changes related to commercial real estate of $(2)(3) million and $(2) million for the three months ended March 31,June 30, 2012 and 2011, and $(5) million and $(4) million for the six months ended June 30, 2012 and 2011, respectively.
(c)
Includes $2926 million and $3836 million related to commercial real estate at March 31,June 30, 2012 and 2011, respectively.
(d)Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest to a trust, taxes and insurance), which will generally be reimbursed within a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm’s credit risk associated with these advances is minimal because reimbursement of the advances is senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment for certain types of advances with certain investors if the collateral is insufficient to cover the advance.

185

In the first quarterhalf of 2011, the Firm determined that the fair value of the MSR asset had declined, reflecting higher estimated future servicing costs related to enhanced servicing processes, particularly loan modification and foreclosure procedures, including costs to comply with Consent Orders entered into with the banking regulators. The increase in the cost to service assumption
contemplated significant and prolonged increases in staffing levels in the core and default servicing functions,function, and specifically considersconsidered the higher cost to service certain high-risk vintages. These higher estimated future costs resulted in a $1.1 billion decrease in the fair value of the MSR asset during the threesix months ended March 31,June 30, 2011.

This decrease was partially offset by an increase in fair value due to the effects of higher market interest rate (which tend to decrease prepayments and therefore extend the expected life of the net servicing cash flows that comprise the MSR asset).
The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the three and six months ended March 31,June 30, 2012 and 2011.
Three months ended March 31,
(in millions)
2012 2011
Three months ended June 30, Six months ended June 30,
(in millions)2012 2011 2012 2011
RFS mortgage fees and related income          
Net production revenue:          
Production revenue$1,432
 $679
$1,362
 $767
 $2,794
 $1,446
Repurchase losses(302) (420)(10) (223) (312) (643)
Net production revenue1,130
 259
1,352
 544
 2,482
 803
Net mortgage servicing revenue        
  
Operating revenue:        
  
Loan servicing revenue1,039
 1,052
1,004
 1,011
 2,043
 2,063
Changes in MSR asset fair value due to modeled amortization(351) (563)(327) (478) (678) (1,041)
Total operating revenue688
 489
677
 533
 1,365
 1,022
Risk management:        
  
Changes in MSR asset fair value due to market interest rates644
 379
(1,193) (932) (549) (553)
Other changes in MSR asset fair value due to inputs or assumptions in model(a)
(48) (1,130)76
 (28) 28
 (1,158)
Derivative valuation adjustments and other(406) (486)1,353
 983
 947
 497
Total risk management190
 (1,237)236
 23
 426
 (1,214)
Total RFS net mortgage servicing revenue878
 (748)913
 556
 1,791
 (192)
All other2
 2
—
 3
 2
 5
Mortgage fees and related income$2,010
 $(487)$2,265
 $1,103
 $4,275
 $616
(a)Represents the aggregate impact of changes in model inputs and assumptions such as costs to service, home prices, mortgage spreads, ancillary income, and assumptions used to derive prepayment speeds, as well as changes to the valuation models themselves.


145

The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at March 31,June 30, 2012, and December 31, 2011; and it outlines the sensitivities of those fair values to immediate adverse changes in those assumptions, as defined below.
(in millions, except rates)March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
Weighted-average prepayment speed assumption (“CPR”)14.32% 18.07%16.47% 18.07%
Impact on fair value of 10% adverse change$(581) $(585)$(546) $(585)
Impact on fair value of 20% adverse change(1,114) (1,118)(1,042) (1,118)
Weighted-average option adjusted spread7.72% 7.83%7.74% 7.83%
Impact on fair value of 100 basis points adverse change$(320) $(269)$(268) $(269)
Impact on fair value of 200 basis points adverse change(616) (518)(517) (518)
CPR: Constant prepayment rate.
The sensitivity analysis in the preceding table is hypothetical and should be used with caution. Changes in fair value based on variation in assumptions generally cannot be easily extrapolated, because the relationship of the change in the assumptions to the change in fair value are often highly inter-relatedinterrelated and may not be linear. In this table, the effect that a change in a particular assumption may have on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which would either magnify or counteract the impact of the initial change.
Other intangible assets
The $178394 million decrease in other intangible assets during the threesix months ended March 31,June 30, 2012, was predominantly due to $193384 million in amortization.




186

The components of credit card relationships, core deposits and other intangible assets were as follows.
  March 31, 2012
(in millions) 
Gross amount(a)
Accumulated amortization(a)
Net
carrying value
Purchased credit card relationships $3,775
$3,240
$535
Other credit card-related intangibles 850
383
467
Core deposit intangibles 4,133
3,600
533
Other intangibles(b)
 2,418
924
1,494
 December 31, 2011 June 30, 2012 December 31, 2011
(in millions) Gross amountAccumulated amortization
Net
carrying value
 
Gross amount(a)
Accumulated amortization(a)
Net carrying value 
Gross
amount
Accumulated amortizationNet carrying value
Purchased credit card relationships $3,826
$3,224
$602
 $3,773
$3,307
$466
 $3,826
$3,224
$602
Other credit card-related intangibles 844
356
488
 844
410
434
 844
356
488
Core deposit intangibles 4,133
3,539
594
 4,133
3,661
472
 4,133
3,539
594
Other intangibles(b)
 2,467
944
1,523
 2,401
960
1,441
 2,467
944
1,523
(a)The decrease in the gross amount and accumulated amortization from December 31, 2011, was due to the removal of fully amortized assets.
(b)
Includes intangible assets of approximately $600 million consisting primarily of asset management advisory contracts, which were determined to have an indefinite life and are not amortized.
Amortization expense
The following table presents amortization expense related to credit card relationships, core deposits and other intangible assets.
 Three months ended March 31, Three months ended June 30, Six months ended June 30,
(in millions) 20122011 20122011 20122011
Purchased credit card relationships $69
$80
 $67
$77
 $136
$157
Other credit card-related intangibles 27
26
 27
27
 54
53
Core deposit intangibles 61
72
 61
72
 122
144
Other intangibles 36
39
 36
36
 72
75
Total amortization expense $193
$217
 $191
$212
 $384
$429


Future amortization expense
The following table presents estimated future amortization expense related to credit card relationships, core deposits and other intangible assets.
For the year (in millions)Purchased credit card relationships
Other credit
card-related intangibles
Core deposit intangibles
Other
intangibles
TotalPurchased credit card relationships
Other credit
card-related intangibles
Core deposit intangibles
Other
intangibles
Total
2012(a)
$253
$108
$240
$147
$748
$253
$107
$240
$144
$744
2013213
105
195
140
653
212
103
196
137
648
2014109
103
102
122
436
109
102
102
121
434
201523
95
26
103
247
23
94
26
101
244
20164
34
14
96
148
4
34
14
94
146
(a)
Includes $69136 million, $2754 million, $61122 million, and $3672 million of amortization expense related to purchased credit card relationships, other credit card related intangibles, core deposit intangibles and other intangibles, respectively, recognized during the threesix months ended March 31,June 30, 2012.


146187

Note 17 – Deposits
For further discussion on deposits, see Note 19 on page 272 of JPMorgan Chase’s 2011 Annual Report.
At March 31,June 30, 2012, and December 31, 2011, noninterest-bearing and interest-bearing deposits were as follows.
(in millions)March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
U.S. offices      
Noninterest-bearing$343,299
 $346,670
$348,510
 $346,670
Interest-bearing   
Interest-bearing:   
Demand(a)
46,400
 47,075
39,935
 47,075
Savings(b)
384,239
 375,051
379,954
 375,051
Time (included $4,192 and $3,861 at fair value)(c)
90,684
 82,738
Time (included $4,463 and $3,861 at fair value)(c)
86,767
 82,738
Total interest-bearing deposits521,323
 504,864
506,656
 504,864
Total deposits in U.S. offices864,622
 851,534
855,166
 851,534
Non-U.S. offices      
Noninterest-bearing16,276
 18,790
17,123
 18,790
Interest-bearing   
Interest-bearing:   
Demand187,676
 188,202
186,941
 188,202
Savings899
 687
1,003
 687
Time (included $1,076 and $1,072 at fair value)(c)
59,039
 68,593
Time (included $847 and $1,072 at fair value)(c)
55,653
 68,593
Total interest-bearing deposits247,614
 257,482
243,597
 257,482
Total deposits in non-U.S. offices263,890
 276,272
260,720
 276,272
Total deposits$1,128,512
 $1,127,806
$1,115,886
 $1,127,806
(a)Includes Negotiable Order of Withdrawal (“NOW”) accounts, and certain trust accounts.
(b)Includes Money Market Deposit Accounts (“MMDAs”).
(c)
Includes structured notes classified as deposits for which the fair value option has been elected. For further discussion, see Note 4 on pages 198–200 of JPMorgan Chase’s 2011 Annual Report.

 
Note 18 – Earnings per share
For a discussion of the computation of basic and diluted earnings per share (“EPS”), see Note 24 on page 277 of JPMorgan Chase’s Chase’s 2011Annual Report.Report. The following table presents the calculation of basic and diluted EPS for the three and six months endedMarch 31,June 30, 2012 and 2011.
(in millions, except per share amounts) Three months ended March 31, Three months
ended June 30,		 Six months
ended June 30,
20122011 20122011 20122011
Basic earnings per share      
Net income $5,383
$5,555
 $4,960
$5,431
 $9,884
$10,986
Less: Preferred stock dividends 157
157
 158
158
 315
315
Net income applicable to common equity 5,226
5,398
 4,802
5,273
 9,569
10,671
Less: Dividends and undistributed earnings allocated to participating securities 209
262
 168
206
 359
468
Net income applicable to common stockholders $5,017
$5,136
 $4,634
$5,067
 $9,210
$10,203
Total weighted-average basic shares outstanding 3,818.8
3,981.6
 3,808.9
3,958.4
 3,813.9
3,970.0
Net income per share $1.31
$1.29
 $1.22
$1.28
 $2.41
$2.57
      
 Three months ended March 31,
(in millions, except per share amounts) 20122011
Diluted earnings per share      
Net income applicable to common stockholders $5,017
$5,136
 $4,634
$5,067
 $9,210
$10,203
Total weighted-average basic shares outstanding 3,818.8
3,981.6
 3,808.9
3,958.4
 3,813.9
3,970.0
Add: Employee stock options, SARs and warrants(a)
 14.6
32.5
 11.6
24.8
 13.1
28.6
Total weighted-average diluted shares outstanding(b)
 3,833.4
4,014.1
 3,820.5
3,983.2
 3,827.0
3,998.6
Net income per share $1.31
$1.28
 $1.21
$1.27
 $2.41
$2.55
(a)
Excluded from the computation of diluted EPS (due to the antidilutive effect) were options issued under employee benefit plans and the warrants originally issued in 2008 under the U.S. Treasury’s Capital Purchase Program to purchase shares of the Firm’s common stock. The aggregate number of shares issuable upon the exercise of such options and warrants was 169159 million and 8553 million for the three months endedJune 30, 2012March 31, and 2011, respectively, and 164 million and 69 million for the six months endedJune 30, 2012 and 2011, respectively.
(b)Participating securities were included in the calculation of diluted EPS using the two-class method, as this computation was more dilutive than the calculation using the treasury stock method.



147188

Note 19 – Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on AFS securities, foreign currency translation adjustments (including the impact of related derivatives)derivatives hedges), cash flow hedging activities, and net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans.
As of or for the three months ended
March 31, 2012
Unrealized gains/(losses) on AFS securities(a)
 Translation adjustments, net of hedges Cash flow hedges Defined benefit pension and OPEB plans Accumulated other comprehensive income/(loss) 
(in millions)
Balance at January 1, 2012 $3,565
(b) 
  $(26)   $51
   $(2,646)   $944
  
Net change 1,574
(c) 
  127
   (35)   35
   1,701
  
Balance at March 31, 2012 $5,139
(b) 
  $101
   $16
   $(2,611)   $2,645
  
                     
As of or for the three months ended
March 31, 2011
Unrealized gains/(losses) on AFS securities(a)
 Translation adjustments, net of hedges Cash flow hedges Defined benefit pension and OPEB plans Accumulated other comprehensive income/(loss) 
(in millions)
Balance at January 1, 2011 $2,498
(b) 
  $253
   $206
   $(1,956)   $1,001
  
Net change (251)
(d) 
  24
   (79)   17
   (289)  
Balance at March 31, 2011 $2,247
(b) 
  $277
   $127
   $(1,939)   $712
  
As of or for the three months ended
June 30, 2012
Unrealized gains/(losses) on AFS securities(a)
 Translation adjustments, net of hedges Cash flow hedges Defined benefit pension and OPEB plans Accumulated other comprehensive income/(loss) 
(in millions)
Balance at April 1, 2012 $5,139
(b) 
  $101
   $16
   $(2,611)   $2,645
  
Net change (325)
(c) 
  (189)   73
   68
   (373)  
Balance at June 30, 2012 $4,814
(b) 
  $(88)   $89
   $(2,543)   $2,272
  
                     
As of or for the three months ended
June 30, 2011
Unrealized gains/(losses) on AFS securities(a)
 Translation adjustments, net of hedges Cash flow hedges Defined benefit pension and OPEB plans Accumulated other comprehensive income/(loss) 
(in millions)
Balance at April 1, 2011 $2,247
(b) 
  $277
   $127
   $(1,939)   $712
  
Net change 1,021
(d) 
  3
   (132)   34
   926
  
Balance at June 30, 2011 $3,268
(b) 
  $280
   $(5)   $(1,905)   $1,638
  
As of or for the six months ended
June 30, 2012
Unrealized gains/(losses) on AFS securities(a)
 Translation adjustments, net of hedges Cash flow hedges Defined benefit pension and OPEB plans Accumulated other comprehensive income/(loss) 
(in millions)
Balance at January 1, 2012 $3,565
(b) 
  $(26)   $51
   $(2,646)   $944
  
Net change 1,249
(e) 
  (62)   38
   103
   1,328
  
Balance at June 30, 2012 $4,814
(b) 
  $(88)   $89
   $(2,543)   $2,272
  
                     
As of or for the six months ended
June 30, 2011
Unrealized gains/(losses) on AFS securities(a)
 Translation adjustments, net of hedges Cash flow hedges Defined benefit pension and OPEB plans Accumulated other comprehensive income/(loss) 
(in millions)
Balance at January 1, 2011 $2,498
(b) 
  $253
   $206
   $(1,956)   $1,001
  
Net change 770
(f) 
  27
   (211)   51
   637
  
Balance at June 30, 2011 $3,268
(b) 
  $280
   $(5)   $(1,905)   $1,638
  
(a)Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS.
(b)
Included after-tax unrealized losses not related to credit on debt securities for which credit losses have been recognized in income of $(101) million, $(48) million, $(56) million, $(62) million, $(65) million and $(81) million at March 31,June 30, 2012, April 1, 2012, January 1, 2012, March 31,June 30, 2011, April 1, 2011 and January 1, 2011, respectively.
(c)The net change for the three months ended March 31,June 30, 2012, was primarily due primarily to realization of gains on sales of mortgage-backed securities, non-U.S. government debt and obligations of U.S., state and municipalities, partially offset by market value increases driven by the tightening of spreads.
(d)The net change for the three months ended March 31,June 30, 2011, was due primarily to decreasedincreased market value on pass-through agency MBS and agency collateralized mortgage obligations, as well as on foreign government debt,municipal securities, partially offset by the narrowingwidening of spreads on collateralized loan obligationsnon-U.S. corporate debt and foreign residential MBS.realization of gains.
(e)The net change for the six months ended June 30, 2012, was due primarily to market value increases driven by the tightening of spreads across the portfolio, partially offset by sales of mortgage-backed securities and non-U.S. government debt.
(f)The net change for the six months ended June 30, 2011, was due primarily to increased market value on agency MBS and municipal securities, partially offset by the widening of spreads on non-U.S. corporate debt and realization of gains due to portfolio repositioning.

189

The following table presents the pretax and after-tax changes in the components of other comprehensive income/(loss).
2012 20112012 2011
Three months ended March 31, (in millions)Pretax Tax effect After-tax Pretax Tax effect After-tax
Three months ended June 30, (in millions)Pretax Tax effect After-tax Pretax Tax effect After-tax
Unrealized gains/(losses) on AFS securities:                      
Net unrealized gains/(losses) arising during the period$3,118
 $(1,217) $1,901
 $(315) $124
 $(191)$479
 $(186) $293
 $2,519
 $(986) $1,533
Reclassification adjustment for realized (gains)/losses included in net income(536) 209
 (327) (97) 37
 (60)(1,014) 396
 (618) (837) 325
 (512)
Net change2,582
 (1,008) 1,574
 (412) 161
 (251)(535) 210
 (325) 1,682
 (661) 1,021
Translation adjustments:                      
Translation460
 (169) 291
 418
 (156) 262
(765) 282
 (483) 362
 (126) 236
Hedges(267) 103
 (164) (390) 152
 (238)480
 (186) 294
 (383) 150
 (233)
Net change193
 (66) 127
 28
 (4) 24
(285) 96
 (189) (21) 24
 3
Cash flow hedges:                      
Net unrealized gains/(losses) arising during the period(41) 17
 (24) (13) 5
 (8)128
 (51) 77
 (143) 52
 (91)
Reclassification adjustment for realized (gains)/losses included in net income(20) 9
 (11) (116) 45
 (71)(5) 1
 (4) (68) 27
 (41)
Net change(61) 26
 (35) (129) 50
 (79)123
 (50) 73
 (211) 79
 (132)
Defined benefit pension and OPEB plans:                      
Net gains/(losses) arising during the period2
 —
 2
 8
 (2) 6
32
 (13) 19
 12
 (9) 3
Reclassification adjustments included in net income:                      
Prior service costs/(credits)(11) 4
 (7) (12) 5
 (7)(10) 4
 (6) (14) 5
 (9)
Amortization of net loss83
 (32) 51
 53
 (21) 32
79
 (32) 47
 53
 (12) 41
Foreign exchange and other(18) 7
 (11) (22) 8
 (14)12
 (4) 8
 (3) 2
 (1)
Net change56
 (21) 35
 27
 (10) 17
113
 (45) 68
 48
 (14) 34
Total other comprehensive income/(loss)$2,770
 $(1,069) $1,701
 $(486) $197
 $(289)$(584) $211
 $(373) $1,498
 $(572) $926
 2012 2011
Six months ended June 30, (in millions)Pretax Tax effect After-tax Pretax Tax effect After-tax
Unrealized gains/(losses) on AFS securities:           
Net unrealized gains/(losses) arising during the period$3,597
 $(1,403) $2,194
 $2,204
 $(862) $1,342
Reclassification adjustment for realized (gains)/losses included in net income(1,550) 605
 (945) (934) 362
 (572)
Net change2,047
 (798) 1,249
 1,270
 (500) 770
Translation adjustments:           
Translation(305) 113
 (192) 780
 (282) 498
Hedges213
 (83) 130
 (773) 302
 (471)
Net change(92) 30
 (62) 7
 20
 27
Cash flow hedges:           
Net unrealized gains/(losses) arising during the period87
 (34) 53
 (156) 57
 (99)
Reclassification adjustment for realized (gains)/losses included in net income(25) 10
 (15) (184) 72
 (112)
Net change62
 (24) 38
 (340) 129
 (211)
Defined benefit pension and OPEB plans:           
Net gains/(losses) arising during the period34
 (13) 21
 20
 (11) 9
Reclassification adjustments included in net income:           
Prior service costs/(credits)(21) 8
 (13) (26) 10
 (16)
Amortization of net loss162
 (64) 98
 106
 (33) 73
Foreign exchange and other(6) 3
 (3) (25) 10
 (15)
Net change169
 (66) 103
 75
 (24) 51
Total other comprehensive income/(loss)$2,186
 $(858) $1,328
 $1,012
 $(375) $637




148190

Note 20 – Regulatory capital
The Federal Reserve establishes capital requirements, including well-capitalized standards for the consolidated financial holding company. The 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.
There are two categories of risk-based capital: Tier 1 capital and Tier 2 capital. 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. Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, subordinated long-term debt and other instruments qualifying as Tier 2 capital, and the
 
aggregate allowance for credit losses up to a certain percentage of risk-weighted assets. Total capital is Tier 1 capital plus Tier 2 capital. Under the risk-based capital guidelines of the Federal Reserve, JPMorgan Chase is required to maintain minimum ratios of Tier 1 and Total capital to risk-weighted assets, as well as minimum leverage ratios (which are defined as Tier 1 capital divided by adjusted quarterly average assets). Failure to meet these minimum requirements could cause the Federal Reserve to take action. Banking subsidiaries also are subject to these capital requirements by their respective primary regulators. As of March 31,June 30, 2012, and December 31, 2011, 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,June 30, 2012, and December 31, 2011. These amounts are determined in accordance with regulations issued by the Federal Reserve and/or OCC. The Firm’s and JPMorgan Chase Bank, N.A.’s capital ratios as of June 30, 2012 have been revised from those previously reported based on regulatory guidance received on August 8, 2012. The revision relates to an adjustment to the Firm’s regulatory capital ratios to reflect regulatory guidance regarding a limited number of market risk models used for certain positions held by the Firm during the first half of the year, including the CIO synthetic credit portfolio.
JPMorgan Chase & Co.(e)
 
JPMorgan Chase Bank, N.A.(e)
 
Chase Bank USA, N.A.(e)
 
Well-capitalized ratios(f)
 
Minimum capital ratios(f)
 
JPMorgan Chase & Co.(e)
 
JPMorgan Chase Bank, N.A.(e)
 
Chase Bank USA, N.A.(e)
 
Well-capitalized ratios(f)
 
Minimum capital ratios(f)
 
(in millions, except ratios)March 31, 2012 December 31, 2011 March 31, 2012 December 31, 2011 March 31, 2012 December 31, 2011  June 30, 2012 December 31, 2011 June 30, 2012 December 31, 2011 June 30, 2012 December 31, 2011  
Regulatory capital                                
Tier 1(a)
$155,811
 $150,384
 $100,846
 $98,426
 $9,924
 $11,903
     $148,425
 $150,384
 $102,958
 $98,426
 $9,953
 $11,903
     
Total193,139
 188,088
 138,634
 136,017
 13,397
 15,448
     185,134
 188,088
 139,907
 136,017
 13,414
 15,448
     
                                
Assets                                
Risk-weighted(b)(c)
$1,235,256
 $1,221,198
 $1,052,461
 $1,042,898
 $102,261
 $107,421
     $1,318,734
 $1,221,198
 $1,121,191
 $1,042,898
 $101,877
 $107,421
     
Adjusted average(d)
2,195,625
 2,202,087
 1,776,303
 1,789,194
 104,898
 106,312
     2,202,487
 2,202,087
 1,773,165
 1,789,194
 103,607
 106,312
     
                                
Capital ratios                                
Tier 1(a)
12.6% 12.3% 9.6% 9.4% 9.7% 11.1% 6.0% 4.0% 11.3% 12.3% 9.2% 9.4% 9.8% 11.1% 6.0% 4.0% 
Total15.6
 15.4
 13.2
 13.0
 13.1
 14.4
 10.0
 8.0
 14.0
 15.4
 12.5
 13.0
 13.2
 14.4
 10.0
 8.0
 
Tier 1 leverage7.1
 6.8
 5.7
 5.5
 9.5
 11.2
 5.0
(g) 
3.0
(h) 
6.7
 6.8
 5.8
 5.5
 9.6
 11.2
 5.0
(g) 
3.0
(h) 
(a)
Approximately $9 billion of outstanding trust preferred capital debt securities were excluded from Tier 1 capital as of June 30, 2012, for JPMorgan Chase, since these securities were redeemed effective July 12, 2012. At March 31,June 30, 2012, trust preferred capital debt securities included in Tier 1 capital were $10.2 billion and $600 million, for JPMorgan Chase and JPMorgan Chase Bank, N.A., trust preferred capital debt securities were $19.6 billion and $600 million, respectively. If these securities were excluded from the calculation at March 31,June 30, 2012, Tier 1 capital would be $136.3138.2 billion and $100.2102.4 billion, respectively, and the Tier 1 capital ratio would be 11.0%10.5% and 9.5%9.1%, respectively. At March 31,June 30, 2012, Chase Bank USA, N.A. had no trust preferred capital debt securities.
(b)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 applicable 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.
(c)
Includes off–balance sheet risk-weighted assets at March 31,June 30, 2012, of $303.3306.8 billion, $292.2292.3 billion and $17 million, and at December 31, 2011, of $301.1 billion, $291.0 billion and $38 million, for JPMorgan Chase, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., respectively.
(d)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.
(e)
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.
(f)As defined by the regulations issued by the Federal Reserve, OCC and FDIC.
(g)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.
(h)
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. The Firm had deferred tax liabilities resulting from nontaxable business combinations totaling $378348 million and $414 million at March 31,June 30, 2012, and December 31, 2011, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $2.4 billion and $2.3 billion at both March 31,June 30, 2012, and December 31, 2011.2011, respectively.

149191

A reconciliation of the Firm’s Total stockholders’ equity to Tier 1 capital and Total qualifying capital is presented in the table below.
(in millions) March 31, 2012 December 31, 2011 June 30, 2012 December 31, 2011
Tier 1 capital        
Total stockholders’ equity $189,728
 $183,573
 $191,572
 $183,573
Effect of certain items in AOCI excluded from Tier 1 capital (2,544) (970) (2,361) (970)
Qualifying hybrid securities and noncontrolling interests(a)
 19,910
 19,668
 10,530
 19,668
Less: Goodwill(b)
 45,867
 45,873
 45,730
 45,873
Fair value DVA on derivative and structured note liabilities related to the Firm’s credit quality 1,596
 2,150
 2,047
 2,150
Investments in certain subsidiaries and other 981
 993
 878
 993
Other intangible assets(b)
 2,839
 2,871
 2,661
 2,871
Total Tier 1 capital 155,811
 150,384
 148,425
 150,384
Tier 2 capital        
Long-term debt and other instruments qualifying as Tier 2 21,719
 22,275
 20,065
 22,275
Qualifying allowance for credit losses 15,681
 15,504
 16,691
 15,504
Adjustment for investments in certain subsidiaries and other (72) (75) (47) (75)
Total Tier 2 capital 37,328
 37,704
 36,709
 37,704
Total qualifying capital $193,139
 $188,088
 $185,134
 $188,088
(a)Primarily includes trust preferred capital debt securities of certain business trusts.
(b)Goodwill and other intangible assets are net of any associated deferred tax liabilities.











 
Note 21 – 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 a discussion of off-balance sheet lending-related financial instruments and guarantees, and the Firm’s related accounting policies, see Note 29 on pages 283–289 of JPMorgan Chase’s 2011 Annual Report.
To provide for the risk of loss inherent in wholesale and consumer (excluding credit card) contracts, an allowance for credit losses on lending-related commitments is maintained. See Note 14 on page 136176 of this Form 10-Q for further discussion regarding the allowance for credit losses on lending-related commitments.
The following table summarizes the contractual amounts and carrying values of off-balance sheet lending-related financial instruments, guarantees and other commitments at March 31,June 30, 2012, and December 31, 2011. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel credit card lines of credit by providing the borrower notice or, in some cases, 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. Also, the Firm typically closes credit card lines when the borrower is 60 days or more past due.



150192

Off–balance sheet lending-related financial instruments, guarantees and other commitmentsOff–balance sheet lending-related financial instruments, guarantees and other commitments  Off–balance sheet lending-related financial instruments, guarantees and other commitments  
Contractual amount 
Carrying value(i)
Contractual amount 
Carrying value(i)
March 31, 2012 December 31, 2011 March 31, 2012 December 31, 2011June 30, 2012 Dec 31,
2011		 June 30, 2012 Dec 31,
2011
By remaining maturity
(in millions)
Expires in 1 year or lessExpires after
1 year through
3 years		Expires after
3 years through
5 years		Expires after 5 yearsTotal Total    Expires in 1 year or lessExpires after
1 year through
3 years		Expires after
3 years through
5 years		Expires after 5 yearsTotal Total    
Lending-related              
Consumer, excluding credit card:              
Home equity – senior lien$1,103
$4,921
$4,742
$5,482
$16,248
 $16,542
 $—
 $—
$1,367
$5,230
$4,736
$4,623
$15,956
 $16,542
 $—
 $—
Home equity – junior lien2,361
8,981
7,630
6,444
25,416
 26,408
 —
 —
2,760
8,965
7,105
5,284
24,114
 26,408
 —
 —
Prime mortgage2,594
—
—
—
2,594
 1,500
 —
 —
3,470
—
—
—
3,470
 1,500
 —
 —
Subprime mortgage—
—
—
—
—
 —
 —
 —
—
—
—
—
—
 —
 —
 —
Auto6,771
234
122
—
7,127
 6,694
 1
 1
6,542
156
149
22
6,869
 6,694
 1
 1
Business banking10,024
513
76
328
10,941
 10,299
 6
 6
10,319
496
96
334
11,245
 10,299
 6
 6
Student and other20
193
94
488
795
 864
 —
 —
35
221
47
481
784
 864
 —
 —
Total consumer, excluding credit card22,873
14,842
12,664
12,742
63,121
 62,307
 7
 7
24,493
15,068
12,133
10,744
62,438
 62,307
 7
 7
Credit card533,318
—
—
—
533,318
 530,616
 —
 —
534,267
—
—
—
534,267
 530,616
 —
 —
Total consumer556,191
14,842
12,664
12,742
596,439
 592,923
 7
 7
558,760
15,068
12,133
10,744
596,705
 592,923
 7
 7
Wholesale:







       







       
Other unfunded commitments to extend credit(a)(b)
61,030
63,684
92,950
5,544
223,208
 215,251
 426
 347
64,186
73,143
93,916
6,843
238,088
 215,251
 428
 347
Standby letters of credit and other financial guarantees(a)(b)(c)(d)
28,383
32,434
39,039
2,158
102,014
 101,899
 693
 696
27,787
31,185
40,022
2,177
101,171
 101,899
 704
 696
Unused advised lines of credit56,746
13,375
446
168
70,735
 60,203
 —
 —
66,619
8,327
295
356
75,597
 60,203
 —
 —
Other letters of credit(a)(d)
4,210
778
119
—
5,107
 5,386
 2
 2
3,851
838
95
1
4,785
 5,386
 1
 2
Total wholesale150,369
110,271
132,554
7,870
401,064
 382,739
 1,121
 1,045
162,443
113,493
134,328
9,377
419,641
 382,739
 1,133
 1,045
Total lending-related$706,560
$125,113
$145,218
$20,612
$997,503
 $975,662
 $1,128
 $1,052
$721,203
$128,561
$146,461
$20,121
$1,016,346
 $975,662
 $1,140
 $1,052
Other guarantees and commitments              
Securities lending indemnifications(e)
$194,641
$—
$—
$—
$194,641
 $186,077
 NA
 NA
$192,866
$—
$—
$—
$192,866
 $186,077
 NA
 NA
Derivatives qualifying as guarantees2,903
4,797
28,589
36,511
72,800
 75,593
 $224
 $457
1,981
5,062
23,607
36,809
67,459
 75,593
 $213
 $457
Unsettled reverse repurchase and securities borrowing agreements(f)
61,013
—
—
—
61,013
 39,939
 —
 —
45,581
—
���
—
45,581
 39,939
 —
 —
Loan sale and securitization-related indemnifications:              
Mortgage repurchase liability(g)
 NA
 NA
 NA
 NA
NA
 NA
 3,516
 3,557
 NA
 NA
 NA
 NA
NA
 NA
 3,293
 3,557
Loans sold with recourse NA
 NA
 NA
 NA
10,183
 10,397
 142
 148
 NA
 NA
 NA
 NA
9,910
 10,397
 150
 148
Other guarantees and commitments(h)
948
292
357
4,609
6,206
 6,321
 (80) (5)721
294
405
4,915
6,335
 6,321
 (78) (5)
(a)
At March 31,June 30, 2012, and December 31, 2011, reflects the contractual amount net of risk participations totaling $603559 million and $1.1 billion, respectively, for other unfunded commitments to extend credit; $18.718.2 billion and $19.8 billion, respectively, for standby letters of credit and other financial guarantees; and $934721 million and $974 million, 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,June 30, 2012, and December 31, 2011, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other not-for-profit entities of $47.947.4 billion and $48.6 billion, respectively. These commitments also include liquidity facilities to nonconsolidated municipal bond VIEs; for further information, see Note 15 on pages 137–144177–184 of this Form 10-Q.
(c)
At March 31,June 30, 2012, and December 31, 2011, included unissued standby letters of credit commitments of $43.543.3 billion and $44.1 billion, respectively.
(d)
At March 31,June 30, 2012, and December 31, 2011, JPMorgan Chase held collateral relating to $42.343.1 billion and $41.5 billion, respectively, of standby letters of credit; and $1.21.1 billion and $1.3 billion, respectively, of other letters of credit.
(e)
At March 31,June 30, 2012, and December 31, 2011, collateral held by the Firm in support of securities lending indemnification agreements was $195.9192.0 billion and $186.3 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)
At March 31,June 30, 2012, and December 31, 2011, the amount of commitments related to forward-starting reverse repurchase agreements and securities borrowing agreements were $9.210.1 billion and $14.4 billion, respectively. Commitments related to unsettled reverse repurchase agreements and securities borrowing agreements with regular-way settlement periods were $51.835.5 billion and $25.5 billion, at March 31,June 30, 2012, and December 31, 2011, respectively.
(g)Represents the estimated mortgage repurchase liability related to indemnifications for breaches of representations and warranties in loan sale and securitization agreements. For additional information, see Loan sale and securitization-related indemnifications on page 153195 of this Note.
(h)
At March 31,June 30, 2012, and December 31, 2011, included unfunded commitments of $571524 million and $789 million, respectively, to third-party private equity funds; and $1.6 billion and $1.5 billion, respectively, to other equity investments. These commitments included $557490 million and $820 million, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3 on pages 91–100119–133 of this Form 10-Q. In addition, at March 31,June 30, 2012, and December 31, 2011, included letters of credit hedged by derivative transactions and managed on a market risk basis of $3.94.1 billion and $3.9 billion, respectively.
(i)For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the carrying value represents the fair value. For all other products the carrying value represents the valuation reserve.

151193

Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally comprise commitments for working capital and general corporate purposes, as well as extensions of credit to support commercial paper facilities and bond financings in the event that those obligations cannot be remarketed to new investors.investors as well as committed liquidity facilities to a clearing organization.
Also included in other unfunded commitments to extend credit are commitments to noninvestment-grade counterparties in connection with leveraged and acquisition finance activities, which were $6.46.3 billion and $6.1 billion at March 31,June 30, 2012, and December 31, 2011, respectively. For further information, see Note 3 and Note 4 on pages 91–100119–133 and 101–102133–135 respectively, of this Form 10-Q.
In addition, the Firm acts as a clearing and custody bank in the U.S. tri-party repurchase transaction market. In its role as clearing and custody bank, the Firm is exposed to intra-day credit risk of the cash borrowers, usually broker-dealers; however, this exposure is secured by collateral and typically extinguished through the settlement process by the end of the day. For the three months ended June 30, 2012, the tri-party repurchase daily balances averaged $352 billion.
Guarantees
The Firm considers the following off–balance sheet lending-related arrangements to be guarantees under U.S. GAAP:
standby letters of credit and financial guarantees, securities lending indemnifications, certain indemnification agreements included within third-party contractual arrangements and certain derivative contracts. For a further discussion of the off–balance sheet lending-related arrangements the Firm considers to be guarantees, and the
related accounting policies, see Note 29 on pages 283–289 of JPMorgan Chase’s 2011 Annual Report. The recorded amounts of the liabilities related to guarantees and indemnifications at March 31,June 30, 2012, and December 31, 2011, excluding the allowance for credit losses on lending-related commitments, are discussed below.
Standby letters of credit and other financial guarantees
Standby letters of credit (“SBLC”) and other financial guarantees are conditional lending commitments issued by the Firm to guarantee the performance of a customer to a third party under certain arrangements, such as commercial paper facilities, bond financings, acquisition financings, trade and similar transactions. The carrying values of standby and other letters of credit were $695705 million and $698 million at March 31,June 30, 2012, and December 31, 2011, respectively, which were classified in accounts payable and other liabilities on the Consolidated Balance Sheets; these carrying values included $317329 million and $319 million, respectively, for the allowance for lending-related commitments, and $378376 million and $379 million, respectively, for the guarantee liability and corresponding asset.


The following table summarizes the types of facilities under which standby letters of credit and other letters of credit arrangements are outstanding by the ratings profiles of the Firm’s customers, as of March 31,June 30, 2012, and December 31, 2011.
Standby letters of credit, other financial guarantees and other letters of credit
March 31, 2012 December 31, 2011June 30, 2012 December 31, 2011
(in millions)
Standby letters of
credit and other financial guarantees
Other letters
of credit
 
Standby letters of
credit and other financial guarantees
Other letters
of credit
Standby letters of
credit and other financial guarantees
Other letters
of credit
 
Standby letters of
credit and other financial guarantees
Other letters
of credit
Investment-grade(a)
 $79,149
 $3,558
 $78,884
 $4,105
 $77,037
 $3,333
 $78,884
 $4,105
Noninvestment-grade(a)
 22,865
 1,549
 23,015
 1,281
 24,134
 1,452
 23,015
 1,281
Total contractual amount(b)
 $102,014
(c) 
$5,107
 $101,899
(c) 
$5,386
 $101,171
(c) 
$4,785
 $101,899
(c) 
$5,386
Allowance for lending-related commitments $315
 $2
 $317
 $2
 $328
 $1
 $317
 $2
Commitments with collateral 42,263
 1,201
 41,529
 1,264
 43,053
 1,061
 41,529
 1,264
(a)The ratings scale is based on the Firm’s internal ratings which generally correspond to ratings as defined by S&P and Moody’s.
(b)
At March 31,June 30, 2012, and December 31, 2011, reflects the contractual amount net of risk participations totaling $18.718.2 billion and $19.8 billion, respectively, for standby letters of credit and other financial guarantees; and $934721 million and $974 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
(c)
At March 31,June 30, 2012, and December 31, 2011, included unissued standby letters of credit commitments of $43.543.3 billion and $44.1 billion, respectively.


Derivatives qualifying as guarantees
In addition to the contracts described above, the Firm transacts certain derivative contracts that have the characteristics of a guarantee under U.S. GAAP. For further information on these derivatives, see Note 29 on pages 283–289 of JPMorgan Chase’s 2011 Annual Report. The total notional value of the derivatives that the Firm deems to be guarantees was $72.867.5 billion and $75.6 billion at March 31,June 30, 2012, and December 31, 2011, respectively. The notional amount generally represents the Firm’s maximum exposure to derivatives qualifying as guarantees. However,
exposure to certain stable value contracts is contractually limited to a substantially lower percentage of the notional amount; the notional amount on these stable value

contracts was $26.126.3 billion and $26.1 billion and the maximum exposure to loss was $2.8 billion and $2.8 billion, at March 31,June 30, 2012, and December 31, 2011, respectively. The fair values of the contracts reflect the probability of whether the Firm will be required to perform under the contract. The fair value related to derivatives that the Firm deems to be guarantees were derivative payables of $315305 million and $555 million and derivative receivables


194

of $9192 million and $98 million at March 31,June 30, 2012, and December 31, 2011, respectively. The Firm reduces exposures to these contracts by entering into offsetting transactions, or by entering into contracts that hedge the market risk related to the derivative guarantees.



152

In addition to derivative contracts that meet the characteristics of a guarantee, the Firm is both a purchaser and seller of credit protection in the credit derivatives market. For a further discussion of credit derivatives, see Note 5 on pages 103–109136–144 of this Form 10-Q.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s loan sale and securitization activities with the GSEs and other loan sale and private-label securitization transactions, as described in Note 15 on pages 137–144177–184 of this Form 10-Q, and Note 16 on pages 256–267 of JPMorgan Chase’s 2011 Annual Report, 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. Generally, the maximum amount of future payments the Firm would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers (including securitization-related SPEs) plus, in certain circumstances, accrued and unpaid interest on such loans and certain expense.
The Firm has recognized a mortgage repurchase liability of $3.53.3 billion and $3.6 billion, as March 31,June 30, 2012, and December 31, 2011, respectively, which is reported in accounts payable and other liabilities net of probable recoveries from third-party originators of $561499 million and $577 million at March 31,June 30, 2012, and December 31, 2011, respectively.
Substantially all of the estimates and assumptions underlying the Firm’s established methodology for computing its recorded mortgage repurchase liability — including factors such as the amount of probable future demands from purchasers, trustees or investors, 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 mortgage repurchase liability is further complicated by historical data and uncertainty surrounding numerous external factors, including: (i) macro-economic factors and (ii) the level of future demands, which is dependent, in part, on actions taken by third parties such as the GSEs, mortgage insurers, trustees and investors.
While the Firm uses the best information available to it in estimating its mortgage repurchase liability, the estimation process is inherently uncertain and imprecise and, accordingly, losses in excess of the amounts accrued as of March 31,June 30, 2012, are reasonably possible. The Firm believes the estimate of the range of reasonably possible losses, in excess of its established repurchase liability, is from $0 to approximately $21.7 billion at March 31,June 30, 2012. This estimated range of reasonably possible loss considers the Firm'sFirm’s GSE-related exposure based on an assumed peak to trough
decline in home prices of 43%42%, which is an additional 87 percentage point decline in home prices beyond the Firm’s current assumptions which were derived from a nationally recognized home price index. Although the Firm does not consider a further decline in home prices of this magnitude likely to occur, such a decline could increase the levellevels of loan delinquencies, thereby potentially increasingwhich may, in turn, increase the level of repurchase demand ratedemands from the GSEs and increasingpotentially result in additional repurchases of loans at greater loss severity on repurchased loans,severities; each of whichthese factors could affect the Firm’s mortgage repurchase liability. Claims related to private-label securitizations have, thus far, generally manifested themselves through threatened or pending litigation, which the Firm has considered with other litigation matters as discussed in Note 23 on pages 154–163196–205 of this Form 10-Q. Actual repurchase losses could vary significantly from the Firm’s recorded mortgage repurchase liability or this estimate of reasonably possible additional losses, depending on the outcome of various factors, including those considered above.
The following table summarizes the change in the mortgage repurchase liability for each of the periods presented.

Summary of changes in mortgage repurchase liability(a)
Summary of changes in mortgage repurchase liability(a)
Three months ended March 31,
(in millions)
2012 2011
Three months ended June 30, Six months ended June 30,
(in millions)2012 2011 2012 2011
Repurchase liability at beginning of period$3,557
 $3,285
$3,516
 $3,474
 $3,557
 $3,285
Realized losses(b)
(364) (231)(259) (241) (623) (472)
Provision(c)
323
 420
36
 398
 359
 818
Repurchase liability at end of period$3,516
(d) 
$3,474
$3,293
(d) 
$3,631
 $3,293
 $3,631
(a)Mortgage repurchase demands associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves.
(b)
Includes principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expense. ForMake-whole settlements were $107 million and $126 million for the three months ended March 31,June 30, 2012 and 2011, make-whole settlements wererespectively and $186293 million and $115241 million, for the six months ended June 30, 2012 and 2011, respectively.
(c)
Primarily relates to increases in estimated probable future repurchase demands. Also includesIncludes $2728 million and $1310 million of provision related to new loan sales for the three months ended March 31,June 30, 2012 and 2011, respectively, and $55 million and $23 million for the six months ended June 30, 2012 and 2011, respectively.
(d)
Includes $3217 million at March 31,June 30, 2012, related to future repurchase demands on loans sold by Washington Mutual to the GSEs.



195

Loans sold with recourse
The Firm provides servicing for mortgages and certain commercial lending products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit risk to the Firm is the cost of temporary servicing advances of funds (i.e., normal servicing advances). In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans, such as Fannie Mae or Freddie Mac or a private investor, insurer or guarantor. Losses on recourse servicing predominantly occur when foreclosure sales proceeds of the property underlying a defaulted loan are less than the sum of the outstanding principal balance, plus accrued interest on the loan and the cost of holding and disposing of the underlying property. The Firm’s securitizations are predominantly nonrecourse, thereby effectively transferring the risk of future credit losses to the purchaser of the mortgage-backed securities


153

issued by the trust. At March 31,June 30, 2012, and December 31, 2011, the unpaid principal balance of loans sold with recourse totaled $10.29.9 billion and $10.4 billion, respectively. The carrying value of the related liability that the Firm has recorded, which is representative of the Firm’s view of the likelihood it will have to perform under its recourse obligations, was $142150 million and $148 million at March 31,June 30, 2012, and December 31, 2011, respectively.


Note 22 – Pledged assets and collateral
For a discussion of the Firm’s pledged assets and collateral, see Note 30 on page 289 of JPMorgan Chase’s 2011 Annual Report.
Pledged assets
At March 31,June 30, 2012, assets were pledged to collateralize repurchase agreements, other securities financing agreements, derivative transactions and for other purposes, including to secure borrowings and public deposits. Certain of these pledged assets may be sold or repledged by the secured parties and are identified as financial instruments owned (pledged to various parties) on the Consolidated Balance Sheets. In addition, at March 31,June 30, 2012, and December 31, 2011, the Firm had pledged $283.0272.9 billion and $270.3 billion, respectively, of financial instruments it owns that may not be sold or repledged by the secured parties. Total assets pledged do not include assets of consolidated VIEs; these assets are used to settle the liabilities of those entities. See Note 15 on pages 137-144177–184 of this Form 10-Q, and Note 16 on pages 256–267 of JPMorgan Chase’s 2011 Annual Report, for additional information on assets and liabilities of consolidated VIEs.
Collateral
At March 31,June 30, 2012, and December 31, 2011, the Firm had accepted assets as collateral that it could sell or repledge, deliver or otherwise use with a fair value of approximately $769.9757.0 billion and $742.1 billion, respectively. This collateral was generally obtained under resale agreements, securities borrowing agreements, customer margin loans and derivative agreements. Of the collateral received,
approximately $571.4570.1 billion and $515.8 billion, respectively, were sold or repledged, generally as collateral under repurchase agreements, securities lending agreements or to cover short sales and to collateralize deposits and derivative agreements.
Note 23 – Litigation
Contingencies
As of March 31,June 30, 2012, the Firm and its subsidiaries are defendants or putative defendants in numerous legal proceedings, including private, civil litigations and regulatory/government investigations. The litigations range from individual actions involving a single plaintiff to class action lawsuits with potentially millions of class members. Investigations involve both formal and informal
proceedings, by both governmental agencies and self-regulatory organizations. These legal proceedings are at varying stages of adjudication, arbitration or investigation, and involve each of the Firm’s lines of business and geographies and a wide variety of claims (including common law tort and contract claims and statutory antitrust, securities and consumer protection claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for its legal proceedings is from $0 to approximately $4.25.3 billion at March 31,June 30, 2012. This estimated aggregate range of reasonably possible losses is based upon currently available information for those proceedings in which the Firm is involved, taking into account the Firm’s best estimate of such losses for those cases for which such estimate can be made. For certain cases, the Firm does not believe that an estimate can currently be made. The Firm’s estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many are currently in preliminary stages), the existence in many such proceedings of multiple defendants (including the Firm) whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims) and the attendant uncertainty of the various potential outcomes of such proceedings. Accordingly, the Firm’s estimate will change from time to time, and actual losses may be more or less than the current estimate.
Set forth below are descriptions of the Firm’s material legal proceedings.
Auction-Rate Securities Investigations and Litigation. Beginning in March 2008, several regulatory authorities initiated investigations of a number of industry participants, including the Firm, concerning possible state and federal securities law violations in connection with the sale of auction-rate securities (“ARS”). The market for many such securities had frozen and a significant number of auctions for those securities began to fail in February 2008.
The Firm, on behalf of itself and affiliates, agreed to a


196

settlement in principle with the New York Attorney General’s Office which provided, among other things, that the Firm would offer to purchase at par certain ARS purchased from J.P. Morgan Securities LLC, Chase Investment Services Corp. and Bear, Stearns & Co. Inc. by individual investors, charities and small- to medium-sized businesses. The Firm also agreed to a substantively similar settlement in principle with the Office of Financial Regulation for the State of Florida and the North American Securities Administrators Association (“NASAA”) Task Force, which agreed to recommend approval of the settlement to all remaining states, Puerto Rico and the U.S. Virgin Islands. The Firm has finalized the settlement agreements with the New York Attorney General’s Office and the Office of Financial Regulation for the State of Florida. The settlement agreements provide for the payment of penalties totaling


154

$25 million to all states. The Firm is currently in the process of finalizing consent agreements with NASAA’s member states; more than 45 of these consent agreements have been finalized to date.
The Firm also faces a number of civil actions before courts and arbitration panels relating to the Firm’s salessale and underwriting of ARS. The actions generally allege that the Firm and other firms manipulated the market for ARS by placing bids at auctions that affected these securities’ clearing rates or otherwise supported the auctions without properly disclosing these activities. The Firm’s motion to dismiss a putative class action that had been filed in the United States District Court for the Southern District of New York on behalf of purchasers of ARS was granted in March 2012.
Additionally, the Firm was named in two putative antitrust class actions. The actions allege that the Firm, along with numerous other financial institution defendants, colluded to maintain and stabilize the ARS market and then to withdraw their support for the ARS market. In January 2010, the District Court dismissed both actions. An appeal is pending in the United States Court of Appeals for the Second Circuit.
Bear Stearns Hedge Fund Matters. The Bear Stearns Companies LLC (formerly The Bear Stearns Companies Inc.) (“Bear Stearns”), certain current or former subsidiaries of Bear Stearns, including Bear Stearns Asset Management, Inc. (“BSAM”) and Bear, Stearns & Co. Inc., and certain individuals formerly employed by Bear Stearns are named defendants (collectively the “Bear Stearns defendants”) in multiple civil actions and arbitrations relating to alleged losses resulting from the failure of the Bear Stearns High Grade Structured Credit Strategies Master Fund, Ltd. (the “High Grade Fund”) and the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Master Fund, Ltd. (the “Enhanced Leverage Fund”) (collectively the “Funds”). BSAM served as investment manager for both of the Funds, which were organized such that there were U.S. and Cayman Islands “feeder funds” that invested substantially all their assets, directly or indirectly, in the Funds. The Funds are in liquidation.
There are currently three civil actions pending in the United
States District Court for the Southern District of New York relating to the Funds. One of these actions involves a derivative lawsuit brought on behalf of purchasers of partnership interests in the U.S. feeder fund to the Enhanced Leverage Fund, alleging that the Bear Stearns defendants mismanaged the Funds. This action seeks, among other things, unspecified compensatory damages based on alleged investor losses. The parties have reached an agreement to settle this derivative action, pursuant to which BSAM would pay a maximum of approximately $18 million. In April 2012, the District Court granted final approval of this settlement. In May 2012, objectors representing certain interests in the U.S. feeder fund filed a notice of appeal to the United States Court of Appeals for the Second Circuit from the District Court’s final approval of the settlement. (A separate derivative action, also alleging that the Bear Stearns defendants mismanaged the Funds, was brought on behalf of purchasers of partnership interests in the U.S. feeder fund to the High Grade Fund, and was dismissed following a Court-approved settlement with similar terms, pursuant to which BSAM paid
approximately $19 million.).
The second pending action, brought by the Joint Voluntary Liquidators of the Cayman Islands feeder funds, makes allegations similar to those asserted in the derivative lawsuits related to the U.S. feeder funds, alleges net losses of approximately $700 million and seeks compensatory and punitive damages. The parties presently are engaged in discovery.
The third action was brought by Bank of America and Banc of America Securities LLC (together “BofA”) alleging breach of contract and fraud in connection with a $4 billion securitization in May 2007 known as a “CDO-squared,” for which BSAM served as collateral manager. This securitization was composed of certain collateralized debt obligation holdings that were purchased by BofA from the Funds. BofA currently seeks damages up to approximately $535 million. Discovery has concluded. BofAThe Court recently filed agranted BofA’s motion for leave to amend its complaint to reinstate and amend a previously dismissed claim for breach of fiduciary duty. Briefing of motions for summary judgment is scheduled to occur in late 2012 and into early 2013.
Bear Stearns Shareholder Litigation and Related Matters.Various shareholders of Bear Stearns have commenced purported class actions against Bear Stearns and certain of its former officers and/or directors on behalf of all persons who purchased or otherwise acquired common stock of Bear Stearns between December 14, 2006, and March 14, 2008 (the “Class Period”). During the Class Period, Bear Stearns had between 115 million and 120 million common shares outstanding, and the price per share of those securities declined from a high of $172.61 to a low of $30 at the end of the period. The actions, originally commenced in several federal courts and thereafter consolidated before the United States District Court for the Southern District of New York, allege that the defendants issued materially false and misleading statements regarding Bear Stearns’ business and financial results and that, as a result of those


197

false statements, Bear Stearns’ common stock traded at artificially inflated prices during the Class Period. An agreement has been reached to settle the consolidated class actions for $275 million. The settlement, which remains subject to the final court approval, has been preliminarily approved by the Court and a hearing to consider final approval has been scheduled for September 2012. In addition, several individual shareholders of Bear Stearns have also commenced or threatened to commence their own arbitration proceedings and lawsuits asserting claims similar to those in the putativeconsolidated class actions. Certain of these matters have been dismissed or settled.
Separately, an agreement in principle has been reached to resolve a class action brought under the Employee Retirement Income Security Act (“ERISA”) against Bear Stearns and certain of its former officers and/or directors on behalf of participants in the Bear Stearns Employee Stock Ownership Plan for alleged breaches of fiduciary duties in connection with the management of that Plan. Under the settlement, which remains subject to final documentation and court approval, the class will receive $10 million. The Court has preliminarily approved the settlement, and scheduled a hearing to consider final approval in September 2012.
Bear Stearns, former members of Bear Stearns’ Board of Directors and certain of Bear Stearns’ former executive officers have also been named as defendants in a shareholder derivative and class action suit which is pending in the United States District Court for the Southern District of New York. Plaintiffs assert claims for breach of fiduciary duty, violations of federal securities laws, waste of


155

corporate assets and gross mismanagement, unjust enrichment, abuse of control, and indemnification and contribution in connection with the losses sustained by Bear Stearns as a result of its purchases of subprime loans and certain repurchases of its own common stock. Certain individual defendants are also alleged to have sold their holdings of Bear Stearns common stock while in possession of material nonpublic information. Plaintiffs seek compensatory damages in an unspecified amount. The District Court dismissed the action, and plaintiffs have appealed.
CIO Investigations and Litigations. The Firm is responding to a series of class actions, shareholder derivative actions, shareholder demands and government investigations relating to the synthetic credit portfolio of the Firm’s CIO. The Firm has received requests for documents and information in connection with governmental inquiries and investigations by Congress, the OCC, Federal Reserve, DOJ, SEC, CFTC, UK Financial Services Authority, the State of Massachusetts and other government agencies, including in Japan, Singapore and Germany. The Firm is cooperating with these investigations.
In addition, the Firm and certain of its affiliates and current and former directors and officers have been named as defendants in eight actions arising out of CIO’s recently announced losses.
Four putative class actions alleging violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder have been brought on behalf of alleged classes of purchasers of the Firm’s common stock during varying periods ranging from less than one month to more than two years. These actions generally allege that the Firm and certain current and former officers made false or misleading statements concerning CIO’s trading practices and financial performance.
Separately, a putative class action has been brought on behalf of participants in certain of the Firm’s retirement and other plans during the period after April 12, 2012, who held the Firm’s common stock in those plans. This action asserts claims under ERISA for alleged breaches of fiduciary duties by the Firm, certain affiliates and certain current and former directors and officers in connection with the management of those plans. The complaint generally alleges that defendants breached the duty of prudence by allowing investment in the Firm’s common stock when they knew or should have known that it was unsuitable for the plans’ investment and that the Firm and certain current and former officers made false or misleading statements concerning the soundness of the Firm’s common stock and the prudence of investing in the Firm’s common stock.
Three shareholder derivative actions have also been brought purportedly on behalf of the Firm against certain of the Firm’s current and former directors and officers for alleged breaches of their fiduciary duties in connection with their alleged failure to exercise adequate oversight over CIO. These actions generally allege that defendants’ failure to exercise such oversight and to manage the risk of CIO’s trading activities led to CIO’s losses.
The securities actions, ERISA action and one of the three shareholder derivative actions are pending in the United States District Court for the Southern District of New York, while the two other derivative actions are pending in New York State Supreme Court. Defendants have not yet responded to the complaints in any of the actions.
City of Milan Litigation and Criminal Investigation. In January 2009, the City of Milan, Italy (the “City”) issued civil proceedings against (among others) JPMorgan Chase Bank, N.A. and J.P. Morgan Securities plc (formerly J.P. Morgan Securities Ltd.) (together, “JPMorgan Chase”) in the District Court of Milan. The proceedings relate to (a) a bond issue by the City in June 2005 (the “Bond”), and (b) an associated swap transaction, which was subsequently restructured on a number of occasions between 2005 and 2007 (the “Swap”). The City seeks damages and/or other remedies against JPMorgan Chase (among others) on the grounds of alleged “fraudulent and deceitful acts” and alleged breach of advisory obligations in connection with the Swap and the Bond, together with related swap transactions with other counterparties. The Firm has entered into a settlement agreement with the City to resolve the City’s civil proceedings, in consequence of which the City will no longer be a party to the criminal proceedings discussed below.proceedings.
In March 2010, a criminal judge directed four current and former JPMorgan Chase personnel and JPMorgan Chase Bank, N.A. (as well as other individuals and three other


198

banks) to go forward to a full trial that started in May 2010. Although the Firm is not charged with any crime and does not face criminal liability, if one or more of its employees were found guilty, the Firm could be subject to administrative sanctions, including restrictions on its ability to conduct business in Italy and monetary penalties. Hearings have continued on a weekly basis since May 2010.
Enron Litigation. JPMorgan Chase and certain of its officers and directors are involved in several lawsuits seeking damages arising out of the Firm’s banking relationships with Enron Corp. and its subsidiaries (“Enron”). A number of actions and other proceedings against the Firm previously were resolved, including a class action lawsuit captioned Newby v. Enron Corp. and adversary proceedings brought by Enron’s bankruptcy estate. The remaining Enron-related actions include an individual action by an Enron investor, an action by an Enron counterparty and aA purported class action filed on behalf of JPMorgan Chase employees who participated in the Firm’s 401(k) plan asserting claims under ERISA for alleged breaches of fiduciary duties by JPMorgan Chase, its directors and named officers. The class action has beenofficers was dismissed, and is on appeal tothe dismissal was affirmed by the United States Court of Appeals for the Second Circuit. Motions to dismiss are pending in the other two actions.an individual action by an Enron investor and an action by an Enron counterparty.
FERC Investigation. JPMorgan Chase’s commodities business owns or has the right to output from several electricity generating facilities. The Firm is responding to requests for information in connection with an investigation by the Federal Energy Regulatory Commission (the “FERC”) regarding bidding practices by this business in certain organized power markets.
Interchange Litigation. A group of merchants hasand retail associations filed a series of putative class action complaints relating to interchange in several federal courts. The complaints allege, among other claims, that Visa and MasterCard, as well as certain other banks, conspired to set the price of credit and debit card interchange fees, enacted respective rules in violation of antitrust laws, and engaged in tying/bundling and exclusive dealing. The complaint seeks unspecified damages and injunctive relief based on the theory that interchange fees would be lower or eliminated but for the challenged conduct. All cases have beenwere consolidated in the United States District Court for the Eastern District of New York for pretrial proceedings.
In July 2012, Visa, Inc., its wholly-owned subsidiaries Visa U.S.A. Inc. and Visa International Service Association, MasterCard Incorporated, MasterCard International Incorporated and various United States financial institution defendants, including JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., Chase Bank USA, N.A., Chase Paymentech Solutions, LLC and certain predecessor institutions, signed a memorandum of understanding (the “MOU”) to enter into a settlement agreement (the “Settlement Agreement”) to resolve the claims of the U.S. merchant and retail association plaintiffs (the “Class Plaintiffs”) in the multi-district litigation (“MDL 1720”). The Court has dismissed all claims relatingMOU outlines certain conditions precedent to periods prior to January 2004. The Court has not yet ruleda settlement including: (i) requisite corporate approvals, (ii) reaching agreement on motions relatingcertain appendices to the remainderSettlement Agreement, and (iii) reaching negotiated settlements with the individual plaintiffs whose claims were consolidated with MDL 1720. The Settlement
Agreement with the Class Plaintiffs is subject to court approval.
The Settlement Agreement provides, among other things, that a cash payment of the case or plaintiffs’ class certification motion. Fact and expert discovery have closed.
In addition$6.05 billion will be made to the consolidated class action complaint, plaintiffs filed supplemental complaints challengingClass Plaintiffs, of which the initial public offerings (“IPOs”)Firm’s share is approximately 20%. The Class Plaintiffs will also receive an amount equal to ten basis points of MasterCard and Visa (the “IPO Complaints”). With respectinterchange for a period of eight months as provided in the Settlement Agreement. The eight month period will begin after the Court preliminarily approves the Settlement Agreement. The Settlement Agreement also provides for modifications to the MasterCard IPO, plaintiffs allegecredit card networks’ rules, including those that prohibit surcharging credit transactions. The Settlement Agreement is subject to final documentation and approval by the offering violated Section 7 of the Clayton Act and Section 1 of the Sherman Act and that the offering was a fraudulent conveyance. With respect to the Visa IPO, plaintiffs are challenging the Visa IPO on antitrust theories parallel to those articulated in the MasterCard IPO pleading. Defendants have filed motions to dismiss the IPO Complaints. The Court has not yet ruled on those motions.
The parties also have filed motions seeking summary judgment as to various claims in the complaints. Oral argument on these summary judgment motions was heard in November 2011.
The Firm and the other defendants remain actively involved in settlement discussions under the supervision of the court.Court.
Investment Management Litigation. Four cases have been filed claiming that investment portfolios managed by J.P. Morgan Investment Management Inc. (“JPMorgan Investment Management”) were inappropriately invested in securities backed by subprime residential real estate collateral. Plaintiffs claim that JPMorgan Investment Management and related defendants are liable for losses of more than $1 billion in market value of these securities. The first case was filed by NM Homes One, Inc. in federalthe United States District Court infor the Southern District of New York. Following rulings on motions addressed to the pleadings, plaintiff’s claims for breach of contract, breach of fiduciary duty, negligence and gross negligence survive, and discovery is proceeding. In the second case, filed by Assured Guaranty (U.K.) in New York state court, discovery is proceeding on plaintiff’s claims for breach of contract, breach of fiduciary duty and gross


156

negligence. In the third case, filed by Ambac Assurance UK Limited in New York state court, the lower court granted JPMorgan Investment Management’s motion to dismiss. The New York State Appellate Division reversed the lower court’s decisiondismissal of the case and discovery is proceeding. The fourth case, filed by CMMF LLP in New York state court, asserts claims under New York law for breach of fiduciary duty, gross negligence, breach of contract and negligent misrepresentation. The lower court denied in part defendants’ motion to dismiss and discovery is proceeding.
Lehman Brothers Bankruptcy Proceedings. In May 2010, Lehman Brothers Holdings Inc. (“LBHI”) and its Official Committee of Unsecured Creditors (the “Committee”) filed a complaint (and later an amended complaint) against JPMorgan Chase Bank, N.A. in the United States Bankruptcy Court for the Southern District of New York that asserts both federal bankruptcy law and state common law claims, and seeks, among other relief, to recover $8.6 billion in collateral that was transferred to JPMorgan Chase Bank, N.A. in the weeks preceding LBHI’s bankruptcy. The amended complaint also seeks unspecified damages on the grounds that JPMorgan Chase Bank, N.A.’s collateral requests hastened LBHI’s demise. In February 2012, JPMorgan Asset Management and Highbridge Capital Management reached a settlement with LBHI and the Committee, which hadresulted in the result of returningreturn to LBHI of $700 million of the $8.6 billion of collateral sought by the amended complaint. The Firm moved to dismiss plaintiffs’ amended complaint in its entirety, and also moved to


199

transfer the litigation from the Bankruptcy Court to the United States District Court for the Southern District of New York. The District Court directed the Bankruptcy Court to decide the motion to dismiss while the District Court is considering the transfer motion. In April 2012, the Bankruptcy Court issued a decision granting in part and denying in part the Firm’s motion to dismiss. The Court dismissed the counts of the amended complaint seeking avoidance of the allegedly constructively fraudulent and preferential transfers made to the Firm during the months of August and September 2008. The Court denied the Firm’s motion to dismiss as to the other claims, including claims that allege intentional misconduct. The District Court has not yet ruled on the transfer motion.
The Firm also filed counterclaims against LBHI alleging that LBHI fraudulently induced the Firm to make large clearing advances to Lehman against inappropriate collateral, which left the Firm with more than $25 billion in claims (the “Clearing Claims”) against the estate of Lehman Brothers Inc. (“LBI”), LBHI’s broker-dealer subsidiary. These claims have been paid in full, subject to the outcome of the litigation. Discovery is underway, with any trial unlikely to begin before 2013. In August 2011, LBHI and the Committee filed an objection to the deficiency claims asserted by JPMorgan Chase Bank, N.A. against LBHI with respect to the Clearing Claims, principally on the grounds that the Firm had not conducted the sale of the securities collateral held for such claims in a commercially reasonable manner.
On April 4, 2012, the Firm entered into a settlement with the CFTC to resolve the CFTC’s Lehman-related investigation of the Firm, and pursuant to which the Firm paid $20 million.
LIBOR Investigations and Litigation. JPMorgan Chase has received various subpoenas and requests for documents and, in some cases, interviews, from the United States Department of Justice, United States Commodity Futures Trading Commission, United States Securities and Exchange Commission,DOJ, CFTC, SEC, European Commission, United KingdomUK Financial Services Authority, Canadian Competition Bureau, and Swiss Competition Commission.Commission and other regulatory authorities and banking associations around the world. The documents and information sought all relate primarily to the process by which interest rates were submitted to the British Bankers Association (“BBA”) in connection with the setting of the BBA’s London Interbank Offered Rate (“LIBOR”), for various currencies, principally in 2007 and 2008. The inquiries from someSome of the regulatorsother inquiries also relate to similar processes by which EURIBORinformation on rates areis submitted to the European Banking Federation (“EBF”) in connection with the setting of the EBF’s Euro Interbank Offered Rates (“EURIBOR”) and TIBOR rates are submitted to the Japanese Bankers’ Association for the setting of Tokyo Interbank Offered Rates (“TIBOR”) as well as to other processes for the setting of other reference rates in various parts of the world during similar time periods. The Firm is cooperating with these inquiries.
In addition, the Firm has been named as a defendant along with other banks in a series of individual and class actions filed in various U.S. federal courtsUnited States District Courts alleging that since 20062005 the defendants either individually suppressed the LIBOR, rateEuroyen TIBOR or EURIBOR rates artificially or colluded in submitting rates for LIBOR that were artificially low. Plaintiffs allege that they transacted in U.S. dollar LIBOR-basedloans, derivatives or other financial instruments whose values are impacted by
changes in U.S. dollar LIBOR, Yen LIBOR, Euroyen TIBORor EURIBOR, and assert a variety of claims including antitrust claims seeking treble damages. All cases
The U.S. dollar LIBOR actions have been consolidated for pre-trial purposes in the United States District Court for the Southern District of New York. In November 2011, the District Court entered an Order appointing interim lead counsel for the two proposed classes: (i) plaintiffs who allegedly purchased U.S. dollar LIBOR-based financial instruments directly from the defendants in the over-the-counter market, and (ii) plaintiffs who allegedly purchased U.S. dollar LIBOR-based financial instruments on an exchange. In March 2012, the District Court also accepted the transfer of a related action which seeks to bring claims on behalf of a proposed class consisting of purchasers of debt securities that pay an interest rate linked to U.S. dollar LIBOR. In June 2012, the defendants moved to dismiss all claims in the U.S. dollar LIBOR individual and purported class actions. In July 2012, the Court consolidated with the pending U.S. dollar LIBOR actions a recently filed action which asserts claims on behalf of a proposed class consisting of U.S. community banks that issued loans with interest rates tied to U.S. dollar LIBOR.
Since July 2012, threenew actions have been filed in the United States District Court for the Southern District of New York. The first action seeks to bring claims on behalf of a proposed class:class consisting of all lending institutions which are either headquartered or have a majority of their operations in the State of New York and which originated or purchased loans paying interest rates tied to U.S. dollar LIBOR. The second action seeks to bring claims on behalf of a proposed class composed of purchasers of over-the-counter transactions in U.S. dollar-based derivatives from certain non-party commercial banking and insurance institutions in the United States. The third action seeks to bring claims on behalf of a proposed class ofall persons and entities who owned a preferred equity security on which dividends are payable at a rate tied to U.S. dollar LIBOR. These actions have not yet been consolidated with the other U.S. dollar LIBOR actions.
The Firm also has been named as a defendant in two additional purported class actions filed in the United States District Court for the Southern District of New York. Oneof these actions seeks to bring claims on behalf of plaintiffs who allegedly purchased U.S. dollar LIBOR-based debt issued by Fortune 500 companies underwritten byor sold exchange-traded Euroyen futures and options contracts. The other action seeks to bring claims on behalf of plaintiffs in the defendants.United States who allegedly purchased or sold EURIBOR-related financial instruments, either on an exchange or in over-the-counter transactions.
Madoff Litigation. JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities Ltd.plc have been named as defendants in a lawsuit brought by the trustee (the “Trustee”) for the liquidation of Bernard L. Madoff Investment Securities LLC (“Madoff”). The Trustee has served an amended complaint in which he has asserted 28 causes of action against JPMorgan Chase,


200

20 of which seek to avoid certain transfers (direct or indirect) made to JPMorgan Chase that are alleged to have been preferential or fraudulent under the federal Bankruptcy Code and the New York Debtor and Creditor Law. The remaining causes of action involve claims for,


157

among other things, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, conversion, contribution and unjust enrichment. The complaint generally alleges that JPMorgan Chase, as Madoff’s long-time bank, facilitated the maintenance of Madoff’s Ponzi scheme and overlooked signs of wrongdoing in order to obtain profits and fees. The complaint asserts common law claims that purport to seek approximately $19 billion in damages, together with bankruptcy law claims to recover approximately $425 million in transfers that JPMorgan Chase allegedly received directly or indirectly from Bernard Madoff’s brokerage firm. By order datedIn October 31, 2011, the United States District Court for the Southern District of New York granted JPMorgan Chase’s motion to dismiss the common law claims asserted by the Trustee, and returned the remaining claims to the Bankruptcy Court for further proceedings. The Trustee has appealed this decision.
Separately, J.P. Morgan Trust Company (Cayman) Limited, JPMorgan (Suisse) SA, J.P. Morgan Securities Ltd.,plc, Bear Stearns Alternative Assets International Ltd., J.P. Morgan Clearing Corp., J.P. Morgan Bank Luxembourg SA, and J.P. Morgan Markets Limited (formerly Bear Stearns International Limited (n/k/a J.P. Morgan Markets Limited) have been named as defendants in lawsuits presently pending in Bankruptcy Court in New York arising out of the liquidation proceedings of Fairfield Sentry Limited and Fairfield Sigma Limited (together, “Fairfield”), so-called Madoff feeder funds. These actions are based on theories of mistake and restitution, among other theories, and seek to recover payments made to defendants by the funds totaling approximately $155 million. Pursuant to an agreement with the Trustee, the liquidators of Fairfield have voluntarily dismissed their action against J.P. Morgan Securities Ltd.plc without prejudice to refiling. The other actions remain outstanding. The Bankruptcy Court has stayed these actions. In addition, a purported class action was brought by investors in certain feeder funds against JPMorgan Chase in the United States District Court for the Southern District of New York, as was a motion by separate potential class plaintiffs to add claims against JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and J.P. Morgan Securities Ltd.plc to an already-pending purported class action in the same court. The allegations in these complaints largely track those raised by the Trustee. The Court dismissed these complaints and plaintiffs have appealed.
JPMorgan ChaseThe Firm is a defendant in five other Madoff-related actions pending in New York state court and one purported class action in federal courtDistrict Court in New York. The allegations in all of these actions are essentially identical, and involve claims against the Firm for, among other things, aiding and abetting breach of fiduciary duty, conversion and unjust enrichment. The Firm has moved to dismiss both the state and federal actions.
The Firm is also responding to various governmental
inquiries concerning the Madoff matter.
MF Global. JPMorgan Chase & Co. has been named as one of several defendants in a number of putative class action
lawsuits brought by customers of MF Global in federal district courtsDistrict Courts in New York, Illinois and Montana. The lawsuits have now all been consolidated before the United States District Court for the Southern District of New York.The actions allege, among other things, that the Firm aided and abetted MF Global’s alleged misuse of customer money and breaches of fiduciary duty and was unjustly enriched by the transfer of certain customer segregated funds by MF Global.
J.P. Morgan Securities LLC has been named as one of several defendants in a putative class action filed in federal District Court in New York on behalf of purchasers of MF Global’s publicly traded securities, including the securities issued pursuant to MF Global’s February 2011 and August 2011 convertible note offerings. The lawsuits have now been consolidated before the federal District Court in New York. The complaint, which asserts violations of the Securities Act of 1933 against the underwriter defendants, alleges that the offering documents contained materially false and misleading statements and omissions regarding MF Global’s financial position, including its exposure to European sovereign debt.
A motion to transfer all of these putative class actions to a single forum for consolidated or coordinated pretrial proceedings is currently pending before the United States Judicial Panel on Multidistrict Litigation.
The Firm continues to respond to requests for information and documentsinquiries from the CFTC, SEC and SIPA Trustee in connection with their inquiries concerning MF Global.
In June 2012, the SIPA Trustee issued a Report of the Trustee’s Investigation and Recommendations, and stated that he is considering potential claims against the Firm with respect to certain transfers identified in the Report.
Mortgage-Backed Securities and Repurchase Litigation and Regulatory Investigations. JPMorgan Chase and affiliates, Bear Stearns and affiliates and Washington Mutual affiliates have been named as defendants in a number of cases in their various roles as issuer, originator or underwriter in MBS offerings. These cases include purported class action suits, actions by individual purchasers of securities or by trustees for the benefit of purchasers of securities, and actions by monoline insurance companies that guaranteed payments of principal and interest for particular tranches of securities offerings. Although the allegations vary by lawsuit, these cases generally allege that the offering documents for securities issued by dozens of securitization trusts contained material misrepresentations and omissions, including with regard to the underwriting standards pursuant to which the underlying mortgage loans were issued, or assert that various representations or warranties relating to the loans were breached at the time of origination. There are currently pending and tolled investor and monoline claims involving approximately $120130 billion of such securities. In addition, and as described below, there are pending and threatened claims by monoline insurers


201

and by and on behalf of trustees that involve some of these and other securitizations.
In the actions against the Firm as an MBS issuer (and, in some cases, also as an underwriter of its own MBS offerings), three purported class actions are pending against JPMorgan Chase and Bear Stearns, and/or certain of their affiliates and current and former employees, in the United States District Courts for the Eastern and Southern Districts of New York. Defendants moved to dismiss these actions. In the first of these three actions, the courtCourt dismissed claims relating to all but one of the offerings. In the second action, the courtCourt dismissed claims as to certain offerings and tranches for lack of standing, but allowed claims to proceed relating to some offerings and certificates,


158

including ones raised by newly intervening plaintiffs; both partiessides have sought leave to appeal these rulings. In the third action, the courtCourt largely denied defendants’ motion to dismiss, and defendants have sought to appeal certain aspects of the decision. In a fourth purported class action pending in the United States District Court for the Western District of Washington, Washington Mutual affiliates, WaMu Asset Acceptance Corp. and WaMu Capital Corp., along with certain former officers or directors of WaMu Asset Acceptance Corp., have been named as defendants. The courtCourt there denied plaintiffs’ motion for leave to amend their complaint to add JPMorgan Chase Bank, N.A., as a defendant on the theory that it is a successor to Washington Mutual Bank. In October 2011, the courtCourt certified a class of plaintiff investors to pursue the claims asserted but limited those claims to the 13 tranches of MBS in which a named plaintiff purchased. Expert discovery is proceeding and defendants movedproceeding. In July 2012, the Court denied defendants’ motion for summary judgmentjudgment. Trial is scheduled to begin in AprilSeptember 2012.
In addition to class actions, the Firm is also a defendant in individual actions brought against certain affiliates of JPMorgan Chase, Bear Stearns and Washington Mutual as issuers (and, in some cases, as underwriters). of MBS. These actions involve claims by or to benefit various institutional investors and governmental agencies. These actions are pending in federal and state courts across the United States and are at various stages of litigation.
EMC Mortgage LLC (formerly EMC Mortgage Corporation) (“EMC”), an indirect subsidiary of JPMorgan Chase & Co., and certain other JPMorgan Chase entities currently are defendants in seven pending actions commenced by bond insurers that guaranteed payments of principal and interest on approximately $5 billion of certain classes of 2117 different MBS offerings. These actions are pending in federal and state courts in New York and are in various stages of litigation.
In actions against the Firm solely as an underwriter of other issuers’ MBS offerings, the Firm has contractual rights to indemnification from the issuers. However, those indemnity rights may prove effectively unenforceable where the issuers are now defunct, such as in pending cases where the Firm has been named involving affiliates of IndyMac Bancorp and Thornburg Mortgage. The Firm may also be
contractually obligated to indemnify underwriters in certain deals it issued.
The Firm or its affiliates are defendants in actions brought by trustees of various MBS trusts and others on behalf of the purchasers of securities. In thesecurities issued by those trusts. The first Wells Fargo, as trustee for a single MBS trust, has filed an action against EMC Mortgage in Delaware state court alleging that EMC breached various representations and warranties and seeking the repurchase of more than 1,300 mortgage loans by EMC and indemnification for the trustee attorneys’ fees and costs. In the second, a trustee for a single MBS trust filed a summons with notice in New York state court against EMC, Bear Stearns & Co. Inc. and JPMorgan Chase & Co., seeking damages for breach of contract. The Firm has not yet been served with the complaint. In the third, the Firm is a defendant in an action
was commenced by Deutsche Bank National Trust Co.,Company, acting as trustee for various MBS trusts. Thattrusts, against theFirm and the FDIC based on MBS issued by Washington Mutual Bank and its affiliates; that case is described in more detail below with respect to the Washington Mutual Litigations.Litigations section below. The other actions are at various initial stages of litigation in the New York and Delaware state courts, including actions brought by MBS trustees, each specific to a single MBS transaction, against EMC and/or JPMorgan Chase, and an action brought by the Federal Housing Finance Agency, as conservator for Freddie Mac, related to three trusts, against a WaMu affiliate and the Firm. These cases generally allege breaches of various representations and warranties regarding securitized loans and seeks repurchase of those loans, as well as indemnification of attorneys’ fees and costs and other remedies.
There is no assurance that the Firm will not be named as a defendant in additional MBS-related litigation, and the Firm has entered into agreements with a number of entities that purchased such securities that toll applicable limitations periods with respect to their claims. In addition, the Firm has received several demands by securitization trustees that threaten litigation, as well as demands by investors directing or threatening to direct trustees to investigate claims or bring litigation, based on purported obligations to repurchase loans out of securitization trusts and alleged servicing deficiencies. These include but are not limited to a demand from a law firm, as counsel to a group of certificateholders whopurchasers of MBS that purport to have 25% or more of the voting rights in as many as 191 different trusts sponsored by the Firm or its affiliates with an original principal balance of more than $174 billion (excluding 52 trusts sponsored by Washington Mutual, with an original principal balance of more than $58 billion), made to various trustees to investigate potential repurchase and servicing claims. These also includeFurther, there have been repurchase and servicing claims made in litigation against trustees not affiliated with the Firm, but involving trusts the Firm sponsored.
AIn April 2012, the Court granted the Firm’s motion to dismiss a shareholder complaint has been filed in New York state courtSupreme Court against the Firm and two affiliates, members of the boards of directors thereof and certain employees, asserting claims based on alleged wrongful actions and inactions relating to residential mortgage originations and securitizations. The action seeks an accountingPlaintiff may appeal the order. A second shareholder complaint has been filed in New York Supreme Court against current and damages. The defendants have movedformer members of the Firm’s Board of Directors and the Firm, as nominal defendant, alleging that the Board allowed the Firm to dismissengage in wrongful conduct regarding the action.sale of residential MBS and failed to implement adequate internal controls to prevent such wrongdoing.


202

In addition to the above-described litigation, the Firm has also received, and responded to, a number of subpoenas and informal requests for information from federal and state authorities concerning mortgage-related matters, including inquiries concerning a number of transactions involving the Firm’sFirm and its affiliates’ origination and purchase of whole loans, underwriting and issuance of MBS, treatment of early payment defaults and potential breaches of securitization representations and warranties, reserves and due diligence in connection with securitizations. In January 2012, the Firm was advised by SEC staff that they are considering recommending to the Commission that civil or administrative actions be pursued arising out of two separate investigations they have been conducting. The first involves potential claims against J.P. Morgan Securities LLC and J.P. Morgan Acceptance Corporation I relating to due diligence conducted for two mortgage-backed securitizations and corresponding disclosures. The second involves potential claims against Bear Stearns entities, JPMorgan Chase & Co. and J.P. Morgan Securities LLC relating to settlements of claims against originators involving loans included in a number of Bear Stearns securitizations. In both investigations, the Firm has submitted responses to the proposed actions.


159

Mortgage Foreclosure Investigations and Litigation. JPMorgan Chase and four other firms agreed to a settlement (the “global settlement”) with a number of federal and state government agencies, including the Department of Justice,DOJ, the Department of Housing and Urban Development, the Consumer Financial Protection Bureau and the State Attorneys General, relating to the servicing and origination of mortgages. The global settlement which was approved by the federal District Court for the District of Columbia effective April 5, 2012, calls for the Firm2012. Pursuant to among other things: (i) make cash payments of approximately $1.1 billion (a portion of which will be set aside for payments to borrowers); (ii) provide approximately $500 million of refinancing relief to certain “underwater” borrowers whose loans are owned by the Firm; and (iii) provide approximately $3.7 billion of additional relief for certain borrowers, including reductions of principal on first and second liens, payments to assist with short sales, deficiency balance waivers on past foreclosures and short sales, and forbearance assistance for unemployed homeowners. If the Firm does not meet certain targets for provision of the refinancing or other borrower relief within certain prescribed time periods, the Firm will instead make cash payments. In addition, under the global settlement, the Firm is required to make certain payments, provide various forms of relief to certain borrowers and adhere to certain enhanced mortgage servicing standards.
The global settlement releases the Firm from furthervarious state and federal claims, including: certain qui tam actions related to servicing activities, including foreclosures and loss mitigation activities; certain origination activities, including fees related to Veterans Administration Interest Rate Reduction Refinance Loans; and certain bankruptcy-related activities. Not included in the global settlement are anybut these releases do not include claims arising out of securitization activities, including representations made to investors respecting mortgage-backed securities,concerning MBS, criminal claims and repurchase demands from the GSEs, among other items. The New York Department of Financial Services was not a party to the settlement and did not release any claims.
The Firm also entered into agreements with the Federal Reserve and the OCC for the payment of civil money penalties related to conduct that was the subject of consent orders entered into with the banking regulators in April 2011. The Firm’s payment obligations under those agreements will be deemed satisfied by the Firm’s payments and provisions of relief under the global settlement.
The Attorneys General of Massachusetts and New York have separately filed lawsuits against the Firm, other servicers and a mortgage recording company asserting claims for various alleged wrongdoings relating to mortgage assignments and use of the industry’s electronic mortgage registry. The Firm has moved to dismiss these actions.
In addition, as part of the global settlement, the Department of Justice agreed to a full release of potential civil claims under the Servicemembers Civil Relief Act (“SCRA”) and the Housing and Economic Recovery Act of
2008 (“HERA”) with respect to the servicing of residential mortgages, in exchange for the Firm’s agreement to comply with certain protections for military personnel, as well as conducting a review of all completed foreclosures from 2006 to April 2012 to evaluate whether the completed foreclosures were in compliance with the SCRA and HERA.
FiveSix purported class action lawsuits were filed against the Firm relating to its mortgage foreclosure procedures. Two of those suits werethe class actions have been dismissed with prejudice. A third suit has been resolved,prejudice and its dismissal will be obtained shortly.one settled on an individual basis. Of the remaining active actions, one is in the discovery phase and the other two have motions to dismiss pending. Additionally, the purported class action brought against Bank of America involving an EMC loan has been dismissed.
Two shareholder derivative actions have been filed in New York state courtSupreme Court against the Firm’s boardBoard of directorsDirectors alleging that the boardBoard failed to exercise adequate oversight as to wrongful conduct by the Firm regarding mortgage servicing. These actions seek declaratory relief and damages. The defendants have moved to dismiss the first-filed action. In July 2012, the Court granted defendants’ motion to dismiss the complaint in the first-filed action and gave plaintiff 45 days in which to file an amended complaint.
Municipal Derivatives Investigations and Litigation. Purported class action lawsuits and individual actions have been filed against JPMorgan Chase and Bear Stearns, as well as numerous other providers and brokers, alleging antitrust violations in the reportedly $100 billion to $300 billion annual market for financial instruments related to municipal bond offerings referred to collectively as “municipal derivatives.” In July 2011, the Firm settled with federal and state governmental agencies to resolve their investigations into similar alleged conduct. The municipal derivatives actions have been consolidated and/or coordinated in the United States District Court for the Southern District of New York. The court denied in part and granted in part defendants’ motions to dismiss the purported class and individual actions, permitting certain claims to proceed against the Firm and others under federal and California state antitrust laws and under the California false claims act. Subsequently, a number of additional individual actions asserting substantially similar claims, including claims under New York and West Virginia state antitrust statutes, were filed against JPMorgan Chase, Bear Stearns and numerous other defendants. These cases were also coordinated for pretrial purposes in the United States District Court for the Southern District of New York (the “Municipal Derivatives Actions”). In April 2012, JPMorgan and Bear Stearns reached an agreement to settle the Municipal Derivatives Actionsmunicipal derivatives actions for $45 million. The settlement is subject to court approval.
In addition, civil actions have been commenced against the Firm relating to certain Jefferson County, Alabama (the “County”) warrant underwritings and swap transactions. In November 2009, J.P. Morgan Securities LLC settled with the SEC to resolve its investigation into those transactions. Following that settlement, the County and a putative class of sewer rate payers filed complaints against the Firm and several other defendants in Alabama state court. An action on behalf of a purported class of sewer rate payers has also been filed in Alabama state court. The suits allege that the Firm made payments to certain third parties


160

in exchange for being chosen to underwrite more than $3 billion in warrants issued by the County and to act as the counterparty for certain swaps executed by the County. The complaints also allege that the Firm concealed these third-party payments and that, but for this concealment, the County would not have entered into the transactions. The Court denied the Firm’s motions to dismiss the complaints in both proceedings. The Firm filed mandamus petitions with the Alabama Supreme Court, seeking immediate appellate review of these decisions. The mandamus petition in the County’s lawsuit was denied in April 2011. In November and December, 2011, the County filed notices of bankruptcy with the trial court in each of the cases and with the Alabama Supreme Court stating that it was a Chapter 9 Debtor in the U.S. Bankruptcy Court for the Northern District of Alabama and providing notice of the automatic stay. Subsequently, the portion of the sewer rate payer action involving claims against the Firm was removed by certain defendants to the United States District Court for the Northern District of Alabama. In its order finding that removal of this action was proper, the District Court referred the action to the District’s Bankruptcy Court, where the action remains pending. In July 2012, a group of


203

purported creditors of the County filed a “Complaint in Intervention” in an adversary proceeding between the indenture trustee for the warrants and certain County creditors (including the Firm) and the County, alleging that certain warrants were issued unlawfully and were thus null and void. The proposed intervenors also filed a motion seeking certification of a class of approximately 130,000 homeowners.
Two insurance companies that guaranteed the payment of principal and interest on warrants issued by the County have filed separate actions against the Firm in New York state court. Their complaints assert that the Firm fraudulently misled them into issuing insurance based upon substantially the same alleged conduct described above and other alleged non-disclosures. One insurer claims that it insured an aggregate principal amount of nearly $1.2 billion and seeks unspecified damages in excess of $400 million as well as unspecified punitive damages. The other insurer claims that it insured an aggregate principal amount of more than $378 million and seeks recovery of $4 million allegedly paid under the policies to date as well as any future payments and unspecified punitive damages. In December 2010, the court denied the Firm’s motions to dismiss each of the complaints. The Firm has filed a cross-claim and a third party claim against the County for indemnity and contribution. The County moved to dismiss, which the court denied in August 2011. In consequence of its November 2011 bankruptcy filing, the County has asserted that these actions are stayed. In February 2012, one of the insurers filed a motion for a declaration that its action is not stayed as against the Firm or, in the alternative, for an order lifting the stay as against the Firm. The Firm and the County opposed the motion, which remains pending.
Overdraft Fee/Debit Posting Order Litigation. JPMorgan Chase Bank, N.A. has been named as a defendant in several purported class actions relating to its practices in posting debit card transactions to customers’ deposit accounts. Plaintiffs allege that the Firm improperly re-ordered debit card transactions from the highest amount to the lowest amount before processing these transactions in order to generate unwarranted overdraft fees. Plaintiffs contend that the Firm should have processed such transactions in the chronological order they were authorized. Plaintiffs seek the disgorgement of all overdraft fees paid to the Firm by plaintiffs since approximately 2003 as a result of the re-ordering of debit card transactions. The claims against the Firm have been consolidated with numerous complaints
against other national banks in multi-District litigation pending in the United States District Court for the Southern District of Florida. The Firm’s motion to compel arbitration of certain plaintiffs’ claims was initially denied by the District Court. On appeal, the United States Court of Appeals for the Eleventh Circuit vacated the District Court’s order and remanded the case for reconsideration in light of a recent ruling by the United States Supreme Court in an unrelated case addressing the enforcement of an arbitration provision in a consumer product agreement. The Firm has reached an agreement in principle to settle this matter in exchange for the Firm paying $110 million and agreeing to change certain overdraft fee practices. TheOn May 24, 2012, the Court granted preliminary approval of the settlement is subject to documentation and court approval.scheduled a final approval hearing in December 2012.
Petters Bankruptcy and Related Matters. JPMorgan Chase and certain of its affiliates, including One Equity Partners (“OEP”), have been named as defendants in several actions filed in connection with the receivership and bankruptcy proceedings pertaining to Thomas J. Petters and certain affiliated entities (collectively, “Petters”) and the Polaroid Corporation. The principal actions against JPMorgan Chase and its affiliates have been brought by a court-appointed receiver for Petters and the trustees in bankruptcy proceedings for three Petters entities. These actions generally seek to avoid, on fraudulent transfer and preference grounds, certain purported transfers in connection with (i) the 2005 acquisition by Petters of Polaroid, which at the time was majority-owned by OEP; (ii) two credit facilities that JPMorgan Chase and other financial institutions entered into with Polaroid; and (iii) a credit line and investment accounts held by Petters. The actions collectively seek recovery of approximately $450 million. Defendants have moved to dismiss the complaints in the actions filed by the Petters bankruptcy trustees and the parties have agreed to stay the action brought by the Receiver until after the Bankruptcy Court rules on the pending motions.
Securities Lending Litigation. JPMorgan Chase Bank, N.A. has been named as a defendant in four putative class actions asserting ERISA and other claims pending in the United States District Court for the Southern District of New York brought by participants in the Firm’s securities lending business. A fifth lawsuit was filed in New York state court by an individual participant in the program. Three of the purported class actions, which have been consolidated, relate to investments of approximately $500 million in medium-term notes of Sigma Finance Inc. (“Sigma”). In August 2010, the Court certified a plaintiff class consisting of all securities lending participants that held Sigma medium-term notes on September 30, 2008, including those that held the notes by virtue of participation in the investment of cash collateral through a collective fund, as well as those that held the notes by virtue of the investment of cash collateral through individual accounts. The Court granted JPMorgan Chase’s motion for partial summary judgment as to plaintiffs’ duty of loyalty claim, finding that the Firm did not have a conflict of interest when it provided repurchase financing to Sigma while also holding Sigma


161

medium-term notes in securities lending accounts. The parties reached an agreement to settle this action for $150 million. The settlement agreement is subject to court approval. ACourt granted final approval hearing is scheduled forto the settlement in June 2012.
The fourth putative class action concerns investments of approximately $500 million in Lehman Brothers medium-term notes. The Court granted the Firm’s motion to dismiss all claims in April 2012, without leave2012. The plaintiff filed an amended complaint, which JPMorgan Chase moved to re-plead.dismiss. The New York state court action, which is not a class action, concerns the plaintiff’s alleged loss of money in both Sigma and Lehman Brothers medium-term notes. The Firm has answered the complaint. Discovery is proceeding.


204

Washington Mutual Litigations. Subsequent to JPMorgan Chase’s acquisition from the FDIC of substantially all of the assets and certain specified liabilities of Washington Mutual Bank (“Washington Mutual Bank”) in September 2008, Washington Mutual Bank’s parent holding company, Washington Mutual, Inc. (“WMI”) and its wholly-owned subsidiary, WMI Investment Corp. (together, the “Debtors”), both commenced voluntary cases under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Case”). In the Bankruptcy Case, the Debtors asserted rights and interests in certain assets. The assets in dispute included principally the following: (a) approximately $4 billion in trust securities contributed by WMI to Washington Mutual Bank (the “Trust Securities”); (b) the right to tax refunds arising from overpayments attributable to operations of Washington Mutual Bank and its subsidiaries; (c) ownership of and other rights in approximately $4 billion that WMI contends are deposit accounts at Washington Mutual Bank and one of its subsidiaries; and (d) ownership of and rights in various other contracts and other assets (collectively, the “Disputed Assets”).
WMI, JPMorgan Chase and the FDIC were involved in litigations over these and other claims in the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) and the United States District Court for the District of Columbia.
In May 2010, WMI, JPMorgan Chase and the FDIC announced a global settlement agreement among themselves and significant creditor groups (the “WaMu Global Settlement”). The WaMu Global Settlement is incorporated into WMI’s Chapter 11 plan (“the Plan”). The WaMu Global Settlement resolved numerous disputes among WMI, JPMorgan Chase, the FDIC in its capacity as receiver for Washington Mutual Bank and the FDIC in its corporate capacity, as well as those of significant creditor groups, including disputes relating to the Disputed Assets. In February 2012 the Bankruptcy Court confirmed the Plan, including the WaMu Global Settlement. The WaMu Global Settlement and Plan became effective in March 2012, resolving the litigation involving the Disputed Assets.
The Bankruptcy Court also dealt with other proceedings related to Washington Mutual’s failure. Among other
actions, in July 2010, certain holders of the Trust Securities commenced an adversary proceeding in the Bankruptcy Court against JPMorgan Chase, WMI, and other entities seeking, among other relief, a declaratory judgment that WMI and JPMorgan Chase do not have any right, title or interest in the Trust Securities. In early January 2011, the Bankruptcy Court granted summary judgment to JPMorgan Chase and denied summary judgment to the plaintiffs in the Trust Securities adversary proceeding. The plaintiffs have appealed that decision to the United States District Court for the District of Delaware. The appeal was dismissed in March 2012 upon the effective date of the Plan, pursuant to a stipulated agreement.
Other proceedingsProceedings related to Washington Mutual’s failure are pending before the United States District Court for the District of Columbia and include a lawsuit brought by Deutsche Bank National Trust Company, initially against the FDIC, asserting an estimated $6 billion to $10 billion in damages based upon alleged breach of various mortgage securitization agreements and alleged violation of certain representations and warranties given by certain WMIWashington Mutual, Inc. (“WMI”) subsidiaries in connection with those securitization agreements. The case includes assertions that JPMorgan Chase may have assumed liabilities for the alleged breaches of representations and warranties in the mortgage securitization agreements. The District Court denied as premature motions by the Firm and the FDIC that sought a ruling on whether the FDIC retained liability for Deutsche Bank’s claims. Discovery is underway.
In addition, JPMorgan Chase was sued in an action originally filed in state court in Texas (the “Texas Action”) by certain holders of WMI common stock and debt of WMI and Washington Mutual Bank who seek unspecified damages alleging that JPMorgan Chase acquired substantially all of the assets of Washington Mutual Bank from the FDIC at a price that was allegedly too low. The Texas Action was transferred to the United States District Court for the District of Columbia, which ultimately granted JPMorgan Chase’s and the FDIC’s motions to dismiss the complaint, but the United States Court of Appeals for the District of Columbia Circuit reversed the trial court’sDistrict Court’s dismissal and remanded the case for further proceedings. Plaintiffs, who sue now only as holders of Washington Mutual Bank debt following their voluntary dismissal of claims brought as holders of WMI common stock and debt, have filed an amended complaint alleging that JPMorgan Chase caused the closure of Washington Mutual Bank and damaged them by causing their bonds issued by Washington Mutual Bank, which had a total face value of $38 million, to lose substantially all of their value. JPMorgan Chase and the FDIC have again moved to dismiss this action.
* * *
In addition to the various legal proceedings discussed above, JPMorgan Chase and its subsidiaries are named as defendants or are otherwise involved in a substantial number of other legal proceedings. The Firm believes it has meritorious defenses to the claims asserted against it in its


162

currently outstanding legal proceedings and it intends to defend itself vigorously in all such matters. Additional legal proceedings may be initiated from time to time in the future.
The Firm has established reserves for several hundred of its currently outstanding legal proceedings. The Firm accrues for potential liability arising from such proceedings when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. The Firm evaluates its outstanding legal proceedings each quarter to assess its litigation reserves, and makes adjustments in such reserves, upwards or downwards, as appropriate,
based on management’s best judgment after consultation with counsel. DuringThe Firm incurred litigation expense of $323 million and $1.9 billion, respectively, during the three months ended March 31,June 30, 2012 and 2011, the Firm incurredand $2.73.0 billion and $1.13.0 billion, respectively, of litigation expense.during the six months ended June 30, 2012 and 2011. There is no assurance that the Firm’s litigation reserves will not need to be adjusted in the future.
In view of the inherent difficulty of predicting the outcome of legal proceedings, particularly where the claimants seek very large or indeterminate damages, or where the matters present novel legal theories, involve a large number of parties or are in early stages of discovery, the Firm cannot state with confidence what will be the eventual outcomes of the currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or impact related to those matters. JPMorgan Chase believes, based upon its current knowledge, after consultation with counsel and after taking into account its current litigation reserves, that the legal proceedings currently pending against it should not have a material adverse effect on the Firm’s consolidated financial condition. The Firm notes, however, that in light of the uncertainties involved in such proceedings, there is no assurance the ultimate resolution of these matters will not significantly exceed the reserves it has currently accrued; as a result, the outcome of a particular matter may be material to JPMorgan Chase’s operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of JPMorgan Chase’s income for that period.















205

Note 24 – Business segments
The Firm is managed on a line of business basis. There are six major reportable business segments – Investment Bank, Retail Financial Services, Card Services & Auto, Commercial Banking, Treasury & Securities Services and Asset Management, as well asManagement. In addition, there is a Corporate/Private Equity segment. The business segments are determined based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis. For a definition of managed basis, see the footnotes to the table below. For a further discussion concerning JPMorgan Chase’s business segments, see Business Segment Results on page 14pages 18–19 of this Form 10-Q, and pages 76–78 and Note 33 on pages 300–303 of JPMorgan Chase’s 2011 Annual Report.



163

Segment results
The following tables provide a summary of the Firm’s segment results for the three and six months ended March 31,June 30, 2012 and 2011,, on a managed basis. Total net revenue (noninterest revenue and net interest income) for each of the segments is presented on a fully taxable-equivalent (“FTE”) basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable investments and securities. This 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/(benefit).
Effective January 1, 2012, the Firm revised the capital allocated to certain businesses, reflecting additional refinement of each segment’s Basel III Tier 1 common capital requirements and balance sheet trends.


206

Segment results and reconciliation (a)
As of or for the three months ended March 31,
(in millions, except ratios)
Investment Bank Retail Financial Services Card Services & Auto Commercial Banking
20122011 20122011 20122011 20122011
Noninterest revenue$5,418
$6,176
 $3,724
$1,380
 $1,251
$1,047
 $557
$502
Net interest income1,903
2,057
 3,925
4,086
 3,463
3,744
 1,100
1,014
Total net revenue7,321
8,233
 7,649
5,466
 4,714
4,791
 1,657
1,516
Provision for credit losses(5)(429) (96)1,199
 738
353
 77
47
Credit allocation income/(expense)(b)
—
—
 —
—
 —
—
 —
—
Noninterest expense4,738
5,016
 5,009
4,900
 2,029
1,917
 598
563
Income/(loss) before
income tax expense/(benefit)
2,588
3,646
 2,736
(633) 1,947
2,521
 982
906
Income tax expense/(benefit)906
1,276
 983
(234) 764
987
 391
360
Net income/(loss)$1,682
$2,370
 $1,753
$(399) $1,183
$1,534
 $591
$546
Average common equity$40,000
$40,000
 $26,500
$25,000
 $16,500
$16,000
 $9,500
$8,000
Total assets812,959
853,452
 269,442
289,336
 199,579
201,179
 161,741
140,706
Return on average common equity17%24% 27%(6)% 29%39% 25%28%
Overhead ratio65
61
 65
90
 43
40
 36
37

164










Segment results and reconciliation (a)
As of or for the three months ended June 30,
(in millions, except ratios)
Investment Bank Retail Financial Services Card Services & Auto Commercial Banking
20122011 20122011 20122011 20122011
Noninterest revenue$5,042
$5,233
 $4,034
$3,115
 $1,246
$1,306
 $562
$598
Net interest income1,724
2,081
 3,901
4,027
 3,279
3,455
 1,129
1,029
Total net revenue6,766
7,314
 7,935
7,142
 4,525
4,761
 1,691
1,627
Provision for credit losses21
(183) (555)994
 734
944
 (17)54
Credit allocation income/(expense)(b)
—
—
 —
—
 —
—
 —
—
Noninterest expense3,802
4,332
 4,726
5,271
 2,096
1,988
 591
563
Income/(loss) before
income tax expense/(benefit)
2,943
3,165
 3,764
877
 1,695
1,829
 1,117
1,010
Income tax expense/(benefit)1,030
1,108
 1,497
494
 665
719
 444
403
Net income/(loss)$1,913
$2,057
 $2,267
$383
 $1,030
$1,110
 $673
$607
Average common equity$40,000
$40,000
 $26,500
$25,000
 $16,500
$16,000
 $9,500
$8,000
Total assets (period-end)829,655
809,630
 264,320
283,753
 198,805
197,915
 163,698
148,662
Return on common equity19%21% 34%6% 25%28% 28%30%
Overhead ratio56
59
 60
74
 46
42
 35
35
         
As of or for the three months ended March 31,
(in millions, except ratios)		Treasury & Securities Services Asset Management 
Corporate/Private Equity 
 
Reconciling Items(c)
 Total
20122011 20122011 20122011 20122011 20122011
As of or for the three months ended June 30,
(in millions, except ratios)
Treasury & Securities Services Asset Management 
Corporate/Private Equity 
 
Reconciling Items(c)
 Total
20122011 20122011 20122011 20122011 20122011
Noninterest revenue$1,067
$1,137
 $1,887
$2,020
 $1,673
$1,478
 $(531)$(424) $15,046
$13,316
$1,151
$1,183
 $1,852
$2,139
 $(2,404)$1,847
 $(449)$(478) $11,034
$14,943
Net interest income947
703
 483
386
 16
34
 (171)(119) 11,666
11,905
1,001
749
 512
398
 (205)218
 (195)(121) 11,146
11,836
Total net revenue2,014
1,840
 2,370
2,406
 1,689
1,512
 (702)(543) 26,712
25,221
2,152
1,932
 2,364
2,537
 (2,609)2,065
 (644)(599) 22,180
26,779
Provision for credit losses2
4
 19
5
 (9)(10) —
—
 726
1,169
8
(2) 34
12
 (11)(9) —
—
 214
1,810
Credit allocation income/(expense)(b)
3
27
 —
—
 —
—
 (3)(27) —
—
68
32
 —
—
 —
—
 (68)(32) —
—
Noninterest expense(c)
1,473
1,377
 1,729
1,660
 2,769
562
 —
—
 18,345
15,995
Noninterest expense1,491
1,453
 1,701
1,794
 559
1,441
 —
—
 14,966
16,842
Income/(loss) before income tax expense/(benefit)542
486
 622
741
 (1,071)960
 (705)(570) 7,641
8,057
721
513
 629
731
 (3,157)633
 (712)(631) 7,000
8,127
Income tax expense/(benefit)191
170
 236
275
 (508)238
 (705)(570) 2,258
2,502
258
180
 238
292
 (1,380)131
 (712)(631) 2,040
2,696
Net income/(loss)$351
$316
 $386
$466
 $(563)$722
 $—
$—
 $5,383
$5,555
$463
$333
 $391
$439
 $(1,777)$502
 $—
$—
 $4,960
$5,431
Average common equity$7,500
$7,000
 $7,000
$6,500
 $70,711
$66,915
 $—
$—
 $177,711
$169,415
$7,500
$7,000
 $7,000
$6,500
 $74,021
$71,577
 $—
$—
 $181,021
$174,077
Total assets66,732
50,614
 96,385
71,521
 713,492
591,353
 NA
NA
 2,320,330
2,198,161
Return on average common equity19%18% 22%29% NM
NM
 NM
NM
 12%13%
Total assets (period-end)67,758
55,950
 98,704
78,199
 667,206
672,655
 NA
NA
 2,290,146
2,246,764
Return on common equity25%19% 22%27% NM
NM
 NM
NM
 11%12%
Overhead ratio73
75
 73
69
 NM
NM
 NM
NM
 69
63
69
75
 72
71
 NM
NM
 NM
NM
 67
63


207

As of or for the six months ended June 30,
(in millions, except ratios)
Investment Bank Retail Financial Services Card Services & Auto Commercial Banking
20122011 20122011 20122011 20122011
Noninterest revenue$10,460
$11,409
 $7,758
$4,495
 $2,497
$2,353
 $1,119
$1,100
Net interest income3,627
4,138
 7,826
8,113
 6,742
7,199
 2,229
2,043
Total net revenue14,087
15,547
 15,584
12,608
 9,239
9,552
 3,348
3,143
Provision for credit losses16
(612) (651)2,193
 1,472
1,297
 60
101
Credit allocation income/(expense)(b)
—
—
 —
—
 —
—
 —
—
Noninterest expense8,540
9,348
 9,735
10,171
 4,125
3,905
 1,189
1,126
Income/(loss) before
income tax expense/(benefit)
5,531
6,811
 6,500
244
 3,642
4,350
 2,099
1,916
Income tax expense/(benefit)1,936
2,384
 2,480
260
 1,429
1,706
 835
763
Net income/(loss)$3,595
$4,427
 $4,020
$(16) $2,213
$2,644
 $1,264
$1,153
Average common equity$40,000
$40,000
 $26,500
$25,000
 $16,500
$16,000
 $9,500
$8,000
Total assets (period-end)829,655
809,630
 264,320
283,753
 198,805
197,915
 163,698
148,662
Return on common equity18%22% 31%—% 27%33% 27%29%
Overhead ratio61
60
 62
81
 45
41
 36
36
As of or for the six months ended June 30,
(in millions, except ratios)
Treasury & Securities Services Asset Management 
Corporate/Private Equity 
 
Reconciling Items(c)
 Total
20122011 20122011 20122011 20122011 20122011
Noninterest revenue$2,218
$2,320
 $3,739
$4,159
 $(1,391)$3,325
 $(980)$(902) $25,420
$28,259
Net interest income1,948
1,452
 995
784
 (189)252
 (366)(240) 22,812
23,741
Total net revenue4,166
3,772
 4,734
4,943
 (1,580)3,577
 (1,346)(1,142) 48,232
52,000
Provision for credit losses10
2
 53
17
 (20)(19) —
—
 940
2,979
Credit allocation income/(expense)(b)
71
59
 —
—
 —
—
 (71)(59) —
—
Noninterest expense2,964
2,830
 3,430
3,454
 3,328
2,003
 —
—
 33,311
32,837
Income/(loss) before income tax expense/(benefit)1,263
999
 1,251
1,472
 (4,888)1,593
 (1,417)(1,201) 13,981
16,184
Income tax expense/(benefit)449
350
 474
567
 (2,089)369
 (1,417)(1,201) 4,097
5,198
Net income/(loss)$814
$649
 $777
$905
 $(2,799)$1,224
 $—
$—
 $9,884
$10,986
Average common equity$7,500
$7,000
 $7,000
$6,500
 $72,366
$69,259
 $—
$—
 $179,366
$171,759
Total assets (period-end)67,758
55,950
 98,704
78,199
 667,206
672,655
 NA
NA
 2,290,146
2,246,764
Return on common equity22%19% 22%28% NM
NM
 NM
NM
 11%13%
Overhead ratio71
75
 72
70
 NM
NM
 NM
NM
 69
63
(a)In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s lines of business results 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 as discussed below that do not have any impact on net income as reported by the lines of business or by the Firm as a whole.
(b)IB manages traditional credit exposures related to the Global Corporate Bank (“GCB”) on behalf of IB and TSS, and IB and TSS share the economics related to the Firm’s GCB clients. Included within this allocation are net revenue, provision for credit losses and expenses. IB recognizes this credit allocation as a component of all other income.
(c)
Segment managed results reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are eliminated in reconciling items to arrive at the Firm’s reported U.S. GAAP results. FTE adjustments for the three and six months ended March 31,June 30, 2012 and 2011,, were as follows.
Three months ended March 31, (in millions)2012
2011
Three months ended June 30, Six months ended June 30,
(in millions)2012
2011
 2012
2011
Noninterest revenue$534
$451
$517
$510
 $1,051
$961
Net interest income171
119
195
121
 366
240
Income tax expense705
570
712
631
 1,417
1,201

165208

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
JPMorgan Chase & Co.:
We have reviewed the consolidated balance sheet of JPMorgan Chase & Co. and its subsidiaries (the “Firm”) as of March 31,June 30, 2012, and the related consolidated statements of income and of comprehensive income for the three-month and six-month periods ended June 30, 2012 and June 30, 2011, and the consolidated statements of cash flows and of changes in stockholders’ equity for the three-monthsix-month periods ended March 31,June 30, 2012 and March 31,June 30, 2011, included in the Firm’s Quarterly Report on Form 10-Q for the period ended March 31, 2012.June 30, 2012. These interim financial statements are the responsibility of the Firm’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2011, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for the year then ended (not presented herein), and in our report dated February 29, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2011, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.


May 10,August 9, 2012





















PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017


166209

JPMorgan Chase & Co.
Consolidated average balance sheets, interest and rates
(Taxable-equivalent interest and rates; in millions, except rates)
Three months ended March 31, 2012 Three months ended March 31, 2011Three months ended June 30, 2012 Three months ended June 30, 2011
Average
balance
Interest 
Rate
(annualized)
 
Average
balance
Interest 
Rate
(annualized)
Average
balance
Interest(c)
 
Rate
(annualized)
 
Average
balance
Interest(c)
 
Rate
(annualized)
Assets                
Deposits with banks$110,817
$152
 0.55% $37,155
$101
 1.11% $111,441
$136
 0.49% $75,801
$144
 0.76% 
Federal funds sold and securities purchased under resale agreements230,444
651
 1.14
 202,481
543
 1.09
 242,184
646
 1.07
 202,036
604
 1.20
 
Securities borrowed133,080
37
 0.11
 114,589
47
 0.17
 129,390
(12) (0.04)
(d) 
 124,806
30
 0.10
 
Trading assets – debt instruments228,397
2,441
 4.30
 275,512
2,925
 4.31
 235,990
2,324
 3.96
 285,104
3,007
 4.23
 
Securities369,273
2,382
 2.60
(c) 
 318,936
2,271
 2.89
(c) 
366,130
2,201
 2.42
(e) 
 342,248
2,647
 3.10
(e) 
Loans715,553
9,139
 5.14
 688,133
9,531
 5.62
 725,252
8,938
 4.96
 686,111
9,163
 5.36
 
Other assets(a)
33,949
70
 0.83
 49,887
148
 1.20
 33,240
61
 0.74
 48,716
158
 1.30
 
Total interest-earning assets1,821,513
14,872
 3.28
 1,686,693
15,566
 3.74
 1,843,627
14,294
 3.12
 1,764,822
15,753
 3.58
 
Allowance for loan losses(27,574)    (31,802)    (25,804)    (29,548)    
Cash and due from banks45,483
    29,334
    45,529
    27,226
    
Trading assets – equity instruments126,938
    141,951
    110,718
    137,611
    
Trading assets – derivative receivables90,446
    85,437
    89,345
    82,860
    
Goodwill48,218
    48,846
    48,157
    48,834
    
Other intangible assets:                
Mortgage servicing rights7,231
    14,024
    7,196
    12,618
    
Purchased credit card relationships568
    858
    499
    781
    
Other intangibles2,569
    3,070
    2,424
    2,957
    
Other assets143,484
    126,041
    144,605
    144,382
    
Total assets$2,258,876
    $2,104,452
    $2,266,296
    $2,192,543
    
Liabilities                
Interest-bearing deposits$759,084
$722
 0.38% $700,921
$922
 0.53% $744,103
$737
 0.40% $732,766
$1,123
 0.61% 
Federal funds purchased and securities loaned or sold under repurchase agreements233,415
88
 0.15
 278,250
117
 0.17
 249,186
160
 0.26
 281,843
202
 0.29
 
Commercial paper48,359
19
 0.15
 36,838
19
 0.21
 48,791
21
 0.18
 41,682
20
 0.19
 
Trading liabilities – debt, short-term and other liabilities(b)
199,588
302
 0.61
 193,814
682
 1.43
 203,348
332
 0.66
 212,878
668
 1.26
 
Beneficial interests issued by consolidated VIEs65,360
182
 1.12
 72,932
214
 1.19
 60,046
165
 1.10
 69,399
202
 1.17
 
Long-term debt255,246
1,722
 2.71
 269,156
1,588
 2.39
 250,494
1,538
 2.47
 273,934
1,581
 2.31
 
Total interest-bearing liabilities1,561,052
3,035
 0.78
 1,551,911
3,542
 0.93
 1,555,968
2,953
 0.76
 1,612,502
3,796
 0.94
 
Noninterest-bearing deposits339,398
    229,461
    349,143
    247,137
    
Trading liabilities – equity instruments14,060
    7,872
    12,096
    3,289
    
Trading liabilities – derivative payables76,069
    71,288
    78,704
    66,009
    
All other liabilities, including the allowance for lending-related commitments82,786
    66,705
    81,564
    81,729
    
Total liabilities2,073,365
    1,927,237
    2,077,475
    2,010,666
    
Stockholders’ equity                
Preferred stock7,800
    7,800
    7,800
    7,800
    
Common stockholders’ equity177,711
    169,415
    181,021
    174,077
    
Total stockholders’ equity185,511
    177,215
    188,821
    181,877
    
Total liabilities and stockholders’ equity$2,258,876
    $2,104,452
    $2,266,296
    $2,192,543
    
Interest rate spread  2.50%   2.81%   2.36%   2.64% 
Net interest income and net yield on interest-earning assets $11,837
 2.61%  $12,024
 2.89%  $11,341
 2.47%  $11,957
 2.72% 
(a)Includes margin loans.
(b)Includes brokerage customer payables.
(c)Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(d)Negative yield for the three months ended June 30, 2012, is a result of increased client-driven demand for certain securities combined with the impact of low interest rates.
(e)
For the three months ended March 31,June 30, 2012 and 2011, the annualized rates for AFS securities, based on amortized cost, were 2.65%2.47% and 2.92%3.15%, respectively.

210

JPMorgan Chase & Co.
Consolidated average balance sheets, interest and rates
(Taxable-equivalent interest and rates; in millions, except rates)

 Six months ended June 30, 2012 Six months ended June 30, 2011
 
Average
balance
Interest(c)
 
Rate
(annualized)
 
Average
balance
Interest(c)
 
Rate
(annualized)
Assets           
Deposits with banks$111,129
$288
 0.52%  $56,584
$245
 0.87% 
Federal funds sold and securities purchased under resale agreements236,314
1,297
 1.10
  202,256
1,147
 1.14
 
Securities borrowed131,235
25
 0.04
  119,726
77
 0.13
 
Trading assets – debt instruments232,193
4,765
 4.13
  280,334
5,932
 4.27
 
Securities367,702
4,583
 2.51
(d) 
 330,657
4,918
 3.00
(d) 
Loans720,403
18,077
 5.05
  687,117
18,694
 5.49
 
Other assets(a)
33,594
131
 0.78
  49,299
306
 1.25
 
Total interest-earning assets1,832,570
29,166
 3.20
  1,725,973
31,319
 3.66
 
Allowance for loan losses(26,689)     (30,669)    
Cash and due from banks45,506
     28,274
    
Trading assets – equity instruments118,828
     139,769
    
Trading assets – derivative receivables89,896
     84,141
    
Goodwill48,188
     48,840
    
Other intangible assets:           
Mortgage servicing rights7,214
     13,317
    
Purchased credit card relationships534
     819
    
Other intangibles2,495
     3,014
    
Other assets144,044
     135,263
    
Total assets$2,262,586
     $2,148,741
    
Liabilities           
Interest-bearing deposits$751,593
$1,459
 0.39%  $716,932
$2,045
 0.58% 
Federal funds purchased and securities loaned or sold under repurchase agreements241,301
248
 0.21
  280,056
319
 0.23
 
Commercial paper48,575
40
 0.16
  39,273
39
 0.20
 
Trading liabilities – debt, short-term and other liabilities(b)
201,467
634
 0.63
  203,398
1,350
 1.34
 
Beneficial interests issued by consolidated VIEs62,703
347
 1.11
  71,156
416
 1.18
 
Long-term debt252,871
3,260
 2.59
  271,559
3,169
 2.35
 
Total interest-bearing liabilities1,558,510
5,988
 0.77
  1,582,374
7,338
 0.94
 
Noninterest-bearing deposits344,271
     238,347
    
Trading liabilities – equity instruments13,078
     5,568
    
Trading liabilities – derivative payables77,387
     68,634
    
All other liabilities, including the allowance for lending-related commitments82,174
     74,259
    
Total liabilities2,075,420
     1,969,182
    
Stockholders’ equity           
Preferred stock7,800
     7,800
    
Common stockholders’ equity179,366
     171,759
    
Total stockholders’ equity187,166
     179,559
    
Total liabilities and stockholders’ equity$2,262,586
     $2,148,741
    
Interest rate spread   2.43%     2.72% 
Net interest income and net yield on interest-earning assets $23,178
 2.54%   $23,981
 2.80% 
(a)Includes margin loans.
(b)Includes brokerage customer payables.
(c)Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(d)
For the six months ended June 30, 2012 and 2011, the annualized rates for AFS securities, based on amortized cost, were 2.56% and 3.04%, respectively.


167211

GLOSSARY OF TERMS
Allowance for loan losses to total loans: Represents period-end allowance for loan losses divided by retained loans.
Assets under management: Represent assets actively managed by AM on behalf of Private Banking, Institutional and Retail clients. Includes “Committed capital not Called,” on which AM earns fees.
Assets under supervision: Represent assets under management as well as custody, brokerage, administration and deposit accounts.
Beneficial interests issued by consolidated VIEs: Represents the interest of third-party holders of debt/equity securities, or other obligations, issued by VIEs that JPMorgan Chase consolidates. The underlying obligations of the VIEs consist of short-term borrowings, commercial paper and long-term debt. The related assets consist of trading assets, available-for-sale securities, loans and other assets.
Benefit obligation: Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
Contractual credit card charge-off: In accordance with the Federal Financial Institutions Examination Council policy, credit card loans are 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 specific event (e.g., bankruptcy of the borrower), whichever is earlier.
Corporate/Private Equity: Includes Private Equity, Treasury and Chief Investment Office, and Corporate Other, which includes other centrally managed expense and discontinued operations.
Credit derivatives: Financial instruments whose value is derived from the credit risk associated with the debt of a third party issuer (the reference entity) which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Upon the occurrence of a credit event, which may include, among other events, the bankruptcy or failure to pay by, or certain restructurings of the debt of, the reference entity, neither party has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value of the reference obligation at the time of settling the credit derivative contract. The determination as to whether a credit event has occurred is generally made by the relevant ISDA Determination Committee, comprised of 10 sell-side and five buy-side ISDA member firms.
Credit cycle: A period of time over which credit quality improves, deteriorates and then improves again. The duration of a credit cycle can vary from a couple of years to several years.
 
CUSIP number: A CUSIP (i.e., Committee on Uniform Securities Identification Procedures) number identifies most securities, including: stocks of all registered U.S. and Canadian companies, and U.S. government and municipal bonds. The CUSIP system – owned by the American Bankers Association and operated by Standard & Poor’s – facilitates the clearing and settlement process of securities. The number consists of nine characters (including letters and numbers) that uniquely identify a company or issuer and the type of security. A similar system is used to identify non-U.S. securities (CUSIP International Numbering System).
Deposit margin: Represents net interest income expressed as a percentage of average deposits.
FICO score: A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus.
Forward points: Represents the interest rate differential between two currencies, which is either added to or subtracted from the current exchange rate (i.e., “spot rate”) to determine the forward exchange rate.
G7 government bonds: Bonds issued by the government of one of countries in the “Group of Seven” (“G7”) nations. Countries in the G7 are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
Global Corporate Bank: TSS and IB formed a joint venture to create the Firm’s Global Corporate Bank. With a team of bankers, the Global Corporate Bank serves multinational clients by providing them access to TSS products and services and certain IB products, including derivatives, foreign exchange and debt. The cost of this effort and the credit that the Firm extends to these clients is shared between TSS and IB.
Headcount-related expense: Includes salary and benefits (excluding performance-based incentives), and other noncompensation costs related to employees.
Home equity - senior lien: Represents loans where JP Morgan Chase holds the first security interest on the property.
Home equity - junior lien: Represents loans where JP Morgan Chase holds a security interest that is subordinate in rank to other liens.
Interchange income: A fee paid to a credit card issuer in the clearing and settlement of a sales or cash advance transaction.


168212

Investment-grade: An indication of credit quality based on JPMorgan Chase’s internal risk assessment system. “Investment grade” generally represents a risk profile similar to a rating of a “BBB-”/“Baa3” or better, as defined by independent rating agencies.
LLC: Limited Liability Company.
Loan-to-value (“LTV”) ratio: For residential real estate loans, the relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination date LTV ratios are calculated based on the actual appraised values of collateral (i.e., loan-level data) at the origination date.
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current estimated LTV ratios are calculated using estimated collateral values derived from a nationally recognized home price index measured at the metropolitan statistical area (“MSA”) level. These MSA-level home price indices comprise actual data to the extent available and forecasted data where actual data is not available. As a result, the estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting LTV ratios are necessarily imprecise and should therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all lien positions related to the property. Combined LTV ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of financial results that includes reclassifications to present revenue on a fully taxable-equivalent basis. Management uses this non-GAAP financial measure at the segment level, because it believes this provides information to enable investors to understand the underlying operational performance and trends of the particular business segment and facilitates a comparison of the business segment with the performance of competitors.
Mark-to-market (“MTM”) exposure: A measure, at a point in time, of the value of a derivative or foreign exchange contract in the open market. When the MTM value is positive, it indicates the counterparty owes JPMorgan Chase and, therefore, creates credit risk for the Firm. When the MTM value is negative, JPMorgan Chase owes the counterparty; in this situation, the Firm has liquidity risk.
Master netting agreement: An agreement between two counterparties who have multiple derivative contracts with each other that provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default on or termination of any one contract.


 
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than subprime loans but have characteristics that would disqualify the borrower from a traditional prime loan. Alt-A lending characteristics may include one or more of the following: (i) limited documentation; (ii) a high combined-loan-to-value (“CLTV”) ratio; (iii) loans secured by non-owner occupied properties; or (iv) a debt-to-income ratio above normal limits. Perhaps the most important characteristic is limited documentation. A substantial proportion of traditional Alt-A loans are those where a borrower does not provide complete documentation of his or her assets or the amount or source of his or her income.
Option ARMs
The option ARM real estate loan product is an adjustable-rate mortgage loan that provides the borrower with the option each month to make a fully amortizing, interest-only or minimum payment. The minimum payment on an option ARM loan is based on the interest rate charged during the introductory period. This introductory rate is usually significantly below the fully indexed rate. The fully indexed rate is calculated using an index rate plus a margin. Once the introductory period ends, the contractual interest rate charged on the loan increases to the fully indexed rate and adjusts monthly to reflect movements in the index. The minimum payment is typically insufficient to cover interest accrued in the prior month, and any unpaid interest is deferred and added to the principal balance of the loan. Option ARM loans are subject to payment recast, which converts the loan to a variable-rate fully amortizing loan upon meeting specified loan balance and anniversary date triggers.
Prime
Prime mortgage loans generally have low default risk and are made to borrowers with good credit records and a monthly income at least three to four times greater than their monthly housing expense (mortgage payments plus taxes and other debt payments). These borrowers provide full documentation and generally have reliable payment histories.
Subprime
Subprime loans are designed for customers with one or more high risk characteristics, including but not limited to: (i) unreliable or poor payment histories; (ii) a high LTV ratio of greater than 80% (without borrower-paid mortgage insurance); (iii) a high debt-to-income ratio; (iv) an occupancy type for the loan is other than the borrower’s primary residence; or (v) a history of delinquencies or late payments on the loan.


169213

MSR risk management revenue: Includes changes in the fair value of the MSR asset due to market-based inputs, such as interest rates and volatility, as well as updates to assumptions used in the MSR valuation model; and derivative valuation adjustments and other, which represents changes in the fair value of derivative instruments used to offset the impact of changes in the market-based inputs to the MSR valuation model.
Multi-asset: Any fund or account that allocates assets under management to more than one asset class (e.g., long-term fixed income, equity, cash, real assets, private equity or hedge funds).
NA: Data is not applicable or available for the period presented.
Net charge-off rate: Represents net charge-offs (annualized) divided by average retained loans for the reporting period.
Net yield on interest-earning assets: The average rate for interest-earning assets less the average rate paid for all sources of funds.
NM: Not meaningful.
Overhead ratio: Noninterest expense as a percentage of total net revenue.
Participating securities: Represents unvested stock-based compensation awards containing nonforfeitable rights to dividends or dividend equivalents (collectively, "dividends"“dividends”), which are included in the earnings per share calculation using the two-class method. JPMorgan Chase grants restricted stock and RSUs to certain employees under its stock-based compensation programs, which entitle the recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities. Under the two-class method, all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities, based on their respective rights to receive dividends.
Portfolio activity: Describes changes to the risk profile of existing lending-related exposures and their impact on the allowance for credit losses from changes in customer profiles and inputs used to estimate the allowances.
Pre-provision profit: TotalRepresents 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.
Pretax margin: Represents income before income tax expense divided by total net revenue, which is, in management’s view, a comprehensive measure of pretax performance derived by measuring earnings after all costs are taken into consideration. It is, therefore, another basis that management uses to evaluate the performance of TSS and AM against the performance of their respective competitors.

Principal transactions:transactions revenue: RealizedPrincipal transactions revenue includes realized and unrealized gains and losses from trading activities (includingrecorded on derivatives, other financial instruments, private equity investments, and physical commodities inventories that are accounted for at the lower of cost or fair value)used in
market making and changes in fair value associated with financial instruments held predominantly by IB for which the fair value option was elected.client-driven activities. In addition, Principal transactions revenue also includes private equitycertain realized and unrealized gains and losses.losses related to hedge accounting and specified risk management activities including: (a) certain derivatives designated in qualifying hedge accounting relationships (primarily fair value hedges of commodity and foreign exchange risk), (b) certain derivatives used for specified risk management purposes, primarily to mitigate credit risk, foreign exchange risk and commodity risk, and (c) other derivatives, including the synthetic credit portfolio.
Purchased credit-impaired (“PCI”) loans: Represents loans that were acquired in the Washington Mutual transaction and deemed to be credit-impaired on the acquisition date in accordance with FASB guidance. The guidance allows purchasers to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics (e.g., product type, LTV ratios, FICO scores, past due status, geographic location). A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
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.
Charge-offs are not recorded on PCI loans until actual losses exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. PCI loans as well as the related charge-offs and allowance for loan losses are excluded in the calculation of certain net charge-off rates and allowance coverage ratios. To date, no charge-offs have been recorded for these loans.
Real estate investment trust (“REIT”): A special purpose investment vehicle that provides investors with the ability to participate directly in the ownership or financing of real-estate related assets by pooling their capital to purchase and manage income property (i.e., equity REIT) and/or mortgage loans (i.e., mortgage REIT). REITs can be publicly- or privately-held and they also qualify for certain favorable tax considerations.
Receivables from customers: Primarily represents margin loans to prime and retail brokerage customers which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets for the wholesale lines of
business.
Reported basis: Financial statements prepared under U.S. GAAP, which excludes the impact of taxable-equivalent adjustments.
Retained loans: Loans that are held-for-investment excluding loans held-for-sale and loans at fair value.
Risk-weighted assets (“RWA”): 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


214

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


170

nature of any collateral, and the guarantor, if any. Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable 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 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.
Seed capital: Initial JPMorgan capital invested in products, such as mutual funds, with the intention of ensuring the fund is of sufficient size to represent a viable offering to clients, enabling pricing of its shares, and allowing the manager to develop a commercially attractive track record. After these goals are achieved, the intent is to remove the Firm’s capital from the investment.
Stress testing: A scenario that measures market risk under unlikely but plausible events in abnormal markets.
Taxable-equivalent basis: For managed results, total net revenue for each of the business segments and the Firm is presented on a tax-equivalent basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable investments and securities. 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.
 
Troubled debt restructuring (“TDR”): Occurs when the Firm modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
Unaudited: Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
U.S. GAAP: Accounting principles generally accepted in the United States of America.
U.S. government-sponsored enterprise obligations: Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
U.S. Treasury: U.S. Department of the Treasury.
Value-at-risk (“VaR”): A measure of the dollar amount of potential loss from adverse market moves in an ordinary market environment.
Washington Mutual transaction: On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank (“Washington Mutual Bank”) from the FDIC. For additional information, see Glossary of Terms on page 311 of JPMorgan Chase’s 2011 Annual Report.




171215

LINE OF BUSINESS METRICS
Investment Banking
IB’s revenue comprises the following:
Investment banking fees include advisory, equity underwriting, bond underwriting and loan syndication fees.
Fixed income markets primarily include revenue related to market-making across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets.
Equities markets primarily include revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services.
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.
Retail Financial Services
Description of selected business metrics within Consumer & Business Banking:
Client investment managed accounts – Assets actively managed by Chase Wealth Management on behalf of clients. The percentage of managed accounts is calculated by dividing managed account assets by total client investment assets.
Active mobile customers – Retail banking users of all mobile platforms, which include: SMS text, Mobile Browser, iPhone, iPad and Android, who have been active in the past 90 days.
Client advisors – Investment product specialists, including Private Client Advisors, Financial Advisors, Financial Advisor Associates, Senior Financial Advisors, Independent Financial Advisors and Financial Advisor Associate trainees, who advise clients on investment options, including annuities, mutual funds, stock trading services, etc., sold by the Firm or by third party vendors through retail branches, Chase Private Client branches and other channels.
Personal bankers – Retail branch office personnel who acquire, retain and expand new and existing customer relationships by assessing customer needs and recommending and selling appropriate banking products and services.
Sales specialists – Retail branch office and field personnel, including Business Bankers, Relationship Managers and Loan Officers, who specialize in marketing and sales of various business banking products (i.e., business loans, letters of credit, deposit accounts, Chase Paymentech, etc.) and mortgage products to existing and new clients.
Deposit marginmargin/deposit spread: Represents net interest income expressed as a percentage of average deposits.

 
Mortgage Production and Servicing revenue comprises the following:
Net production revenue includes net gains or losses on originations and sales of prime and subprime mortgage loans, other production-related fees and losses related to the repurchase of previously-sold loans.
Net mortgage servicing revenue includes the following components.
(a)Operating revenue comprises:
– All gross income earned from servicing third-party mortgage loans including stated service fees, excess service fees and other ancillary fees; and
– Modeled MSR asset amortization (or time decay).
(b)Risk management comprises:
– Changes in MSR asset fair value due to market-based inputs such as interest rates, as well as updates to assumptions used in the MSR valuation model; and
– Derivative valuation adjustments and other, which represents changes in the fair value of derivative instruments used to offset the impact of changes in interest rates to the MSR valuation model.
Mortgage origination channels comprise the following:
Retail – Borrowers who buy or refinance a home through direct contact with a mortgage banker employed by the Firm using a branch office, the Internet or by phone. Borrowers are frequently referred to a mortgage banker by a banker in a Chase branch, real estate brokers, home builders or other third parties.
Wholesale – Third-party mortgage brokers refer loan application packages to the Firm. The Firm then underwrites and funds the loan. Brokers are independent loan originators that specialize in counseling applicants on available home financing options, but do not provide funding for loans. Chase materially eliminated broker-originated loans in 2008, with the exception of a small number of loans guaranteed by the U.S. Department of Agriculture under its Section 502 Guaranteed Loan program that serves low-and-moderate income families in small rural communities.
Correspondent – Banks, thrifts, other mortgage banks and other financial institutions that sell closed loans to the Firm.
Correspondent negotiated transactions (“CNTs”) – Mid- to large-sized mortgage lenders, banks and bank-owned mortgage companies sell servicing to the Firm on an as-originated basis (excluding sales of bulk servicing transactions). These transactions supplement traditional production channels and provide growth opportunities in the servicing portfolio in periods of stable and rising interest rates.


172216

Card Services & Auto
Description of selected business metrics within Card:
Sales volume – Dollar amount of cardmember purchases, net of returns.
Open accounts – Cardmember accounts with charging privileges.
Merchant Services business – A business that processes bank card transactions for merchants.
Bank card volume – Dollar amount of transactions processed for merchants.
Total transactions – Number of transactions and authorizations processed for merchants.
Auto origination volume – Dollar amount of loans and leases originated.
Commercial card provides a wide range of payment services to corporate and public sector clients worldwide through the commercial card products. Services include procurement, corporate travel and entertainment, expense management services, and business-to-business payment solutions.
Commercial Banking
CB Client Segments:
Middle Market Banking covers corporate, municipal, financial institution and not-for-profit clients, with annual revenue generally ranging between $10 million and $500 million.
Corporate Client Banking covers clients with annual revenue generally ranging between $500 million and $2 billion and focuses on clients that have broader investment banking needs.
Commercial Term Lending primarily provides term financing to real estate investors/owners for multi-familymultifamily properties as well as financing office, retail and industrial properties.
Real Estate Banking provides full-service banking to investors and developers of institutional-grade real estate properties.
Other primarily includes lending and investment activity within the Community Development Banking and Chase Capital businesses.
CB revenue:
Lending includes a variety of financing alternatives, which are primarily provided on a basis secured by receivables, inventory, equipment, real estate or other assets. Products include term loans, revolving lines of credit, bridge financing, asset-based structures, leases, commercial card products and standby letters of credit.
Treasury services includes revenue from a broad range of products and services (as defined by Transaction Services and Trade Finance descriptions within TSS line of business metrics) that enable CB clients to manage payments and receipts as well as invest and manage funds.

 
Investment banking includes revenue from a range of products providing CB clients with sophisticated capital-raising alternatives, as well as balance sheet and risk management tools through advisory, equity underwriting, and loan syndications. Revenue from Fixed income and Equity markets products (as defined by Investment Banking Line of Business Metrics) available to CB clients is also included.
Other product revenue primarily includes tax-equivalent adjustments generated from Community Development Banking activity and certain income derived from principal transactions.
Description of selected business metrics within CB:
Liability balances include deposits, as well as deposits that are swept to on–balance sheet liabilities (e.g., commercial paper, federal funds purchased, time deposits and securities loaned or sold under repurchase agreements) as part of customer cash management programs.
IB revenue, gross represents total revenue related to investment banking products sold to CB clients.
Treasury & Securities Services
Treasury & Securities Services firmwide metrics include certain TSS product revenue and liability balances reported in other lines of business related to customers who are also customers of those other lines of business. In order to capture the firmwide impact of Treasury Services and TSS products and revenue, management reviews firmwide metrics such as liability balances, revenue and overhead ratios in assessing financial performance for TSS. Firmwide metrics are necessary, in management’s view, in order to understand the aggregate TSS business.
Description of a business metric within TSS:
Liability balances include deposits, as well as deposits that are swept to on–balance sheet liabilities (e.g., commercial paper, federal funds purchased, time deposits, and securities loaned or sold under repurchase agreements) as part of customer cash management programs.
Assets under custody represents activities associated with the safekeeping and servicing of assets on which WSS earns fees.
Description of selected products and services within TSS:
Investor Services includes primarily custody, fund accounting and administration, and securities lending products sold principally to asset managers, insurance companies and public and private investment funds.
Clearance, Collateral Management & Depositary Receipts primarily includes broker-dealer clearing and custody services, including tri-party repo transactions, collateral management products, and depositary bank services for American and global depositary receipt programs.
Transaction Services includes a broad range of products and services that enable clients to manage payments and receipts, as well as invest and manage funds. Products include U.S. dollar and multi-currency clearing, ACH,


217

lockbox, disbursement and reconciliation services, check deposits, and currency related services.


173

Trade Finance enables the management of cross-border trade for bank and corporate clients. Products include loans directly tied to goods crossing borders, export/import loans, commercial letters of credit, standby letters of credit, and supply chain finance.
Pre-provision profit ratio represents total net revenue less total noninterest expense divided by total net revenue. This reflects the operating performance before the impact of credit, and is another measure of performance for TSS against the performance of competitors.
Asset Management
Assets under management – Represent assets actively managed by AM on behalf of Private Banking, Institutional, and Retail clients. Includes “committed capital not called,” on which AM earns fees.
Assets under supervision – Represents assets under management as well as custody, brokerage, administration and deposit accounts.
Multi-asset – Any fund or account that allocates assets under management to more than one asset class (e.g., long-term fixed income, equity, cash, real assets, private equity or hedge funds).
Alternative assets – The following types of assets constitute alternative investments – hedge funds, currency, real estate and private equity.
 
AM’s client segments comprise the following:
Institutional includes comprehensive global investment services – including asset management, pension analytics, asset/liability management and active risk budgeting strategies – to corporate and public institutions, endowments, foundations, not-for-profit organizations and governments worldwide.
Retail includes worldwide investment management services and retirement planning and administration through third-parties and direct distribution of a full range of investment vehicles.
Private Banking includes investment advice and wealth management services to high- and ultra-high-net-worth individuals, families, money managers, business owners and small corporations worldwide, including investment management, capital markets and risk management, tax and estate planning, banking, capital raising and specialty-wealth advisory services.


174218

Item 3    Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the quantitative and qualitative disclosures about market risk, see the Market Risk Management section of the Management’s discussion and analysis on pages 73–7696–102 of this Form 10-Q.10-Q.
Item 4    Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Firm’s management, including its Chairman and Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defineddescribed in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective. See Exhibits 31.1 and 31.2 for the Certification statements issued by the Chairman and Chief Executive Officer, and Chief Financial Officer.
The Firm is committed to maintaining high standards of internal control over financial reporting. Nevertheless, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, in a firm as large and complex as JPMorgan Chase, lapses or deficiencies in internal controls may occur from time to time, and there can be no assurance that any such deficiencies will not result in significant deficiencies – or even material weaknesses – in internal controls in the future. For further information, see Management’s report on internal control over financial reportingRecent developments, beginning on page 17610 of JPMorgan Chase’s 2011 Annual Report. There was no changethis Form 10-Q, the Firm has determined that a material weakness existed in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) at March 31, 2012. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
As a result of that determination, the Firm’s Chairman and Chief Executive Officer and Chief Financial Officer also concluded that the Firm’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were not effective at March 31, 2012.
During the first quarter of 2012, the size and characteristics of the synthetic credit portfolio managed by the Firm’s Chief Investment Office (“CIO”) changed significantly. These changes had a negative impact on the effectiveness of CIO’s internal controls over valuation of the synthetic credit portfolio. The identified deficiency in the CIO valuation control process was the result of issues in certain interrelated and interdependent control elements comprising that process, including insufficient engagement of CIO senior finance management in the valuation control process in light of the increased size and heightened risk profile of the synthetic credit portfolio during the first quarter of 2012, and in the effectiveness of certain procedures employed during the first quarter of 2012 by the CIO Valuation Control Group in performing the price verifications. Because these elements of the valuation control process did not operate effectively at March 31, 2012, a material weakness existed in the Firm’s internal control over financial reporting at that date.
Management has taken steps to remediate the material weakness, including enhancing CIO senior finance management supervision of the valuation control process, implementing more formal reviews of price testing calculations, and instituting more formal procedures around the establishment and monitoring of price testing thresholds. These remedial steps were substantially implemented by June 30, 2012. In accordance with the Firm’s internal control compliance program, however, the material weakness designation cannot be closed until the remediation processes have been operational for a period of time and successfully tested. Management currently expects that testing will be completed during the third quarter of 2012.
Based on the foregoing, the Chairman and Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of the design and operation of the Firm’s disclosure controls and procedures as of June 30, 2012 and, for the reasons described above, have concluded that such controls and procedures were not effective at such date.
Other than the foregoing, there was no change in the Firm’s internal control over financial reporting that occurred during the three months ended March 31,June 30, 2012 that has materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
Reference is made to Exhibits 31.1 and 31.2 for the Certification statements issued by the Firm’s Chairman and Chief Executive Officer, and Chief Financial Officer, regarding the Firm’s disclosure controls and procedures, and internal control over financial reporting, as of June 30, 2012.

Part II Other Information

Item 1    Legal Proceedings
For information that updates the disclosures set forth under Part 1, Item 3: Legal Proceedings, in the Firm’s 2011Annual Report on Form 10-K, see the discussion of the Firm’s material litigation in Note 23 on pages 154–163196–205 of this Form 10-Q.10-Q.
Item 1A    Risk Factors
For aThe following discussion supplements the discussion of certain risk factors affecting the Firm seeas set forth in Part I, Item 1A: Risk Factors on pages 7–17 of JPMorgan Chase’s Chase’s Annual Report on Form 10-K for the year ended December 31, 2011;2011; and Forward-Looking StatementsPart II, Item 1A: Risk Factors on page 84pages 175–175A of JPMorgan Chase’s Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2012. The discussion of Risk Factors, as so supplemented, sets forth the material risk factors that could affect JPMorgan Chase’s financial condition and operations. Readers should not consider any descriptions of such factors to be a complete set of all potential risks that could affect the Firm.
Lapses in disclosure controls and procedures or internal control over financial reporting could materially and adversely affect the Firm’s operations, profitability or reputation.
The Firm is committed to maintaining high standards of internal control over financial reporting and disclosure controls and procedures. Nevertheless, in a firm as large and complex as JPMorgan Chase, lapses or deficiencies in disclosure controls and procedures or in the Firm’s internal control over financial reporting may occur from time to time. On July 13, 2012, the Firm reported that it had determined that a material weakness existed in its internal control over financial reporting at March 31, 2012. This determination related to the synthetic credit portfolio managed by its Chief Investment Office during the first


219

quarter of 2012. As a result of the material weakness, management also concluded that the Firm’s disclosure controls and procedures were not effective at March 31, 2012. Management has taken steps to remediate the internal control deficiency, including enhancing management supervision of valuation matters. The control deficiency was substantially remediated by June 30, 2012, although the remedial processes remain subject to testing.
There can be no assurance that the Firm’s disclosure controls and procedures will be effective in the future or that a material weakness or significant deficiency in internal control over financial reporting will not again exist. Any such lapses or deficiencies may materially and adversely affect the Firm’s business and results of operations or financial condition, restrict its ability to access the capital markets, require the Firm to expend significant resources to correct the lapses or deficiencies, expose the Firm to regulatory or legal proceedings, subject it to fines, penalties or judgments, harm the Firm’s reputation, or otherwise cause a decline in investor confidence. See Note 23 on pages 196–205 of this Form 10-Q.10-Q for a description of investigations and litigations relating to the CIO matter.

JPMorgan Chase’s framework for managing risks and risk management procedures and practices may not be effective in mitigating risk and loss to the Firm.

JPMorgan Chase’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 has established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which the Firm is subject, including liquidity risk, credit risk, market risk, interest rate risk, country risk, private equity risk, operational risk, legal and fiduciary risk, and reputational risk, among others. However, as with any risk management framework, there are inherent limitations to the Firm’s risk management strategies because there may exist, or develop in the future, risks that the Firm has not appropriately anticipated or identified. In addition, the Firm’s risk management procedures and practices may prove inadequate in mitigating risk and loss to the Firm, or deficiencies or lapses may occur in the application or implementation of those procedures and practices.
In connection with the Firm’s internal review of the reported losses in CIO’s synthetic credit portfolio, management concluded that during the first quarter of 2012 CIO’s risk management had been ineffective in dealing with the growth in the size and complexity of the portfolio during the first quarter of 2012. Among other matters, the Firm’s internal review found that CIO lacked a robust risk committee structure; that CIO’s risk limits were insufficiently granular and should have been reassessed in light of the positions being added to the synthetic credit portfolio in the first quarter of 2012; that CIO risk management was insufficiently engaged in the approval and implementation during the first quarter of 2012 of a new CIO VaR model related to the portfolio (before that model
 
was discontinued and the previous model was restored); and that there was inadequate escalation to the Firm’s management of certain risk issues relating to the portfolio. The Firm has taken steps to correct such lapses, including, among other things, appointing a new Chief Risk Officer for CIO and the Corporate sector; adding resources and talent in CIO risk management; instituting new CIO risk committees to improve governance and controls and ensure tighter linkages between CIO, Treasury and other activities in the Corporate sector; and introducing more granular risk limits for CIO.
While the Firm has taken steps to correct the lapses in the CIO risk management framework, there is no assurance that new or additional lapses in the Firm’s risk management framework and governance structure will not occur in the future. Any such lapses or other inadequacies in the design or implementation of the Firm’s risk management framework, governance, procedures or practices could, individually or in the aggregate, cause unexpected losses for the Firm, materially and adversely affect the Firm’s financial condition and results of operations, require significant resources to remediate any risk management deficiency, attract heightened regulatory scrutiny, expose the Firm to regulatory investigations or legal proceedings, subject the Firm to fines, penalties or judgments, harm the Firm’s reputation, or otherwise cause a decline in investor confidence. See Note 23 on pages 196–205 of this Form 10-Q for a description of investigations and litigations relating to the CIO matter.
Reductions in the Firm’s credit ratings may adversely affect its liquidity and cost of funding, as well as the value of debt obligations issued by the Firm.
On June 21, 2012, Moody’s downgraded the long-term senior debt ratings of JPMorgan Chase & Co. and the long-term senior debt and deposit ratings of JPMorgan Chase Bank, N.A. as part of its review of 17 banks and securities firms with global capital markets operations. Moody’s also maintained its “negative” outlook on JPMorgan Chase & Co., indicating the possibility of a further downgrade. In addition, on May 11, 2012, Fitch downgraded the long-term senior debt ratings of JPMorgan Chase & Co. and the long-term senior debt and deposit ratings of JPMorgan Chase Bank, N.A. and placed them on ratings watch negative for a possible further downgrade, and S&P changed its outlook on JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A. to “negative”, indicating the possibility of a future downgrade. The rating actions by these three credit rating agencies followed the disclosure by the Firm, on May 10, 2012, that its Chief Investment Office had experienced significant losses in its synthetic credit portfolio.
Any future reductions in the credit ratings of debt obligations of JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. and certain of their subsidiaries could reduce the Firm’s access to debt markets, materially increase the cost of issuing debt, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing or permitted, contractually or


220

otherwise, to do business with or lend to the Firm, thereby curtailing the Firm’s business operations and reducing its profitability. In addition, any such reduction in credit ratings may increase the credit spreads charged by the market for taking credit risk on JPMorgan Chase & Co. and its subsidiaries and, as a result, could adversely affect the value of debt obligations that they have issued or may issue in the future.
JPMorgan Chase’s role as a clearing and custody bank in the U.S. tri-party repurchase business exposes it to credit risks, including intra-day credit risk.
Financial services institutions are interrelated as a result of market-making, trading, clearing, counterparty, or other relationships. The Firm routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. The Firm is a market leader in providing clearing, custodial and prime brokerage services for financial services companies. In addition, the Firm acts as a clearing and custody bank in the U.S. tri-party repurchase transaction market. Many of these transactions expose the Firm to credit risk in the event of a default by the counterparty or client and, in the case of its role in the U.S. tri-party repurchase business, can expose the Firm to intra-day credit risk of the cash borrowers, usually broker-dealers; however, this exposure is secured by collateral and typically extinguished through the settlement process by the end of the day. The Firm actively participated in the Tri-Party Repo Infrastructure Reform Task Force sponsored by the Federal Reserve Bank of New York, which issued recommendations to modify and improve the infrastructure of tri-party repurchase transactions in order to, among other things, mitigate intra-day credit exposure. The Firm has implemented many of the recommendations and intends to implement the intra-day credit recommendations by the end of 2013. As a result, the Firm expects its intra-day credit exposure after implementation of all the Task Force recommendations to be substantially reduced. Nevertheless, if a broker-dealer that is party to a repurchase transaction cleared by the Firm becomes bankrupt or insolvent, the Firm may become involved in disputes and litigation with the broker-dealer’s bankruptcy estate and other creditors, or involved in regulatory investigations, all of which can increase the Firm’s operational and litigation costs and may result in losses if the securities in the repurchase transaction decline in value.
Implementation of the Firm’s resolution plan under the U.S. resolution plan rules could materially impair the claims of JPMorgan Chase debt holders.
On July 1, 2012, JPMorgan Chase submitted to the Federal Reserve and the FDIC its initial plan for resolution of the Firm as required under the Dodd-Frank Act and a rule issued by those banking regulators relating to the resolution of bank holding companies with assets of $50 billion or more and a rule issued by the FDIC relating to the resolution of insured depository institutions with assets of
$50 billion or more. The resolution plan is intended to provide information to those banking regulators in the unlikely event that the Firm were to default on its obligations or be in danger of default and neither the Firm’s recovery plan (as submitted to the Federal Reserve and the FDIC) nor another private sector alternative were available to prevent such default.
The Firm’s resolution plan includes strategies to resolve the Firm under the Bankruptcy Code, and recommends to the FDIC and the Federal Reserve the optimal strategy to resolve the Firm under the special resolution procedure provided in Title II of the Dodd-Frank Act (“Title II”).
The Firm has recommended to the FDIC and the Federal Reserve that the optimal Title II strategy would involve a “single point of entry” recapitalization model in which the FDIC would use its power to create a “bridge entity” for JPMorgan Chase, transfer the systemically important and viable parts of the Firm’s business, principally the stock of JPMorgan Chase & Co.’s main operating subsidiaries and any intercompany claims against such subsidiaries, to the bridge entity, recapitalize those businesses by contributing some or all of such intercompany claims to the capital of such subsidiaries, and by exchanging debt claims against JPMorgan Chase & Co. for equity in the bridge entity.
Under this strategy, the FDIC would distribute the stock of the bridge entity to the Firm’s creditors, including holders of long-term debt issued by JPMorgan Chase & Co. under its indentures and holders of other debt, in order of priority, in satisfaction of the claims against JPMorgan Chase & Co. that are not assumed by the bridge entity. Upon consummation of the recapitalization, holders of debt claims against JPMorgan Chase & Co. would cease to have any rights as creditors of JPMorgan Chase & Co., including the obligation of JPMorgan Chase & Co. to repay such indebtedness. If the Firm were to be resolved under this strategy, no assurance can be given that the value of the stock of the bridge entity distributed to the holders of debt obligations of JPMorgan Chase & Co. would be sufficient to repay or satisfy all or part of the principal amount of, and interest on, the debt obligations for which such stock was exchanged.
The Firm’s resolution plan provides for the rapid and orderly resolution of JPMorgan Chase & Co. under the Bankruptcy Code. Under this plan, the Firm’s lead bank subsidiary, JPMorgan Chase Bank, N.A., would be recapitalized either without initiating one or more receiverships under the Federal Deposit Insurance Act or, if necessary, by utilizing the FDIC’s traditional resolution powers in receivership proceedings under that Act. JPMorgan Chase & Co. would be placed in Chapter 11 proceedings under the Bankruptcy Code, and creditors and shareholders of JPMorgan Chase & Co. would realize value from the restructuring only to the extent available to JPMorgan Chase & Co. as a shareholder of JPMorgan Chase Bank, N.A. and only after payment of JPMorgan Chase Bank, N.A.’s creditors.


221

Should such a restructuring and recapitalization prove insufficient to adequately capitalize JPMorgan Chase Bank, N.A., the resolution plan calls for divestiture of any of the Firm’s lines of business and/or material subsidiaries, failing which the Firm would be wound down in proceedings under the Bankruptcy Code and other applicable insolvency regimes. If the Firm were to be resolved under its resolution plan, there can be no assurance that holders of debt obligations of JPMorgan Chase & Co. would receive repayment or satisfaction of all or part of the principal amount of, and interest on, such debt obligations in connection with any such reorganization or liquidation.

Item 2    Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended March 31,June 30, 2012, there were no shares of common stock of JPMorgan Chase & Co. were issued in transactions exempt from registration under the Securities Act of 1933, pursuant to Section 4(2) thereof, as follows: (i) on January 20, 2012, 9,413 shares were issued to retired directors who had deferred receipt of such common stock pursuant to the Deferred Compensation Plan for Non-Employee Directors; and (ii) on January 25, 2012, 18,017 shares were issued to retired employees who had deferred receipt of such common shares pursuant to the Corporate Performance Incentive Plan.thereof.
Repurchases under the common equity repurchase program
On March 13, 2012, the Board of Directors authorized a new $15.0 billion common equity (i.e., common stock and warrants) repurchase program, of which up to $12.0 billion is approved for repurchase in 2012 and up to an additional $3.0 billion is approved through the end of the first quarter of 2013. The new program supersedes a $15.0 billion repurchase program approved on March 18, 2011.2011. During the three and six months ended March 31,June 30, 2012, the Firm repurchased (on a trade-date basis) an aggregate of 445 million and 49 million shares of common stock and warrants for $190 million1.4 billion and $1.6 billion, at an average price per share respectively. As
of $45.45June 30, 2012. The Firm did not repurchase any of the warrants during the three months ended March 31, 2012. As of March 31, 2012,, $14.913.4 billion of authorized repurchase capacity remained under the new program, of which $11.9 billion approved capacity remains for use duringprogram. The Firm did not make any repurchases after May 17, 2012. For additional information regarding repurchases of the four months ended April 30, Firm’s equity securities, see 2012 the Firm repurchased (on a trade-date basis) an aggregateBusiness outlook, on pages 9–10 of 42 million shares of common stock and warrants, for $1.3 billion.this Form 10-Q.
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 equity — 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.
The authorization to repurchase common equity will be utilized at management’s discretion, and the timing of purchases and the exact amount of common equity that may be repurchased is subject to various factors, including market conditions; legal and regulatory considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account goodwill and intangibles); internal capital generation; and alternative investment opportunities. The repurchase program does not include specific price targets or timetables; may be executed through open market purchases or privately negotiated


175

transactions, or utilizing Rule 10b5-1 programs; and may be suspended at any time. For a discussion of restrictions
on equity repurchases, see Note 22 on page 276 of JPMorgan Chase’s Chase’s 2011Annual Report.Report.


Shares repurchased pursuant to the common equity repurchase program during the threesix months ended March 31,June 30, 2012, were as follows.
  Common stock Warrants     
Three months ended March 31, 2012 Total shares of common stock repurchased 
Average price paid per share of common stock(c)
 
Total warrants
repurchased
 
Average price
paid per warrant(c)
 
Aggregate repurchases of common equity (in millions)(c)
 
Dollar value
of remaining
authorized
repurchase
(in millions)(d)
 
January             
Repurchases under the prior $15.0 billion program(a)

 2,604,500
 $33.10
 —
 $—
 $86
 $6,050
 
February —
 —
 —
 —
 —
 6,050
(e) 
March             
Repurchases under the new $15.0 billion program(b)
 2,867,870
 45.29
 —
 —
 130
 14,870
 
First quarter(a)(b)
 5,472,370
 $39.49
 —
 $—
 $216
 $14,870
(f) 
  Common stock Warrants     
Six months ended June 30, 2012 Total shares of common stock repurchased 
Average price paid per share of common stock(d)
 
Total warrants
repurchased
 
Average price
paid per warrant(d)
 
Aggregate repurchases of common equity (in millions)(d)
 
Dollar value
of remaining
authorized
repurchase
(in millions)(e)
 
Repurchases under the prior $15.0 billion program(a)

 2,604,500
 $33.10
 —
 $—
 $86
 $6,050
(f) 
Repurchases under the new $15.0 billion program(b)
 2,867,870
 45.29
 —
 —
 130
 14,870
 
First quarter(a)(b)
 5,472,370
 39.49
 —
 —
 216
 14,870
 
April(c)
 17,789,777
 43.72
 —
 —
 778
 14,092
 
May 10,280,938
 40.99
 18,471,300
 12.90
 659
 13,433
 
June —
 —
 —
 —
 —
 13,433
 
Second quarter(c)
 28,070,715
 42.72
 18,471,300
 12.90
 1,437
 13,433
 
Year-to-date(a)
 33,543,085
 $42.19
 18,471,300
 $12.90
 $1,653
 $13,433
(g) 
(a)
Includes $86 million of repurchases in December 2011, which settled in early January 2012.
(b)
Excludes $60 million of repurchases in March 2012, which settled in early April 2012.
(c)
Includes $60 million of repurchases in March 2012, which settled in early April 2012.
(d)Excludes commissions cost.
(d)(e)The amount authorized by the Board of Directors excludes commissions cost.
(e)(f)
The unused portion of the prior $15.0 billion program was canceled when the new $15.0 billion program was authorized.
(f)(g)
Dollar value remaining under the new $15.0 billion program.



222

Repurchases under the stock-based incentive plans
Participants in the Firm’s stock-based incentive plans may have shares of common stock withheld to cover income taxes. Shares withheld to pay income taxes are repurchased pursuant to the terms of the applicable plan and not under the Firm’s repurchase program. Shares repurchased pursuant to these plans during the threesix months ended March 31,June 30, 2012, were as follows.
Three months ended
March 31, 2012
Total shares of common stock
repurchased

 
Average price
paid per share of common stock

January—
 $—
February—
 —
March406
 45.81
First quarter406
 $45.81

Six months ended
June 30, 2012
Total shares of common stock
repurchased

 
Average price
paid per share of common stock

First quarter406
 $45.81
April—
 —
May32
 39.72
June—
 —
Second quarter32
 39.72
Year-to-date438
 $45.36


Item 3    Defaults Upon Senior Securities
None.
Item 4    Mine Safety Disclosure
Not applicable.
Item 5Other Information
None.

 
Item 6    Exhibits
15 – Letter re: Unaudited Interim Financial Information(a) 
31.1 – Certification(a) 
31.2 – Certification(a) 
32 – Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(b) 
101.INS XBRL Instance Document(a)(c) 
101.SCH XBRL Taxonomy Extension Schema Document(a) 
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document(a) 
101.LAB XBRL Taxonomy Extension Label Linkbase Document(a) 
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document(a) 
101.DEF XBRL Taxonomy Extension Definition Linkbase Document(a) 
(a)Filed herewith.
(b)Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
(c)
Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Firm’s Quarterly Report on Form 10-Q for the quarter ended March 31,June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated statements of income (unaudited) for the three and six months ended March 31,June 30, 2012 and 2011, (ii) the Consolidated statements of comprehensive income (unaudited) for the three and six months ended March 31,June 30, 2012 and 2011, (iii) the Consolidated balance sheets (unaudited) as of March 31,June 30, 2012, and December 31, 2011, (iv) the Consolidated statements of changes in stockholders’ equity (unaudited) for the threesix months ended March 31,June 30, 2012 and 2011, (v) the Consolidated statements of cash flows (unaudited) for the threesix months ended March 31,June 30, 2012 and 2011, and (vi) the Notes to Consolidated Financial Statements (unaudited).


176223

Signature



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed its behalf by the undersigned thereunto duly authorized.




  JPMorgan Chase & Co.
  (Registrant)
   
Date:May 10,August 9, 2012 
   
 By/s/ Shannon S. Warren
  Shannon S. Warren
   
  Managing Director and Corporate Controller
  (Principal Accounting Officer)
   



177224

INDEX TO EXHIBITS




EXHIBIT NO. EXHIBITS
   
15 Letter re: Unaudited Interim Financial Information
   
31.1 Certification
   
31.2 Certification
   
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002†
   
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
   
† 
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act
of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.



178225