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

 


 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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(g)   Total capital ratio is Total capital divided by risk-weighted assets. Total capital is Tier 1 capital plus Tier 2 capital. Tier 2 capital consists of preferred stock not qualifying as Tier 1, subordinated long-term debt and other instruments qualifying as Tier 2, and the aggregate allowance for credit losses up to a certain percentage of risk-weighted assets.
 
(h)   Tier 1 leverage ratio is Tier 1 capital divided by adjusted quarterly average assets.
 
(i)   Asset and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions.
 
(j)   As defined by the regulations issued by the Federal Reserve, OCC and FDIC.
 
(k)   Represents requirements for banking subsidiaries pursuant to regulations issued under the FDIC Improvement Act. There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company.
 
(l)   The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4%, depending on factors specified in regulations issued by the Federal Reserve and OCC.
 
    Note: Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities, which have resulted from both nontaxable business combinations and from tax-deductible goodwill. At March 31, 2011, and December 31, 2010, the Firm had deferred tax liabilities resulting from nontaxable business combinations totaling $610 million and $647 million, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $2.0 billion and $1.9 billion, respectively.
A reconciliation of Total stockholders’ equity to Tier 1 common capital, Tier 1 capital and Total qualifying capital is presented in the table below.
                 
Risk-based capital components and assets   March 31,   December 31,
(in millions)   2011   2010
 
Total stockholders’ equity
  $ 180,598     $ 176,106  
Less: Preferred stock
    7,800       7,800  
 
Common stockholders’ equity
    172,798       168,306  
Effect of certain items in accumulated other comprehensive income/(loss) excluded from Tier 1 common equity
    (434 )     (748 )
Less: Goodwill(a)
    46,863       46,915  
Fair value DVA on derivative and structured note liabilities related to the Firm’s credit quality
    1,236       1,261  
Investments in certain subsidiaries and other
    1,184       1,032  
Other intangible assets(a)
    3,483       3,587  
 
Tier 1 common
    119,598       114,763  
 
Preferred stock
    7,800       7,800  
Qualifying hybrid securities and noncontrolling interests(b)
    19,836       19,887  
 
Total Tier 1 capital
    147,234       142,450  
 
Long-term debt and other instruments qualifying as Tier 2
    24,250       25,018  
Qualifying allowance for credit losses
    15,152       14,959  
Adjustment for investments in certain subsidiaries and other
    (219 )     (211 )
 
Total Tier 2 capital
    39,183       39,766  
 
Total qualifying capital
  $ 186,417     $ 182,216  
 
Risk-weighted assets
  $ 1,192,536     $ 1,174,978  
 
Total adjusted average assets
  $ 2,041,153     $ 2,024,515  
 
(a)   Goodwill and other intangible assets are net of any associated deferred tax liabilities.
 
(b)   Primarily includes trust preferred capital debt securities of certain business trusts.
The Firm’s Tier 1 common capital was $119.6 billion at March 31, 2011, compared with $114.8 billion at December 31, 2010, an increase of $4.8 billion. The increase was predominantly due to net income (adjusted for DVA) of $5.6 billion, and net issuances and commitments to issue common stock under the Firm’s employee stock-based compensation plans of $532 million. The increase was partially offset by $1.2 billion of dividends on common and preferred stock and $95 million of repurchases of common stock. The Firm’s Tier 1 capital was $147.2 billion at March 31, 2011, compared with $142.5 billion at December 31, 2010, an increase of $4.7 billion. The increase in Tier 1 capital reflected the increase in Tier 1 common. Additional information regarding the Firm’s capital ratios and the federal regulatory capital standards to which it is subject is presented in Note 29 on pages 273–274 of JPMorgan Chase’s 2010 Annual Report.
Basel II
The minimum risk-based capital requirements adopted by the U.S. federal banking agencies follow the Capital Accord of the Basel Committee on Banking Supervision (“Basel I”). In 2004, the Basel Committee published a revision to the Accord (“Basel II”). The goal of the Basel II Framework is to provide more risk-sensitive regulatory capital calculations and promote enhanced risk management practices among large, internationally active banking organizations. U.S. banking regulators published a final Basel II rule in December 2007, which requires JPMorgan Chase to implement Basel II at the holding company level, as well as at certain of its key U.S. bank subsidiaries.

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

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

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

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

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

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

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

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

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

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

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

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

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                                                                    Liquid
                                                                    securities
                                                                    and other
                                            30 days or                   cash collateral
As of or for the year ended                   Noninvestment-grade   more past due   Year-to-date   Credit   held against
December 31, 2010   Credit   Investment-           Criticized   Criticized   and accruing   net charge-offs/   derivative   derivative
(in millions)   exposure(c)   grade   Noncriticized   performing   nonperforming   loans   (recoveries)   hedges(d)   receivables
 
Top 25 industries(a)
                                                                       
Banks and finance companies
  $ 65,867     $ 54,839     $ 10,428     $ 467     $ 133     $ 26     $ 69     $ (3,456 )   $ (9,216 )
Real estate
    64,351       34,440       20,569       6,404       2,938       399       862       (76 )     (57 )
Healthcare
    41,093       33,752       7,019       291       31       85       4       (768 )     (161 )
State and municipal governments
    35,808       34,641       912       231       24       34       3       (186 )     (233 )
Asset managers
    29,364       25,533       3,401       427       3       7                   (2,948 )
Oil and gas
    26,459       18,465       7,850       143       1       24             (87 )     (50 )
Utilities
    25,911       20,951       4,101       498       361       3       49       (355 )     (230 )
Consumer products
    27,508       16,747       10,379       371       11       217       1       (752 )     (2 )
Retail and consumer services
    20,882       12,021       8,316       338       207       8       23       (623 )     (3 )
Technology
    14,348       9,355       4,534       399       60       47       50       (158 )      
Machinery and equipment manufacturing
    13,311       7,690       5,372       244       5       8       2       (74 )     (2 )
Building materials/ construction
    12,808       6,557       5,065       1,129       57       9       6       (308 )      
Media
    10,967       5,808       3,945       672       542       2       92       (212 )     (3 )
Metals/mining
    11,426       5,260       5,748       362       56       7       35       (296 )      
Telecom services
    10,709       7,582       2,295       821       11       3       (8 )     (820 )      
Central government
    11,173       10,677       496                               (6,897 )     (42 )
Chemicals/plastics
    12,312       8,375       3,656       274       7             2       (70 )      
Insurance
    10,918       7,908       2,690       320                   (1 )     (805 )     (567 )
Holding companies
    10,504       8,375       2,091       38             33       5             (362 )
Securities firms and exchanges
    9,415       7,678       1,700       37                   5       (38 )     (2,358 )
Business services
    11,247       6,351       4,735       115       46       11       15       (5 )      
Transportation
    9,652       6,630       2,739       245       38             (16 )     (132 )      
Automotive
    9,011       3,915       4,822       269       5             52       (758 )      
Agriculture/paper manufacturing
    7,368       4,510       2,614       242       2       8       7       (44 )     (2 )
Aerospace
    5,732       4,903       732       97                         (321 )      
All other(b)
    140,926       122,594       14,924       2,402       1,006       921       470       (5,867 )     (250 )
 
Subtotal
    649,070       485,557       141,133       16,836       5,544       1,852       1,727       (23,108 )     (16,486 )
 
Loans held-for-sale and loans at fair value
    5,123                                                                  
Receivables from customers
    32,541                                                                  
Interest in purchased receivables
    391                                                                  
 
Total
  $ 687,125     $ 485,557     $ 141,133     $ 16,836     $ 5,544     $ 1,852     $ 1,727     $ (23,108 )   $ (16,486 )
 
 
(a)   All industry rankings are based on exposure at March 31, 2011. The industry rankings presented in the table as of December 31, 2010 are based on the industry rankings of the corresponding exposures at March 31, 2011, not actual rankings of such exposures at December 31, 2010.
 
(b)   For more information on exposures to SPEs included in all other, see Note 15 on pages 141–149 of this Form 10-Q.
 
(c)   Credit exposure is net of risk participations and excludes the benefit of credit derivative hedges and collateral held against derivative receivables or loans.
 
(d)   Represents the net notional amounts of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP.

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The following table presents the geographic distribution of wholesale credit, nonperforming assets and past due loans as of March 31, 2011, and December 31, 2010. The geographic distribution of the wholesale portfolio is determined based predominantly on the domicile of the borrower.
                                                                                 
    Credit exposure           Nonperforming                
                                                                    Assets   30 days or
            Lending-                                                   acquired   more past
March 31, 2011           related   Derivative   Total credit   Nonaccrual           Lending-related   Total non-   in loan   due and
(in millions)   Loans   commitments   receivables   exposure   loans(a)   Derivatives   commitments   performing   satisfactions   accruing loans
 
Europe/Middle East and Africa
  $ 30,360     $ 60,560     $ 33,201     $ 124,121     $ 57     $     $ 20     $ 77     $     $ 22  
Asia and Pacific
    23,144       15,479       10,993       49,616       1       15             16             3  
Latin America and the Caribbean
    17,745       14,185       5,247       37,177       515             17       532       1       129  
Other
    1,213       6,260       2,124       9,597       9             5       14             1  
 
Total non-U.S.
    72,462       96,484       51,565       220,511       582       15       42       639       1       155  
Total U.S.
    157,186       259,077       27,179       443,442       3,996       6       853       4,855       260       1,187  
 
Loans held-for-sale and loans at fair value
    6,359                   6,359       289     NA           289     NA      
Receivables from customers
                      38,053     NA   NA   NA   NA   NA      
Interests in purchased receivables
                      177     NA   NA   NA   NA   NA      
 
Total
  $ 236,007     $ 355,561     $ 78,744     $ 708,542     $ 4,867     $ 21     $ 895     $ 5,783     $ 261     $ 1,342  
 
                                                                                 
    Credit exposure           Nonperforming                
                                                                    Assets   30 days or
            Lending-                                                   acquired   more past
December 31, 2010           related   Derivative   Total credit   Nonaccrual           Lending-related   Total non-   in loan   due and
(in millions)   Loans   commitments   receivables   exposure   loans(a)   Derivatives   commitments   performing   satisfactions   accruing loans
 
Europe/Middle East and Africa
  $ 27,934     $ 58,418     $ 35,196     $ 121,548     $ 153     $ 1     $ 23     $ 177     $     $ 127  
Asia and Pacific
    20,552       15,002       10,991       46,545       579       21             600             74  
Latin America and the Caribbean
    16,480       12,170       5,634       34,284       649             13       662       1       131  
Other
    1,185       6,149       2,039       9,373       6             5       11              
 
Total non-U.S.
    66,151       91,739       53,860       211,750       1,387       22       41       1,450       1       332  
Total U.S.
    156,359       254,340       26,621       437,320       4,123       12       964       5,099       320       1,520  
 
Loans held-for-sale and loans at fair value
    5,123                   5,123       496     NA           496     NA      
Receivables from customers
                      32,541     NA   NA   NA   NA   NA      
Interests in purchased receivables
                      391     NA   NA   NA   NA   NA      
 
Total
  $ 227,633     $ 346,079     $ 80,481     $ 687,125     $ 6,006     $ 34     $ 1,005     $ 7,045     $ 321     $ 1,852  
 
 
(a)   The Firm held allowance for loan losses of $1.0 billion and $1.6 billion related to nonaccrual retained loans resulting in allowance coverage ratios of 22% and 29% at March 31, 2011, and December 31, 2010, respectively. Wholesale nonaccrual loans represent 2.06% and 2.64% of total wholesale loans at March 31, 2011, and December 31, 2010, respectively.

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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 122—138 of this Form 10-Q.
Retained wholesale loans were $229.6 billion at March 31, 2011, compared with $222.5 billion at December 31, 2010. The $7.1 billion increase was primarily related to increased client activity.
The Firm actively manages wholesale credit exposure through sales of loans and lending-related commitments. During the first three months of 2011, the Firm sold $1.5 billion of loans and commitments, recognizing revenue gains of $5 million. During the first three months of 2010, the Firm sold $2.6 billion of loans and commitments, recognizing net revenue gains of $19 million. These results included gains or losses on sales of nonaccrual loans, if any, as discussed below. 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 53–58 and 141–149 respectively, of this Form 10-Q.
The following table presents the change in the nonaccrual loan portfolio for the three months ended March 31, 2011 and 2010.
                 
Wholesale nonaccrual loan activity        
Three months ended March 31, (in millions)   2011   2010
 
Beginning balance
  $ 6,006     $ 6,904  
Additions
    700       2,717  
 
Reductions:
               
Paydowns and other
    581       1,595  
Gross charge-offs
    243       909  
Returned to performing
    152       59  
Sales
    863       832  
 
Total reductions
    1,839       3,395  
 
Net additions/(reductions)
    (1,139 )     (678 )
 
Ending balance
  $ 4,867     $ 6,226  
 
Nonaccrual wholesale loans decreased by $1.1 billion, from December 31, 2010, primarily reflecting loan sales and repayments.
The following table presents net charge-offs, which are defined as gross charge-offs less recoveries, for the three months ended March 31, 2011 and 2010. The amounts in the table below do not include revenue gains from sales of nonaccrual loans.
                 
Wholesale net charge-offs        
Three months ended March 31, (in millions, except ratios)   2011     2010  
 
Loans — reported
               
Average loans retained
  $ 226,544     $ 211,599  
Net charge-offs
    165       959  
Average annual net charge-off ratio
    0.30 %     1.84 %
 

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Derivative contracts
In the normal course of business, the Firm uses derivative instruments predominantly for market-making activity. 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 6 on page 113 of this Form 10-Q.
The following tables summarize the net derivative receivables MTM for the periods presented.
                 
Derivative receivables MTM   Derivative receivables MTM
 
(in millions)   March 31, 2011   December 31, 2010
 
Interest rate
  $ 31,182     $ 32,555  
Credit derivatives
    8,026       7,725  
Foreign exchange
    18,333       25,858  
Equity
    8,358       4,204  
Commodity
    12,845       10,139  
 
Total, net of cash collateral
    78,744       80,481  
Liquid securities and other cash collateral held against derivative receivables
    (16,185 )     (16,486 )
 
Total, net of all collateral
  $ 62,559     $ 63,995  
 
Derivative receivables reported on the Consolidated Balance Sheets were $78.7 billion and $80.5 billion at March 31, 2011, and December 31, 2010, respectively. These represent the fair value (e.g. MTM) of the derivative contracts after giving effect to legally enforceable master netting agreements, cash collateral held by the Firm and the credit valuation adjustment (“CVA”). However, in management’s view, the appropriate measure of current credit risk should also reflect additional liquid securities and other cash collateral held by the Firm of $16.2 billion and $16.5 billion at March 31, 2011, and December 31, 2010, respectively, as shown in the table above. Derivative receivables decreased from December 31, 2010, largely due to a reduction in foreign exchange derivative balances, which declined primarily due to the Japanese Yen depreciation relative to the U.S. dollar. Interest rate contracts also decreased as a result of higher interest rate yields during the quarter. These decreases were partially offset by increases in derivative receivables related to equity derivatives as a result of increased activity in the EMEA and Latin American markets, and to commodity derivatives primarily as a result of higher oil prices.
The Firm also holds additional collateral 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 noted in the table above, it is available as security against potential exposure that could arise should the MTM of the client’s derivative transactions move in the Firm’s favor. As of March 31, 2011, and December 31, 2010, the Firm held $20.5 billion and $18.0 billion, respectively, of this additional collateral. The derivative receivables MTM, net of all collateral, also do not include other credit enhancements, such as letters of credit.
The following table summarizes the ratings profile of the Firm’s derivative receivables MTM, net of other liquid securities collateral, for the dates indicated.
Ratings profile of derivative receivables MTM
                                 
    March 31, 2011   December 31, 2010
Rating equivalent   Exposure net of   % of exposure net   Exposure net of   % of exposure net
(in millions, except ratios)   all collateral   of all collateral   all collateral   of all collateral
 
AAA/Aaa to AA-/Aa3
  $ 25,062       40 %   $ 23,342       36 %
A+/A1 to A-/A3
    15,313       24       15,812       25  
BBB+/Baa1 to BBB-/Baa3
    8,496       14       8,403       13  
BB+/Ba1 to B-/B3
    11,161       18       13,716       22  
CCC+/Caa1 and below
    2,527       4       2,722       4  
 
Total
  $ 62,559       100 %   $ 63,995       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 - remained unchanged at 88% as of March 31, 2011, when compared to December 31, 2010. The Firm posted $52.8 billion and $58.3 billion of collateral at March 31, 2011, and December 31, 2010, respectively.

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Credit derivatives
For a detailed discussion of credit derivatives, including types of derivatives, see Note 5, Credit derivatives, on pages 107—113 of this Form 10-Q, and Credit derivatives on pages 126—127 and Note 6, Credit derivatives, on pages 197—199 of JPMorgan Chase’s 2010 Annual Report.
The following table presents the Firm’s notional amounts of credit derivatives protection purchased and sold as of March 31, 2011, and December 31, 2010, distinguishing between dealer/client activity and credit portfolio activity.
                                                                                     
    March 31, 2011   December 31, 2010
    Dealer/client   Credit portfolio           Dealer/client   Credit portfolio    
    Protection   Protection   Protection   Protection           Protection   Protection   Protection   Protection    
(in millions)   purchased(b)   sold   purchased   sold   Total   purchased(b)   sold   purchased   sold   Total
 
Credit default swaps
  $ 2,818,450     $ 2,840,813     $ 24,913     $ 182     $ 5,684,358     $ 2,661,657     $ 2,658,825     $ 23,523     $ 415     $ 5,344,420  
Other credit derivatives(a)
    56,379       104,406                   160,785       34,250       93,776                   128,026  
 
Total
  $ 2,874,829     $ 2,945,219     $ 24,913     $ 182     $ 5,845,143     $ 2,695,907     $ 2,752,601     $ 23,523     $ 415     $ 5,472,446  
 
 
(a)   Primarily consists of total return swaps and credit default swap options.
 
(b)   Included $2,835 billion and $2,662 billion at March 31, 2011, and December 31, 2010, respectively, of notional exposure where the Firm has sold protection on the identical underlying reference instruments.
Dealer/client business
Within the dealer/client business, the Firm actively manages credit derivatives by buying and selling credit protection, predominantly on corporate debt obligations, according to client demand. For further information, see Note 5 on pages 107—113 of this Form 10-Q.
At March 31, 2011, the total notional amount of protection purchased and sold increased by $371.5 billion from December 31, 2010, primarily due to increased activity, particularly in the EMEA region.
Credit portfolio activities
                 
Use of single-name and portfolio credit derivatives   Notional amount of protection purchased and sold
(in millions)   March 31, 2011   December 31, 2010
 
Credit derivatives used to manage
               
Loans and lending-related commitments
  $ 6,668     $ 6,698  
Derivative receivables
    18,245       16,825  
 
Total protection purchased
    24,913       23,523  
Total protection sold
    182       415  
 
Credit derivatives hedges notional, net
  $ 24,731     $ 23,108  
 
The credit derivatives used by JPMorgan Chase for 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-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. The MTM value related to the Firm’s credit derivatives used for managing credit exposure, as well as the MTM 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.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Hedges of lending-related commitments
  $ (44 )   $ (120 )
CVA and hedges of CVA
    (39 )     (1 )
 
Net gains/(losses)
  $ (83 )   $ (121 )
 

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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 amount of these financial instruments represents the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligation under these guarantees, and should the counterparties subsequently fail to perform according to the terms of these contracts.
Wholesale lending-related commitments were $355.6 billion at March 31, 2011, compared with $346.1 billion at December 31, 2010, reflecting increased client activity.
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 amounts of the Firm’s lending-related commitments were $182.9 billion and $178.9 billion as of March 31, 2011, and December 31, 2010, respectively.
Country exposure
The Firm’s wholesale portfolio includes country risk exposures to both developed and emerging markets. The Firm seeks to diversify its country exposures, including its credit-related lending, trading and investment activities, whether cross-border or locally funded.
Country exposure under the Firm’s internal risk management approach is reported based on the country where the assets of the obligor, counterparty or guarantor are located. Exposure amounts, including resale agreements, are adjusted for collateral and for credit enhancements (e.g., guarantees and letters of credit) provided by third parties; outstandings supported by a guarantor located outside the country or backed by collateral held outside the country are assigned to the country of the enhancement provider. In addition, the effect of credit derivative hedges and other short credit or equity trading positions are taken into consideration. Total exposure measures include activity with both government and private-sector entities in a country.
Several European countries, including Greece, Portugal, Spain, Italy and Ireland, have been subject to credit deterioration due to weaknesses in their economic and fiscal situations. The Firm is closely monitoring its exposures to these five countries. Aggregate net exposures to these five countries as measured under the Firm’s internal approach were less than $20.0 billion at March 31, 2011, with no one country representing a majority of the exposure. Sovereign exposure in all five countries represented less than half the aggregate net exposure, with the majority of the exposure in credit assets. The Firm currently believes its 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. The Firm continues to conduct business and support client activity in these countries and, therefore, the Firm’s aggregate net exposures 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.

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As part of its ongoing country risk management process, the Firm monitors exposure to emerging market countries, and utilizes country stress tests to measure and manage the risk of extreme loss associated with a sovereign crisis in one or more countries. There is no common definition of emerging markets, but the Firm generally includes in its definition those countries whose sovereign debt ratings are equivalent to “A+” or lower. The table below presents the Firm’s exposure to its top 10 emerging markets countries based on its internal measurement approach. The selection of countries is based solely on the Firm’s largest total exposures by country and does not represent its view of any actual or potentially adverse credit conditions.
Top 10 emerging markets country exposure
                                                 
At March 31, 2011   Cross-border           Total
(in billions)   Lending(a)   Trading(b)   Other(c)   Total   Local(d)   exposure
 
India
  $ 6.1     $ 3.0     $ 1.5     $ 10.6     $ 1.2     $ 11.8  
South Korea
    3.5       1.4       1.5       6.4       4.0       10.4  
Brazil
    3.6       0.9       1.2       5.7       4.0       9.7  
China
    4.9       0.6       1.5       7.0       1.2       8.2  
Mexico
    1.8       3.6       0.4       5.8             5.8  
Hong Kong
    2.1       1.9       1.2       5.2             5.2  
Malaysia
    0.4       3.6       0.4       4.4       0.4       4.8  
Taiwan
    0.7       0.3       0.3       1.3       3.0       4.3  
Chile
    1.0       2.2       0.5       3.7             3.7  
Thailand
    0.2       1.9       0.4       2.5       0.7       3.2  
 
                                                 
At December 31, 2010   Cross-border           Total
(in billions)   Lending(a)   Trading(b)   Other(c)   Total   Local(d)   exposure
 
Brazil
  $ 3.0     $ 1.8     $ 1.1     $ 5.9     $ 3.9     $ 9.8  
South Korea
    3.0       1.4       1.5       5.9       3.1       9.0  
India
    4.2       2.1       1.4       7.7       1.1       8.8  
China
    3.6       1.1       1.0       5.7       1.2       6.9  
Hong Kong
    2.5       1.5       1.2       5.2             5.2  
Mexico
    2.1       2.3       0.5       4.9             4.9  
Malaysia
    0.6       2.0       0.3       2.9       0.4       3.3  
Taiwan
    0.3       0.6       0.4       1.3       1.9       3.2  
Thailand
    0.3       1.1       0.4       1.8       0.9       2.7  
Russia
    1.2       1.0       0.3       2.5             2.5  
 
 
(a)   Lending includes loans and accrued interest receivable, interest-earning deposits with banks, acceptances, other monetary assets, issued letters of credit net of participations, and undrawn commitments to extend credit.
 
(b)   Trading includes: (1) issuer exposure on cross-border debt and equity instruments, held both in trading and investment accounts and adjusted for the impact of issuer hedges, including credit derivatives; and (2) counterparty exposure on derivative and foreign exchange contracts as well as securities financing trades (resale agreements and securities borrowed).
 
(c)   Other represents mainly local exposure funded cross-border, including capital investments in local entities.
 
(d)   Local exposure is defined as exposure to a country denominated in local currency and booked locally. Any exposure not meeting these criteria is defined as cross-border exposure.

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CONSUMER CREDIT PORTFOLIO
JPMorgan Chase’s consumer portfolio consists primarily of residential mortgages, home equity loans, credit cards, auto loans, student loans and business banking loans. The Firm’s primary focus is on serving the prime consumer credit market. For further information on the consumer loans, see Note 13 on pages 122–138 of this Form 10-Q.
A substantial portion of the consumer loans acquired in the Washington Mutual transaction were identified as purchased credit-impaired 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 122–138 of this Form 10Q and Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report.
The credit performance of the consumer portfolio across the entire product spectrum has improved, but high unemployment and weak overall economic conditions continued to result in elevated charge-offs, while weak housing prices continued to negatively affect the severity of loss recognized on residential real estate loans that default. Delinquencies and nonaccrual loans remain elevated but have improved. Early-stage residential real estate delinquencies (30—89 days delinquent) continued to show improvement in the first quarter of 2011, while late-stage residential real estate delinquencies (150+ days delinquent) stabilized but remained elevated. The elevated level of these credit quality metrics is due, in part, to loss-mitigation activities currently being undertaken and elongated foreclosure processing timelines. Losses related to these loans continued 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.
Actions taken by the Firm since 2007 to tighten underwriting and loan qualification standards, and to eliminate certain products and loan origination channels, have resulted in the reduction of credit risk and improved credit performance for recent loan vintages.

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The following table presents managed consumer credit–related information (including RFS, CS and residential real estate loans reported in the Corporate/Private Equity segment) for the dates indicated. For further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report.
Consumer
                                                                 
                                    Three months ended March 31,
    Credit   Nonaccrual                   Average annual
    exposure   loans(h)(i)   Net charge-offs   net charge-off rates(j)
    March 31,   Dec. 31,   March 31,   Dec. 31,                
(in millions, except ratios)   2011   2010   2011   2010   2011   2010   2011   2010
 
Consumer, excluding credit card Loans, excluding PCI loans and loans held-for-sale
                                                               
Home equity — senior lien(a)
  $ 24,071     $ 24,376     $ 470     $ 479     $ 65     $ 69       1.08 %     1.04 %
Home equity — junior lien(b)
    61,182       64,009       793       784       655       1,057       4.26       5.90  
Prime mortgage, including option ARMs
    74,682       74,539       4,166       4,320       171       485       0.93       2.55  
Subprime mortgage
    10,841       11,287       2,106       2,210       186       457       6.80       13.43  
Auto(c)
    47,411       48,367       120       141       47       102       0.40       0.88  
Business banking
    16,957       16,812       810       832       119       191       2.86       4.58  
Student and other
    15,089       15,311       107       67       86       78       2.29       1.87  
 
Total loans, excluding PCI loans and loans held-for-sale
    250,233       254,701       8,572       8,833       1,329       2,439       2.14       3.65  
 
Loans — PCI(d)
                                                               
Home equity
    23,973       24,459     NA   NA   NA   NA   NA   NA
Prime mortgage
    16,725       17,322     NA   NA   NA   NA   NA   NA
Subprime mortgage
    5,276       5,398     NA   NA   NA   NA   NA   NA
Option ARMs
    24,791       25,584     NA   NA   NA   NA   NA   NA
 
Total loans — PCI
    70,765       72,763     NA   NA   NA   NA   NA   NA
 
Total loans — retained
    320,998       327,464       8,572       8,833       1,329       2,439       1.66       2.82  
 
Loans held-for-sale(e)
    188       154                                      
 
Total consumer, excluding credit card loans
    321,186       327,618       8,572       8,833       1,329       2,439       1.66       2.82  
 
Lending-related commitments
                                                               
Home equity — senior lien(a)(f)
    17,406       17,662                                                  
Home equity — junior lien(b)(f)
    30,146       30,948                                                  
Prime mortgage
    745       1,266                                                  
Subprime mortgage
                                                           
Auto
    5,947       5,246                                                  
Business banking
    9,808       9,702                                                  
Student and other
    508       579                                                  
                                                 
Total lending-related commitments
    64,560       65,403                                                  
                                                 
Total consumer exposure, excluding credit card
    385,746       393,021                                                  
                                                 
Credit Card
                                                               
Loans retained(g)
    124,791       135,524       2       2       2,226       4,512       6.97       11.75  
Loans held-for-sale
    4,012       2,152                                      
 
Total credit card loans
    128,803       137,676       2       2       2,226       4,512       6.97       11.75  
 
Lending-related
commitments(f)
    565,813       547,227                                                  
                                                 
Total credit card exposure
    694,616       684,903                                                  
                                                 
Total consumer credit portfolio
  $ 1,080,362     $ 1,077,924     $ 8,574     $ 8,835     $ 3,555     $ 6,951       3.18 %     5.56 %
 
Memo: Total consumer credit portfolio, excluding PCI
  $ 1,009,597     $ 1,005,161     $ 8,574     $ 8,835     $ 3,555     $ 6,951       3.77       6.61  
 
 
(a)   Represents loans where JPMorgan Chase holds the first security interest on the property.
 
(b)   Represents loans where JPMorgan Chase holds a security interest that is subordinate in rank to other liens.
 
(c)   At March 31, 2011, and December 31, 2010, excluded operating lease—related assets of $3.9 billion and $3.7 billion, respectively.
 
(d)   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.
 
(e)   Represents prime mortgage loans held-for-sale.
 
(f)   The 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 commitments and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law.
 
(g)   Includes billed finance charges and fees net of an allowance for uncollectible amounts.
 
(h)   At March 31, 2011, and December 31, 2010, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $9.8 billion and $10.5 billion, respectively, that are accruing at the guaranteed reimbursement rate; and (2) student loans that are 90 days or more past due and still

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    accruing, which are insured by U.S. government agencies under the FFELP, of $615 million and $625 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. 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.
 
(i)   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.
 
(j)   For the three months ended March 31, 2011 and 2010, average consumer loans held-for-sale were $3.1 billion and $2.9 billion, respectively. These amounts were excluded when calculating net charge-off rates.
Consumer, excluding credit card
Portfolio analysis
The following discussion relates to the specific loan and lending-related categories. Purchased credit-impaired loans are excluded from individual loan product discussions and are addressed separately below.
Home equity: Home equity loans at March 31, 2011, were $85.3 billion, compared with $88.4 billion at December 31, 2010. The decrease in this portfolio primarily reflected loan paydowns and charge-offs. Both senior lien and junior lien nonaccrual loans remained relatively flat compared with the prior year. Early-stage delinquencies modestly improved from December 31, 2010, while net charge-offs improved from the prior year. In addition to delinquent accounts, the Firm monitors current junior lien loans where the borrower has a first mortgage loan which is either delinquent or has been modified, as such junior lien loans are considered to be at higher risk of delinquency. The portfolio contained an estimated $4 billion of such junior lien loans. The risk associated with these junior lien loans was considered in establishing the allowance for loan losses at March 31, 2011.
Mortgage: Mortgage loans at March 31, 2011, including prime, subprime and loans held-for-sale, were $85.7 billion, compared with $86.0 billion at December 31, 2010. The decrease was primarily due to charge-offs on delinquent loans, partially offset by prime mortgage originations. Net charge-offs decreased from the prior year but remained elevated.
Prime mortgages, including option adjustable-rate mortgages (“ARMs”) and loans held-for-sale at March 31, 2011, were $74.9 billion, compared with $74.7 billion at December 31, 2010. The increase in loans was due to originations, partially offset by charge-offs on delinquent loans. Both early-stage and late-stage delinquencies showed modest improvement during the first quarter but remained elevated. Nonaccrual loans showed improvement, but also remained elevated as a result of ongoing modification activity and 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 $8.2 billion and $8.1 billion at March 31, 2011, and December 31, 2010, respectively, and represented 11% of the prime mortgage portfolio in both periods. The increase in option ARM loans resulted from the repurchase of loans previously securitized as the securitization entities were terminated. Option ARM loans are primarily loans with low LTV ratios and high borrower FICOs. Accordingly, the Firm expects substantially lower losses on this portfolio when compared with the PCI option ARM pool. As of March 31, 2011, approximately 7% of the option ARM borrowers were delinquent, 3% were making interest-only or negatively amortizing payments, and 90% were making amortizing payments. Substantially all borrowers within the portfolio are subject to risk of payment shock due to future payment recast as 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 March 31, 2011, and December 31, 2010. The Firm estimates the following balances of option ARM loans will experience a recast that results in a payment increase: $47 million in 2011, $216 million in 2012 and $681 million in 2013. The Firm did not originate option ARMs and new originations of option ARMs were discontinued by Washington Mutual prior to the date of JPMorgan Chase’s acquisition of its banking operations.
Subprime mortgages at March 31, 2011, were $10.8 billion, compared with $11.3 billion at December 31, 2010. The decrease was due to paydowns and charge-offs on delinquent loans. Early-stage delinquencies improved during the first quarter of 2011. However, delinquencies and nonaccrual loans remained at elevated levels. Net charge-offs improved significantly from the prior year.
Auto: Auto loans at March 31, 2011, were $47.4 billion, compared with $48.4 billion at December 31, 2010. Loan balances declined due to the impact of increased competition. Delinquent and nonaccrual loans have decreased. Net charge-offs declined 54% from the prior year as a result of lower delinquencies and a decline in loss severity due to a strong used-car market nationwide. The auto loan portfolio reflected a high concentration of prime quality credits.

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Business banking: Business banking loans at March 31, 2011, were $17.0 billion, compared with $16.8 billion at December 31, 2010. These loans primarily include loans that are collateralized, and generally include personal loan guarantees, and may also include Small Business Administration guarantees. Delinquent loans and nonaccrual loans have shown some improvement but nonaccrual loans continued to remain elevated. Net charge-offs declined from the prior year.
Student and other: Student and other loans at March 31, 2011, were $15.1 billion, compared with $15.3 billion at December 31, 2010. Other loans primarily include other secured and unsecured consumer loans. Delinquencies and nonaccrual loans remained elevated, while charge-offs increased slightly from the prior year quarter.
Purchased credit-impaired loans: PCI loans at March 31, 2011, were $70.8 billion compared with $72.8 billion at December 31, 2010. This portfolio represents loans acquired in the Washington Mutual transaction that were recorded at fair value at the time of acquisition.
The Firm regularly updates the amount of principal and interest cash flows expected to be collected for these loans. Probable decreases in expected loan principal cash flows would trigger the recognition of impairment through the provision for loan losses. Probable and significant increases in expected cash flows (e.g., decreased principal credit losses, the net benefit of modifications) would first reverse any previously recorded allowance for loan losses, with any remaining increase in the expected cash flows recognized prospectively in interest income over the remaining estimated lives of the underlying loans.
The Firm’s allowance for loan losses for the home equity, prime mortgage, subprime mortgage and option ARM PCI pools was $1.6 billion, $1.8 billion, $98 million and $1.5 billion, respectively, at both March 31, 2011, and December 31, 2010.
Approximately 38% of the option ARM PCI loans were delinquent, 4% were making interest-only or negatively amortizing payments, and 58% were making amortizing payments. Approximately 35% of current borrowers are subject to risk of payment shock due to future payment recast; substantially all of the remaining loans have been modified to a fixed rate fully amortizing loan. The cumulative amount of unpaid interest added to the unpaid principal balance of the option ARM PCI pool was $1.3 billion and $1.4 billion at March 31, 2011, and December 31, 2010, respectively. The Firm estimates the following balances of option ARM PCI loans will experience a recast that results in a payment increase: $745 million in 2011, $2.3 billion in 2012 and $379 million in 2013.
The following table provides a summary of lifetime loss estimates included in both the nonaccretable difference and the allowance for loan losses. Principal charge-offs will not be recorded on these pools until the nonaccretable difference has been fully depleted.
                                 
    Lifetime loss estimates(a)     LTD liquidation losses(b)  
    March 31,     December 31,     March 31,     December 31,  
(in billions)   2011     2010     2011     2010  
 
Home equity
  $ 14.7     $ 14.7     $ 9.3     $ 8.8  
Prime mortgage
    4.9       4.9       1.7       1.5  
Subprime mortgage
    3.7       3.7       1.3       1.2  
Option ARMs
    11.6       11.6       5.3       4.9  
 
Total
  $ 34.9     $ 34.9     $ 17.6     $ 16.4  
 
 
(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 $12.8 billion and $14.1 billion at March 31, 2011, and December 31, 2010, respectively.
 
(b)   Life-to-date (“LTD”) liquidation losses represent realization of loss upon loan resolution.
Geographic composition and current LTVs of residential real estate loans
The consumer credit portfolio is geographically diverse. The greatest concentration of residential real estate loans is in California. Excluding mortgage loans insured by U.S. government agencies and PCI loans, California-based loans retained represented 24% of total residential real estate loans retained at both March 31, 2011, and December 31, 2010. Of the total residential real estate loan portfolio retained, excluding mortgage loans insured by U.S. government agencies and PCI loans, $84.4 billion, or 54%, were concentrated in California, New York, Arizona, Florida and Michigan at March 31, 2011, compared with $86.4 billion, or 54%, at December 31, 2010.
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, 2011, compared with 83% at December 31, 2010. Excluding mortgage loans insured by U.S. government agencies and PCI loans, 25% of the retained portfolio had a current estimated LTV ratio greater than 100%, and 11% of the retained portfolio had a current estimated LTV ratio greater than 125% at March 31, 2011, compared with 24% with a current estimated LTV ratio greater than 100%, and 10% with a current estimated LTV ratio greater than 125%, at December 31, 2010. The decline in home prices since 2007 has a

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significant impact on the collateral value 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.
The following table 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, for PCI loans. 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 loans
                                 
                    Net     Ratio of net carrying value  
March 31, 2011   Unpaid principal     Current estimated     carrying     to current estimated  
(in millions, except ratios)   balance(a)     LTV ratio(b)     value(d)     collateral value(d)  
 
Home equity
  $ 27,397       119 %(c)   $ 22,390       97 %
Prime mortgage
    18,155       111       14,959       91  
Subprime mortgage
    7,845       116       5,178       77  
Option ARMs
    29,559       112       23,297       88  
 
                                 
                    Net     Ratio of net carrying value  
December 31, 2010   Unpaid principal     Current estimated     carrying     to current estimated  
(in millions, except ratios)   balance(a)     LTV ratio(b)     value(d)     collateral value(d)  
 
Home equity
  $ 28,312       117 %(c)   $ 22,876       95 %
Prime mortgage
    18,928       109       15,556       90  
Subprime mortgage
    8,042       113       5,300       74  
Option ARMs
    30,791       111       24,090       87  
 
 
(a)   Represents the contractual amount of principal owed at March 31, 2011, and December 31, 2010.
 
(b)   Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models utilizing nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available.
 
(c)   Represents current estimated 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.
 
(d)   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, which was $1.6 billion for home equity, $1.8 billion for prime mortgage, $98 million for subprime mortgage and $1.5 billion for option ARMs at both March 31, 2011, and December 31, 2010. Prior period amounts have been revised to conform to the current period presentation.
PCI loans in the states of California and Florida represented 53% and 10%, respectively, of total PCI loans at both March 31, 2011, and December 31, 2010. The current estimated average LTV ratios were 120% and 144% for California and Florida loans, respectively, at March 31, 2011, compared with 118% and 135%, respectively, at December 31, 2010. 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. For the PCI portfolio, 64% had a current estimated LTV ratio greater than 100%, and 33% of the PCI portfolio had a current estimated LTV ratio greater than 125% at March 31, 2011; this compared with 63% of the PCI portfolio with a current estimated LTV ratio greater than 100%, and 31% with a current estimated LTV ratio greater than 125%, at December 31, 2010.
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 122–138 of this Form 10-Q.

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Loan modification activities
For additional information about consumer loan modification activities, including consumer loan modifications accounted for as troubled debt restructurings (“TDRs”), see Note 13 on pages 122–138 of this Form 10-Q, and Note 14 on pages 139–140 of JPMorgan Chase’s 2010 Annual Report.
Residential real estate loans: For both the Firm’s on-balance sheet loans and loans serviced for others, more than 1,098,000 mortgage modifications have been offered to borrowers and approximately 344,000 have been approved since the beginning of 2009. Of these, approximately 324,000 have achieved permanent modification as of March 31, 2011. Of the remaining 754,000 modifications, 30% are in a trial period or still being reviewed for a modification, while 70% 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 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 GSE’s and Ginnie Mae, as well as the Firm’s proprietary modification programs, which include concessions similar to those offered under HAMP but with expanded eligibility criteria. In addition, the Firm has offered modification programs targeted specifically to borrowers with higher-risk mortgage products.
MHA, as well as the Firm’s other loss-mitigation programs, generally provide various concessions to financially troubled borrowers, including, but not limited to, interest rate reductions, term or payment extensions, and deferral or forgiveness of principal payments that would have otherwise been required under the terms of the original agreement. For the 70,200 on—balance sheet loans modified under HAMP and the Firm’s other loss-mitigation programs since July 1, 2009, 51% of permanent loan modifications have included interest rate reductions, 54% have included term or payment extensions, 10% have included principal deferment and 19% have included principal forgiveness. Principal forgiveness has been limited to specific modification programs to higher-risk borrowers. The sum of the percentages of the types of loan modifications exceeds 100% because, in some cases, the modification of an individual loan includes more than one type of concession.
Generally, borrowers must make at least three payments under the new terms during a trial modification period and be successfully re-underwritten with income verification before a mortgage or home equity loan can be permanently modified. 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 ultimate success of these modification programs and their impact on reducing credit losses remains uncertain given the short period of time since modification. The primary indicator used by management to monitor the success of these 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 other macroeconomic factors. Reduction in payment size for a borrower has shown to be the most significant driver in improving redefault rates. Modifications completed after July 1, 2009, whether under HAMP or under the Firm’s other modification programs, differ from modifications completed under prior programs in that they are generally fully underwritten after a successful trial payment period of at least three months. Performance metrics to date for modifications seasoned more than six months show weighted average redefault rates of 24% and 28% for HAMP and the Firm’s other modification programs, respectively. These redefault rates exclude certain recent modifications that were offered to borrowers who were current on their loans prior to modification, but who were subject to future recast risk. Redefault rates for these recent modifications are not meaningful because they have not yet seasoned. While the redefault rates for HAMP and the Firm’s other modification programs compare favorably to equivalent metrics for modifications completed under programs in effect prior to July 1, 2009, ultimate redefault rates will remain uncertain until modified loans have seasoned.

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The following table presents information as of March 31, 2011, and December 31, 2010, relating to restructured 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 TDRs.
Restructured residential real estate loans
                                 
    March 31, 2011     December 31, 2010
            Nonaccrual             Nonaccrual  
    On balance     on balance     On balance     on balance  
(in millions)   sheet loans     sheet loans(d)     sheet loans     sheet loans(d)  
 
Restructured residential real estate loans — excluding PCI loans(a)(b)
                               
Home equity — senior lien
  $ 234     $ 38     $ 226     $ 38  
Home equity — junior lien
    409       178       283       63  
Prime mortgage, including option ARMs
    2,990       570       2,084       534  
Subprime mortgage
    2,754       595       2,751       632  
 
Total restructured residential real estate loans — excluding PCI loans
  $ 6,387     $ 1,381     $ 5,344     $ 1,267  
 
Restructured PCI loans(c)
                               
Home equity
  $ 607     NA     $ 492     NA  
Prime mortgage
    3,251     NA       3,018     NA  
Subprime mortgage
    3,419     NA       3,329     NA  
Option ARMs
    11,832     NA       9,396     NA  
 
Total restructured PCI loans
  $ 19,109     NA     $ 16,235     NA  
 
(a)   Amounts represent the carrying value of restructured residential real estate loans.
 
(b)   At March 31, 2011, and December 31, 2010, $3.6 billion and $3.0 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae were excluded from loans accounted for as TDRs. When such loans perform subsequent to modification they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. Substantially all amounts due under the terms of these loans continue to be insured and where applicable, reimbursement of insured amounts is proceeding normally.
 
(c)   Amounts represent the unpaid principal balance of restructured PCI loans.
 
(d)   Nonaccrual loans modified in a TDR 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 or three payments subsequent to permanent modification if trial modification payments were made. As of March 31, 2011, and December 31, 2010, nonaccrual loans of $640 million and $580 million, respectively, were TDRs for which the borrowers had not yet made six payments under their modified terms.
Foreclosure prevention: Foreclosure is a last resort and the Firm makes significant efforts to help borrowers stay in their homes. Since the first quarter of 2009, the Firm has prevented two foreclosures (through loan modification, short sales and other foreclosure prevention means) for every foreclosure completed.
The Firm has a well-defined foreclosure prevention process when a borrower fails to pay on his or her loan. Customer contacts are attempted multiple times in various ways to pursue options other than foreclosure. In addition, if the Firm is unable to contact a customer, various reviews are completed of a borrower’s facts and circumstances before a foreclosure sale is completed. By the time of a foreclosure sale, borrowers have not made a payment on average for more than 14 months.
The foreclosure process is governed by laws and regulations established on a state-by-state basis. In some states, the foreclosure process involves a judicial process requiring filing documents with a court. In other states, the process is mostly non-judicial, involving various processes, some of which require filing documents with governmental agencies. During the third quarter of 2010, the Firm became aware that certain documents executed by Firm personnel in connection with the foreclosure process may not have complied with all applicable procedural requirements. For example, in certain instances, the underlying loan file review and verification of information for inclusion in an affidavit was performed by Firm personnel other than the affiant, or the affidavit may not have been properly notarized. The Firm instructed its outside foreclosure counsel to temporarily suspend foreclosures, foreclosure sales and evictions in 43 states so that it could review its processes. These matters are the subject of investigation by federal and state officials. For further discussion, see “Mortgage Foreclosure Investigations and Litigation” in Note 23 on pages 160–169 of this Form 10-Q.
As a result of these foreclosure process issues, the Firm has undertaken remedial actions to ensure that it satisfies all procedural requirements relating to mortgage foreclosures. These actions include:
  A complete review of the foreclosure document execution policies and procedures;
 
  The creation of model affidavits that will comply with all local law requirements and be used in every case;
 
  Implementation of enhanced procedures designed to ensure that employees who execute affidavits personally verify their contents and that the affidavits are executed only in the physical presence of a licensed notary;

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  Extensive training for all personnel who will have responsibility for document execution going forward and certification of those personnel by outside counsel;
 
  Implementation of a rigorous quality control double-check review of affidavits completed by the Firm’s employees; and
 
  Review and verification of our revised procedures by outside experts.
In addition, the Firm has entered into Consent Orders with banking regulators relating to its residential mortgage servicing, foreclosure and loss mitigation activities. In their Orders, the regulators have mandated significant changes to the Firm’s servicing and default business and outlined requirements to implement these changes. The Consent Orders require, among other things, the Firm to submit, within 60 days of the Consent Orders, a comprehensive action plan setting 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 Consent Orders, and with respect to certain of the matters that are the subject of the action plan, they are required to implement corrective actions within 120 days of the Consent Orders. Additionally, pursuant to the Consent Orders, the Firm is required to retain 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 to 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. For additional information, see Note 23 on pages 160-169 of this Form 10-Q.
As of March 31, 2011, the Firm has resumed initiation of new foreclosure proceedings in nearly all states in which it had previously suspended such proceedings.
Nonperforming assets
The following table presents information as of March 31, 2011, and December 31, 2010, about consumer, excluding credit card nonperforming assets.
                 
Nonperforming assets(a)
(in millions)
  March 31, 2011     December 31, 2010  
 
Nonaccrual loans(b)
               
Home equity — senior lien
  $ 470     $ 479  
Home equity — junior lien
    793       784  
Prime mortgage, including option ARMs
    4,166       4,320  
Subprime mortgage
    2,106       2,210  
Auto
    120       141  
Business banking
    810       832  
Student and other
    107       67  
 
Total nonaccrual loans
    8,572       8,833  
 
Assets acquired in loan satisfactions
               
Real estate owned
    1,211       1,294  
Other
    52       67  
 
Total assets acquired in loan satisfactions
    1,263       1,361  
 
Total nonperforming assets
  $ 9,835     $ 10,194  
 
(a)   At March 31, 2011, and December 31, 2010, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $9.8 billion and $10.5 billion, respectively, that are accruing at the guaranteed reimbursement rate; (2) real estate owned insured by U.S. government agencies of $2.3 billion and $1.9 billion million, respectively; and (3) student loans that are 90 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $615 million and $625 million, respectively. 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.
Nonaccrual loans: Total consumer nonaccrual loans, excluding credit card, were $8.6 billion, compared with $8.8 billion at December 31, 2010. Nonaccrual loans have stabilized, but remained at elevated levels. The increase in loan modification activities is expected to continue to result in elevated levels of nonaccrual loans in the residential real estate portfolios as a result of both redefault of modified loans as well as a result of the Firm’s policy that modified loans remain in nonaccrual status until repayment is reasonably assured and the borrower has made a minimum of six payments under the new terms or three payments subsequent to permanent modification if trial modification payments were made. Nonaccrual loans in the residential real estate portfolio totaled $7.5 billion at March 31, 2011, of which 74% were greater than 150 days past due; this compared with nonaccrual residential real estate loans of $7.8 billion at December 31, 2010, of which 71% were greater than 150 days past due. Modified residential real estate loans of $1.4 billion and $1.3 billion at March 31, 2011, and December 31, 2010, respectively, were classified as nonaccrual loans. Of these modified residential real estate loans, $640 million and $580 million had yet to make six payments under their modified terms at March 31, 2011, and December 31, 2010, respectively, with the remaining nonaccrual modified loans having redefaulted. In the aggregate, the unpaid principal balance of residential real estate loans greater than 150 days past due was charged down by approximately 47% and 46% to estimated collateral value at March 31, 2011, and December 31, 2010, respectively.

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Real estate owned (“REO”): REO assets, excluding those insured by U.S. government agencies, decreased by $83 million from December 31, 2010, to $1.2 billion.
Credit Card
Total credit card loans were $128.8 billion at March 31, 2011, a decrease of $8.9 billion from December 31, 2010, due to seasonality, higher repayment rates, and runoff of the Washington Mutual portfolio.
For the retained credit card loan portfolio the 30+ day delinquency rate decreased to 3.57% at March 31, 2011, from 4.14% at December 31, 2010, while the net charge-off rate decreased to 6.97%, for the three months ended March 31, 2011, from 11.75% for the three months ended March 31, 2010. The delinquency trend is showing improvement, especially within early-stage delinquencies. Charge-offs have improved as a result of lower delinquent loans. 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, 2011, and December 31, 2010. Loan concentration for the top five states of California, New York, Texas, Florida and Illinois consisted of $50.3 billion in receivables, or 40% of the retained loan portfolio, at March 31, 2011, compared with $54.4 billion, or 40%, at December 31, 2010.
Total retained credit card loans, excluding the Washington Mutual portfolio, were $112.4 billion at March 31, 2011, compared with $121.8 billion at December 31, 2010. The 30+ day delinquency rate was 3.23% at March 31, 2011, down from 3.73% at December 31, 2010, while the net charge-off rate decreased to 6.29% for the three months ended March 31, 2011, from 10.54% for the three months ended March 31, 2010.
Retained credit card loans in the Washington Mutual portfolio were $12.4 billion at March 31, 2011, compared with $13.7 billion at December 31, 2010. The Washington Mutual portfolio’s 30+ day delinquency rate was 6.63% at March 31, 2011, down from 7.74% at December 31, 2010. The net charge-off rate for the three months ended March 31, 2011, and 2010 was 12.98%, and 20.62%, respectively.
Modifications of credit card loans
For additional information about loan modification programs to borrowers, see Modifications of credit card loans on pages 137–138 of JPMorgan Chase’s 2010 Annual Report.
At March 31, 2011, and December 31, 2010, the Firm had $9.2 billion and $10.0 billion, respectively, of on—balance sheet credit card loans outstanding that have been modified in TDRs. These balances include both credit card loans with modified payment terms and credit card loans that have reverted back to their pre-modification payment terms. The decrease in modified credit card loans outstanding from December 31, 2010, to March 31, 2011, is primarily attributable to a reduction in new modifications, while on-going payments or charge-offs on previously modified credit card loans also contributed to reducing the balance.
Consistent with the Firm’s policy, all credit card loans typically remain on accrual status. However, the Firm establishes an allowance for the estimated uncollectible portion of billed and accrued interest and fee income on credit card loans, which is reflected as a charge to interest income.

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COMMUNITY REINVESTMENT ACT EXPOSURE
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, 2011, and December 31, 2010, the Firm’s CRA loan portfolio was approximately $16 billion. At March 31, 2001, and December 31, 2010, 64% and 65%, respectively, of the CRA portfolio were residential mortgage loans; 17% and 15%, respectively, were business banking loans; 9% were commercial real estate loans at both periods; and 10% and 11%, respectively, were other loans. CRA nonaccrual loans were 5% and 6% of the Firm’s nonaccrual loans at March 31, 2011, and December 31, 2010, respectively. Net charge-offs in the CRA portfolio were 2% and 3%, respectively, of the Firm’s net charge-offs for the three months ended March 31, 2011 and 2010.
ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase’s allowance for loan losses covers the wholesale (risk-rated), and consumer (primarily scored) portfolios. 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 consumer (excluding credit card) lending-related commitments using a methodology similar to that used for the wholesale loans.
For a further discussion of the components of the allowance for credit losses, see Critical Accounting Estimates Used by the Firm on pages 86–89 and Note 14 on pages 139–140 of this Form 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, 2011, JPMorgan Chase deemed the allowance for credit losses to be appropriate (i.e., sufficient to absorb losses inherent in the portfolio).
The allowance for credit losses was $30.4 billion at March 31, 2011, a decrease of $2.5 billion from $33.0 billion at December 31, 2010. The credit card allowance for loan losses decreased $2.0 billion from December 31, 2010, primarily as a result of lower estimated losses. The wholesale allowance for loan losses decreased by $527 million from December 31, 2010, primarily related to the impact of loan sales.
The allowance for lending-related commitments for both wholesale and consumer, excluding credit card, which is reported in other liabilities, was $688 million and $717 million at March 31, 2011, and December 31, 2010, respectively.

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The credit ratios in the table below are based on retained loan balances, which exclude loans held-for-sale and loans accounted for at fair value.
Summary of changes in the allowance for credit losses
                                                                 
    2011   2010
            Consumer,                             Consumer,              
Three months ended March 31,           excluding                             excluding              
(in millions, except ratios)   Wholesale     credit card     Credit Card     Total     Wholesale     credit card     Credit Card     Total  
 
Allowance for loan losses
                                                               
Beginning balance at January 1,
  $ 4,761     $ 16,471     $ 11,034     $ 32,266     $ 7,145     $ 14,785     $ 9,672     $ 31,602  
Cumulative effect of change in accounting principles(a)
                            14       127       7,353       7,494  
Gross charge-offs
    253       1,460       2,631       4,344       1,014       2,555       4,882       8,451  
Gross (recoveries)
    (88 )     (131 )     (405 )     (624 )     (55 )     (116 )     (370 )     (541 )
 
Net charge-offs
    165       1,329       2,226       3,720       959       2,439       4,512       7,910  
Provision for loan losses
    (359 )     1,329       226       1,196       (257 )     3,736       3,512       6,991  
Other
    (3 )     4       7       8       (1 )     3       7       9  
 
Ending balance
  $ 4,234     $ 16,475     $ 9,041     $ 29,750     $ 5,942     $ 16,212     $ 16,032     $ 38,186  
 
Impairment methodology
                                                               
Asset-specific(b)(c)(d)
  $ 1,030     $ 1,067     $ 3,819     $ 5,916     $ 1,557     $ 911     $ 5,402     $ 7,870  
Formula-based(d)
    3,204       10,467       5,222       18,893       4,385       12,490       10,630       27,505  
PCI
          4,941             4,941             2,811             2,811  
 
Total allowance for loan losses
  $ 4,234     $ 16,475     $ 9,041     $ 29,750     $ 5,942     $ 16,212     $ 16,032     $ 38,186  
 
Allowance for lending-related commitments
                                                               
Beginning balance at January 1,
  $ 711     $ 6     $     $ 717     $ 927     $ 12     $     $ 939  
Cumulative effect of change in accounting principles(a)
                            (18 )                 (18 )
Provision for lending-related commitments
    (27 )                 (27 )     21       (2 )           19  
Other
    (2 )                 (2 )                        
 
Ending balance
  $ 682     $ 6     $     $ 688     $ 930     $ 10     $     $ 940  
 
Impairment methodology
                                                               
Asset-specific
  $ 184     $     $     $ 184     $ 296     $     $     $ 296  
Formula-based
    498       6             504       634       10             644  
 
Total allowance for lending-related commitments
  $ 682     $ 6     $     $ 688     $ 930     $ 10     $     $ 940  
 
Total allowance for credit losses
  $ 4,916     $ 16,481     $ 9,041     $ 30,438     $ 6,872     $ 16,222     $ 16,032     $ 39,126  
 
 
                                                               
Memo:
                                                               
Retained loans, end of period
  $ 229,648     $ 320,998     $ 124,791     $ 675,437     $ 210,211     $ 347,370     $ 149,260     $ 706,841  
Retained loans, average
    226,544       323,961       129,535       680,040       211,599       351,159       155,790       718,548  
PCI loans
    56       70,765             70,821       107       79,323             79,430  
 
                                                               
Credit ratios
                                                               
Allowance for loan losses to retained loans
    1.84 %     5.13 %     7.24 %     4.40 %     2.83 %     4.67 %     10.74 %     5.40 %
Allowance for loan losses to retained nonaccrual loans(d)
    92       192     NM       226       101       150     NM       228  
Allowance for loan losses to retained nonaccrual loans excluding credit card
    92       192     NM       157       101       150     NM       133  
Net charge-off rates(e)
    0.30       1.66       6.97       2.22       1.84       2.82       11.75       4.46  
Credit ratios excluding home lending PCI loans
                                                               
Allowance for loan losses to retained loans(f)
    1.84       4.61       7.24       4.10       2.83       5.00       10.74       5.64  
Allowance for loan losses to retained nonaccrual loans(d)(f)
    92       135     NM       189       101       124     NM       212  
Allowance for loan losses to retained nonaccrual loans excluding credit card(d)(f)
    92       135     NM       120       101       124     NM       116  
 
(a)   Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. Upon adoption of the guidance, the Firm consolidated its Firm-sponsored credit card securitization trusts, its Firm-administered multi-seller conduits and certain other consumer loan securitization entities, primarily mortgage-related. As a result, $7.4 billion, $14 million and $127 million, respectively, of allowance for loan losses were recorded on-balance sheet with the consolidation of these entities. For further discussion, see Note 16 on pages 244–259 of JPMorgan Chase’s 2010 Annual Report.
 
(b)   Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
 
(c)   The asset-specific consumer, excluding credit card, allowance for loan losses includes TDR reserves of $970 million and $754 million at March 31, 2011 and 2010, respectively.

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(d)   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.
 
(e)   Charge-offs are not recorded on PCI loans until actual losses exceed estimated losses recorded as purchase accounting adjustments at the time of acquisition.
 
(f)   Excludes the impact of PCI loans acquired as part of the Washington Mutual transaction.
Provision for credit losses
The provision for credit losses was $1.2 billion for the three months ended March 31, 2011, down by $5.8 billion, or 83%, from the prior year. Excluding credit card, the consumer provision for credit losses was $1.3 billion, down by $2.4 billion, or 64%, from the prior-year driven by the absence of additions to the allowance for loan losses and lower net charge-offs. The credit card provision for credit losses was $226 million, down by $3.3 billion, or 94%, from the prior-year driven primarily by improved delinquency trends and a reduction in the allowance for loan losses as a result of lower estimated losses. The wholesale provision for credit losses was a benefit of $386 million, compared with a benefit of $236 million from the prior-year primarily reflecting continued improvement in the credit environment from the year-ago period.
                                                 
                    Provision for lending-   Total provision
    Provision for loan losses   related commitments   for credit losses
Three months ended March 31, (in millions)   2011     2010     2011     2010     2011     2010  
 
Wholesale
  $ (359 )   $ (257 )   $ (27 )   $ 21     $ (386 )   $ (236 )
Consumer, excluding credit card
    1,329       3,736             (2 )     1,329       3,734  
Credit card
    226       3,512                   226       3,512  
 
Total provision for credit losses
  $ 1,196     $ 6,991     $ (27 )   $ 19     $ 1,169     $ 7,010  
 
MARKET RISK MANAGEMENT
For a discussion of the Firm’s market risk management organization, major market risk drivers and classification of risks, see pages 142–146 of JPMorgan Chase’s 2010 Annual Report.
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 undertakes a comprehensive VaR calculation that includes the majority of its material 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.
The Firm calculates VaR to estimate possible economic outcomes for current positions using historical data from the previous 12 months. This approach assumes that historical changes in market values are representative of current risk; this assumption may not always be valid. VaR is calculated using a one-day time horizon and an expected tail-loss methodology, which approximates a 95% confidence level. This means the Firm would expect to incur losses greater than that predicted by VaR estimates five times in every 100 trading days, or about 12 to 13 times a year.

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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 VaR
                                                                 
    Three months ended March 31,    
    2011   2010   At March 31,
(in millions)   Avg.     Min.     Max     Avg.     Min.     Max     2011     2010  
 
IB VaR by risk type:
                                                               
Fixed income
  $ 49     $ 44     $ 56     $ 69     $ 43     $ 84     $ 55     $ 56  
Foreign exchange
    11       9       17       13       7       20       11       15  
Equities
    29       19       42       24       10       52       22       20  
Commodities and other
    13       8       20       15       11       23       10       14  
Diversification benefit to IB trading VaR
    (38 )(a)   NM (b)   NM (b)     (49 )(a)   NM (b)   NM (b)     (37 )(a)     (43 )(a)
 
IB trading VaR
  $ 64     $ 40     $ 80     $ 72     $ 43     $ 102     $ 61     $ 62  
Credit portfolio VaR
    26       22       33       19       15       25       28       20  
Diversification benefit to IB trading and credit portfolio VaR
    (7 )(a)   NM (b)   NM (b)     (9 )(a)   NM (b)   NM (b)     (7 )(a)     (8 )(a)
 
Total IB trading and credit portfolio VaR
  $ 83     $ 53     $ 102     $ 82     $ 53     $ 116     $ 82     $ 74  
 
Mortgage Banking VaR
    16       10       32       25       15       38       18       25  
Chief Investment Office (“CIO”) VaR
    60       55       64       70       59       80       55       77  
Diversification benefit to total other VaR
    (14 )(a)   NM (b)   NM (b)     (13 )(a)   NM (b)   NM (b)     (13 )(a)     (16 )(a)
 
Total other VaR
  $ 62     $ 55     $ 69     $ 82     $ 70     $ 100     $ 60     $ 86  
 
Diversification benefit to total IB and other VaR
    (57 )(a)   NM (b)   NM (b)     (66 )(a)   NM (b)   NM (b)     (56 )(a)     (83 )(a)
 
Total IB and other VaR
  $ 88     $ 67     $ 104     $ 98     $ 67     $ 137     $ 86     $ 77  
 
(a)   Average VaR and period-end 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.
VaR Measurement
IB trading VaR includes substantially all trading activities in IB, including the credit spread sensitivities of certain mortgage products and syndicated lending facilities that the Firm intends to distribute. The Firm uses proxies to estimate the VaR for these products, since daily time series are largely 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, for certain products included in IB trading and credit portfolio VaR, particular risk parameters are not fully captured — for example, correlation risk.
Credit portfolio VaR includes the derivative credit valuation adjustment (“CVA”), hedges of the CVA and mark-to-market (“MTM”) 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 MTM.
Total other VaR includes certain positions employed as part of the Firm’s risk management function within the Chief Investment Office (“CIO”) and in the Mortgage Banking business. CIO VaR includes positions, primarily in debt securities and credit products, used to manage structural and other risks including interest rate, credit and mortgage risks arising from the Firm’s ongoing business activities. Mortgage Banking VaR includes the Firm’s mortgage pipeline and warehouse loans, MSRs and all related hedges.
In the Firm’s view, including IB trading and credit portfolio VaR within total other VaR produces a more complete and transparent perspective of the Firm’s market risk profile.
As noted above, IB, Credit portfolio and other VaR does not include the retained credit portfolio, which is not marked to market; however, it does include hedges of those positions. It also does not include debit valuation adjustments (“DVA”) taken on derivative and structured liabilities to reflect the credit quality of the Firm, principal investments (mezzanine financing, tax-oriented investments, etc.), and certain 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. These longer-term positions are managed through the Firm’s earnings at risk and other cash flow monitoring processes, rather than by using a VaR measure. Principal investing activities and Private Equity positions are managed using stress and scenario analyses. See the DVA Sensitivity table on page 84 of this Form 10-Q for further details. For a discussion of Corporate/Private Equity, see pages 38–39 of this Form 10-Q.

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First-quarter 2011 VaR results
As presented in the table, average total IB and other VaR totaled $88 million for the first three months of 2011, compared with $98 million for the comparable 2010 period. The decrease in average VaR was driven by a decline in market volatility, as well as a reduction in exposures, primarily in CIO and Mortgage Banking. Average total IB trading and credit portfolio VaR for the first three months of 2011 was $83 million, compared with $82 million for the first quarter of 2010.
CIO VaR averaged $60 million for the first three months of 2011, compared with $70 million a year ago. Mortgage Banking VaR averaged $16 million for the first three months of 2011, compared with $25 million a year ago. Decreases in CIO and Mortgage Banking VaR for 2011 were driven by the decline in market volatility and position changes.
The Firm’s average IB and other VaR diversification benefit was $57 million or 39% of the sum for the first three months of 2011, compared with $66 million or 40% of the sum for the first three months of 2010. 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, which is defined as the change in value of: principal transactions revenue for IB and CIO (less Private Equity gains/losses and revenue from longer-term CIO investments); trading-related net interest income for IB, CIO and Mortgage Banking; 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—related revenue excludes gains and losses from DVA.
The following histogram illustrates the daily market risk—related gains and losses for IB, CIO and Mortgage Banking positions for the first three months of 2011. The chart shows that the Firm posted market risk—related gains on each of the 64 days in this period, with seven days exceeding $160 million.
(PERFORMANCE GRAPH)

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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
         
    1 Basis point increase
(in millions)   in JPMorgan Chase’s credit spread
 
March 31, 2011
    $35  
December 31, 2010
    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. 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. 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 risks with more transparency.
Earnings-at-risk stress testing
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 reported on net income is also important. For further discussion on the effect of interest rate exposure, see pages 145–146 of JPMorgan Chase’s 2010 Annual Report.
The Firm conducts simulations of changes in net interest income from its nontrading activities under a variety of interest rate scenarios. Earnings-at-risk tests measure the potential change in the Firm’s net interest income, and the corresponding impact to the Firm’s pretax earnings, over the following 12 months. These tests highlight exposures to various 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 balance 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 as of March 31, 2011, and December 31, 2010, were as follows.
                                 
    Immediate change in rates
(in millions)   +200bp     +100bp     -100bp     -200bp  
 
March 31, 2011
  $ 2,340     $ 1,427     NM(a)   NM(a)
December 31, 2010
    2,465       1,483     NM(a)   NM(a)
 
(a)   Downward 100- and 200-basis-point parallel shocks result in a Fed 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, 2010, resulted from investment portfolio repositioning, partially offset by assumed higher levels of 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.
Additionally, under 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 $691 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.

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PRIVATE EQUITY RISK MANAGEMENT
For a discussion of Private Equity Risk Management, see page 147 of JPMorgan Chase’s 2010 Annual Report. At March 31, 2011, and December 31, 2010, the carrying value of the Private Equity portfolio was $10.1 billion and $8.7 billion, respectively, of which $731 million and $875 million, respectively, represented securities with publicly available market quotations.
OPERATIONAL RISK MANAGEMENT
For a discussion of JPMorgan Chase’s Operational Risk Management, see pages 147–148 of JPMorgan Chase’s 2010 Annual Report.
REPUTATION AND FIDUCIARY RISK MANAGEMENT
For a discussion of the Firm’s Reputation and Fiduciary Risk Management, see page 148 of JPMorgan Chase’s 2010 Annual Report.
SUPERVISION AND REGULATION
The following discussion should be read in conjunction with the Supervision and Regulation section on pages 1–5 of JPMorgan Chase’s 2010 Form 10-K.
Dividends
At March 31, 2011, JPMorgan Chase’s bank subsidiaries could pay, in the aggregate, $3.1 billion in dividends to their respective bank holding companies without the prior approval of their relevant banking regulators.

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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 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. 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 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 portfolio as of the balance sheet date. The allowance for lending-related commitments is established to cover probable losses in the lending-related commitments portfolio. For a further discussion of the methodologies used in establishing the Firm’s allowance for credit losses, see Allowance for Credit Losses on pages 149–150, and Note 15 on pages 239–243 of JPMorgan Chase’s 2010 Annual Report; for amounts recorded as of March 31, 2011 and 2010, see Allowance for Credit Losses on pages 79–81, and Note 14 on pages 139–140 of this Form 10-Q.
As noted in the discussion on page 149 of JPMorgan Chase’s 2010 Annual Report, the Firm’s wholesale allowance is sensitive to the risk rating assigned to a loan. As of March 31, 2011, assuming a one-notch downgrade in the Firm’s internal risk ratings for its entire wholesale portfolio, the allowance for loan losses for the wholesale portfolio would increase by approximately $1.2 billion. This sensitivity analysis is hypothetical. In the Firm’s view, the likelihood of a one-notch downgrade for all wholesale loans within a short timeframe is remote. The purpose of this analysis is to provide an indication of the impact of risk ratings on the estimate of the allowance for loan losses for wholesale loans. It is not intended to imply management’s expectation of future deterioration in risk ratings. Given the process the Firm follows in determining the risk ratings of its loans, management believes the risk ratings currently assigned to wholesale loans are appropriate.

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The allowance for credit losses for the consumer portfolio, including credit card, is sensitive to changes in the economic environment, delinquency status, the realizable value of collateral, FICO scores, borrower behavior and other risk factors, and is intended to represent management’s best estimate of probable losses inherent in the portfolio as of the balance sheet date. The credit performance of the consumer portfolio across the entire consumer credit product spectrum has stabilized but high unemployment and weak overall economic conditions continue to result in an elevated level of charge-offs, while weak housing prices continue to negatively affect the severity of losses realized on residential real estate loans that default. Significant judgment is required to estimate the duration and severity of the recent economic downturn, as well as its potential impact on housing prices and the labor market. While the allowance for credit losses is highly sensitive to both home prices and unemployment rates, in the current market it is difficult to estimate how potential changes in one or both of these factors might affect the allowance for credit losses. For example, while both factors are important determinants of overall allowance levels, changes in one factor or the other may not occur at the same rate, or changes may be directionally inconsistent such that improvement in one factor may offset deterioration in the other. In addition, changes in these factors would not necessarily be consistent across all geographies or product types. Finally, it is difficult to predict the extent to which changes in both or either of these factors would ultimately affect the frequency of losses, the severity of losses or both; overall loss rates are a function of both the frequency and severity of individual loan losses.
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 loans accounted for at the lower of cost or fair value that are only subject to fair value adjustments under certain circumstances.
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.
                                 
    March 31, 2011   December 31, 2010
    Total at             Total at        
(in billions)   fair value     Level 3 total   fair value     Level 3 total
 
Trading debt and equity instruments(a)
  $ 422.4     $ 33.6     $ 409.4     $ 33.9  
Derivative receivables — gross
    1,340.5       33.7       1,529.4       35.3  
Netting adjustment
    (1,261.8 )           (1,448.9 )      
 
Derivative receivables — net
    78.7       33.7 (d)     80.5       35.3 (d)
AFS securities
    334.8       15.5       316.3       14.3  
Loans
    1.8       1.4       2.0       1.5  
MSRs
    13.1       13.1       13.6       13.6  
Private equity investments
    9.6       8.9       8.7       7.9  
Other(b)
    45.4       4.5       43.8       4.1  
 
Total assets measured at fair value on a recurring basis
    905.8       110.7       874.3       110.6  
Total assets measured at fair value on a nonrecurring basis(c)
    7.4       5.4       10.1       4.2  
 
Total assets measured at fair value
  $ 913.2     $ 116.1 (e)   $ 884.4     $ 114.8 (e)
 
Total Firm assets
  $ 2,198.2             $ 2,117.6          
 
Level 3 assets as a percentage of total Firm assets
            5 %             5 %
Level 3 assets as a percentage of total Firm assets at fair value
            13               13  
 
(a)   Includes physical commodities generally carried at the lower of cost or fair value.
 
(b)   Includes certain securities purchased under resale agreements, securities borrowed, accrued interest receivable and other investments.
 
(c)   Predominantly includes mortgage, home equity and other loans, where the carrying value is based on the fair value of the underlying collateral, and on credit card and leveraged lending loans carried on the Consolidated Balance Sheets at the lower of cost or fair value.
 
(d)   Derivative receivable and derivative payable balances, and the related cash collateral received and paid, are presented net on the Consolidated Balance Sheets where there is a legally enforceable master netting agreement in place with counterparties. For purposes of the table above, the Firm does not reduce level 3 derivative receivable balances for netting adjustments, as such an adjustment is not relevant to a presentation based on the transparency of inputs to the valuation. Therefore, the derivative balances reported in the fair value hierarchy levels 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 receivable and payable balances would be $12.1 billion and $12.7 billion at March 31, 2011, and December 31, 2010, respectively, exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances.
 
(e)   At March 31, 2011, and December 31, 2010, included $63.0 billion and $66.0 billion, respectively, of level 3 assets, consisting of recurring and nonrecurring assets carried by IB.

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Valuation
For instruments classified within level 3 of the 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, yield curves, interest rates, volatilities, equity or debt prices, foreign exchange rates and credit curves. In addition to market information, models also incorporate transaction details, such as maturity. Finally, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the Firm’s creditworthiness, 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. For further discussion of changes in level 3 assets, see Note 3 on pages 94–105 of this Form 10-Q.
Imprecision in estimating unobservable market inputs can affect the amount of revenue 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 use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. For a detailed discussion of the determination of fair value for individual financial instruments, see Note 3 on pages 170–187 of JPMorgan Chase’s 2010 Annual Report.
Purchased credit-impaired loans
In connection with the Washington Mutual transaction, JPMorgan Chase acquired certain loans with evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that the Firm would be unable to collect all contractually required payments receivable. These loans are considered to be PCI loans and are accounted for as described in Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report. The application of the accounting guidance for PCI loans requires a number of significant estimates and judgments, such as determining: (i) which loans are within the scope of PCI accounting guidance, (ii) the fair value of the PCI loans at acquisition, (iii) how loans are aggregated to apply the guidance on accounting for pools of loans, and (iv) estimates of cash flows to be collected over the term of the loans. For additional information on PCI loans, including the significant assumptions, estimates and judgment involved, see PCI loans on pages 152–153 of JPMorgan Chase’s 2010 Annual Report and Note 14 on pages 139–140 of this Form 10-Q.
As of March 31, 2011, a 1% decrease in expected future principal cash payments for the entire portfolio of PCI loans would result in the recognition of an allowance for loan losses for these loans of approximately $650 million.
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 153 of JPMorgan Chase’s 2010 Annual Report.
During the three months ended March 31, 2011, the Firm updated the discounted cash flow valuations of certain consumer lending businesses in RFS and CS, which continue to have elevated risk for goodwill impairment due to their exposure to U.S. consumer credit risk and the effects of regulatory and legislative changes. The assumptions used in the valuation of these businesses include a) estimates of future cash flows for the business (which are dependent on portfolio outstanding 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 8–10 of this Form 10-Q, and, in the longer term, incorporate a 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.

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In addition, 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, 2011. However, the fair value of the Firm’s consumer lending businesses in RFS and CS each exceeded their carrying values by approximately 18% and 7% respectively and the associated goodwill remains at an elevated risk of impairment due to their exposure to U.S. consumer credit risk and the effects of economic, regulatory and legislative changes. For example, in RFS, such declines could result from deterioration in economic conditions that result in increased credit losses, including decreases in home prices beyond management expectations. In CS, such declines 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 both RFS and CS, such declines could also result from unanticipated effects of regulatory or legislative changes.
Deterioration in economic market conditions, increased estimates of the effects of recent regulatory or legislative changes, or additional regulatory or legislative changes may result in declines in projected business performance beyond management’s current expectations. Such declines in business performance, 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 149–150 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 page 154 of JPMorgan Chase’s 2010 Annual Report.
ACCOUNTING AND REPORTING DEVELOPMENTS
Fair value measurements and disclosures
In January 2010, the FASB issued guidance that requires new disclosures, and clarifies existing disclosure requirements, about fair value measurements. The clarifications and the requirement to separately disclose transfers of instruments between level 1 and level 2 of the fair value hierarchy are effective for interim reporting periods beginning after December 15, 2009; the Firm adopted this guidance in the first quarter of 2010. For additional information about the impact of the adoption of the new fair value measurements guidance, see Note 3 on pages 94–105 of this Form 10-Q. In addition, a new requirement to provide purchases, sales, issuances and settlements in the level 3 rollforward on a gross basis is effective for fiscal years beginning after December 15, 2010. The Firm adopted the new guidance, effective January 1, 2011.
Disclosures about the credit quality of financing receivables and the allowance for credit losses
In July 2010, the FASB issued guidance that requires enhanced disclosures surrounding the credit characteristics of the Firm’s loan portfolio. Under the new guidance, the Firm is required to disclose its accounting policies; the methods it uses to determine the components of the allowance for credit losses; and qualitative and quantitative information about the credit risk inherent in the loan portfolio, including additional information on certain types of loan modifications. For the Firm, the new disclosures, other than those related to loan modifications, became effective for the 2010 Annual Report. For additional information, see Notes 13 and 14 on pages 122–140 of this Form 10-Q. The adoption of this guidance only affected JPMorgan Chase’s disclosures of financing receivables and not its Consolidated Balance Sheets or results of operations. New disclosures regarding TDRs will become effective for the third quarter 2011 Form 10-Q.
Determining whether a restructuring is a troubled debt restructuring
In April 2011, the FASB issued guidance to clarify existing standards for determining whether a restructuring represents a TDR from the perspective of the creditor. The guidance is effective in the third quarter of 2011, and must be applied retrospective to January 1, 2011. The Firm does not expect that the implementation of this new guidance will have a significant impact 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 is effective for new transactions or existing transactions that are modified beginning January 1, 2012. The Firm has accounted for its repurchase and similar agreements as secured financings, and therefore, the Firm does not expect the application of this guidance will have a significant impact on the Firm’s Consolidated Balance Sheets or results of operations.

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JPMORGAN CHASE & CO.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                 
    Three months ended March 31,
(in millions, except per share data)   2011     2010  
 
Revenue
               
Investment banking fees
  $ 1,793     $ 1,461  
Principal transactions
    4,745       4,548  
Lending-and deposit-related fees
    1,546       1,646  
Asset management, administration and commissions
    3,606       3,265  
Securities gains(a)
    102       610  
Mortgage fees and related income
    (487 )     658  
Credit card income
    1,437       1,361  
Other income
    574       412  
 
Noninterest revenue
    13,316       13,961  
 
Interest income
    15,447       16,845  
Interest expense
    3,542       3,135  
 
Net interest income
    11,905       13,710  
 
Total net revenue
    25,221       27,671  
 
               
Provision for credit losses
    1,169       7,010  
 
               
Noninterest expense
               
Compensation expense
    8,263       7,276  
Occupancy expense
    978       869  
Technology, communications and equipment expense
    1,200       1,137  
Professional and outside services
    1,735       1,575  
Marketing
    659       583  
Other expense
    2,943       4,441  
Amortization of intangibles
    217       243  
 
Total noninterest expense
    15,995       16,124  
 
Income before income tax expense
    8,057       4,537  
Income tax expense
    2,502       1,211  
 
Net income
  $ 5,555     $ 3,326  
 
Net income applicable to common stockholders
  $ 5,136     $ 2,974  
 
 
               
Net income per common share data
               
Basic earnings per share
  $ 1.29     $ 0.75  
Diluted earnings per share
    1.28       0.74  
 
               
Weighted-average basic shares
    3,981.6       3,970.5  
Weighted-average diluted shares
    4,014.1       3,994.7  
 
               
Cash dividends declared per common share
  $ 0.25     $ 0.05  
 
(a)   The following other-than-temporary impairment losses are included in securities gains for the periods presented.
                 
    Three months ended March 31,
    2011     2010  
 
Total other-than-temporary impairment losses
  $ (27 )   $ (94 )
Losses recorded in/(reclassified from) other comprehensive income
    (3 )     (6 )
 
Total credit losses recognized in income
  $ (30 )   $ (100 )
 
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

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JPMORGAN CHASE & CO.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                 
    March 31,     December 31,  
(in millions, except share data)   2011     2010  
 
Assets
               
Cash and due from banks
  $ 23,469     $ 27,567  
Deposits with banks
    80,842       21,673  
Federal funds sold and securities purchased under resale agreements (included $19,998 and $20,299 at fair value)
    217,356       222,554  
Securities borrowed (included $15,334 and $13,961 at fair value)
    119,000       123,587  
Trading assets (included assets pledged of $100,385 and $73,056)
    501,148       489,892  
Securities (included $334,784 and $316,318 at fair value and assets pledged of $93,668 and $86,891)
    334,800       316,336  
Loans (included $1,805 and $1,976 at fair value)
    685,996       692,927  
Allowance for loan losses
    (29,750 )     (32,266 )
 
Loans, net of allowance for loan losses
    656,246       660,661  
Accrued interest and accounts receivable
    79,236       70,147  
Premises and equipment
    13,422       13,355  
Goodwill
    48,856       48,854  
Mortgage servicing rights
    13,093       13,649  
Other intangible assets
    3,857       4,039  
Other assets (included $19,610 and $18,201 at fair value and assets pledged of $1,603 and $1,485)
    106,836       105,291  
 
Total assets(a)
  $ 2,198,161     $ 2,117,605  
 
Liabilities
               
Deposits (included $4,277 and $4,369 at fair value)
  $ 995,829     $ 930,369  
Federal funds purchased and securities loaned or sold under repurchase agreements (included $6,214 and $4,060 at fair value)
    285,444       276,644  
Commercial paper
    46,022       35,363  
Other borrowed funds (included $10,616 and $9,931 at fair value)
    36,704       34,325  
Trading liabilities
    141,393       146,166  
Accounts payable and other liabilities (included the allowance for lending-related commitments of $688 and $717 and $146 and $236 at fair value)
    171,638       170,330  
Beneficial interests issued by consolidated variable interest entities (included $1,276 and $1,495 at fair value)
    70,917       77,649  
Long-term debt (included $37,915 and $38,839 at fair value)
    269,616       270,653  
 
Total liabilities(a)
    2,017,563       1,941,499  
 
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  
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
    4,105       4,105  
Capital surplus
    94,660       97,415  
Retained earnings
    78,342       73,998  
Accumulated other comprehensive income/(loss)
    712       1,001  
Shares held in RSU Trust, at cost (1,191,389 and 1,192,712 shares)
    (53 )     (53 )
Treasury stock, at cost (118,308,413 and 194,639,785 shares)
    (4,968 )     (8,160 )
 
Total stockholders’ equity
    180,598       176,106  
 
Total liabilities and stockholders’ equity
  $ 2,198,161     $ 2,117,605  
 
(a)   The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at March 31, 2011, and December 31, 2010. The difference between total VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation.
                 
    March 31,     December 31,  
    2011     2010  
 
Assets
               
Trading assets
  $ 10,303     $ 9,837  
Loans
    84,208       95,587  
All other assets
    3,341       3,494  
 
Total assets
  $ 97,852     $ 108,918  
 
Liabilities
               
Beneficial interests issued by consolidated variable interest entities
  $ 70,917     $ 77,649  
All other liabilities
    1,747       1,922  
 
Total liabilities
  $ 72,664     $ 79,571  
 
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, 2011, and December 31, 2010, the Firm provided limited program-wide credit enhancement of $2.0 billion related to its Firm-administered multi-seller conduits. For further discussion, see Note 15 on pages 141–149 of this Form 10-Q.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

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JPMORGAN CHASE & CO.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (UNAUDITED)
                 
    Three months ended March 31,
(in millions, except per-share data)   2011     2010  
 
Preferred stock
               
Balance at January 1 and March 31
  $ 7,800     $ 8,152  
 
Common stock
               
Balance at January 1 and March 31
    4,105       4,105  
 
Capital surplus
               
Balance at January 1
    97,415       97,982  
Shares issued and commitments to issue common stock for employee stock-based compensation awards, and related tax effects
    (2,755 )     (471 )
Other
          (1,061 )
 
Balance at March 31
    94,660       96,450  
 
Retained earnings
               
Balance at January 1
    73,998       62,481  
Cumulative effect of change in accounting principle
          (4,391 )
Net income
    5,555       3,326  
Dividends declared:
               
Preferred stock
    (157 )     (162 )
Common stock ($0.25 and $0.05 per share)
    (1,054 )     (211 )
 
Balance at March 31
    78,342       61,043  
 
Accumulated other comprehensive income/(loss)
               
Balance at January 1
    1,001       (91 )
Cumulative effect of change in accounting principle
          (129 )
Other comprehensive income/(loss)
    (289 )     981  
 
Balance at March 31
    712       761  
 
Shares held in RSU Trust, at cost
               
Balance at January 1 and March 31
    (53 )     (68 )
 
Treasury stock, at cost
               
Balance at January 1
    (8,160 )     (7,196 )
Purchase of treasury stock
    (95 )      
Reissuance from treasury stock
    3,287       1,474  
 
Balance at March 31
    (4,968 )     (5,722 )
 
Total stockholders’ equity
  $ 180,598     $ 164,721  
 
Comprehensive income
               
Net income
  $ 5,555     $ 3,326  
Other comprehensive income/(loss)
    (289 )     981  
 
Comprehensive income
  $ 5,266     $ 4,307  
 
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

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JPMORGAN CHASE & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    Three months ended March 31,
(in millions)   2011     2010  
 
Operating activities
               
Net income
  $ 5,555     $ 3,326  
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
               
Provision for credit losses
    1,169       7,010  
Depreciation and amortization
    1,057       961  
Amortization of intangibles
    217       243  
Deferred tax benefit
    (214 )     (40 )
Investment securities gains
    (102 )     (610 )
Stock-based compensation
    830       941  
Originations and purchases of loans held-for-sale
    (22,920 )     (6,503 )
Proceeds from sales, securitizations and paydowns of loans held-for-sale
    21,773       7,806  
Net change in:
               
Trading assets
    (5,451 )     (5,979 )
Securities borrowed
    4,596       (7,099 )
Accrued interest and accounts receivable
    (9,051 )     16,645  
Other assets
    3,673       (4,746 )
Trading liabilities
    (13,879 )     15,027  
Accounts payable and other liabilities
    2,396       (8,237 )
Other operating adjustments
    4,372       (1,351 )
 
Net cash (used in)/provided by operating activities
    (5,979 )     17,394  
 
Investing activities
               
Net change in:
               
Deposits with banks
    (59,164 )     4,282  
Federal funds sold and securities purchased under resale agreements
    5,080       (34,703 )
Held-to-maturity securities:
               
Proceeds
    2       2  
Available-for-sale securities:
               
Proceeds from maturities
    20,591       37,323  
Proceeds from sales
    4,373       20,945  
Purchases
    (39,679 )     (57,647 )
Proceeds from sales and securitizations of loans held-for-investment
    1,403       1,428  
Other changes in loans, net
    1,731       13,997  
Net cash (used in) business acquisitions or dispositions
    (15 )     (4 )
All other investing activities, net
    (132 )     515  
 
Net cash (used in) investing activities
    (65,810 )     (13,862 )
 
Financing activities
               
Net change in:
               
Deposits
    56,230       (19,927 )
Federal funds purchased and securities loaned or sold under repurchase agreements
    8,835       33,749  
Commercial paper and other borrowed funds
    13,294       9,102  
Beneficial interests issued by consolidated variable interest entities
    223       (2,427 )
Proceeds from long-term borrowings and trust preferred capital debt securities
    17,056       12,352  
Payments of long-term borrowings and trust preferred capital debt securities
    (27,250 )     (30,121 )
Excess tax benefits related to stock-based compensation
    765       12  
Treasury stock purchased
    (95 )      
Dividends paid
    (246 )     (253 )
All other financing activities, net
    (1,484 )     (464 )
 
Net cash provided by financing activities
    67,328       2,023  
 
Effect of exchange rate changes on cash and due from banks
    363       (339 )
 
Net (decrease)/increase in cash and due from banks
    (4,098 )     5,216  
Cash and due from banks at the beginning of the period
    27,567       26,206  
 
Cash and due from banks at the end of the period
  $ 23,469     $ 31,422  
 
Cash interest paid
  $ 3,618     $ 2,850  
Cash income taxes paid, net
    716       2,228  
 
Note:   Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. Upon adoption of the guidance, the Firm consolidated noncash assets and liabilities of $87.7 billion and $92.2 billion, respectively.
The Notes to Consolidated Financial Statements (unaudited) are an integral part of these statements.

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See Glossary of Terms on pages 174–177 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 in more than 60 countries. 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-segment information, see Note 24 on pages 169–171 of this 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 bank 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, 2010, as filed with the U.S. Securities and Exchange Commission (the “2010 Annual Report”).
Certain amounts in prior periods have been reclassified to conform to the current presentation.
NOTE 2 — BUSINESS CHANGES AND DEVELOPMENTS
Increase in common stock dividend
On March 18, 2011, the Board of Directors raised the Firm’s quarterly common stock dividend from $0.05 to $0.25 per share, effective with the dividend paid on April 30, 2011, to shareholders of record on April 6, 2011.
Stock repurchases
On March 18, 2011, the Board of Directors approved a stock repurchase program that authorizes the repurchase of up to $15.0 billion of the Firm’s common stock, which supersedes a $10.0 billion repurchase program approved in 2007. The $15.0 billion authorization includes shares to be repurchased to offset issuances under the Firm’s employee stock-based incentive plans. The actual number of shares repurchased is subject to various factors, including market conditions, the Firm’s capital position, internal capital generation, and investment opportunities. The repurchase program does not include specific price targets or timetables, may be executed through open market purchases or privately negotiated transactions, or utilizing Rule 10b5-1 programs, and may be suspended at any time.
For additional information on repurchases see Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on pages 181–182 of this Form 10-Q.
NOTE 3 — FAIR VALUE MEASUREMENT
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 170–187 of JPMorgan Chase’s 2010 Annual Report.
During the first three months of 2011, no changes were made to the Firm’s valuation models that had, or were expected to have, a material impact on the Firm’s Consolidated Balance Sheets or results of operations.

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The following table presents the assets and liabilities measured at fair value as of March 31, 2011, and December 31, 2010, by major product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
                                         
    Fair value hierarchy            
                            Netting     Total  
March 31, 2011 (in millions)   Level 1(i)     Level 2(i)     Level 3(i)     adjustments     fair value  
 
Federal funds sold and securities purchased under resale agreements
  $     $ 19,998     $     $     $ 19,998  
Securities borrowed
          15,334                   15,334  
 
                                       
Trading assets:
                                       
Debt instruments:
                                       
Mortgage-backed securities:
                                       
U.S. government agencies(a)
    27,862       9,422       191             37,475  
Residential — nonagency
          2,650       782             3,432  
Commercial — nonagency
          938       1,885             2,823  
 
Total mortgage-backed securities
    27,862       13,010       2,858             43,730  
U.S. Treasury and government agencies(a)
    19,282       8,829                   28,111  
Obligations of U.S. states and municipalities
    1       11,418       1,971             13,390  
Certificates of deposit, bankers’ acceptances and commercial paper
          3,748                   3,748  
Non—U.S. government debt securities
    30,359       47,780       640             78,779  
Corporate debt securities
          47,708       5,623             53,331  
Loans(b)
          21,759       12,490             34,249  
Asset-backed securities
          3,434       8,356             11,790  
 
Total debt instruments
    77,504       157,686       31,938             267,128  
Equity securities
    127,889       3,150       1,367             132,406  
Physical commodities(c)
    16,801       2,664                   19,465  
Other
    2       3,157       246             3,405  
 
Total debt and equity instruments(d)
    222,196       166,657       33,551             422,404  
Derivative receivables:
                                       
Interest rate
    890       931,980       4,997       (906,685 )     31,182  
Credit(e)
          106,368       15,605       (113,947 )     8,026  
Foreign exchange
    1,331       155,845       4,126       (142,969 )     18,333  
Equity
    58       42,520       5,823       (40,043 )     8,358  
Commodity
    759       67,030       3,174       (58,118 )     12,845  
 
Total derivative receivables(f)
    3,038       1,303,743       33,725       (1,261,762 )     78,744  
 
Total trading assets
    225,234       1,470,400       67,276       (1,261,762 )     501,148  
 
Available-for-sale securities:
                                       
Mortgage-backed securities:
                                       
U.S. government agencies(a)
    103,692       18,162                   121,854  
Residential — nonagency
          55,234       5             55,239  
Commercial — nonagency
          4,735       248             4,983  
 
Total mortgage-backed securities
    103,692       78,131       253             182,076  
U.S. Treasury and government agencies(a)
    565       6,490                   7,055  
Obligations of U.S. states and municipalities
    27       11,155       256             11,438  
Certificates of deposit
          3,489                   3,489  
Non—U.S. government debt securities
    18,386       14,864                   33,250  
Corporate debt securities
    1       63,539                   63,540  
Asset-backed securities:
                                       
Credit card receivables
          6,416                   6,416  
Collateralized loan obligations
          127       14,741             14,868  
Other
          9,132       275             9,407  
Equity securities
    3,193       52                   3,245  
 
Total available-for-sale securities
    125,864       193,395       15,525             334,784  
 
Loans
          434       1,371             1,805  
Mortgage servicing rights
                13,093             13,093  
 
                                       
Other assets:
                                       
Private equity investments(g)
    137       594       8,853             9,584  
All other
    5,334       132       4,560             10,026  
 
Total other assets
    5,471       726       13,413             19,610  
 
Total assets measured at fair value on a recurring basis(h)
  $ 356,569     $ 1,700,287     $ 110,678     $ (1,261,762 )   $ 905,772  
 

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    Fair value hierarchy            
                            Netting     Total  
March 31, 2011 (in millions)   Level 1(i)     Level 2(i)     Level 3(i)     adjustments     fair value  
 
Deposits
  $     $ 3,656     $ 621     $     $ 4,277  
Federal funds purchased and securities loaned or sold under repurchase agreements
          6,214                   6,214  
Other borrowed funds
          9,143       1,473             10,616  
 
                                       
Trading liabilities:
                                       
Debt and equity instruments(d)
    61,666       18,192       173             80,031  
Derivative payables:
                                       
Interest rate
    924       895,092       2,527       (884,016 )     14,527  
Credit(e)
          107,089       11,232       (112,775 )     5,546  
Foreign exchange
    1,412       154,407       4,124       (141,393 )     18,550  
Equity
    74       39,320       7,969       (35,910 )     11,453  
Commodity
    759       64,276       4,039       (57,788 )     11,286  
 
Total derivative payables(f)
    3,169       1,260,184       29,891       (1,231,882 )     61,362  
 
Total trading liabilities
    64,835       1,278,376       30,064       (1,231,882 )     141,393  
 
Accounts payable and other liabilities
                146             146  
Beneficial interests issued by consolidated VIEs
          688       588             1,276  
Long-term debt
          24,888       13,027             37,915  
 
Total liabilities measured at fair value on a recurring basis
  $ 64,835     $ 1,322,965     $ 45,919     $ (1,231,882 )   $ 201,837  
 

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    Fair value hierarchy            
                            Netting     Total  
December 31, 2010 (in millions)   Level 1     Level 2     Level 3     adjustments     fair value  
 
Federal funds sold and securities purchased under resale agreements
  $     $ 20,299     $     $     $ 20,299  
Securities borrowed
          13,961                   13,961  
Trading assets:
                                       
Debt instruments:
                                       
Mortgage-backed securities:
                                       
U.S. government agencies(a)
    36,813       10,738       174             47,725  
Residential — nonagency
          2,807       687             3,494  
Commercial — nonagency
          1,093       2,069             3,162  
 
Total mortgage-backed securities
    36,813       14,638       2,930             54,381  
U.S. Treasury and government agencies(a)
    12,863       9,026                   21,889  
Obligations of U.S. states and municipalities
          11,715       2,257             13,972  
Certificates of deposit, bankers’ acceptances and commercial paper
          3,248                   3,248  
Non-U.S. government debt securities
    31,127       38,482       697             70,306  
Corporate debt securities
          42,280       4,946             47,226  
Loans(b)
          21,736       13,144             34,880  
Asset-backed securities
          2,743       7,965             10,708  
 
Total debt instruments
    80,803       143,868       31,939             256,610  
Equity securities
    124,400       3,153       1,685             129,238  
Physical commodities(c)
    18,327       2,708                   21,035  
Other
          2,275       253             2,528  
 
 
                                       
Total debt and equity instruments(d)
    223,530       152,004       33,877             409,411  
 
Derivative receivables:
                                       
Interest rate
    2,278       1,120,282       5,422       (1,095,427 )     32,555  
Credit(e)
          111,827       17,902       (122,004 )     7,725  
Foreign exchange
    1,121       163,114       4,236       (142,613 )     25,858  
Equity
    30       38,041       5,562       (39,429 )     4,204  
Commodity
    1,324       56,076       2,197       (49,458 )     10,139  
 
Total derivative receivables(f)
    4,753       1,489,340       35,319       (1,448,931 )     80,481  
 
Total trading assets
    228,283       1,641,344       69,196       (1,448,931 )     489,892  
 
 
                                       
Available-for-sale securities:
                                       
Mortgage-backed securities:
                                       
U.S. government agencies(a)
    104,736       15,490                   120,226  
Residential — nonagency
          48,969       5             48,974  
Commercial — nonagency
          5,403       251             5,654  
 
Total mortgage-backed securities
    104,736       69,862       256             174,854  
U.S. Treasury and government agencies(a)
    522       10,826                   11,348  
Obligations of U.S. states and municipalities
    31       11,272       256             11,559  
Certificates of deposit
    6       3,641                   3,647  
Non-U.S. government debt securities
    13,107       7,670                   20,777  
Corporate debt securities
    1       61,793                   61,794  
Asset-backed securities:
                                       
Credit card receivables
          7,608                   7,608  
Collateralized loan obligations
          128       13,470             13,598  
Other
          8,777       305             9,082  
Equity securities
    1,998       53                   2,051  
 
Total available-for-sale securities
    120,401       181,630       14,287             316,318  
 
 
                                       
Loans
          510       1,466             1,976  
Mortgage servicing rights
                13,649             13,649  
Other assets:
                                       
Private equity investments(g)
    49       826       7,862             8,737  
All other
    5,093       192       4,179             9,464  
 
Total other assets
    5,142       1,018       12,041             18,201  
 
Total assets measured at fair value on a recurring basis(h)
  $ 353,826     $ 1,858,762     $ 110,639     $ (1,448,931 )   $ 874,296  
 

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    Fair value hierarchy            
                            Netting     Total  
December 31, 2010 (in millions)   Level 1     Level 2     Level 3     adjustments     fair value  
 
Deposits
  $     $ 3,736     $ 633     $     $ 4,369  
Federal funds purchased and securities loaned or sold under repurchase agreements
          4,060                   4,060  
Other borrowed funds
          8,959       972             9,931  
Trading liabilities:
                                       
Debt and equity instruments(d)
    58,468       18,425       54             76,947  
Derivative payables:
                                       
Interest rate
    2,625       1,085,233       2,586       (1,070,057 )     20,387  
Credit(e)
          112,545       12,516       (119,923 )     5,138  
Foreign exchange
    972       158,908       4,850       (139,715 )     25,015  
Equity
    22       39,046       7,331       (35,949 )     10,450  
Commodity
    862       54,611       3,002       (50,246 )     8,229  
 
Total derivative payables(f)
    4,481       1,450,343       30,285       (1,415,890 )     69,219  
 
Total trading liabilities
    62,949       1,468,768       30,339       (1,415,890 )     146,166  
 
Accounts payable and other liabilities
                236             236  
Beneficial interests issued by consolidated VIEs
          622       873             1,495  
Long-term debt
          25,795       13,044             38,839  
 
Total liabilities measured at fair value on a recurring basis
  $ 62,949     $ 1,511,940     $ 46,097     $ (1,415,890 )   $ 205,096  
 
(a)   At March 31, 2011, and December 31, 2010, included total U.S. government-sponsored enterprise obligations of $126.3 billion and $137.3 billion respectively, which were predominantly mortgage-related.
 
(b)   At March 31, 2011, and December 31, 2010, included within trading loans were $18.9 billion and $22.7 billion, respectively, of residential first-lien mortgages and $2.5 billion and $2.6 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 $10.2 billion and $13.1 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 fair value.
 
(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)   The level 3 amounts for derivative receivables and derivative payables related to credit primarily include structured credit derivative instruments. For further information on the classification of instruments within the valuation hierarchy, see Note 3 on pages 170–187 of JPMorgan Chase’s 2010 Annual Report.
 
(f)   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 receivable and payable balances would be $12.1 billion and $12.7 billion at March 31, 2011, and December 31, 2010, respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances.
 
(g)   Private equity instruments represent investments within the Corporate/Private Equity line of business. The cost basis of the private equity investment portfolio totaled $10.1 billion and $10.0 billion at March 31, 2011, and December 31, 2010, respectively.
 
(h)   At March 31, 2011, and December 31, 2010, balances included investments valued at net asset values of $12.5 billion and $12.1 billion, respectively, of which $6.2 billion and $5.9 billion, respectively, were classified in level 1, $1.9 billion and $2.0 billion, respectively, in level 2 and $4.4 billion and $4.2 billion, respectively, in level 3.
 
(i)   For the three months ended March 31, 2011 and 2010, the transfers between levels 1, 2 and 3, were not significant.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the 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 months ended March 31, 2011 and 2010. 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.

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    Fair value measurements using significant unobservable inputs      
                                                                    Change in unrealized  
            Total                                     Transfers             gains/(losses)  
Three months ended   Fair value     realized/                                     into and/or     Fair value at     related to financial  
March 31, 2011   at January 1,     unrealized                                     out of     March 31,     instruments held  
(in millions)   2011     gains/(losses)     Purchases(g)     Sales     Issuances     Settlements     level 3(e)     2011     at March 31, 2011  
 
Assets:
                                                                       
Trading assets:
                                                                       
Debt instruments:
                                                                       
Mortgage-backed securities:
                                                                       
U.S. government agencies
  $ 174     $ 17     $ 21     $ (21 )   $     $     $     $ 191     $ (1 )
Residential — nonagency
    687       71       259       (168 )           (67 )           782       27  
Commercial — nonagency
    2,069       16       346       (482 )           (64 )           1,885       (22 )
 
Total mortgage-backed securities
    2,930       104       626       (671 )           (131 )           2,858       4  
Obligations of U.S. states and municipalities
    2,257       (14 )     284       (555 )           (1 )           1,971       (14 )
Non-U.S. government debt securities
    697       49       130       (143 )           (19 )     (74 )     640       50  
Corporate debt securities
    4,946       32       1,629       (1,075 )           (6 )     97       5,623       34  
Loans
    13,144       131       888       (1,024 )           (729 )     80       12,490       12  
Asset-backed securities
    7,965       354       1,118       (1,057 )           (43 )     19       8,356       245  
 
Total debt instruments
    31,939       656       4,675       (4,525 )           (929 )     122       31,938       331  
Equity securities
    1,685       70       37       (74 )           (330 )     (21 )     1,367       83  
Other
    253       20       5       (1 )           (31 )           246       20  
 
Total debt and equity instruments
    33,877       746 (a)     4,717       (4,600 )           (1,290 )     101       33,551       434 (a)
 
Net derivative receivables:
                                                                       
Interest rate
    2,836       519       128       (83 )           (915 )     (15 )     2,470       184  
Credit
    5,386       (853 )     1                   (146 )     (15 )     4,373       (1,068 )
Foreign exchange
    (614 )     61       25                   482       48       2       69  
Equity
    (1,769 )     194       95       (330 )           (424 )     88       (2,146 )     69  
Commodity
    (805 )     595       86       (67 )           (424 )     (250 )     (865 )     209  
 
Total net derivative receivables
    5,034       516 (a)     335       (480 )           (1,427 )     (144 )     3,834       (537) (a)
 
Available-for-sale securities:
                                                                       
Asset-backed securities
    13,775       478       1,109       (4 )           (342 )           15,016       475  
Other
    512       9             (3 )           (9 )           509       7  
 
Total available-for-sale securities
    14,287       487 (b)     1,109       (7 )           (351 )           15,525       482 (b)
 
Loans
    1,466       120 (a)     84                   (283 )     (16 )     1,371       108 (a)
Mortgage servicing rights
    13,649       (751) (c)     758                   (563 )           13,093       (751) (c)
Other assets:
                                                                       
Private equity investments
    7,862       905 (a)     328       (139 )           (103 )           8,853       845 (a)
All other
    4,179       60 (d)     409       (3 )           (86 )     1       4,560       60 (d)
 
 
    Fair value measurements using significant unobservable inputs      
                                                                    Change in unrealized  
            Total                                     Transfers             (gains)/losses  
Three months ended   Fair value     realized/                                     into and/or     Fair value at     related to financial  
March 31, 2011   at January 1,     unrealized                                     out of     March 31,     instruments held  
(in millions)   2011     (gains)/losses     Purchases     Sales     Issuances     Settlements     level 3(e)     2011     at March 31, 2011  
 
Liabilities(f):
                                                                       
Deposits
  $ 633     $ (4) (a)   $     $     $ 59     $ (66 )   $ (1 )   $ 621     $ (4) (a)
Other borrowed funds
    972       58 (a)                 529       (88 )     2       1,473       58 (a)
Trading liabilities:
                                                                     
Debt and equity instruments
    54       (a)           119                         173       (a)
Accounts payable and other liabilities
    236       (37) (d)                       (53 )           146       4 (d)
Beneficial interests issued by consolidated VIEs
    873       (6) (a)                 11       (290 )           588       (7) (a)
Long-term debt
    13,044       62 (a)   $     $     $ 653     $ (971 )     239       13,027       258 (a)
 

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    Fair value measurements using significant unobservable inputs      
                                            Change in unrealized  
            Total     Purchases,     Transfers             gains/(losses) related  
Three months ended   Fair value at     realized/     issuances,     into and/or     Fair value at     to financial  
March 31, 2010   January 1,     unrealized     settlements,     out of     March 31,     instruments held  
(in millions)   2010     gains/(losses)     net     level 3(e)     2010     at March 31, 2010  
 
Assets:
                                               
Trading assets:
                                               
Debt instruments:
                                               
Mortgage-backed securities:
                                               
U.S. government agencies
  $ 260     $ 5     $ (50 )   $     $ 215     $ (10 )
Residential — nonagency
    1,115       16       (304 )     14       841       (11 )
Commercial — nonagency
    1,770       36       (133 )           1,673       (36 )
 
Total mortgage-backed securities
    3,145       57       (487 )     14       2,729       (57 )
Obligations of U.S. states and municipalities
    1,971       (42 )     (96 )     142       1,975       (44 )
Non-U.S. government debt securities
    734       (47 )     26             713       (46 )
Corporate debt securities
    5,241       (278 )     (290 )     274       4,947       14  
Loans
    13,218       (331 )     2,986       (97 )     15,776       (369 )
Asset-backed securities
    7,975       96       (69 )     76       8,078       19  
 
Total debt instruments
    32,284       (545 )     2,070       409       34,218       (483 )
Equity securities
    1,956       (20 )     (232 )     12       1,716       73  
Other
    926       21       (600 )     78       425       19  
 
Total debt and equity instruments
    35,166       (544 )(a)     1,238       499       36,359       (391 )(a)
 
Net of derivative receivables:
                                               
Interest rate
    2,040       420       (41 )     45       2,464       213  
Credit
    10,350       (604 )     (551 )     (9 )     9,186       (718 )
Foreign exchange
    1,082       (380 )     (80 )     (293 )     329       (365 )
Equity
    (1,791 )     263       (64 )     301       (1,291 )     247  
Commodity
    (329 )     (411 )     402       57       (281 )     (508 )
 
Total net derivative receivables
    11,352       (712 )(a)     (334 )     101       10,407       (1,131 )(a)
 
Available-for-sale securities:
                                               
Asset-backed securities
    12,732       (66 )     (95 )           12,571       (70 )
Other
    461       (77 )     (22 )     1       363       15  
 
Total available-for-sale securities
    13,193       (143 )(b)     (117 )     1       12,934       (55 )(b)
 
Loans
    990       1 (a)     157       (8 )     1,140       (18 )(a)
Mortgage servicing rights
    15,531       (96 )(c)     96             15,531       (96 )(c)
Other assets:
                                               
Private equity investments
    6,563       148 (a)     (61 )     (265 )     6,385       31 (a)
All other
    9,521       (18 )(d)     (5,140 )     (11 )     4,352       (18 )(d)
 
                                                 
    Fair value measurements using significant unobservable inputs      
                                            Change in unrealized  
            Total     Purchases,     Transfers             (gains)/losses  
Three months ended   Fair value at     realized/     issuances,     into and/or     Fair value at     related to financial  
March 31, 2010   January 1,     unrealized     settlements,     out of     March 31,     instruments held  
(in millions)   2010     (gains)/losses     net     level 3(e)     2010     at March 31, 2010  
 
Liabilities(f):
                                               
Deposits
  $ 476     $ (10 )(a)   $ (1 )   $ (25 )   $ 440     $ (14 )(a)
Other borrowed funds
    542       (52 )(a)     195       (233 )     452       (73 )(a)
Trading liabilities:
                                               
Debt and equity instruments
    10       2 (a)     (3 )     23       32       2 (a)
Accounts payable and other liabilities
    355       (23 )(d)     (4 )           328       (20 )(d)
Beneficial interests issued by consolidated VIEs
    625       (7 )(a)     1,199             1,817       (7 )(a)
Long-term debt
    18,287       (403 )(a)     (668 )     302       17,518       (402 )(a)
 
(a)   Predominantly reported in principal transactions revenue, except for changes in fair value for Retail Financial Services (“RFS”) mortgage loans originated with the intent to sell, which are reported in mortgage fees and related income.
 
(b)   Realized gains and 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 and losses are reported in other comprehensive income (“OCI”). Realized gains and losses and foreign exchange remeasurement adjustments recorded in income on AFS securities were $330 million and $79

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    million for the three months ended March 31, 2011 and 2010, respectively. Unrealized gains and losses reported on AFS securities in OCI were $156 million and $65 million for the three months ended March 31, 2011 and 2010, respectively.
 
(c)   Changes in fair value for RFS mortgage servicing rights are reported in mortgage fees and related income.
 
(d)   Predominantly reported in other income.
 
(e)   All transfers into and/or out of level 3 are assumed to occur at the beginning of the reporting period.
 
(f)   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 23% and 22% at March 31, 2011, and December 31, 2010, respectively.
 
(g)   Loan originations are included in purchases.
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). The following tables present the assets and liabilities carried on the Consolidated Balance Sheets by caption and level within the valuation hierarchy as of March 31, 2011, and December 31, 2010, for which a nonrecurring change in fair value has been recorded during the reporting period.
                                 
    Fair value hierarchy      
March 31, 2011 (in millions)   Level 1(d)     Level 2(d)     Level 3(d)     Total fair value  
 
Loans retained(a)
  $     $ 1,418     $ 625     $ 2,043  
Loans held-for-sale(b)
          457       4,554       5,011  
 
Total loans
          1,875       5,179       7,054  
Other real estate owned
          58       251       309  
Other assets
                1       1  
 
Total other assets
          58       252       310  
 
Total assets at fair value on a nonrecurring basis
  $     $ 1,933     $ 5,431     $ 7,364  
 
Accounts payable and other liabilities(c)
  $     $ 36     $ 17     $ 53  
 
Total liabilities at fair value on a nonrecurring basis
  $     $ 36     $ 17     $ 53  
 
                                 
    Fair value hierarchy      
December 31, 2010 (in millions)   Level 1     Level 2     Level 3     Total fair value  
 
Loans retained(a)
  $     $ 5,484     $ 690     $ 6,174  
Loans held-for-sale(b)
          312       3,200       3,512  
 
Total loans
          5,796       3,890       9,686  
Other real estate owned
          78       311       389  
Other assets
                2       2  
 
Total other assets
          78       313       391  
 
Total assets at fair value on a nonrecurring basis
  $     $ 5,874     $ 4,203     $ 10,077  
 
Accounts payable and other liabilities(c)
  $     $ 53     $ 18     $ 71  
 
Total liabilities at fair value on a nonrecurring basis
  $     $ 53     $ 18     $ 71  
 
(a)   Reflects mortgage, home equity and other loans where the carrying value is based on the fair value of the underlying collateral.
 
(b)   Predominantly includes credit card loans at March 31, 2011, and December 31, 2010. Loans held-for-sale are carried on the Consolidated Balance Sheets at the lower of cost or fair value.
 
(c)   Represents, at March 31, 2011, and December 31, 2010, fair value adjustments associated with $828 million and $517 million, respectively, of unfunded held-for-sale lending-related commitments within the leveraged lending portfolio.
 
(d)   For the three months ended March 31, 2011 and 2010, the transfers between levels 1, 2 and 3 were not significant.
The method used to estimate the fair value 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), depends on the type of collateral (e.g., securities, real estate, nonfinancial assets) underlying the loan. Fair value of the collateral is estimated based on quoted market prices, broker quotes or independent appraisals, or by using a discounted cash flow model. For further information, see Note 14 on pages 139–140 of this Form 10-Q.

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Nonrecurring fair value changes
The following table presents the total change in value of assets and liabilities for which a fair value adjustment has been included in the Consolidated Statements of Income for the three-month periods ended March 31, 2011 and 2010, related to financial instruments held at those dates.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Loans retained
  $ (690 )   $ (1,338 )
Loans held-for-sale
    5       44  
 
Total loans
    (685 )     (1,294 )
 
               
Other assets
    (3 )     4  
Accounts payable and other liabilities
    6       7  
 
Total nonrecurring fair value gains/(losses)
  $ (682 )   $ (1,283 )
 
Level 3 analysis
Level 3 assets at March 31, 2011, predominantly include derivative receivables, mortgage servicing rights (“MSRs”), collateralized loan obligations (“CLOs”) held within the AFS securities portfolio, trading loans, asset-backed trading securities and private equity investments.
  Derivative receivables included $33.7 billion of interest rate, credit, foreign exchange, equity and commodity contracts classified within level 3 at March 31, 2011. Included within this balance was $9.8 billion of structured credit derivatives with corporate debt underlying. In assessing the Firm’s risk exposure to structured credit derivatives, the Firm believes consideration should also be given to derivative liabilities with similar, and therefore offsetting, risk profiles. At March 31, 2010, $5.1 billion of level 3 derivative liabilities had risk characteristics similar to those of the derivative receivable assets classified in level 3.
 
  Mortgage servicing rights represent the fair value of future cash flows for performing specified mortgage servicing activities for others (predominantly with respect to residential mortgage loans). For a further description of the MSR asset, the interest rate risk management and valuation methodology used for MSRs, including valuation assumptions and sensitivities, see Note 17 on pages 260–263 of JPMorgan Chase’s 2010 Annual Report and Note 16 on pages 149–152 of this Form 10-Q.
 
  CLOs totaling $14.7 billion were securities backed by corporate loans held in the Firm’s AFS securities portfolio. Substantially all of these securities are rated “AAA,” “AA” and “A” and had an average credit enhancement of 30%. Credit enhancement in CLOs is primarily in the form of subordination, which is a form of structural credit enhancement where realized losses associated with assets held by the issuing vehicle are allocated to the various tranches of securities issued by the vehicle considering their relative seniority. For further discussion, see Note 11 on pages 116–120 of this Form 10-Q.
 
  Trading loans totaling $12.5 billion included $6.5 billion of residential mortgage whole loans and commercial mortgage loans for which there is limited price transparency; and $3.9 billion of reverse mortgages for which the principal risk sensitivities are mortality risk and home prices. The fair value of the commercial and residential mortgage loans is estimated by projecting expected cash flows, considering relevant borrower-specific and market factors, and discounting those cash flows at a rate reflecting current market liquidity. Loans are partially hedged by level 2 instruments, including credit default swaps and interest rate derivatives, which are observable and liquid.
Consolidated Balance Sheets changes
Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 5% of total Firm assets at March 31, 2011. The following describes significant changes to level 3 assets during the quarter.

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For the three months ended March 31, 2011
Level 3 assets were $116.1 billion at March 31, 2011, reflecting an increase of $1.3 billion largely by:
  $1.4 billion increase in nonrecurring loans held-for-sale, largely driven by an increase in credit card balances;
 
  $1.3 billion increase in asset-backed AFS securities, predominantly driven by purchases of new issuance CLOs;
 
  $1.0 billion increase in private equity, largely driven by net increases in investment valuations in the portfolio and incremental new investments; and
 
  $1.6 billion decrease in derivative receivables, largely due to tightening of credit spreads and unwinds.
Gains and Losses
Included in the tables for the three months ended March 31, 2011
  $905 million gain in private equity, largely driven by net increases in investment valuations in the portfolio.
Included in the tables for the three months ended March 31, 2010
  $1.4 billion of net losses and $493 million of net gains on assets and liabilities, respectively, measured at fair value on a recurring basis, none of which were individually significant.
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 market. For a detailed discussion of the valuation adjustments the Firm considers, see Note 3 on pages 170–187 of JPMorgan Chase’s 2010 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, 2011   December 31, 2010
 
Derivative receivables balance
  $ 78,744     $ 80,481  
Derivatives CVA(a)
    (3,827 )     (4,362 )
Derivative payables balance
    61,362       69,219  
Derivatives DVA
    (813 )     (882 )
Structured notes balance(b)(c)
    52,808       53,139  
Structured notes DVA
    (1,176 )     (1,153 )
 
(a)   Derivatives credit valuation adjustments (“CVA”), gross of hedges, includes results managed by 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, based on 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 105–106 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,
(in millions)   2011   2010
 
Credit adjustments:
               
Derivative CVA(a)
  $ 535     $ 156  
Derivative DVA
    (69 )     (106 )
Structured note DVA(b)
    23       108  
 
(a)   Derivatives CVA, gross of hedges, includes results managed by 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 105–106 of this Form 10-Q.
Additional disclosures about the fair value of financial instruments (including financial instruments not carried at fair value)
The following table presents the carrying values and estimated fair values of financial assets and liabilities. 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 170–187 of JPMorgan Chase’s 2010 Annual Report.

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The following table presents the carrying values and estimated fair values of financial assets and liabilities.
                                                 
    March 31, 2011   December 31, 2010
    Carrying   Estimated   Appreciation/   Carrying   Estimated   Appreciation/
(in billions)   value   fair value   (depreciation)   value   fair value   (depreciation)
 
Financial assets
                                               
Assets for which fair value approximates carrying value
  $ 104.3     $ 104.3     $     $ 49.2     $ 49.2     $  
Accrued interest and accounts receivable
    79.2       79.2             70.1       70.1        
Federal funds sold and securities purchased under resale agreements (included $20.0 and $20.3 at fair value)
    217.4       217.4             222.6       222.6        
Securities borrowed (included $15.3 and $14.0 at fair value)
    119.0       119.0             123.6       123.6        
Trading assets
    501.1       501.1             489.9       489.9        
Securities (included $334.8 and $316.3 at fair value)
    334.8       334.8             316.3       316.3        
Loans (included $1.8 and $2.0 at fair value)(a)
    656.2       658.8       2.6       660.7       663.5       2.8  
Mortgage servicing rights at fair value
    13.1       13.1             13.6       13.6        
Other (included $19.6 and $18.2 at fair value)
    66.8       67.1       0.3       64.9       65.0       0.1  
 
Total financial assets
  $ 2,091.9     $ 2,094.8     $ 2.9     $ 2,010.9     $ 2,013.8     $ 2.9  
 
Financial liabilities
                                               
Deposits (included $4.3 and $4.4 at fair value)
  $ 995.8     $ 996.8     $ (1.0 )   $ 930.4     $ 931.5     $ (1.1 )
Federal funds purchased and securities loaned or sold under repurchase agreements (included $6.2 and $4.1 at fair value)
    285.4       285.4             276.6       276.6        
Commercial paper
    46.0       46.0             35.4       35.4        
Other borrowed funds (included $10.6 and $9.9 at fair value)(b)
    36.7       36.7             34.3       34.3        
Trading liabilities
    141.4       141.4             146.2       146.2        
Accounts payable and other liabilities (included $0.1 and $0.2 at fair value)
    142.6       142.5       0.1       138.2       138.2        
Beneficial interests issued by consolidated VIEs (included $1.3 and $1.5 at fair value)
    70.9       71.2       (0.3 )     77.6       77.9       (0.3 )
Long-term debt and junior subordinated deferrable interest debentures (included $37.9 and $38.8 at fair value)(b)
    269.6       270.8       (1.2 )     270.7       271.9       (1.2 )
 
Total financial liabilities
  $ 1,988.4     $ 1,990.8     $ (2.4 )   $ 1,909.4     $ 1,912.0     $ (2.6 )
 
Net appreciation
                  $ 0.5                     $ 0.3  
 
(a)   Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based upon 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 to 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 a loan loss reserve calculation. For a further discussion of the Firm’s methodologies for estimating the fair value of loans and lending-related commitments, see Note 3 pages 171–173 of JPMorgan Chase’s 2010 Annual Report.
 
(b)   Effective January 1, 2011, $23.0 billion of long-term advances from Federal Home Loan Banks (“FHLBs”) were reclassified from other borrowed funds to long-term debt. The prior-year period has been revised to conform with the current presentation.
The majority of the Firm’s unfunded 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.
                                 
    March 31, 2011   December 31, 2010
    Carrying   Estimated   Carrying   Estimated
(in billions)   value(a)   fair value   value(a)   fair value
 
Wholesale lending—related commitments
  $ 0.7     $ 1.0     $ 0.7     $ 0.9  
 
(a)   Represents the allowance for wholesale unfunded lending-related commitments. Excludes the current carrying values of the guarantee liability and the offsetting asset each recognized at fair value at the inception of guarantees.
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 prior notice or, in some cases, without notice as permitted by law. For a further discussion of the valuation of lending-related commitments, see Note 3 on pages 171–173 of JPMorgan Chase’s 2010 Annual Report.

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Trading assets and liabilities — average balances
Average trading assets and liabilities were as follows for the periods indicated.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Trading assets — debt and equity instruments(a)
  $ 417,463     $ 331,763  
Trading assets — derivative receivables
    85,437       78,683  
Trading liabilities — debt and equity instruments(a)(b)
    82,919       70,882  
Trading liabilities — derivative payables
    71,288       59,053  
 
(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 CUSIPs.
 
(b)   Primarily represent securities sold, not yet purchased.
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 187–189 of JPMorgan Chase’s 2010 Annual Report.
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated Statements of Income for the three months ended March 31, 2011 and 2010, for items for which the fair value election was made. 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,
    2011   2010
                    Total changes                   Total changes
    Principal   Other   in fair value   Principal   Other   in fair value
(in millions)   transactions   Income   recorded   transactions   income   recorded
 
Federal funds sold and securities purchased under resale agreements
  $ (118 )   $     $ (118 )   $ 19     $     $ 19  
Securities borrowed
    9             9       12             12  
Trading assets:
                                               
Debt and equity instruments, excluding loans
    164       3 (c)     167       156       1 (c)     157  
Loans reported as trading assets:
                                               
Changes in instrument-specific credit risk
    480             480       409       (6 )(c)     403  
Other changes in fair value
    125       723 (c)     848       (384 )     755 (c)     371  
Loans:
                                               
Changes in instrument-specific credit risk
    (6 )           (6 )     47             47  
Other changes in fair value
    143             143       (27 )           (27 )
Other assets
                            (53 )(d)     (53 )
Deposits(a)
    (17 )           (17 )     (189 )           (189 )
Federal funds purchased and securities loaned or sold under repurchase agreements
    35             35       (9 )           (9 )
Other borrowed funds(a)
    217             217       74             74  
Trading liabilities
    (3 )           (3 )     (3 )           (3 )
Beneficial interests issued by consolidated VIEs
    (34 )           (34 )     46             46  
Other liabilities
    (3 )     (2) (d)     (5 )     23             23  
Long-term debt:
                                               
Changes in instrument-specific credit risk(a)
    54             54       51             51  
Other changes in fair value(b)
    (24 )           (24 )     226             226  
 
(a)   Total changes in instrument-specific credit risk related to structured notes were $23 million and $108 million for the three months ended March 31, 2011 and 2010, respectively. Those 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 gains 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.

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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, 2011, and December 31, 2010, for , long-term debt and long-term beneficial interests for which the fair value option has been elected.
                                                 
    March 31, 2011   December 31, 2010
                    Fair value                   Fair value
                    over/(under)                   over/(under)
    Contractual           contractual   Contractual           contractual
    principal           principal   principal           principal
(in millions)   outstanding   Fair value   outstanding   outstanding   Fair value   outstanding
 
Loans
                                               
Performing 90 days or more past due
                                               
Loans reported as trading assets
  $     $     $     $     $     $  
Loans
                                   
Nonaccrual Loans
                                               
Loans reported as trading assets
    5,632       1,509       (4,123 )     5,246       1,239       (4,007 )
Loans
    892       60       (832 )     927       132       (795 )
 
Subtotal
    6,524       1,569       (4,955 )     6,173       1,371       (4,802 )
All other performing loans
                                               
Loans reported as trading assets
    38,107       32,740       (5,367 )     39,490       33,641       (5,849 )
Loans
    2,246       1,275       (971 )     2,496       1,434       (1,062 )
 
Total loans
  $ 46,877     $ 35,584     $ (11,293 )   $ 48,159     $ 36,446     $ (11,713 )
 
Long-term debt
                                               
Principal—protected debt
  $ 19,820 (b)   $ 20,207     $ 387     $ 20,761 (b)   $ 21,315     $ 554  
Nonprincipal—protected debt(a)
  NA       17,708     NA     NA       17,524     NA  
 
Total long-term debt
  NA       37,915     NA     NA     $ 38,839     NA  
 
Long-term beneficial interests
                                               
Principal—protected debt
  $     $     $     $ 49     $ 49     $  
Nonprincipal—protected debt(a)
  NA       1,276     NA     NA       1,446     NA  
 
Total long-term beneficial interests
  NA     $ 1,276     NA     NA     $ 1,495     NA  
 
(a)   Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected 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.
 
(b)   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 both March 31, 2011, and December 31, 2010, the contractual amount of letters of credit for which the fair value option elected was $3.8 billion, with a corresponding fair value of $6 million. For further information regarding off-balance sheet lending-related financial instruments, see Note 30 on pages 275–280 of JPMorgan Chase’s 2010 Annual Report.

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NOTE 5 — DERIVATIVE INSTRUMENTS
For a further discussion of the Firm’s use and accounting policies regarding derivative instruments, see Note 6 on pages 191–199 of JPMorgan Chase’s 2010 Annual Report.
Notional amount of derivative contracts
The following table summarizes the notional amount of derivative contracts outstanding as of March 31, 2011, and December 31, 2010.
                 
    Notional amounts(b)
(in billions)   March 31, 2011   December 31, 2010
 
Interest rate contracts
               
Swaps
  $ 45,632     $ 46,299  
Futures and forwards
    9,408       9,298  
Written options
    4,264       4,075  
Purchased options
    4,500       3,968  
 
Total interest rate contracts
    63,804       63,640  
 
Credit derivatives(a)
    5,845       5,472  
 
Foreign exchange contracts
               
Cross-currency swaps
    2,761       2,568  
Spot, futures and forwards
    4,698       3,893  
Written options
    709       674  
Purchased options
    695       649  
 
Total foreign exchange contracts
    8,863       7,784  
 
Equity contracts
               
Swaps
    126       116  
Futures and forwards
    41       49  
Written options
    493       430  
Purchased options
    442       377  
 
Total equity contracts
    1,102       972  
 
Commodity contracts
               
Swaps
    431       349  
Spot, futures and forwards
    213       170  
Written options
    288       264  
Purchased options
    286       254  
 
Total commodity contracts
    1,218       1,037  
 
Total derivative notional amounts
  $ 80,832     $ 78,905  
 
(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 112–113 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.

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Impact of derivatives on the Consolidated Balance Sheets
The following tables summarize information on derivative fair values that are reflected on the Firm’s Consolidated Balance Sheets as of March 31, 2011, and December 31, 2010, by accounting designation (e.g., whether the derivatives were designated as hedges or not) and contract type.
Free-standing derivatives(a)
                                                 
    Derivative receivables   Derivative payables
March 31, 2011   Not designated   Designated   Total derivative   Not designated   Designated   Total derivative
(in millions)   as hedges   as hedges   receivables   as hedges   as hedges   payables
 
Trading assets and liabilities
                                               
Interest rate
  $ 932,405     $ 5,462     $ 937,867     $ 897,665     $ 878     $ 898,543  
Credit
    121,973             121,973       118,321             118,321  
Foreign exchange(b)
    158,305       2,997       161,302       158,890       1,053       159,943  
Equity
    48,401             48,401       47,363             47,363  
Commodity
    70,850       113       70,963       66,896       2,178       69,074  
 
Gross fair value of trading assets and liabilities
  $ 1,331,934     $ 8,572     $ 1,340,506     $ 1,289,135     $ 4,109     $ 1,293,244  
Netting adjustment(c)
                    (1,261,762 )                     (1,231,882 )
 
Carrying value of derivative trading assets and trading liabilities on the Consolidated Balance Sheets
                  $ 78,744                     $ 61,362  
 
                                                 
    Derivative receivables   Derivative payables
December 31, 2010   Not designated   Designated   Total derivative   Not designated   Designated   Total derivative
(in millions)   as hedges   as hedges   receivables   as hedges   as hedges   payables
 
Trading assets and liabilities
                                               
Interest rate
  $ 1,121,703     $ 6,279     $ 1,127,982     $ 1,089,604     $ 840     $ 1,090,444  
Credit
    129,729             129,729       125,061             125,061  
Foreign exchange(b)
    165,240       3,231       168,471       163,671       1,059       164,730  
Equity
    43,633             43,633       46,399             46,399  
Commodity
    59,573       24       59,597       56,397       2,078 (d)     58,475  
 
Gross fair value of trading assets and liabilities
  $ 1,519,878     $ 9,534     $ 1,529,412     $ 1,481,132     $ 3,977     $ 1,485,109  
Netting adjustment(c)
                    (1,448,931 )                     (1,415,890 )
 
Carrying value of derivative trading assets and trading liabilities on the Consolidated Balance Sheets
                  $ 80,481                     $ 69,219  
 
(a)   Excludes structured notes for which the fair value option has been elected. See Note 4 on pages 105–106 of this Form 10-Q and Note 4 on pages 187–189 of JPMorgan Chase’s 2010 Annual Report for further information.
 
(b)   Excludes $20 million and $21 million of foreign currency-denominated debt designated as a net investment hedge at March 31, 2011, and December, 31, 2010, respectively.
 
(c)   U.S. GAAP permits the netting of derivative receivables and payables, and the related cash collateral received and paid when a legally enforceable master netting agreement exists between the Firm and a derivative counterparty.
 
(d)   Excludes $1.0 billion related to commodity derivatives that are embedded in a debt instrument and used as fair value hedging instruments that are recorded in the line item of the host contract (other borrowed funds) for December 31, 2010.
Derivative receivables and payables fair value
The following table summarizes the fair values of derivative receivables and payables, including those designated as hedges by contract type after netting adjustments as of March 31, 2011, and December 31, 2010.
                                 
    Trading assets-Derivative receivables   Trading liabilities-Derivative payables
(in millions)   March 31, 2011   December 31, 2010   March 31, 2011   December 31, 2010
 
Contract type
                               
Interest rate
  $ 31,182     $ 32,555     $ 14,527     $ 20,387  
Credit
    8,026       7,725       5,546       5,138  
Foreign exchange
    18,333       25,858       18,550       25,015  
Equity
    8,358       4,204       11,453       10,450  
Commodity
    12,845       10,139       11,286       8,229  
 
Total
  $ 78,744     $ 80,481     $ 61,362     $ 69,219  
 

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Impact of derivatives on the Consolidated Statements of Income
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 months ended March 31, 2011 and 2010, 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:
Three months ended                   Total income        
March 31, 2011                   statement   Hedge   Excluded
(in millions)   Derivatives   Hedged items   impact   ineffectiveness(d)   components(e)
 
Contract type
                                       
Interest rate(a)
  $ (718 )   $ 800     $ 82     $ (9 )   $ 91  
Foreign exchange(b)
    (3,206) (f)     3,124       (82 )           (82 )
Commodity(c)
    (73 )     433       360       (1 )     361  
 
Total
  $ (3,997 )   $ 4,357     $ 360     $ (10 )   $ 370  
 
 
    Gains/(losses) recorded in income   Income statement impact due to:
Three months ended                   Total income        
March 31, 2010                   statement   Hedge   Excluded
(in millions)   Derivatives   Hedged items   impact   ineffectiveness(d)   components(e)
 
Contract type
                                       
Interest rate(a)
  $ 632     $ (498 )   $ 134     $ 28     $ 106  
Foreign exchange(b)
    1,647 (f)     (1,657 )     (10 )           (10 )
Commodity(c)
    (455 )     396       (59 )           (59 )
 
Total
  $ 1,824     $ (1,759 )   $ 65     $ 28     $ 37  
 
(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.
 
(c)   Consists of overall fair value hedges of certain commodities inventories. Gains and losses were recorded in principal transactions revenue.
 
(d)   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.
 
(e)   Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on a futures or forward contract. Amounts related to excluded components are recorded in current-period income.
 
(f)   For the three months ended March 31, 2011 and 2010, included $(3.2) billion and $1.7 billion, respectively, of revenue related to certain foreign exchange trading derivatives designated as fair value hedging instruments.

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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 months ended March 31, 2011 and 2010, 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 (“OCI”)/(loss)(c)
            Hedge                
    Derivatives —   ineffectiveness                
    effective portion   recorded directly           Derivatives —   Total change
Three months ended   reclassified from   in   Total income   effective portion   in OCI
March 31, 2011 (in millions)   AOCI to income   income(d)   statement impact   recorded in OCI   for period
 
Contract type
                                       
Interest rate(a)
  $ 94     $ 3     $ 97     $ (31 )   $ (125 )
Foreign exchange(b)
    22             22       18       (4 )
 
Total
  $ 116     $ 3     $ 119     $ (13 )   $ (129 )
 
                                         
    Gains/(losses) recorded in income and other comprehensive income/(loss)(c)
            Hedge                
    Derivatives —   ineffectiveness              
    effective portion   recorded directly       Derivatives —   Total change
Three months ended   reclassified from   in   Total income   effective portion   in OCI
March 31, 2010 (in millions)   AOCI to income   income(d)   statement impact   recorded in OCI   for period
 
Contract type
                                       
Interest rate(a)
  $ 49     $ 3     $ 52     $ 251     $ 202  
Foreign exchange(b)
    (52 )           (52 )     (112 )     (60 )
 
Total
  $ (3 )   $ 3     $     $ 139     $ 142  
 
(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 net interest income, compensation expense and other expense.
 
(c)   The Firm did not experience any forecasted transactions that failed to occur for the three months ended March 31, 2011 and 2010, respectively.
 
(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 $159 million (after-tax) of net losses recorded in AOCI at March 31, 2011, related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are hedged is 10 years, and such transactions primarily relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following tables present 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 months ended March 31, 2011 and 2010.
                                 
    Gains/(losses) recorded in income and other comprehensive income/(loss)
    2011   2010
    Excluded components           Excluded components    
Three months ended March 31,   recorded directly   Effective portion   recorded directly   Effective portion
(in millions)   in income(a)   recorded in OCI   in income(a)   recorded in OCI
 
Contract type
                               
Foreign exchange derivatives
  $ (71 )   $ (390 )   $ (41 )   $ 285  
Foreign currency denominated debt
                      41  
 
Total
  $ (71 )   $ (390 )   $ (41 )   $ 326  
 
(a)   Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on a futures or forward contract. Amounts related to excluded components are recorded in current-period income. There was no ineffectiveness for net investment hedge accounting relationships during the three months ended March 31, 2011 and 2010.

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Risk management derivatives gains and losses (not designated as hedging instruments)
The following table presents nontrading derivatives, by contract type, that were not designated in hedge relationships, and the pretax gains/(losses) recorded on such derivatives for the three months ended March 31, 2011 and 2010. These derivatives are risk management instruments used to mitigate or transform the market risk exposures arising from banking activities other than trading activities, which are discussed separately below.
                 
Three months ended March 31,   Derivatives gains/(losses) recorded in income
(in millions)   2011   2010
 
Contract type
               
Interest rate(a)
  $ 75     $ 140  
Credit(b)
    (58 )     (119 )
Foreign exchange(c)
    (8 )     (21 )
Commodity(b)
          (23 )
 
Total
  $ 9     $ (23 )
 
(a)   Gains and losses were recorded in principal transactions revenue, mortgage fees and related income, and net interest income.
 
(b)   Gains and losses were recorded in principal transactions revenue.
 
(c)   Gains and losses were recorded in principal transactions revenue and net interest income.
Trading derivative gains and losses
The following table presents trading derivatives gains and losses, by contract type, that are recorded in principal transactions revenue in the Consolidated Statements of Income for the three months ended March 31, 2011 and 2010. The Firm has elected to present derivative gains and losses related to its trading activities together with the cash instruments with which they are risk managed.
                 
Three months ended March 31,   Gains/(losses) recorded in principal transactions revenue
(in millions)   2011   2010
 
Type of instrument
               
Interest rate
  $ 367     $ 107  
Credit
    1,209       2,125  
Foreign exchange(a)
    590       627  
Equity
    828       822  
Commodity
    163       413  
 
Total
  $ 3,157     $ 4,094  
 
(a)   In 2010, the reporting of trading gains and losses was enhanced to include trading gains and losses related to certain trading derivatives designated as fair value hedging instruments. Prior period amounts have been revised to conform to the current presentation.
Credit risk, liquidity risk and credit-related contingent features
The aggregate fair value of net derivative payables that contain contingent collateral or termination features triggered upon a downgrade was $16.3 billion at March 31, 2011, for which the Firm has posted collateral of $11.4 billion in the normal course of business. At March 31, 2011, the impact of a single-notch and two-notch ratings downgrade to JPMorgan Chase & Co. and its subsidiaries, primarily JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), would have required $1.9 billion and $3.2 billion, respectively, of additional collateral to be posted by the Firm. In addition, at March 31, 2011, the impact of single-notch and two-notch ratings downgrades to JPMorgan Chase & Co. and its subsidiaries, primarily JPMorgan Chase Bank, N.A., related to contracts with termination triggers would have required the Firm to settle trades with a fair value of $382 million and $1.1 billion, respectively.
The following tables show the carrying value of derivative receivables and payables after netting adjustments and collateral received as of March 31, 2011, and December 31, 2010.
                                 
    Derivative receivables   Derivative payables
    March 31,   December 31,   March 31,   December 31,
(in millions)   2011   2010   2011   2010
 
Gross derivative fair value
  $ 1,340,506     $ 1,529,412     $ 1,293,244     $ 1,485,109  
Netting adjustment — offsetting receivables/payables
    (1,197,097 )     (1,376,969 )     (1,197,097 )     (1,376,969 )
Netting adjustment — cash collateral received/paid
    (64,665 )     (71,962 )     (34,785 )     (38,921 )
 
Carrying value on Consolidated Balance Sheets
  $ 78,744     $ 80,481     $ 61,362     $ 69,219  
 

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In addition to the collateral amounts reflected in the tables above, at March 31, 2011, and December 31, 2010, the Firm had received liquid securities and other cash collateral in the amount of $16.2 billion and $16.5 billion, respectively, and had posted liquid securities and other cash collateral in the amount of $10.2 billion and $10.9 billion, respectively. The Firm also receives and delivers collateral 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, respectively, in the Firm’s or client’s favor. Furthermore, the Firm and its counterparties hold collateral related to contracts that have a 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. At March 31, 2011, and December 31, 2010, the Firm had received $20.5 billion and $18.0 billion, respectively, and delivered $7.6 billion and $8.4 billion, respectively, of such additional collateral. 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, 2011, and December 31, 2010.
Credit derivatives
For a more detailed discussion of credit derivatives, including a description of the different types used by the Firm, see Note 6 on pages 191–199 of JPMorgan Chase’s 2010 Annual Report.
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, 2011, and December 31, 2010. Upon a credit event, the Firm as a seller of protection would typically pay out only a percentage of 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. Other purchased protection referenced in the following tables include credit derivatives bought on related, but not identical, reference positions (including indices, portfolio coverage and other reference points) 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, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives.
Total credit derivatives and credit-related notes
                                 
    Maximum payout/Notional amount
March 31, 2011           Protection purchased with   Net protection   Other protection
(in millions)   Protection sold   identical underlyings(b)   (sold)/purchased(c)   purchased(d)
 
Credit derivatives
                               
Credit default swaps
  $ (2,840,995 )   $ 2,809,606     $ (31,389 )   $ 33,757  
Other credit derivatives(a)
    (104,406 )     25,687       (78,719 )     30,692  
 
Total credit derivatives
    (2,945,401 )     2,835,293       (110,108 )     64,449  
Credit-related notes
    (1,965 )           (1,965 )     3,701  
 
Total
  $ (2,947,366 )   $ 2,835,293     $ (112,073 )   $ 68,150  
 
                                 
    Maximum payout/Notional amount
December 31, 2010           Protection purchased with   Net protection   Other protection
(in millions)   Protection sold   identical underlyings(b)   (sold)/purchased(c)   purchased(d)
 
Credit derivatives
                               
Credit default swaps
  $ (2,659,240 )   $ 2,652,313     $ (6,927 )   $ 32,867  
Other credit derivatives(a)
    (93,776 )     10,016       (83,760 )     24,234  
 
Total credit derivatives
    (2,753,016 )     2,662,329       (90,687 )     57,101  
Credit-related notes
    (2,008 )           (2,008 )     3,327  
 
Total
  $ (2,755,024 )   $ 2,662,329     $ (92,695 )   $ 60,428  
 
(a)   Primarily consists of total return swaps and credit default swap options.
 
(b)   Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
 
(c)   Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value.
 
(d)   Represents protection purchased by the Firm through single-name and index credit default swap or credit-related notes.

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The following tables summarize the notional and fair value amounts of credit derivatives and credit-related notes as of March 31, 2011, and December 31, 2010, 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 protection purchased are comparable to the profile reflected below.
Protection sold — credit derivatives and credit-related notes ratings(a)/maturity profile
                                         
                            Total    
March 31, 2011 (in millions)   <1 year   1-5 years   >5 years   notional amount   Fair value(b)
 
Risk rating of reference entity
                                       
Investment-grade
  $ (186,684 )   $ (1,224,970 )   $ (381,466 )   $ (1,793,120 )   $ (12,129 )
Noninvestment-grade
    (163,679 )     (759,126 )     (231,441 )     (1,154,246 )     (54,503 )
 
Total
  $ (350,363 )   $ (1,984,096 )   $ (612,907 )   $ (2,947,366 )   $ (66,632 )
 
                                         
                            Total    
December 31, 2010 (in millions)   <1 year   1-5 years   >5 years   notional amount   Fair value(b)
 
Risk rating of reference entity
                                       
Investment-grade
  $ (175,618 )   $ (1,194,695 )   $ (336,309 )   $ (1,706,622 )   $ (17,261 )
Noninvestment-grade
    (148,434 )     (702,638 )     (197,330 )     (1,048,402 )     (59,939 )
 
Total
  $ (324,052 )   $ (1,897,333 )   $ (533,639 )   $ (2,755,024 )   $ (77,200 )
 
(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 held by the Firm.
NOTE 6 — NONINTEREST REVENUE
For a discussion of the components of and accounting policies for the Firm’s other noninterest revenue, see Note 7 on pages 199–200 of JPMorgan Chase’s 2010 Annual Report.
The following table presents the components of investment banking fees.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Underwriting:
               
Equity
  $ 379     $ 413  
Debt
    982       751  
 
Total underwriting
    1,361       1,164  
Advisory
    432       297  
 
Total investment banking fees
  $ 1,793     $ 1,461  
 
The following table presents principal transactions revenue.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Trading revenue
  $ 3,940     $ 4,386  
Private equity gains/(losses)(a)
    805       162  
 
Principal transactions
  $ 4,745     $ 4,548  
 
(a)   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.
The following table presents components of asset management, administration and commissions.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Asset management:
               
Investment management fees
  $ 1,494     $ 1,327  
All other asset management fees
    144       109  
 
Total asset management fees
    1,638       1,436  
Total administration fees(a)
    551       491  
Commission and other fees:
               
Brokerage commissions
    763       703  
All other commissions and fees
    654       635  
 
Total commissions and fees
    1,417       1,338  
 
Total asset management, administration and commissions
  $ 3,606     $ 3,265  
 
(a)   Includes fees for custody, securities lending, funds services and securities clearance.

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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 200 of JPMorgan Chase’s 2010 Annual Report.
Details of interest income and interest expense were as follows.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Interest income
               
Loans
  $ 9,507     $ 10,557  
Securities
    2,216       2,904  
Trading assets
    2,885       2,760  
Federal funds sold and securities purchased under resale agreements
    543       407  
Securities borrowed
    47       29  
Deposits with banks
    101       95  
Other assets(a)
    148       93  
 
Total interest income
    15,447       16,845  
 
Interest expense
               
Interest-bearing deposits
    922       844  
Short-term and other liabilities(b)(c)
    818       562  
Long-term debt(c)
    1,588       1,399  
Beneficial interests issued by consolidated VIEs
    214       330  
 
Total interest expense
    3,542       3,135  
 
Net interest income
    11,905       13,710  
Provision for credit losses
    1,169       7,010  
 
Net interest income after provision for credit losses
  $ 10,736     $ 6,700  
 
(a)   Predominantly margin loans.
 
(b)   Includes brokerage customer payables.
 
(c)   Effective January 1, 2011, the long-term portion of advances from FHLBs was reclassified from other borrowed funds to long-term debt. The related interest expense for the prior-year period has also been reclassified to conform with the current presentation.
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 201–210 of JPMorgan Chase’s 2010 Annual Report.
The following table presents the components of net periodic benefit cost 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 March 31, (in millions)   2011   2010   2011   2010   2011   2010
 
Components of net periodic benefit cost
                                               
Benefits earned during the period
  $ 62     $ 58     $ 9     $ 7     $     $  
Interest cost on benefit obligations
    113       117       33       (14 )     13       15  
Expected return on plan assets
    (198 )     (186 )     (36 )     13       (22 )     (24 )
Amortization:
                                               
Net loss
    41       56       12       14              
Prior service cost/(credit)
    (10 )     (11 )                 (2 )     (3 )
 
Net periodic defined benefit cost
    8       34       18       20       (11 )     (12 )
Other defined benefit pension plans(a)
    7       4       4       4     NA   NA
 
Total defined benefit plans
    15       38       22       24       (11 )     (12 )
Total defined contribution plans
    78       63       78       65     NA   NA
 
Total pension and OPEB cost included in compensation expense
  $ 93     $ 101     $ 100     $ 89     $ (11 )   $ (12 )
 
(a)   Includes various defined benefit pension plans which are individually immaterial.

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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 $12.5 billion and $2.8 billion, respectively, as of March 31, 2011, and $12.2 billion and $2.6 billion, respectively, as of December 31, 2010. See Note 20 on page 155 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-month periods ended March 31, 2011 and 2010.
The amount of potential 2011 contributions to the U.S. qualified defined benefit pension plans, if any, is not determinable at this time. For the full year 2011, the cost of funding benefits under the Firm’s U.S. non-qualified defined benefit pension plans is expected to total $42 million. The 2011 contributions to the non-U.S. defined benefit pension and OPEB plans are expected to be $166 million and $2 million, respectively.
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 210–212 of JPMorgan Chase’s 2010 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)   2011   2010
 
Cost of prior grants of restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) that are amortized over their applicable vesting periods
  $ 561     $ 688  
Accrual of estimated costs of RSUs and SARs to be granted in future periods including those to full-career eligible employees
    269       253  
 
Total noncash compensation expense related to employee stock-based incentive plans
  $ 830     $ 941  
 
In the first quarter of 2011, in connection with its annual incentive grant, the Firm granted 55 million RSUs and 14 million SARs with weighted-average grant date fair values of $44.31 per RSU and $13.12 per SAR.
NOTE 10 — NONINTEREST EXPENSE
The following table presents the components of noninterest expense.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Compensation expense
  $ 8,263     $ 7,276  
Noncompensation expense:
               
Occupancy expense
    978       869  
Technology, communications and equipment expense
    1,200       1,137  
Professional and outside services
    1,735       1,575  
Marketing
    659       583  
Other expense(a)(b)
    2,943       4,441  
Amortization of intangibles
    217       243  
 
Total noncompensation expense
    7,732       8,848  
 
Total noninterest expense
  $ 15,995     $ 16,124  
 
(a)   The three months ended March 31, 2011 and 2010, included litigation expense of $1.1 billion and $2.9 billion, respectively.
 
(b)   The three months ended March 31, 2011 and 2010, included foreclosed property expense of $210 million and $303 million, respectively.

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NOTE 11 — SECURITIES
Securities are classified as AFS, held-to-maturity (“HTM”) or trading. For additional information regarding AFS and HTM securities, see Note 12 on pages 214–218 of JPMorgan Chase’s 2010 Annual Report. Trading securities are discussed in Note 3 on pages 94–105 of this Form 10-Q.
Securities gains and losses
The following table presents realized gains and losses and credit losses that were recognized in income from AFS securities.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Realized gains
  $ 152     $ 752  
Realized losses
    (20 )     (42 )
 
Net realized gains(a)
    132       710  
Credit losses included in securities gains(b)
    (30 )     (100 )
 
Net securities gains
  $ 102     $ 610  
 
(a)   Proceeds from securities sold were within approximately 2% of amortized cost.
 
(b)   Includes other-than-temporary impairment losses recognized in income on certain prime mortgage-backed securities for the three months ended March 31, 2011, and on certain prime mortgage-backed securities and obligations of U.S. states and municipalities for the three months ended March 31, 2010.
The amortized costs and estimated fair values of AFS and HTM securities were as follows for the dates indicated.
                                                                 
    March 31, 2011   December 31, 2010
            Gross   Gross                   Gross   Gross    
    Amortized   unrealized   unrealized   Fair   Amortized   unrealized   unrealized   Fair
(in millions)   cost   gains   losses   value   cost   gains   losses   value
 
Available-for-sale debt securities
                                                               
Mortgage-backed securities:
                                                               
U.S. government agencies(a)
  $ 119,503     $ 2,762     $ 411     $ 121,854     $ 117,364     $ 3,159     $ 297     $ 120,226  
Residential:
                                                               
Prime and Alt-A
    2,360       75       173 (d)     2,262       2,173       81       250 (d)     2,004  
Non-U.S.
    52,946       372       341       52,977       47,089       290       409       46,970  
Commercial
    4,584       417       18       4,983       5,169       502       17       5,654  
 
Total mortgage-backed securities
    179,393       3,626       943       182,076       171,795       4,032       973       174,854  
U.S. Treasury and government agencies(a)
    7,002       88       35       7,055       11,258       118       28       11,348  
Obligations of U.S. states and municipalities
    11,688       164       414       11,438       11,732       165       338       11,559  
Certificates of deposit
    3,486       3             3,489       3,648       1       2       3,647  
Non-U.S. government debt securities
    33,194       164       108       33,250       20,614       191       28       20,777  
Corporate debt securities(b)
    63,455       446       361       63,540       61,718       495       419       61,794  
Asset-backed securities:
                                                               
Credit card receivables
    6,085       331             6,416       7,278       335       5       7,608  
Collateralized loan obligations
    14,459       581       172       14,868       13,336       472       210       13,598  
Other
    9,286       135       14       9,407       8,968       130       16       9,082  
 
Total available-for-sale debt securities
    328,048       5,538       2,047 (d)     331,539       310,347       5,939       2,019 (d)     314,267  
Available-for-sale equity securities
    3,071       174             3,245       1,894       163       6       2,051  
 
Total available-for-sale securities
  $ 331,119     $ 5,712     $ 2,047 (d)   $ 334,784     $ 312,241     $ 6,102     $ 2,025 (d)   $ 316,318  
 
Total held-to-maturity securities(c)
  $ 16     $ 1     $     $ 17     $ 18     $ 2     $     $ 20  
 
(a)   Includes total U.S. government-sponsored enterprise obligations with fair values of $91.7 billion and $94.2 billion at March 31, 2011, and December 31, 2010, respectively, which were predominantly mortgage-related.
 
(b)   Consists primarily of bank debt including sovereign government guaranteed bank debt.
 
(c)   Consists primarily of mortgage-backed securities issued by U.S. government-sponsored enterprises.
 
(d)   Includes a total of $106 million and $133 million (pretax) of unrealized losses related to prime mortgage-backed securities for which credit losses have been recognized in income at March 31, 2011, and December 31, 2010, respectively. These unrealized losses are not credit-related and remain reported in accumulated other comprehensive income/(loss) (“AOCI”).

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Securities impairment
The following tables present the fair value and gross unrealized losses for AFS securities by aging category at March 31, 2011, and December 31, 2010.
                                                 
    Securities with gross unrealized losses
    Less than 12 months   12 months or more           Total
            Gross           Gross   Total   gross
    Fair   unrealized   Fair   unrealized   fair   unrealized
March 31, 2011 (in millions)   value   losses   value   losses   value   losses
 
Available-for-sale debt securities
                                               
Mortgage-backed securities:
                                               
U.S. government agencies
  $ 17,342     $ 408     $ 169     $ 3     $ 17,511     $ 411  
Residential:
                                               
Prime and Alt-A
                1,196       173       1,196       173  
Non-U.S.
    29,713       259       3,361       82       33,074       341  
Commercial
    499       18                   499       18  
 
Total mortgage-backed securities
    47,554       685       4,726       258       52,280       943  
U.S. Treasury and government agencies
    715       35                   715       35  
Obligations of U.S. states and municipalities
    7,198       406       18       8       7,216       414  
Certificates of deposit
                                   
Non-U.S. government debt securities
    11,506       108                   11,506       108  
Corporate debt securities
    20,103       360       99       1       20,202       361  
Asset-backed securities:
                                               
Credit card receivables
                                   
Collateralized loan obligations
    824       5       5,610       167       6,434       172  
Other
    2,268       8       117       6       2,385       14  
 
Total available-for-sale debt securities
    90,168       1,607       10,570       440       100,738       2,047  
Available-for-sale equity securities
                                   
 
Total securities with gross unrealized losses
  $ 90,168     $ 1,607     $ 10,570     $ 440     $ 100,738     $ 2,047  
 
 
    Securities with gross unrealized losses
    Less than 12 months   12 months or more           Total
            Gross           Gross   Total   gross
    Fair   unrealized   Fair   unrealized   fair   unrealized
December 31, 2010 (in millions)   value   losses   value   losses   value   losses
 
Available-for-sale debt securities
                                               
Mortgage-backed securities:
                                               
U.S. government agencies
  $ 14,039     $ 297     $     $     $ 14,039     $ 297  
Residential:
                                               
Prime and Alt-A
                1,193       250       1,193       250  
Non-U.S.
    35,166       379       1,080       30       36,246       409  
Commercial
    548       14       11       3       559       17  
 
Total mortgage-backed securities
    49,753       690       2,284       283       52,037       973  
U.S. Treasury and government agencies
    921       28                   921       28  
Obligations of U.S. states and municipalities
    6,890       330       20       8       6,910       338  
Certificates of deposit
    1,771       2                   1,771       2  
Non-U.S. government debt securities
    6,960       28                   6,960       28  
Corporate debt securities
    18,783       418       90       1       18,873       419  
Asset-backed securities:
                                               
Credit card receivables
                345       5       345       5  
Collateralized loan obligations
    460       10       6,321       200       6,781       210  
Other
    2,615       9       32       7       2,647       16  
 
Total available-for-sale debt securities
    88,153       1,515       9,092       504       97,245       2,019  
Available-for-sale equity securities
                2       6       2       6  
 
Total securities with gross unrealized losses
  $ 88,153     $ 1,515     $ 9,094     $ 510     $ 97,247     $ 2,025  
 

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Other-than-temporary impairment (“OTTI”)
The following table presents credit losses that are included in the securities gains and losses table above.
                 
    Three months ended
    March 31,
(in millions)   2011   2010
 
Debt securities the Firm does not intend to sell that have credit losses
               
Total other-than-temporary impairment losses(a)
  $ (27 )   $ (94 )
Losses recorded in/(reclassified from) other comprehensive income
    (3 )     (6 )
 
Credit losses recognized in income(b)
  $ (30 )   $ (100 )
 
(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 of certain prime mortgage-backed securities and obligations of U.S. states and municipalities 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.
Changes in the credit loss component of credit-impaired debt securities
The following table presents a rollforward for the three months ended March 31, 2011 and 2010, 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)   2011   2010
 
Balance, beginning of period
  $ 632     $ 578  
Additions:
               
Newly credit-impaired securities
    4        
Increase in losses on previously credit-impaired securities
          94  
Losses reclassified from other comprehensive income on previously credit-impaired securities
    26       6  
Reductions:
               
Sales of credit-impaired securities
          (3 )
Impact of new accounting guidance related to VIEs
          (15 )
 
Balance, end of period
  $ 662     $ 660  
 
Gross unrealized losses
Gross unrealized losses have generally increased since December 31, 2010. As of March 31, 2011, 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, 2011.
Following is a description of the Firm’s principal security investments with the most significant unrealized losses that have been existing for 12 months or more as of March 31, 2011, and the key assumptions used in the Firm’s estimate of the present value of the cash flows most likely to be collected from these investments.
Mortgage-backed securities — Prime and Alt-A nonagency
As of March 31, 2011, gross unrealized losses related to prime and Alt-A residential mortgage-backed securities issued by private issuers were $173 million, all of which related to securities that have been in an unrealized loss position for 12 months or more. Approximately 57% of the total portfolio (by amortized cost) are currently rated below investment- grade; the Firm has recorded OTTI losses on 67% of the below investment-grade positions. In analyzing prime and Alt-A residential mortgage-backed securities for potential credit losses, the Firm utilizes a methodology that focuses on loan-level detail to estimate future cash flows, which are then allocated to the various tranches of the securities. The loan-level analysis primarily considers current home value, loan-to-value (“LTV”) ratio, loan type and geographical location of the underlying property to forecast prepayment, home price, default rate and loss severity. The forecasted weighted average underlying default rate on the positions was 24% and the related weighted average loss severity was 49%. Based on this analysis, an OTTI loss of $30 million was recognized for the three months ended March 31, 2011, on certain securities related to higher default rate assumptions, partially offset by lower loss severities. Overall unrealized losses have decreased since December 31, 2010, as a result of the recovery in security prices due to increased demand for higher-yielding asset classes and a deceleration in the pace of home price declines due in part to the U.S. government programs to facilitate financing and to spur home purchases. The unrealized loss of $173 million is considered temporary, based on management’s assessment that the estimated future cash flows together with the credit enhancement levels for those

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securities remain sufficient to support the Firm’s investment. The credit enhancements associated with the below investment-grade and investment-grade positions are 9% and 43%, respectively.
Asset-backed securities — Collateralized loan obligations
As of March 31, 2011, gross unrealized losses related to CLOs were $172 million, of which $167 million related to securities that were in an unrealized loss position for 12 months or more. Overall losses have decreased since December 31, 2010, mainly as a result of lower default forecasts and spread tightening across various asset classes. Substantially all of these securities are rated “AAA,” “AA” and “A” and have an average credit enhancement of 30%. Credit enhancement in CLOs is primarily in the form of subordination, which is a form of structural credit enhancement where realized losses associated with assets held in an issuing vehicle are allocated to the various tranches of securities issued by the vehicle considering their relative seniority. The key assumptions considered in analyzing potential credit losses were underlying loan and debt security defaults and loss severity. Based on current default trends, the Firm assumed collateral default rates of 2.1% for the first quarter 2011, and 5% 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.

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Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at March 31, 2011, of JPMorgan Chase’s AFS and HTM securities by contractual maturity.
                                         
    March 31, 2011
            Due after five        
By remaining maturity   Due in one   Due after one year   years through 10   Due after    
(in millions)   year or less   through five years   years   10 years(c)   Total
 
Available-for-sale debt securities
                                       
Mortgage-backed securities(a)
                                       
Amortized cost
  $     $ 353     $ 3,196     $ 175,844     $ 179,393  
Fair value
          375       3,217       178,484       182,076  
Average yield(b)
    %     4.77 %     2.28 %     3.73 %     3.71 %
U.S. Treasury and government agencies(a)
                                       
Amortized cost
  $ 2,908     $ 3,843     $     $ 251     $ 7,002  
Fair value
    2,925       3,906             224       7,055  
Average yield(b)
    1.61 %     2.32 %     %     3.86 %     2.08 %
Obligations of U.S. states and municipalities
                                       
Amortized cost
  $ 22     $ 159     $ 337     $ 11,170     $ 11,688  
Fair value
    22       166       355       10,895       11,438  
Average yield(b)
    1.07 %     3.11 %     4.68 %     4.88 %     4.84 %
Certificates of deposit
                                       
Amortized cost
  $ 3,390     $ 96     $     $     $ 3,486  
Fair value
    3,393       96                   3,489  
Average yield(b)
    3.34 %     0.93 %     %     %     3.28 %
Non-U.S. government debt securities
                                       
Amortized cost
  $ 7,892     $ 22,281     $ 2,872     $ 149     $ 33,194  
Fair value
    7,927       22,319       2,855       149       33,250  
Average yield(b)
    1.76 %     2.11 %     2.54 %     7.73 %     2.09 %
Corporate debt securities
                                       
Amortized cost
  $ 17,255     $ 40,548     $ 5,651     $ 1     $ 63,455  
Fair value
    17,359       40,501       5,679       1       63,540  
Average yield(b)
    1.93 %     2.21 %     4.88 %     1.00 %     2.37 %
Asset-backed securities
                                       
Amortized cost
  $ 41     $ 3,301     $ 13,704     $ 12,784     $ 29,830  
Fair value
    41       3,412       14,246       12,992       30,691  
Average yield(b)
    8.75 %     3.21 %     2.40 %     2.15 %     2.39 %
 
Total available-for-sale debt securities
                                       
Amortized cost
  $ 31,508     $ 70,581     $ 25,760     $ 200,199     $ 328,048  
Fair value
    31,667       70,775       26,352       202,745       331,539  
Average yield(b)
    2.01 %     2.25 %     2.97 %     3.70 %     3.17 %
 
Available-for-sale equity securities
                                       
Amortized cost
  $     $     $     $ 3,071     $ 3,071  
Fair value
                      3,245       3,245  
Average yield(b)
    %     %     %     0.17 %     0.17 %
 
Total available-for-sale securities
                                       
Amortized cost
  $ 31,508     $ 70,581     $ 25,760     $ 203,270     $ 331,119  
Fair value
    31,667       70,775       26,352       205,990       334,784  
Average yield(b)
    2.01 %     2.25 %     2.97 %     3.64 %     3.14 %
 
 
                                       
Total held-to-maturity securities
                                       
Amortized cost
  $     $ 7     $ 8     $ 1     $ 16  
Fair value
          7       9       1       17  
Average yield(b)
    %     6.97 %     6.82 %     6.47 %     6.86 %
 
(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, 2011.
 
(b)   The average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable equivalent amounts are used where applicable.
 
(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 five years for agency residential mortgage-backed securities, three years for agency residential collateralized mortgage obligations and five years for nonagency residential collateralized mortgage obligations.

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NOTE 12 — SECURITIES FINANCING ACTIVITIES
For a discussion of accounting policies relating to securities financing activities, see Note 13 on page 219 of JPMorgan Chase’s 2010 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 105–106 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, 2011   December 31, 2010
 
Securities purchased under resale agreements(a)
  $ 216,988     $ 222,302  
Securities borrowed(b)
    119,000       123,587  
 
Securities sold under repurchase agreements(c)
  $ 259,147     $ 262,722  
Securities loaned
    23,124       10,592  
 
 
(a)   At March 31, 2011, and December 31, 2010, included resale agreements of $20.0 billion and $20.3 billion, respectively, accounted for at fair value.
 
(b)   At March 31, 2011, and December 31, 2010, included securities borrowed of $15.3 billion and $14.0 billion, respectively, accounted for at fair value.
 
(c)   At March 31, 2011, and December 31, 2010, included repurchase agreements of $6.2 billion and $4.1 billion, respectively, accounted for at fair value.
The amounts reported in the table above were reduced by $125.3 billion and $112.7 billion at March 31, 2011, and December 31, 2010, 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 160 of this Form 10-Q.

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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 and measures the loans as follows:
  Originated or purchased loans held-for-investment (i.e., “retained”), other than PCI loans, are measured at the principal amount outstanding, net of the following: allowance for loan losses; net charge-offs; interest applied to principal (for loans accounted for on the cost recovery method); unamortized discounts and premiums; and deferred loan fees or costs.
 
  Held-for-sale loans are measured at the lower of cost or fair value, with valuation changes recorded in noninterest revenue.
 
  Loans used in a trading strategy or risk managed on a fair value basis are measured at fair value, with changes in fair value recorded in noninterest revenue.
 
  PCI loans held-for-investment are initially recorded at fair value upon acquisition.
For a detailed discussion of loans, including accounting policies, see Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report. See Note 4 on pages 105–106 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 94–105 of this Form 10-Q for further information on loans carried at fair value and classified as trading assets.
Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine the allowance for loan losses: 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)
   Commercial and industrial
   Real estate
   Financial institutions
   Government agencies
   Other










 
 
Consumer, excluding
credit card(b)
Residential real estate — excluding PCI
   Home equity — senior lien
   Home equity — junior lien
   Prime mortgage, including option adjustable-rate mortgages (“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
   Chase, excluding accounts originated by Washington Mutual
    Accounts originated by Washington Mutual











 
(a)   Includes loans reported in IB, Commercial Banking (“CB”), Treasury & Securities Services (“TSS”), Asset Management (“AM”) and Corporate/Private Equity segments.
 
(b)   Includes RFS and residential real estate loans reported in the Corporate/Private Equity segment.
 
(c)   Includes risk-rated loans that apply the Firm’s wholesale methodology for determining the allowance for loan losses; these loans are managed by RFS and therefore, for consistency in presentation, are included with the other consumer loan classes.

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The following table summarizes the Firm’s loan balances by portfolio segment:
                                 
            Consumer, excluding        
March 31, 2011 (in millions)   Wholesale   credit card   Credit Card   Total
 
Retained
  $ 229,648     $ 320,998     $ 124,791     $ 675,437 (a)
Held-for-sale
    4,554       188       4,012       8,754  
At fair value
    1,805                   1,805  
 
Total
  $ 236,007     $ 321,186     $ 128,803     $ 685,996  
 
                                 
            Consumer, excluding        
December 31, 2010 (in millions)   Wholesale   credit card   Credit Card   Total
 
Retained
  $ 222,510     $ 327,464     $ 135,524     $ 685,498 (a)
Held-for-sale
    3,147       154       2,152       5,453  
At fair value
    1,976                   1,976  
 
Total
  $ 227,633     $ 327,618     $ 137,676     $ 692,927  
 
 
(a)   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 $2.4 billion and $1.9 billion at March 31, 2011, and December 31, 2010, respectively.
The following table provides information about the carrying value of retained loans purchased, retained loans sold and retained loans reclassified to loans held-for-sale during the periods indicated. This table excludes loans recorded at fair value. On an on-going basis, the Firm manages its exposure to credit risk. Selling loans is one way that the Firm reduces its credit exposures.
                                 
            Consumer, excluding        
Three months ended March 31, 2011 (in millions)   Wholesale   credit card   Credit Card   Total
 
Purchases:
  $ 123     $ 1,992     $     $ 2,115  
Sales:
    877       257             1,134  
Retained loans reclassified to held-for-sale
    177             1,912       2,089  
 
The following table provides information about gains and losses on loan sales by portfolio segment.
                 
Three months ended March 31, (in millions)   2011   2010
 
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
               
Wholesale
  $ 61     $ 79  
Consumer, excluding credit card
    25       30  
Credit Card
    (20 )      
 
Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
  $ 66     $ 109  
 
 
(a)   Excludes sales related to loans accounted for at fair value.

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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 the risk ratings, see Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report.
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
                                 
    Commercial    
    and industrial   Real estate
    March 31,   December 31,   March 31,   December 31,
(in millions, except ratios)   2011   2010   2011   2010
Loans by risk ratings
                               
Investment-grade
  $ 33,942     $ 31,697     $ 28,884     $ 28,504  
Noninvestment-grade:
                               
Noncriticized
    31,943       30,874       16,167       16,425  
Criticized performing
    2,393       2,371       5,405       5,769  
Criticized–total nonaccrual
    1,457       1,634       2,364       2,937  
 
Total noninvestment grade
    35,793       34,879       23,936       25,131  
 
Total retained loans
  $ 69,735     $ 66,576     $ 52,820     $ 53,635  
 
% of total criticized to total retained loans
    5.52 %     6.02 %     14.71 %     16.23 %
% of nonaccrual loans to total retained loans
    2.09       2.45       4.48       5.48  
 
                               
Loans by geographic distribution(a)
                               
Total non-U.S.
  $ 19,298     $ 17,731     $ 1,513     $ 1,963  
Total U.S.
    50,437       48,845       51,307       51,672  
 
Total retained loans
  $ 69,735     $ 66,576     $ 52,820     $ 53,635  
 
 
                               
Loan delinquency(b)
                               
Current and less than 30 days past due and still accruing
  $ 68,092     $ 64,501     $ 50,162     $ 50,299  
30–89 days past due and still accruing
    180       434       247       290  
90 or more days past due and still accruing(c)
    6       7       47       109  
Nonaccrual
    1,457       1,634       2,364       2,937  
 
Total retained loans
  $ 69,735     $ 66,576     $ 52,820     $ 53,635  
 
 
(a)   U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
 
(b)   For wholesale loans, the past due status of a loan is generally not a significant indicator of credit quality due to the ongoing review and monitoring of an obligor’s ability to meet contractual obligations. For a discussion of more significant factors, see Note 14 on page 223 of JPMorgan Chase’s 2010 Annual Report.
 
(c)   Represents loans that are 90 days or more past due as to principal and/or interest, but that are still accruing interest; these loans are considered well-collateralized.
 
(d)   Other primarily includes loans to special purpose entities and loans to private banking clients. See Note 1 on pages 164–165 of the Firm’s 2010 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 220–238 of JPMorgan Chase’s 2010 Annual Report.
                                 
    Multi-family   Commercial lessors
    March 31,   December 31,   March 31,   December 31,
(in millions, except ratios)   2011   2010   2011   2010
 
Real estate retained loans
  $ 30,501     $ 30,604     $ 15,226     $ 15,796  
Criticized exposure
    3,623       3,798       2,850       3,593  
% of total real estate retained loans
    11.88 %     12.41 %     18.72 %     22.75 %
Criticized nonaccrual
  $ 1,027     $ 1,016     $ 1,000     $ 1,549  
% of total real estate retained loans
    3.37 %     3.32 %     6.57 %     9.81 %
 

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(table continued from previous page)
                                                                 
Financial                                   Total    
institutions   Government agencies   Other(d)   retained loans    
March 31,   December 31,   March 31,   December 31,   March 31,   December 31,   March 31,   December 31,    
2011   2010   2011   2010   2011   2010   2011   2010    
     
                                                               
 
$ 24,940     $ 22,525     $ 6,304     $ 6,871     $ 59,089     $ 56,450     $ 153,159     $ 146,047    
 
                                                               
 
  7,312       8,480       355       382       7,642       6,012       63,419       62,173    
 
  297       317       5       3       392       320       8,492       8,780    
 
  90       136       22       22       645       781       4,578       5,510    
 
     
  7,699       8,933       382       407       8,679       7,113       76,489       76,463    
 
     
$ 32,639     $ 31,458     $ 6,686     $ 7,278     $ 67,768     $ 63,563     $ 229,648     $ 222,510    
 
     
  1.19 %     1.44 %     0.40 %     0.34 %     1.53 %     1.73 %     5.69 %     6.42 %  
 
  0.28       0.43       0.33       0.30       0.95       1.23       1.99       2.48    
 
                                                               
 
                                                               
 
$ 23,704     $ 19,756     $ 834     $ 870     $ 27,113     $ 25,831     $ 72,462     $ 66,151    
 
  8,935       11,702       5,852       6,408       40,655       37,732       157,186       156,359    
 
     
$ 32,639     $ 31,458     $ 6,686     $ 7,278     $ 67,768     $ 63,563     $ 229,648     $ 222,510    
 
     
                                                               
 
                                                               
 
$ 32,454     $ 31,289     $ 6,658     $ 7,222     $ 66,362     $ 61,837     $ 223,728     $ 215,148    
 
  93       31       6       34       693       704       1,219       1,493    
 
  2       2                   68       241       123       359    
 
  90       136       22       22       645       781       4,578       5,510    
 
     
$ 32,639     $ 31,458     $ 6,686     $ 7,278     $ 67,768     $ 63,563     $ 229,648     $ 222,510    
 
     
(table continued from previous page)
                                                 
Commercial construction and development   Other   Total real estate loans    
March 31,   December 31,   March 31,   December 31,   March 31,   December 31,    
2011   2010   2011   2010   2011   2010    
     
$ 3,294     $ 3,395     $ 3,799     $ 3,840     $ 52,820     $ 53,635    
 
  535       619       761       696       7,769       8,706    
 
  16.24 %     18.23 %     20.03 %     18.13 %     14.71 %     16.23 %  
 
$ 141     $ 174     $ 196     $ 198     $ 2,364     $ 2,937    
 
  4.28 %     5.13 %     5.16 %     5.16 %     4.48 %     5.48 %  
 
     

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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 TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 14 on pages 139—140 of this Form 10-Q.
The table below set forth information about the Firm’s wholesale impaired loans.
                                                                                                 
    Commercial                   Financial   Government                   Total
    and industrial   Real estate   institutions   agencies   Other   retained loans
    March 31,   December 31,   March 31,   December 31,   March 31,   December 31,   March 31,   December 31,   March 31,   December 31,   March 31,   December 31,
(in millions)   2011   2010   2011   2010   2011   2010   2011   2010   2011   2010   2011   2010
 
Impaired loans
                                                                                               
With an allowance
  $ 1,382     $ 1,512     $ 2,043     $ 2,510     $ 72     $ 127     $ 22     $ 22     $ 550     $ 697     $ 4,069     $ 4,868  
Without an allowance(a)
    135       157       257       445       18       8                   19       8       429       618  
 
Total impaired loans
  $ 1,517     $ 1,669     $ 2,300     $ 2,955     $ 90     $ 135     $ 22     $ 22     $ 569     $ 705     $ 4,498     $ 5,486  
 
Allowance for loan losses related to impaired loans(b)
  $ 414     $ 435     $ 436     $ 825     $ 28     $ 61     $ 14     $ 14     $ 138     $ 239     $ 1,030     $ 1,574  
Unpaid principal balance of impaired loans(c)
    2,507       2,453       2,777       3,487       218       244       31       30       917       1,046       6,450       7,260  
 
 
(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)   The allowance for impaired loans is included in JPMorgan Chase’s asset-specific allowance for loan losses.
 
(c)   Represents the contractual amount of principal owed at March 31, 2001 and December 31, 2010. 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,   Average impaired loans
(in millions)   2011   2010
 
Commercial and industrial
  $ 1,553     $ 1,905  
Real estate
    2,730       3,041  
Financial institutions
    94       512  
Government agencies
    22       3  
Other
    637       995  
 
Total(a)
  $ 5,036     $ 6,456  
 
 
(a)   The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the three months ended March 31, 2011 and 2010.
The following table provides information about the Firm’s wholesale loans modified in troubled debt restructurings (“TDRs”). These TDR loans are included as impaired loans in the above tables.
                                                                                                 
    Commercial                   Financial   Government                   Total
    and industrial   Real estate   institutions   agencies   Other   retained loans
    March 31,   December 31,   March 31,   December 31,   March 31,   December 31,   March 31,   December 31,   March 31,   December 31,   March 31,   December 31,
(in millions)   2011   2010   2011   2010   2011   2010   2011   2010   2011   2010   2011   2010
 
Loans modified in troubled debt restructurings(a)
  $ 156     $ 212     $ 270     $ 907     $ 1     $ 1     $ 22     $ 22     $     $ 1     $ 449     $ 1,143  
TDRs on nonaccrual status
    105       163       269       831       1       1       22       22             1       397       1,018  
Additional commitments to lend to borrowers whose loans have been modified in TDRs
    4       1       18                                                 22       1  
 
 
(a)   These modifications generally provided interest rate concessions to the borrower or deferral of principal repayments.

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Consumer loan portfolio
Consumer loans, excluding credit card loans, consist primarily of residential mortgages, home equity loans, 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)   March 31, 2011   December 31, 2010
 
Residential real estate – excluding PCI
               
Home equity:
               
Senior lien(a)
  $ 24,071     $ 24,376  
Junior lien(b)
    61,182       64,009  
Mortgages:
               
Prime, including option ARMs
    74,682       74,539  
Subprime
    10,841       11,287  
Other consumer loans
               
Auto
    47,411       48,367  
Business banking
    16,957       16,812  
Student and other
    15,089       15,311  
Residential real estate – PCI
               
Home equity
    23,973       24,459  
Prime mortgage
    16,725       17,322  
Subprime mortgage
    5,276       5,398  
Option ARMs
    24,791       25,584  
 
Total retained loans
  $ 320,998     $ 327,464  
 
 
(a)   Represents loans where JPMorgan Chase holds the first security interest on the property.
 
(b)   Represents loans where JPMorgan Chase holds a security interest that is subordinate in rank to other liens.
Delinquency rates are a primary credit quality indicator for consumer loans. Other credit quality indicators for consumer loans include:
  For residential real estate loans, including both non-PCI and PCI portfolios: The current estimated loan-to-value (“LTV”) ratio, or the combined LTV ratio in the case of loans with a junior lien, the geographic distribution of the loan collateral, and the borrowers’ current or “refreshed” FICO score.
  For auto, scored business banking and student loans: Geographic distribution.
  For risk-rated business banking and auto loans: Risk ratings of the loan, geographic considerations and whether the loan is considered to be criticized and/or nonaccrual.
For further information on consumer credit quality indicators, see Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report.

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Residential real estate — excluding PCI loans
The tables below provide information by class for residential real estate (excluding PCI) retained loans in the consumer, excluding credit card portfolio segment.
                                 
    Home equity
    Senior lien   Junior lien
    March 31,   December 31,   March 31,   December 31,
(in millions, except ratios)   2011   2010   2011   2010
 
Loan delinquency(a)
                               
Current and less than 30 days past due
  $ 23,354     $ 23,615     $ 59,676     $ 62,315  
30–149 days past due
    364       414       1,304       1,508  
150 or more days past due
    353       347       202       186  
 
Total retained loans
  $ 24,071     $ 24,376     $ 61,182     $ 64,009  
 
 
                               
% of 30+ days past due to total retained loans
    2.98 %     3.12 %     2.46 %     2.65 %
90 or more days past due and still accruing
  $     $     $     $  
Nonaccrual loans(b)
    470       479       793       784  
 
Current estimated LTV ratios(c)(d)(e)
                               
Greater than 125% and refreshed FICO scores:
                               
Equal to or greater than 660
  $ 558     $ 528     $ 7,026     $ 6,928  
Less than 660
    243       238       2,530       2,495  
 
                               
101% to 125% and refreshed FICO scores:
                               
Equal to or greater than 660
    1,100       974       9,390       9,403  
Less than 660
    354       325       2,836       2,873  
 
                               
80% to 100% and refreshed FICO scores:
                               
Equal to or greater than 660
    2,934       2,860       12,603       13,333  
Less than 660
    744       738       2,940       3,155  
 
                               
Less than 80% and refreshed FICO scores:
                               
Equal to or greater than 660
    15,478       15,994       20,759       22,527  
Less than 660
    2,660       2,719       3,098       3,295  
 
                               
U.S. government-guaranteed
                       
 
Total retained loans
  $ 24,071     $ 24,376     $ 61,182     $ 64,009  
 
Geographic region
                               
California
  $ 3,336     $ 3,348     $ 14,037     $ 14,656  
New York
    3,266       3,272       11,809       12,278  
Texas
    3,499       3,594       2,114       2,239  
Florida
    1,078       1,088       3,312       3,470  
Illinois
    1,622       1,635       4,068       4,248  
Ohio
    1,977       2,010       1,487       1,568  
New Jersey
    731       732       3,461       3,617  
Michigan
    1,159       1,176       1,545       1,618  
Arizona
    1,461       1,481       2,827       2,979  
Washington
    767       776       2,051       2,142  
All other(f)
    5,175       5,264       14,471       15,194  
 
Total retained loans
  $ 24,071     $ 24,376     $ 61,182     $ 64,009  
 
 
(a)   Mortgage loans insured by U.S. government agencies are included in the delinquency classifications presented. Prior period amounts have been revised to conform to the current period presentation.
 
(b)   At March 31, 2011, and December 31, 2010, nonaccrual loans excluded mortgage loans insured by U.S. government agencies of $9.8 billion and $10.5 billion, respectively, that are accruing at the guaranteed reimbursement rate. These amounts were excluded as reimbursement of insured amounts is proceeding normally.
 
(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 utilizing 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, 2011, and December 31, 2010, included mortgage loans insured by U.S. government agencies of $13.0 billion and $12.9 billion, respectively.
 
(g)   At March 31, 2011, and December 31, 2010, excluded mortgage loans insured by U.S. government agencies of $10.4 billion and $11.4 billion, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

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    (table continued from previous page)
                                                 
Mortgages   Total residential real    
Prime, including option ARMs   Subprime   estate (excluding PCI)    
March 31,   December 31,   March 31,   December 31,   March 31,   December 31,    
2011   2010   2011   2010   2011   2010    
     
                                                 
$ 60,399     $ 59,223     $ 8,236     $ 8,477     $ 151,665     $ 153,630    
 
  3,155       4,052       961       1,184       5,784       7,158    
 
  11,128       11,264       1,644       1,626       13,327       13,423    
 
     
$ 74,682     $ 74,539     $ 10,841     $ 11,287     $ 170,776     $ 174,211    
 
     
                                               
 
  6.36% (g)     6.68 %(g)     24.03 %     24.90 %     5.61% (g)     5.88 %(g)  
 
$     $     $     $     $     $    
 
  4,166       4,320       2,106       2,210       7,535       7,793    
 
     
                                                 
                                                 
$ 3,250     $ 3,039     $ 377     $ 338     $ 11,211     $ 10,833    
 
  1,603       1,595       1,209       1,153       5,585       5,481    
 
                                               
 
                                                 
  4,798       4,733       511       506       15,799       15,616    
 
  1,805       1,775       1,481       1,486       6,476       6,459    
 
                                               
 
                                                 
  10,652       10,720       889       925       27,078       27,838    
 
  2,792       2,786       1,841       1,955       8,317       8,634    
 
                                               
 
                                                 
  32,200       32,385       2,056       2,252       70,493       73,158    
 
  4,587       4,557       2,477       2,672       12,822       13,243    
 
                                               
 
  12,995       12,949                   12,995       12,949    
 
     
$ 74,682     $ 74,539     $ 10,841     $ 11,287     $ 170,776     $ 174,211    
 
     
                                                 
$ 19,070     $ 19,278     $ 1,660     $ 1,730     $ 38,103     $ 39,012    
 
  9,745       9,587       1,332       1,381       26,152       26,518    
 
  2,688       2,569       333       345       8,634       8,747    
 
  4,709       4,840       1,362       1,422       10,461       10,820    
 
  3,885       3,765       445       468       10,020       10,116    
 
  455       462       265       275       4,184       4,315    
 
  2,027       2,026       513       534       6,732       6,909    
 
  951       963       281       294       3,936       4,051    
 
  1,274       1,320       230       244       5,792       6,024    
 
  2,021       2,056       238       247       5,077       5,221    
 
  27,857       27,673       4,182       4,347       51,685       52,478    
 
     
$ 74,682     $ 74,539     $ 10,841     $ 11,287     $ 170,776     $ 174,211    
 
     

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Residential real estate impaired loans and loan modifications — excluding PCI loans
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 MHA programs. For further information, see Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report.
The tables below set forth information about the Firm’s residential real estate impaired loans, excluding PCI. 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 pages 139–140 of this Form 10-Q.
                                                                                 
    Home equity   Mortgages    
                                    Prime, including                   Total residential real
    Senior lien   Junior lien   option ARMs   Subprime   estate (excluding PCI)
    March 31,   December 31,   March 31,   December 31,   March 31,   December 31,   March 31,   December 31,   March 31,   December 31,
(in millions)   2011   2010   2011   2010   2011   2010   2011   2010   2011   2010
 
Impaired loans(a)(b)
                                                                               
With an allowance
  $ 217     $ 211     $ 380     $ 258     $ 2,421     $ 1,525     $ 2,573     $ 2,563     $ 5,591     $ 4,557  
Without an allowance(c)
    17       15       29       25       569       559       181       188       796       787  
 
Total impaired loans(d)
  $ 234     $ 226     $ 409     $ 283     $ 2,990     $ 2,084     $ 2,754     $ 2,751     $ 6,387     $ 5,344  
 
Allowance for loan losses related to impaired loans
  $ 72     $ 77     $ 114     $ 82     $ 92     $ 97     $ 537     $ 555     $ 815     $ 811  
Unpaid principal balance of impaired loans(e)
    281       265       551       402       3,757       2,751       3,872       3,777       8,461       7,195  
Impaired loans on nonaccrual status
    38       38       178       63       570       534       595       632       1,381       1,267  
 
 
(a)   Represents loans modified in a TDR. These modifications generally provided interest rate concessions to the borrower or deferral of principal repayments.
 
(b)   There were no additional commitments to lend to borrowers whose loans have been modified in TDRs as of March 31, 2011, and December 31, 2010.
 
(c)   When discounted cash flows or collateral value equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This result typically occurs when an impaired loan has been partially charged off.
 
(d)   At March 31, 2011, and December 31, 2010, $3.6 billion and $3.0 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae were excluded from loans accounted for as TDRs. When such loans perform subsequent to modification they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure. Substantially all amounts due under the terms of these loans continue to be insured, and where applicable, reimbursement of insured amounts is proceeding normally.
 
(e)   Represents the contractual amount of principal owed at March 31, 2011, and December 31, 2010. 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.
The following table presents average impaired loans and the related interest income reported by the Firm.
                                                 
                                    Interest income on impaired  
Three months ended March 31,   Average impaired loans     Interest income on impaired loans(a)     loans on a cash basis(a)  
(in millions)   2011     2010     2011     2010     2011     2010  
 
Home equity
                                               
Senior lien
  $ 231     $ 165     $ 3     $ 2     $     $  
Junior lien
    353       269       4       3              
Mortgages
                                               
Prime, including option ARMs
    2,477       976       26       17       3       1  
Subprime
    2,750       2,206       34       27       3       4  
 
Total residential real estate (excluding PCI)
  $ 5,811     $ 3,616     $ 67     $ 49     $ 6     $ 5  
 
 
(a)   Generally, interest income on loans modified in a TDR 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, 2011 and 2010, loans of $640 million and $663 million, respectively, were TDRs for which the borrowers had not yet made six payments under their modified terms.

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Other consumer loans
The tables below provide information for other consumer retained loan classes, including auto, business banking and student loans.
                                                                 
    Auto   Business banking   Student and other   Total other consumer
    March 31,   December 31,   March 31,   December 31,   March 31,   December   March 31,   December 31,
(in millions, except ratios)   2011   2010   2011   2010   2011   31, 2010   2011   2010
 
Loan delinquency(a)
                                                               
Current and less than 30 days past due
  $ 46,949     $ 47,778     $ 16,443     $ 16,240     $ 13,744     $ 13,998     $ 77,136     $ 78,016  
30–119 days past due
    454       579       322       351       828       795       1,604       1,725  
120 or more days past due
    8       10       192       221       517       518       717       749  
 
Total retained loans
  $ 47,411     $ 48,367     $ 16,957     $ 16,812     $ 15,089     $ 15,311     $ 79,457     $ 80,490  
 
 
                                                               
% of 30+ days past due to total retained loans
    0.97 %     1.22 %     3.03 %     3.40 %     1.99% (d)   1.61%(d)     1.61% (d)   1.75%(d)
 
                                                               
90 or more days past due and still accruing(b)
  $     $     $     $     $ 615     $ 625     $ 615     $ 625  
 
                                                               
Nonaccrual loans
    120       141       810       832       107       67       1,037       1,040  
 
Geographic region
                                                               
California
  $ 4,214     $ 4,307     $ 966     $ 851     $ 1,314     $ 1,330     $ 6,494     $ 6,488  
New York
    3,781       3,875       2,882       2,877       1,296       1,305       7,959       8,057  
Texas
    4,385       4,505       2,582       2,550       1,245       1,273       8,212       8,328  
Florida
    1,865       1,923       222       220       710       722       2,797       2,865  
Illinois
    2,540       2,608       1,323       1,320       934       940       4,797       4,868  
Ohio
    2,855       2,961       1,603       1,647       994       1,010       5,452       5,618  
New Jersey
    1,832       1,842       229       422       499       502       2,560       2,766  
Michigan
    2,377       2,434       1,394       1,401       714       729       4,485       4,564  
Arizona
    1,438       1,499       1,210       1,218       377       387       3,025       3,104  
Washington
    734       716       133       115       275       279       1,142       1,110  
All other
    21,390       21,697       4,413       4,191       6,731       6,834       32,534       32,722  
 
Total retained loans
  $ 47,411     $ 48,367     $ 16,957     $ 16,812     $ 15,089     $ 15,311     $ 79,457     $ 80,490  
 
 
                                                               
Loans by risk ratings(c)
                                                               
Noncriticized
  $ 5,840     $ 5,803     $ 11,153     $ 10,831     NA   NA   $ 16,993     $ 16,634  
Criticized performing
    257       265       457       502     NA   NA     714       767  
Criticized nonaccrual
    8       12       574       574     NA   NA     582       586  
 
 
(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. Prior period amounts have been revised to conform to the current period presentation.
 
(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)   At March 31, 2011, and December 31, 2010, 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 billion and $1.1 billion, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

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Other consumer impaired loans
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 any loan that has been modified in a TDR.
                                                 
    Auto   Business banking   Total other consumer(c)
    March 31,   December 31,   March 31,   December 31,   March 31,   December 31,
(in millions)   2011   2010   2011   2010   2011   2010
 
Impaired loans
                                               
With an allowance
  $ 98     $ 102     $ 769     $ 774     $ 867     $ 876  
Without an allowance(a)
                                   
 
Total impaired loans
  $ 98     $ 102     $ 769     $ 774     $ 867     $ 876  
 
Allowance for loan losses related to impaired loans
  $ 16     $ 16     $ 236     $ 248     $ 252     $ 264  
Unpaid principal balance of impaired loans(b)
    131       132       894       899       1,025       1,031  
Impaired loans on nonaccrual status
    47       50       631       647       678       697  
 
 
(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, 2011, and December 31, 2010. 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, 2011, and December 31, 2010.

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The following table presents average impaired loans.
                 
Three months ended March 31,   Average impaired loans(b)
(in millions)   2011   2010
Auto
  $ 99     $ 127  
Business banking
    772       510  
Total other consumer(a)
  $ 871     $ 637  
 
 
(a)   There were no student and other loans modified in TDRs at March 31, 2011, and December 31, 2010.
 
(b)   The related interest income on impaired loans, including those on cash basis, was not material for the three months ended March 31, 2011 and 2010.
The following table provides information about the Firm’s other consumer loans modified in TDRs. These TDR loans are included as impaired loans in the tables above.
                                                 
    Auto   Business banking   Total other consumer(c)
    March 31,   December 31,   March 31,   December 31,   March 31,   December 31,
(in millions)   2011   2010   2011   2010   2011   2010
 
Loans modified in troubled debt restructurings(a)(b)
  $ 90     $ 91     $ 408     $ 395     $ 498     $ 486  
TDRs on nonaccrual status
    39       39       270       268       309       307  
 
 
(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, 2011, and December 31, 2010, were immaterial.
 
(c)   There were no student and other loans modified in TDRs at March 31, 2011, and December 31, 2010.

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Purchased credit-impaired (“PCI”) loans
For a detailed discussion of PCI loans, including the related accounting policies, see Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report.
Residential real estate — PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card PCI loans.
                                 
    Home equity   Prime mortgage
    March 31,   December 31,   March 31,   December 31,
(in millions, except ratios)   2011   2010   2011   2010
 
Carrying value(a)
  $ 23,973     $ 24,459     $ 16,725     $ 17,322  
Related allowance for loan losses(b)
    1,583       1,583       1,766       1,766  
 
                               
Loan delinquency (based on unpaid principal balance)
                               
Current and less than 30 days past due
  $ 24,956     $ 25,783     $ 12,632     $ 13,035  
30–149 days past due
    1,193       1,348       1,285       1,468  
150 or more days past due
    1,248       1,181       4,238       4,425  
 
Total loans
  $ 27,397     $ 28,312     $ 18,155     $ 18,928  
 
 
                               
% of 30+ days past due to total loans
    8.91 %     8.93 %     30.42 %     31.13 %
 
                               
Current estimated LTV ratios (based on unpaid principal balance)(c)(d)
                               
Greater than 125% and refreshed FICO scores:
                               
Equal to or greater than 660
  $ 6,466     $ 6,324     $ 2,424     $ 2,400  
Less than 660
    4,065       4,052       2,897       2,744  
 
                               
101% to 125% and refreshed FICO scores:
                               
Equal to or greater than 660
    5,804       6,097       3,517       3,815  
Less than 660
    2,584       2,701       2,904       3,011  
 
                               
80% to 100% and refreshed FICO scores:
                               
Equal to or greater than 660
    3,685       4,019       1,757       1,970  
Less than 660
    1,378       1,483       1,749       1,857  
 
                               
Lower than 80% and refreshed FICO scores:
                               
Equal to or greater than 660
    2,379       2,539       1,323       1,443  
Less than 660
    1,036       1,097       1,584       1,688  
 
Total unpaid principal balance
  $ 27,397     $ 28,312     $ 18,155     $ 18,928  
 
 
                               
Geographic region (based on unpaid principal balance)
                               
California
  $ 16,466     $ 17,012     $ 10,405     $ 10,891  
New York
    1,276       1,316       1,086       1,111  
Texas
    508       525       184       194  
Florida
    2,521       2,595       1,467       1,519  
Illinois
    607       627       550       562  
Ohio
    36       38       88       91  
New Jersey
    520       540       478       486  
Michigan
    91       95       262       279  
Arizona
    521       539       330       359  
Washington
    1,486       1,535       432       451  
All other
    3,365       3,490       2,873       2,985  
 
Total unpaid principal balance
  $ 27,397     $ 28,312     $ 18,155     $ 18,928  
 
 
(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 principal 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 utilizing 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 represent each borrower’s most recent credit score obtained by the Firm. The Firm obtains refreshed FICO scores at least quarterly.

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    (table continued from previous page)
                                                 
Subprime mortgage   Option ARMs   Total PCI    
March 31,   December 31,   March 31,   December 31,   March 31,   December 31,    
2011   2010   2011   2010   2011   2010    
     
$ 5,276     $ 5,398     $ 24,791     $ 25,584     $ 70,765     $ 72,763    
 
  98       98       1,494       1,494       4,941       4,941    
 
                                               
 
                                                 
$ 4,352     $ 4,312     $ 18,317     $ 18,672     $ 60,257     $ 61,802    
 
  833       1,020       1,932       2,215       5,243       6,051    
 
  2,660       2,710       9,310       9,904       17,456       18,220    
 
     
$ 7,845     $ 8,042     $ 29,559     $ 30,791     $ 82,956     $ 86,073    
 
     
                                               
 
  44.53 %     46.38 %     38.03 %     39.36 %     27.36 %     28.20 %  
 
                                               
 
                                               
 
                                               
 
$ 465     $ 432     $ 2,737     $ 2,681     $ 12,092     $ 11,837    
 
  2,174       2,129       6,315       6,330       15,451       15,255    
 
                                               
 
                                                 
  411       424       4,098       4,292       13,830       14,628    
 
  1,637       1,663       4,814       5,005       11,939       12,380    
 
                                               
 
                                                 
  336       374       3,763       4,152       9,541       10,515    
 
  1,380       1,477       3,396       3,551       7,903       8,368    
 
                                               
 
                                                 
  177       186       2,087       2,281       5,966       6,449    
 
  1,265       1,357       2,349       2,499       6,234       6,641    
 
     
$ 7,845     $ 8,042     $ 29,559     $ 30,791     $ 82,956     $ 86,073    
 
     
                                               
 
                                                 
$ 1,889     $ 1,971     $ 15,430     $ 16,130     $ 44,190     $ 46,004    
 
  731       736       1,660       1,703       4,753       4,866    
 
  428       435       151       155       1,271       1,309    
 
  896       906       3,762       3,916       8,646       8,936    
 
  432       438       753       760       2,342       2,387    
 
  120       122       123       131       367       382    
 
  313       316       1,039       1,064       2,350       2,406    
 
  204       214       309       345       866       933    
 
  154       165       482       528       1,487       1,591    
 
  176       178       727       745       2,821       2,909    
 
  2,502       2,561       5,123       5,314       13,863       14,350    
 
     
$ 7,845     $ 8,042     $ 29,559     $ 30,791     $ 82,956     $ 86,073    
 
     

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The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the three months ended March 31, 2011 and 2010, 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   Total PCI
(in millions, except ratios)   2011   2010
 
Balance, January 1
  $ 19,097     $ 25,544  
Accretion into interest income
    (704 )     (886 )
Changes in interest rates on variable rate loans
    (32 )     (394 )
Other changes in expected cash flows(a)
    455       (3,693 )
 
Balance, March 31
  $ 18,816     $ 20,571  
Accretable yield percentage
    4.29 %     4.57 %
 
 
(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 months ended March 31, 2011, other changes in expected cash flows were principally driven by changes in prepayment assumptions. For the three months ended March 31, 2010, other changes in expected cash flows were principally driven by changes in prepayment assumptions, as well as reclassification to the nonaccretable difference. Changes to prepayment assumptions change the expected remaining life of the portfolio, which drives changes in expected future interest cash collections. Such changes do not have a significant impact on the accretable yield percentage.
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 purchase, 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.

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Credit card loans
The credit card portfolio segment includes credit card loans originated and purchased by the Firm, including those acquired in the Washington Mutual transaction. Delinquency rates are the primary credit quality indicator for credit card loans. In addition to delinquency rates, the geographic distribution of the loans provides insight as to the credit quality of the portfolio based on the regional economy.
The borrower’s credit score is another general indicator of credit quality. Because the credit score tends to be a lagging indicator of credit quality, 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 220–238 of JPMorgan Chase’s 2010 Annual Report. The Firm generally originates new card accounts to prime consumer borrowers. However, certain cardholders’ refreshed 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.
                                                 
    Chase, excluding   Washington Mutual    
    Washington Mutual portfolio(c)   portfolio(c)   Total credit card
    March 31,   December 31,   March 31,   December 31,   March 31,   December 31,
(in millions, except ratios)   2011   2010   2011   2010   2011   2010
 
Loan delinquency(a)
                                               
Current and less than 30 days past due and still accruing
  $ 108,748     $ 117,248     $ 11,585     $ 12,670     $ 120,333     $ 129,918  
30–89 days past due and still accruing
    1,693       2,092       350       459       2,043       2,551  
90 or more days past due and still accruing
    1,940       2,449       473       604       2,413       3,053  
Nonaccrual loans
    2       2                   2       2  
 
Total retained loans
  $ 112,383     $ 121,791     $ 12,408     $ 13,733     $ 124,791     $ 135,524  
 
Loan delinquency ratios
                                               
% of 30 plus days past due to total retained loans
    3.23 %     3.73 %     6.63 %     7.74 %     3.57 %     4.14 %
% of 90 plus days past due to total retained loans
    1.73       2.01       3.81       4.40       1.93       2.25  
 
                                               
Credit card loans by geographic region
                                       
California
  $ 14,269     $ 15,454     $ 2,391     $ 2,650     $ 16,660     $ 18,104  
New York
    8,839       9,540       933       1,032       9,772       10,572  
Texas
    8,700       9,217       915       1,006       9,615       10,223  
Florida
    6,240       6,724       1,049       1,165       7,289       7,889  
Illinois
    6,472       7,077       489       542       6,961       7,619  
New Jersey
    4,628       5,070       446       494       5,074       5,564  
Ohio
    4,550       5,035       362       401       4,912       5,436  
Pennsylvania
    4,073       4,521       383       424       4,456       4,945  
Michigan
    3,569       3,956       246       273       3,815       4,229  
Virginia
    2,802       3,020       267       295       3,069       3,315  
Georgia
    2,599       2,834       359       398       2,958       3,232  
Washington
    1,932       2,053       397       438       2,329       2,491  
All other
    43,710       47,290       4,171       4,615       47,881       51,905  
 
Total retained loans
  $ 112,383     $ 121,791     $ 12,408     $ 13,733     $ 124,791     $ 135,524  
 
 
                                               
Percentage of portfolio based on carrying value with estimated refreshed FICO scores(b)
                                               
Equal to or greater than 660
    80.9 %     80.6 %     58.2 %     56.4 %     78.4 %     77.9 %
Less than 660
    19.1       19.4       41.8       43.6       21.6       22.1  
 
 
(a)   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 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.
 
(b)   Refreshed FICO scores are estimated based on a statistically significant random sample of credit card accounts in the credit card portfolio for the period shown. The Firm obtains refreshed FICO scores at least quarterly.
 
(c)   Includes billed finance charges and fees net of an allowance for uncollectible amounts.

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Credit card impaired loans
For a detailed discussion of impaired credit card loans, including credit card loan modifications, see Note 14 on pages 220—238 of JPMorgan Chase’s 2010 Annual Report.
The tables below set 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.
                                                 
    Chase, excluding        
    Washington Mutual   Washington Mutual    
    portfolio   portfolio   Total credit card
    March 31,   December 31,   March 31,   December 31,   March 31,   December 31,
(in millions)   2011   2010   2011   2010   2011   2010
 
Impaired loans with an allowance(a)(b)
                                               
Credit card loans with modified payment terms(c)
  $ 6,303     $ 6,685     $ 1,472     $ 1,570     $ 7,775     $ 8,255  
Modified credit card loans that have reverted to pre-modification payment terms(d)
    1,197       1,439       264       311       1,461       1,750  
 
Total impaired loans
  $ 7,500     $ 8,124     $ 1,736     $ 1,881     $ 9,236     $ 10,005  
 
Allowance for loan losses related to impaired loans
  $ 3,013     $ 3,175     $ 806     $ 894     $ 3,819     $ 4,069  
 
 
(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 then enrolled in a credit card modification program.
 
(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, 2011, and December 31, 2010, of the $1.5 billion and $1.8 billion total loan amount, respectively, approximately $934 million and $1.2 billion, 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. A substantial portion of these loans is expected to be charged-off in accordance with the Firm’s standard charge-off policy. The remaining $527 million and $590 million at March 31, 2011, and December 31, 2010, 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,   Average impaired loans   Interest income on impaired loans(a)
(in millions)   2011   2010   2011   2010
 
Chase, excluding Washington Mutual portfolio
  $ 7,709     $ 8,911     $ 101     $ 119  
Washington Mutual portfolio
    1,785       1,971       29       31  
 
Total credit card
  $ 9,494     $ 10,882     $ 130     $ 150  
 
 
(a)   As permitted by regulatory guidance, credit card loans are generally exempt from being placed on nonaccrual status; accordingly, interest and fees related to credit card loans continue to accrue until the loan is charged off or paid in full. However, the Firm separately establishes an allowance for the estimated uncollectible portion of billed and accrued interest and fee income on credit card loans.

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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 239-243 of JPMorgan Chase’s 2010 Annual 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 and the loans by impairment methodology.
                                                                 
    2011   2010
Three months           Consumer,                           Consumer,        
ended March 31,           excluding                           excluding        
(in millions)   Wholesale   credit card   Credit Card   Total   Wholesale   credit card   Credit Card   Total
 
Allowance for loan losses
                                                               
Beginning balance at January 1,
  $ 4,761     $ 16,471     $ 11,034     $ 32,266     $ 7,145     $ 14,785     $ 9,672     $ 31,602  
Cumulative effect of change in accounting principles(a)
                            14       127       7,353       7,494  
Gross charge-offs
    253       1,460       2,631       4,344       1,014       2,555       4,882       8,451  
Gross (recoveries)
    (88 )     (131 )     (405 )     (624 )     (55 )     (116 )     (370 )     (541 )
 
Net charge-offs
    165       1,329       2,226       3,720       959       2,439       4,512       7,910  
 
Provision for loan losses
    (359 )     1,329       226       1,196       (257 )     3,736       3,512       6,991  
Other
    (3 )     4       7       8       (1 )     3       7       9  
 
Ending balance at March 31
  $ 4,234     $ 16,475     $ 9,041     $ 29,750     $ 5,942     $ 16,212     $ 16,032     $ 38,186  
 
Allowance for loan losses by impairment methodology
                                                               
Asset-specific(b)(c)(d)
  $ 1,030     $ 1,067     $ 3,819     $ 5,916     $ 1,557     $ 911     $ 5,402     $ 7,870  
Formula-based(d)
    3,204       10,467       5,222       18,893       4,385       12,490       10,630       27,505  
PCI
          4,941             4,941             2,811             2,811  
 
Total allowance for loan losses
  $ 4,234     $ 16,475     $ 9,041     $ 29,750     $ 5,942     $ 16,212     $ 16,032     $ 38,186  
 
Loans by impairment methodology
                                                               
Asset-specific
  $ 4,498     $ 7,254     $ 9,236     $ 20,988     $ 6,286     $ 4,406     $ 11,020     $ 21,712  
Formula-based
    225,094       242,979       115,555       583,628       203,818       263,641       138,240       605,699  
PCI
    56       70,765             70,821       107       79,323             79,430  
 
Total retained loans
  $ 229,648     $ 320,998     $ 124,791     $ 675,437     $ 210,211     $ 347,370     $ 149,260     $ 706,841  
 
 
(a)   Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. Upon adoption of the guidance, the Firm consolidated its Firm-sponsored credit card securitization trusts, its Firm-administered multi-seller conduits and certain other consumer loan securitization entities, primarily mortgage-related. As a result, $7.4 billion, $14 million and $127 million, respectively, of allowance for loan losses were recorded on-balance sheet with the consolidation of these entities. For further discussion, see Note 16 on pages 244–259 of JPMorgan Chase’s 2010 Annual Report.
 
(b)   Relates to risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
 
(c)   At March 31, 2011 and 2010, the asset-specific consumer, excluding credit card allowance for loan losses included TDR reserves of $970 million and $754 million, respectively. The asset-specific credit card allowance for loan losses is related to loans modified in TDRs.
 
(d)   Prior period has been revised to reflect the reclassification of the Firm’s allowance for loan losses on all impaired credit card loans from formula-based into asset-specific allowance.

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The table below summarizes information about the allowance for lending-related commitments and lending-related commitments by impairment methodology.
                                                                 
    2011   2010
            Consumer,                           Consumer,        
Three months ended March 31,           excluding                           excluding        
(in millions)   Wholesale   credit card   Credit Card   Total   Wholesale   credit card   Credit Card   Total
 
Allowance for lending-related commitments
                                                               
Beginning balance at January 1,
  $ 711     $ 6     $     $ 717     $ 927     $ 12     $     $ 939  
Cumulative effect of change in accounting principles(a)
                            (18 )                 (18 )
Provision for lending-related commitments
    (27 )                 (27 )     21       (2 )           19  
Other
    (2 )                 (2 )                        
 
Ending balance at March 31
  $ 682     $ 6     $     $ 688     $ 930     $ 10     $     $ 940  
 
 
                                                               
Allowance for lending-related commitments by impairment methodology
                                                               
Asset-specific
  $ 184     $     $     $ 184     $ 296     $     $     $ 296  
Formula-based
    498       6             504       634       10             644  
 
Total allowance for lending-related commitments
  $ 682     $ 6     $     $ 688     $ 930     $ 10     $     $ 940  
 
 
                                                               
Lending-related commitments by impairment methodology
                                                               
Asset-specific
  $ 895     $     $     $ 895     $ 1,552     $     $     $ 1,552  
Formula-based
    354,666       64,560       565,813       985,039       325,369       72,243       556,207       953,819  
 
Total lending-related commitments
  $ 355,561     $ 64,560     $ 565,813     $ 985,934     $ 326,921     $ 72,243     $ 556,207     $ 955,371  
 
 
                                                               
Impaired collateral-dependent loans
                                                               
Net charge-offs
  $ 20     $ 25     $     $ 45     $ 113     $ 126     $     $ 239  
Loans measured at fair value of collateral less cost to sell
    715       864 (b)           1,579       1,069       545 (b)           1,614  
 
 
(a)   Effective January 1, 2010, the Firm adopted accounting guidance related to VIEs. Upon adoption of the guidance, the Firm consolidated its Firm-administered multi-seller conduits. As a result, related assets are now primarily recorded in loans and other assets on the Consolidated Balance Sheets.
 
(b)   Includes collateral-dependent residential mortgage loans that are charged off to the fair value of the underlying collateral. 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.

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NOTE 15 — VARIABLE INTEREST ENTITIES
For a further description of JPMorgan Chase’s accounting policies regarding consolidation of VIEs and a detailed discussion of the Firm’s principal involvement with VIEs, see Note 1 on pages 164—165, and Note 16 on pages 244—259, respectively, of JPMorgan Chase’s 2010 Annual Report.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment.
                 
            Form 10-Q
Line-of-Business   Transaction Type   Activity   page reference
 
Card Services
  Credit card securitization trusts   Securitization of both originated and purchased credit card receivables     141  
 
RFS
  Mortgage and other securitization trusts   Securitization of originated and purchased residential mortgages, automobile and student loans     141-143  
 
IB
  Mortgage and other securitization trusts   Securitization of both originated and purchased residential and commercial mortgages, automobile and student loans     141-143  
 
IB
  Multi-seller conduits
Investor intermediation activities:
  Assist clients in accessing the financial markets in a cost-efficient manner and structures transactions to meet investor needs     143  
 
IB
  Municipal bond vehicles         143-144  
 
 
  Credit-related note and asset swap vehicles         144  
 
 
The Firm also invests in and provides financing and other services to VIEs sponsored by third parties, as described on page 144 of this Note and on page 253 of JPMorgan Chase’s 2010 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 pages 245—246 of JPMorgan Chase’s 2010 Annual Report.
As a result of the Firm’s continuing involvement, the Firm is considered to be the primary beneficiary of the Firm-sponsored credit card securitization trusts. This includes the Firm’s primary card securitization trust, Chase Issuance Trust. The Firm consolidated $58.4 billion and $68.5 billion of assets held by Firm-administered credit-card securitization trusts and $37.7 billion and $44.3 billion of beneficial interests issued to third parties at March 31, 2011, and December 31, 2010, respectively.
The underlying securitized credit card receivables and other assets are available only for payment of the beneficial interests issued by the securitization trusts; they are not available to pay the Firm’s other obligations or the claims of the Firm’s other creditors.
Firm-sponsored mortgage and other securitization trusts
For a detailed description of the Firm’s involvement with Firm-sponsored mortgage and other securitization trusts, as well as accounting treatment, see Note 16 on page 246 of JPMorgan Chase’s 2010 Annual Report.
The following table presents the total unpaid principal amount of assets held in JPMorgan Chase—sponsored securitization entities in which the Firm has continuing involvement, including those that are consolidated or not 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. In the table below, the amount of beneficial interests held by JPMorgan Chase does not equal the assets held in nonconsolidated VIEs because of the existence of beneficial interests held by third parties, which are reflected at their current outstanding par amounts; and because a portion of the Firm’s retained interests (trading assets and AFS securities) are reflected at their fair values. See Securitization activity on pages 146—148 of this Note for further information regarding the Firm’s cash flows with and interests retained in nonconsolidated VIEs.

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                            JPMorgan Chase interest in securitized assets
    Principal amount outstanding   in nonconsolidated VIEs(d)(e)(f)(g)(h)
                    Assets held in                    
                    nonconsolidated                    
    Total assets   Assets held in   securitization VIEs                   Total interests
March 31, 2011(a)   held by   consolidated   with continuing   Trading   AFS   held by
(in billions)   securitization VIEs   securitization VIEs   involvement   assets   securities   JPMorgan Chase
 
Securitization-related
                                               
Residential mortgage:
                                               
Prime(b)
  $ 145.8     $ 1.4     $ 138.1     $ 0.7     $     $ 0.7  
Subprime
    42.9       1.6       39.6                    
Option ARMs
    35.0       0.3       34.7                    
Commercial and other(c)
    146.7             92.2       1.6       0.7       2.3  
Student
    4.4       4.4                          
 
Total
  $ 374.8     $ 7.7     $ 304.6     $ 2.3     $ 0.7     $ 3.0  
 
                                                 
                            JPMorgan Chase interest in securitized assets
    Principal amount outstanding   in nonconsolidated VIEs(d)(e)(f)(g)(h)
                    Assets held in                    
                    nonconsolidated                    
    Total assets   Assets held in   securitization VIEs                   Total interests
December 31, 2010(a)   held by   consolidated   with continuing   Trading   AFS   held by
(in billions)   securitization VIEs   securitization VIEs   involvement   assets   securities   JPMorgan Chase
 
Securitization-related
                                               
Residential mortgage:
                                               
Prime(b)
  $ 153.1     $ 2.2     $ 143.8     $ 0.7     $     $ 0.7  
Subprime
    44.0       1.6       40.7                    
Option ARMs
    36.1       0.3       35.8                    
Commercial and other(c)
    153.4             106.2       2.0       0.9       2.9  
Student
    4.5       4.5                          
 
Total
  $ 391.1     $ 8.6     $ 326.5     $ 2.7     $ 0.9     $ 3.6  
 
 
(a)   Excludes loan sales to U.S. government agencies. See page 147 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. Includes co-sponsored commercial securitizations and, therefore, includes non–JPMorgan Chase–originated commercial mortgage loans.
 
(d)   Excludes retained servicing (for a discussion of MSRs, see Note 16 on pages 149–152 of this Form 10-Q) and securities retained from loan sales to U.S. government agencies.
 
(e)   Excludes senior and subordinated securities of $130 million and $67 million, respectively, at March 31, 2011, and $182 million and $18 million, respectively, at December 31, 2010, which the Firm purchased in connection with IB’s secondary market-making activities.
 
(f)   Excludes interest rate and foreign exchange derivatives primarily used to manage the interest rate and foreign exchange risks of the securitization entities. See Note 5 on pages 107–113 of this Form 10-Q for further information on derivatives.
 
(g)   Includes interests held in re-securitization transactions.
 
(h)   As of both March 31, 2011, and December 31, 2010, 66% 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. This includes $207 million and $157 million of investment-grade and $495 million and $552 million of noninvestment-grade retained interests in prime residential mortgages at March 31, 2011, and December 31, 2010, respectively, and $2.0 billion and $2.6 billion of investment-grade and $259 million and $250 million of noninvestment-grade retained interests in commercial and other securitization trusts.

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Re-securitizations
The Firm also engages in certain re-securitization transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests. These transfers occur to both agency (Fannie Mae, Freddie Mac and Ginnie Mae) and nonagency (private-label) sponsored VIEs, which may be backed by either residential or commercial mortgages and are often structured on behalf of clients. As of March 31, 2011, and December 31, 2010, the Firm did not consolidate any agency re-securitizations, as it did not have the power to direct the significant activities of the trust. As of March 31, 2011, and December 31, 2010, respectively, the Firm consolidated $387 million and $477 million of assets, and $167 million and $230 million of liabilities of private-label re-securitizations, as the Firm had both the power to direct the significant activities of, and retained an interest that is deemed to be significant in, the trust. For other nonconsolidated private-label re-securitizations, the Firm shares control over the resecuritization VIEs (i.e., established the VIE jointly with the investors) and therefore did not have unilateral ability to direct the significant activities of the entity. During the three months ended March 31, 2011 and 2010, the Firm transferred $8.8 billion and $6.5 billion, respectively, of securities to agency VIEs, and $192 million and $383 million, respectively, of securities to private-label VIEs. At March 31, 2011, and December 31, 2010, the Firm held approximately $2.8 billion and $3.5 billion of interests in nonconsolidated agency re-securitization entities, and $49 million and $46 million of senior and subordinated interests in nonconsolidated private-label re-securitization entities. See page 148 of this Note for further information on interests held in nonconsolidated securitization VIEs.
Multi-seller conduits
For a more detailed description of JPMorgan Chase’s principal involvement with Firm-administered, multi-seller conduits, see Note 16 on pages 249–250 of JPMorgan Chase’s 2010 Annual Report.
As a result of the Firm’s continuing involvement, the Firm consolidates its Firm-administered multi-seller conduits, as the Firm has both the power to direct the significant activities of the conduits and a potentially significant economic interest. The Firm consolidated $20.6 billion and $21.7 billion of assets held by Firm-administered multi-seller conduits and $20.5 billion and $21.6 billion of beneficial interests in commercial paper issued to third parties at March 31, 2011, and December 31, 2010, respectively.
The Firm provides deal-specific liquidity as well as program-wide liquidity and credit enhancement to the Firm-administered multi-seller conduits, which have been eliminated in consolidation. The Firm-administered multi-seller conduits then provide certain of their clients with lending-related commitments. The unfunded portion of these commitments was $10.3 billion and $10.0 billion at March 31, 2011, and December 31, 2010, respectively, and are included as off-balance sheet lending-related commitments. For more information on off-balance sheet lending-related commitments, see Note 21 on pages 156–159 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 250–251 of JPMorgan Chase’s 2010 Annual Report.
The Firm’s exposure to nonconsolidated municipal bond VIEs at March 31, 2011, and December 31, 2010, including the ratings profile of the VIEs’ assets, was as follows.
                                 
    Fair value of assets                   Maximum
(in billions)   held by VIEs   Liquidity facilities(a)   Excess/(deficit)(b)   exposure
 
Nonconsolidated municipal bond vehicles
                               
March 31, 2011
  $ 12.7     $ 8.2     $ 4.5     $ 8.2  
December 31, 2010
    13.7       8.8       4.9       8.8  
 
                                                         
    Ratings profile of VIE assets(c)        
    Investment-grade   Noninvestment-grade   Fair value of   Wt. avg.
(in billions, except                                           assets held   expected life
where otherwise noted)   AAA to AAA-   AA+ to AA-   A+ to A-   BBB to BBB-   BB+ and below   by VIEs   of assets (years)
 
Nonconsolidated municipal bond vehicles
March 31, 2011
  $ 2.0     $ 10.1     $ 0.6     $     $     $ 12.7       17.6  
December 31, 2010
    1.9       11.2       0.6                   13.7       15.5  
 
 
(a)   The Firm may serve as credit enhancement provider to municipal bond vehicles in which it serves as liquidity provider. The Firm provided insurance on underlying municipal bonds, in the form of letters of credit, of $10 million at both March 31, 2011, and December 31, 2010.
 
(b)   Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
 
(c)   The ratings scale is based on the Firm’s internal risk ratings and is presented on an S&P-equivalent basis.

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The Firm consolidated $5.9 billion and $4.6 billion of municipal bond vehicles as of March 31, 2011, and December 31, 2010, respectively, due to the Firm owning the residual interests.
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 244–259 of JPMorgan Chase’s 2010 Annual Report.
Exposure to nonconsolidated credit-related note and asset swap VIEs at March 31, 2011, and December 31, 2010, was as follows.
                                 
                            Par value
    Net derivative   Trading   Total   of collateral
March 31, 2011 (in billions)   receivables   assets(a)   exposure(b)   held by VIEs(c)
 
Credit-related notes
                               
Static structure
  $ 0.5     $     $ 0.5     $ 10.8  
Managed structure
    2.1             2.1       10.1  
 
Total credit-related notes
    2.6             2.6       20.9  
Asset swaps
    0.3             0.3       7.7  
 
Total
  $ 2.9     $     $ 2.9     $ 28.6  
 
                                 
                            Par value
    Net derivative   Trading   Total   of collateral
December 31, 2010 (in billions)   receivables   assets(a)   exposure(b)   held by VIEs(c)
 
Credit- related notes
                               
Static structure
  $ 1.0     $     $ 1.0     $ 9.5  
Managed structure
    2.8             2.8       10.7  
 
Total credit-related notes
    3.8             3.8       20.2  
Asset swaps
    0.3             0.3       7.6  
 
Total
  $ 4.1     $     $ 4.1     $ 27.8  
 
 
(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)   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 $137 million and $142 million, respectively, and asset swap vehicles with collateral fair values of zero at both March 31, 2011, and December 31, 2010. The Firm consolidated these vehicles because in its role as secondary market-maker, it held positions in these entities that provided the Firm with control of certain vehicles.
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 253 of JPMorgan Chase’s 2010 Annual Report.
Investment in a third-party credit card securitization trust
The Firm holds two interests in a third-party-sponsored VIE, which is a credit card securitization trust that owns credit card receivables issued by a national retailer. The Firm is not the primary beneficiary of the trust. The Firm’s interest in the VIEs include investments classified as AFS securities that had a fair value of $3.2 billion and $3.1 billion at March 31, 2011, and December 31, 2010, respectively, and other interests which are classified as loans and have a fair value of approximately $1.0 billion at both March 31, 2011, and December 31, 2010. For more information on AFS securities and loans, see Notes 11 and 13 on pages 116–120 and 122–138, respectively, of this Form 10-Q.

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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, 2011, and December 31, 2010.
                                                         
    Assets   Liabilities
    Trading assets                                        
March 31, 2011   debt and equity                   Total   Beneficial interests            
(in billions)   instruments   Loans   Other(a)   assets(b)   in VIE assets(c)   Other(d)   Total liabilities
 
VIE program type
                                                       
Firm-sponsored credit card trusts
  $     $ 57.0     $ 1.4     $ 58.4     $ 37.7     $     $ 37.7  
Firm-administered multi-seller conduits
          20.2       0.4       20.6       20.5             20.5  
Mortgage securitization entities(e)
    1.0       2.7             3.7       2.0       1.5       3.5  
Other(f)
    9.3       4.3       1.6       15.2       10.7       0.3       11.0  
 
Total
  $ 10.3     $ 84.2     $ 3.4     $ 97.9     $ 70.9     $ 1.8     $ 72.7  
 
                                                         
    Assets   Liabilities
    Trading assets                                        
December 31, 2010   debt and equity                   Total   Beneficial interests            
(in billions)   instruments   Loans   Other(a)   assets(b)   in VIE assets(c)   Other(d)   Total liabilities
 
VIE program type
                                                       
Firm-sponsored credit card trusts
  $     $ 67.2     $ 1.3     $ 68.5     $ 44.3     $     $ 44.3  
Firm-administered multi-seller conduits
          21.1       0.6       21.7       21.6       0.1       21.7  
Mortgage securitization entities(e)
    1.8       2.9             4.7       2.4       1.6       4.0  
Other(f)
    8.0       4.4       1.6       14.0       9.3       0.3       9.6  
 
Total
  $ 9.8     $ 95.6     $ 3.5     $ 108.9     $ 77.6     $ 2.0     $ 79.6  
 
 
(a)   Included assets classified as cash, derivative receivables, AFS securities and other assets within the Consolidated Balance Sheets.
 
(b)   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.
 
(c)   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 $45.6 billion and $52.6 billion at March 31, 2011, and December 31, 2010, respectively. The maturities of the long-term beneficial interests as of March 31, 2011, and December 31, 2010, were as follows: $7.5 billion and $13.9 billion under one year, $29.1 billion and $29.0 billion between one and five years, and $9.0 billion and $9.7 billion over five years.
 
(d)   Included liabilities classified as accounts payable and other liabilities in the Consolidated Balance Sheets.
 
(e)   Includes residential and commercial mortgage securitizations as well as re-securitizations.
 
(f)   Primarily comprised of municipal bond vehicles and student loans.
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.

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Securitization activity
The following tables provide information related to the Firm’s securitization activities for the three months ended March 31, 2011 and 2010, related to assets held in JPMorgan Chase—sponsored securitization entities that were not consolidated by the Firm, as sale accounting was achieved based on the accounting rules in effect at the time of the securitization. For the three month period ended March 31, 2011 and 2010, there were no mortgage loans that were securitized, except for commercial and other in 2011, and there were no cash flows from the Firm to the SPEs related to recourse or guarantee arrangements.
                                 
    Three months ended March 31, 2011
    Residential mortgage    
                            Commercial
(in millions)   Prime(e)   Subprime   Option ARMs   and other
 
Principal securitized
  $     $     $     $ 1,493  
All cash flows during the period(a):
                               
Proceeds from new securitizations(b)
  $     $     $     $ 1,558  
Servicing fees collected
    64       59       103       1  
Purchases of previously transferred financial assets (or the underlying collateral)(c)
    379       6       6        
Cash flows received on the interests that continue to be held by the Firm(d)
    61       5       1       47  
 
                                 
    Three months ended March 31, 2010
    Residential mortgage    
                            Commercial
(in millions)   Prime(e)   Subprime   Option ARMs   and other
 
All cash flows during the period(a):
                               
Servicing fees collected
  $ 75     $ 46     $ 117     $ 1  
Purchases of previously transferred financial assets (or the underlying collateral)(c)
    48                    
Cash flows received on the interests that continue to be held by the Firm(d)
    159       4       7       40  
 
 
(a)   Excludes sales for which the Firm did not securitize the loan (including loans sold to Ginnie Mae, Fannie Mae and Freddie Mac).
 
(b)   Includes $1.6 billion and zero of proceeds from new securitizations received as securities for the three months ended March 31, 2011 and 2010, respectively. These securities were predominantly classified as level 2 of the fair value measurement hierarchy.
 
(c)   Includes cash paid by the Firm to reacquire assets from the off–balance sheet, nonconsolidated entities — for example, servicer clean-up calls.
 
(d)   Includes cash flows received on retained interests — including, for example, principal repayments and interest payments.
 
(e)   Includes Alt-A loans and re-securitization transactions.

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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, 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. In connection with these loan sales, the Firm makes certain representations and warranties. For additional information about the Firm’s loan sale- and securitization-related indemnifications, see Note 21 on pages 156–159 of this Form 10-Q.
For a more detailed description of JPMorgan Chase’s principal involvement with loans sold to government-sponsored agencies and other third-party sponsored securitization entities, see Note 16 on page 257 of JPMorgan Chase’s 2010 Annual Report.
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,
(in millions)   2011   2010
 
Carrying value of loans sold(a)(b)
  $ 39,247     $ 35,374  
 
Proceeds received from loan sales as cash
    340       336  
Proceeds received from loan sales as securities(c)
    38,172       34,370  
 
Total proceeds received from loan sales
  $ 38,512     $ 34,706  
 
Gains on loan sales
    22       21  
 
 
(a)   Predominantly to U.S. government agencies.
 
(b)   MSRs were excluded from the above table. See Note 16 on pages 149—152 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.
As of March 31, 2011, and December 31, 2010, loans repurchased, or loans with the option to repurchase, were $13.1 billion and $13.0 billion, respectively, primarily related to loans sold to U.S. government agencies. Additionally, real estate owned resulting from repurchases of loans sold to U.S. government agencies was $2.3 billion and $1.9 billion as of March 31, 2011, and December 31, 2010, respectively. Substantially all of these loans and real estate owned continue to be insured or guaranteed by U.S. government agencies, and where applicable, reimbursement is proceeding normally.

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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, 2011, and December 31, 2010, 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 149–152 of this Form 10-Q.
                 
March 31, 2011   Residential mortgage   Commercial
(in millions, except rates and where otherwise noted)   Prime(a)   and other
 
JPMorgan Chase interests in securitized assets(b)(c)
  $ 702     $ 2,271  
 
Weighted-average life (in years)
    6.6       2.7  
 
Weighted-average constant prepayment rate(d)
    6.7 %     %
 
  CPR   CPR
Impact of 10% adverse change
  $ (2 )   $  
Impact of 20% adverse change
    (12 )      
 
Weighted-average loss assumption
    8.3 %     1.6 %
Impact of 10% adverse change
  $ (1 )   $ (62 )
Impact of 20% adverse change
    (11 )     (142 )
Weighted-average discount rate
    11.6 %     20.5 %
Impact of 10% adverse change
  $ (27 )   $ (54 )
Impact of 20% adverse change
    (51 )     (103 )
 
                 
December 31, 2010   Residential mortgage   Commercial
(in millions, except rates and where otherwise noted)   Prime(a)   and other
 
JPMorgan Chase interests in securitized assets(b)(c)
  $ 708     $ 2,906  
 
Weighted-average life (in years)
    5.5       3.3  
 
Weighted-average constant prepayment rate(d)
    7.9 %     %
 
  CPR   CPR
Impact of 10% adverse change
  $ (15 )   $  
Impact of 20% adverse change
    (27 )      
 
Weighted-average loss assumption
    5.2 %     2.1 %
Impact of 10% adverse change
  $ (12 )   $ (76 )
Impact of 20% adverse change
    (21 )     (151 )
Weighted-average discount rate
    11.6 %     16.4 %
Impact of 10% adverse change
  $ (26 )   $ (69 )
Impact of 20% adverse change
    (47 )     (134 )
 
 
(a)   Includes retained interests in Alt-A loans and re-securitization transactions.
 
(b)   The Firm’s interests in subprime securitizations were $23 million and $14 million, as of March 31, 2011 and December 31, 2010, respectively. Additionally, the Firm had interests in Option ARM securitizations of $29 million at both March 31, 2011, and December 31, 2010.
 
(c)   Includes certain investments acquired in the secondary market but predominantly held for investment purposes.
 
(d)   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.

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Loan delinquencies and net charge-offs
The table below includes information about delinquencies, liquidation losses and components of off-balance sheet securitized financial assets as of March 31, 2011, and December 31, 2010.
                                                 
                                    Liquidation losses
    Credit exposure   90 days past due   Three months ended
    March 31,   Dec. 31,   March 31,   Dec. 31,   March 31,
(in millions)   2011   2010   2011   2010   2011   2010
 
Securitized loans(a)
                                               
Residential mortgage:
                                               
Prime mortgage(b)
  $ 138,064     $ 143,764     $ 32,924     $ 33,093     $ 1,490     $ 1,689  
Subprime mortgage
    39,628       40,721       15,518       15,456       1,000       1,165  
Option ARMs
    34,648       35,786       10,733       10,788       443       589  
Commercial and other
    92,212       106,245       4,930       5,791       204       27  
 
Total loans securitized(c)
  $ 304,552     $ 326,516     $ 64,105     $ 65,128     $ 3,137     $ 3,470  
 
 
(a)   Total assets held in securitization-related SPEs were $374.8 billion and $391.1 billion at March 31, 2011, and December 31, 2010, respectively. The $304.6 billion and $326.5 billion of loans securitized at March 31, 2011, and December 31, 2010, respectively, excludes: $62.5 billion and $56.0 billion of securitized loans in which the Firm has no continuing involvement, and $7.7 billion and $8.6 billion of loan securitizations consolidated on the Firm’s Consolidated Balance Sheets at March 31, 2011, and December 31, 2010, respectively.
 
(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 accounting policies related to goodwill and other intangible assets, see Note 17 on pages 260–263 of JPMorgan Chase’s 2010 Annual Report.
Goodwill and other intangible assets consist of the following.
                 
(in millions)   March 31, 2011   December 31, 2010
 
Goodwill
  $ 48,856     $ 48,854  
Mortgage servicing rights
    13,093       13,649  
 
Other intangible assets:
               
Purchased credit card relationships
  $ 820     $ 897  
Other credit card–related intangibles
    582       593  
Core deposit intangibles
    806       879  
Other intangibles
    1,649       1,670  
 
Total other intangible assets
  $ 3,857     $ 4,039  
 
Goodwill
The following table presents goodwill attributed to the business segments.
                 
(in millions)   March 31, 2011   December 31, 2010
 
Investment Bank
  $ 5,249     $ 5,278  
Retail Financial Services
    16,807       16,813  
Card Services
    14,247       14,205  
Commercial Banking
    2,864       2,866  
Treasury & Securities Services
    1,669       1,680  
Asset Management
    7,643       7,635  
Corporate/Private Equity
    377       377  
 
Total goodwill
  $ 48,856     $ 48,854  
 
The following table presents changes in the carrying amount of goodwill.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Balance at January 1,(a)
  $ 48,854     $ 48,357  
Changes during the period from:
               
Business combinations
    (5 )     9  
Dispositions
          (19 )
Other(b)
    7       12  
 
Balance at March 31,(a)
  $ 48,856     $ 48,359  
 
 
(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.

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Goodwill was not impaired at March 31, 2011, or December 31, 2010, nor was any goodwill written off due to impairment during the three month periods ended March 31, 2011 or 2010. During the three months ended March 31, 2011, the Firm reviewed current conditions and prior projections for all of its reporting units. In addition, the Firm updated the discounted cash flow valuations of its consumer lending businesses in RFS and Card Services (“CS”), as these businesses continue to have elevated risk for goodwill impairment due to their exposure to U.S. consumer credit risk and the effects of regulatory and legislative changes. As a result of these reviews, the Firm concluded that goodwill for these businesses and the Firm’s other reporting units was not impaired at March 31, 2011.
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 fees and ancillary revenues, offset by estimated costs to service the loans. The fair value of mortgage servicing rights naturally declines over time as net servicing cash flows are received, effectively amortizing the MSR asset against contractual and ancillary fee income. For a further description of the MSR asset, interest rate risk management, and the valuation of MSRs, see Notes 17 on pages 260–263, respectively of JPMorgan Chase’s 2010 Annual Report and Note 3 on pages 94–105 of this Form 10-Q.
In the first quarter 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 contemplates significant and prolonged increases in staffing levels in the core and default servicing functions, and specifically considers 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 three months ended March 31, 2011. This decrease partially offset by an increase in fair value due to the effects of higher market interest rates (which tend to decrease prepayments and therefore extend the expected life of the net servicing cash flows that comprise the MSR asset).
The decrease in the fair value of the MSR in the current quarter results in a lower asset value that will amortize in future periods against contractual and ancillary fee income received in future periods. While there is expected to be higher levels of noninterest expense associated with higher servicing costs in those future periods, there will also be less MSR amortization, which will have the effect of increasing mortgage fees and related income. The amortization of the MSR is reflected in the tables below in the row “Other changes in fair value.”
The following table summarizes MSR activity for the three months ended March 31, 2011 and 2010.
                 
    Three months ended March 31,
(in millions, except where otherwise noted)   2011   2010
 
Fair value at January 1,
  $ 13,649     $ 15,531  
MSR activity
               
Originations of MSRs
    757       689  
Purchase of MSRs
    1       14  
Disposition of MSRs
           
 
Total net additions
    758       703  
Change in valuation due to inputs and assumptions(a)
    (751 )     (96 )
Other changes in fair value(b)
    (563 )     (607 )
 
Total change in fair value of MSRs(c)
    (1,314 )     (703 )
 
Fair value at March 31(d)
  $ 13,093     $ 15,531  
 
Change in unrealized gains/(losses) included in income related to MSRs held at March 31
  $ (751 )   $ (96 )
 
Contractual service fees, late fees and other ancillary fees included in income
  $ 1,025     $ 1,132  
 
Third-party mortgage loans serviced at March 31 (in billions)
  $ 963     $ 1,084  
 
Servicer advances, net at March 31 (in billions)(e)
  $ 10.8     $ 9.0  
 
 
(a)   Represents MSR asset fair value adjustments due to changes in inputs, such as interest rates and volatility, as well as updates to assumptions used in the valuation model.
 
(b)   Includes changes in MSR value due to modeled servicing portfolio runoff (i.e., amortization or time decay).
 
(c)   Includes changes related to commercial real estate of $(2) million for both the three months ended March 31, 2011 and 2010, respectively.
 
(d)   Includes $38 million and $39 million related to commercial real estate at March 31, 2011 and 2010, respectively.
 
(e)   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 if the collateral is insufficient to cover the advance.

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The following table presents the components of mortgage fees and related income (including the impact of MSR risk management activities) for the three months ended March 31, 2011 and 2010.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
RFS mortgage fees and related income
               
Net production revenue:
               
Production revenue
  $ 679     $ 433  
Repurchase losses
    (420 )     (432 )
 
Net production revenue
    259       1  
 
Net mortgage servicing revenue
               
Operating revenue:
               
Loan servicing revenue
    1,052       1,107  
Other changes in MSR asset fair value(a)
    (563 )     (605 )
 
Total operating revenue
    489       502  
 
Risk management:
               
Changes in MSR asset fair value due to inputs or assumptions in model(b)
    (751 )     (96 )
Derivative valuation adjustments and other
    (486 )     248  
 
Total risk management
    (1,237 )     152  
 
Total RFS net mortgage servicing revenue
    (748 )     654  
 
All other(c)
    2       3  
 
Mortgage fees and related income
  $ (487 )   $ 658  
 
 
(a)   Includes changes in the MSR value due to modeled servicing portfolio runoff (i.e., amortization or time decay).
 
(b)   Represents MSR asset fair value adjustments due to changes in inputs, such as interest rates and volatility, as well as updates to assumptions used in the MSR valuation model.
 
(c)   Primarily represents risk management activities performed by the Chief Investment Office (“CIO”) in the Corporate sector.
The table below outlines the key economic assumptions used to determine the fair value of the Firm’s MSRs at March 31, 2011, and December 31, 2010; 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, 2011   December 31, 2010
 
Weighted-average prepayment speed assumption (“CPR”)
    10.15 %     11.29 %
Impact on fair value of 10% adverse change
  $ (727 )   $ (809 )
Impact on fair value of 20% adverse change
    (1,407 )     (1,568 )
 
Weighted-average option adjusted spread
    3.94 %     3.94 %
Impact on fair value of 100 basis points adverse change
  $ (592 )   $ (578 )
Impact on fair value of 200 basis points adverse change
    (1,136 )     (1,109 )
 
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 may not be linear. Also, 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 might magnify or counteract the sensitivities.

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Other intangible assets
The $182 million decrease in other intangible assets during the three months ended March 31, 2011, was predominantly due to $217 million in amortization.
The components of credit card relationships, core deposits and other intangible assets were as follows.
                                                 
    March 31, 2011   December 31, 2010
                    Net                   Net
    Gross   Accumulated   carrying   Gross   Accumulated   carrying
(in millions)   amount(a)   amortization(a)   value   amount   amortization   value
 
Purchased credit card relationships
  $ 3,829     $ 3,009     $ 820     $ 5,789     $ 4,892     $ 897  
Other credit card–related intangibles
    858       276       582       907       314       593  
Core deposit intangibles
    4,132       3,326       806       4,280       3,401       879  
Other intangibles
    2,466       817       1,649       2,515       845       1,670  
 
 
(a)   The decrease in the gross amount and accumulated amortization from December 31, 2010 was due to the removal of fully amortized assets.
Intangible assets of approximately $600 million consisting primarily of asset management advisory contracts, 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,
(in millions)   2011   2010
 
Purchased credit card relationships
  $ 80     $ 97  
All other intangibles:
               
Other credit card–related intangibles
    26       26  
Core deposit intangibles
    72       83  
Other intangibles
    39       37  
 
Total amortization expense
  $ 217     $ 243  
 
Future amortization expense
The following table presents estimated future amortization expense related to credit card relationships, core deposits and other intangible assets.
                                         
            Other credit            
    Purchased credit   card related   Core deposit   Other  
For the year: (in millions)   card relationships   intangibles   intangibles   intangibles   Total
 
2011
  $ 294     $ 106     $ 284     $ 142     $ 826  
2012
    254       109       240       135       738  
2013
    213       106       195       128       642  
2014
    110       105       100       111       426  
2015
    24       97       25       94       240  
 

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NOTE 17 — DEPOSITS
For further discussion of deposits, see Note 19 on pages 263—264 in JPMorgan Chase’s 2010 Annual Report.
At March 31, 2011, and December 31, 2010, noninterest-bearing and interest-bearing deposits were as follows.
                 
(in millions)   March 31, 2011   December 31, 2010
 
U.S. offices
               
Noninterest-bearing
  $ 244,136     $ 228,555  
Interest-bearing
               
Demand(a)
    34,944       33,368  
Savings(b)
    345,558       334,632  
Time (included $3,062 and $2,733 at fair value)(c)
    88,152       87,237  
 
Total interest-bearing deposits
    468,654       455,237  
 
Total deposits in U.S. offices
    712,790       683,792  
 
Non-U.S. offices
               
Noninterest-bearing
    11,644       10,917  
Interest-bearing
               
Demand
    194,726       174,417  
Savings
    710       607  
Time (included $1,215 and $1,636 at fair value)(c)
    75,959       60,636  
 
Total interest-bearing deposits
    271,395       235,660  
 
Total deposits in non-U.S. offices
    283,039       246,577  
 
Total deposits
  $ 995,829     $ 930,369  
 
 
(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 187–189 of JPMorgan Chase’s 2010 Annual Report.
NOTE 18 — OTHER BORROWED FUNDS
The following table details the components of other borrowed funds.
                 
(in millions)   March 31, 2011   December 31, 2010
 
Advances from Federal Home Loan Banks(a)
  $ 1,500     $ 2,250  
Other
    35,204       32,075  
 
Total other borrowed funds(b)(c)
  $ 36,704     $ 34,325  
 
 
(a)   Effective January 1, 2011, $23.0 billion of long-term advances from FHLBs were reclassified from other borrowed funds to long-term debt. The prior-year period has been revised to conform with the current presentation.
 
(b)   Includes other borrowed funds of $10.6 billion and $9.9 billion accounted for at fair value at March 31, 2011, and December 31, 2010, respectively.
 
(c)   Includes other borrowed funds of $16.4 billion and $14.8 billion secured by assets totaling $16.3 billion and $15.0 billion at March 31, 2011, and December 31, 2010, respectively.
As of March 31, 2011, and December 31, 2010, JPMorgan Chase had no significant lines of credit for general corporate purposes.

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NOTE 19 — EARNINGS PER SHARE
For a discussion of the computation of basic and diluted earnings per share (“EPS”), see Note 25 on page 269 of JPMorgan Chase’s 2010 Annual Report. The following table presents the calculation of basic and diluted EPS for the three months ended March 31, 2011 and 2010.
                 
    Three months ended March 31,
(in millions, except per share amounts)   2011   2010
 
Basic earnings per share
               
Net income
  $ 5,555     $ 3,326  
Less: Preferred stock dividends
    157       162  
 
Net income applicable to common equity
    5,398       3,164  
Less: Dividends and undistributed earnings allocated to participating securities
    262       190  
 
Net income applicable to common stockholders
  $ 5,136     $ 2,974  
Total weighted-average basic shares outstanding
    3,981.6       3,970.5  
 
Net income per share
  $ 1.29     $ 0.75  
 
                 
    Three months ended March 31,
(in millions, except per share amounts)   2011   2010
 
Diluted earnings per share
               
Net income applicable to common stockholders
  $ 5,136     $ 2,974  
Total weighted-average basic shares outstanding
    3,981.6       3,970.5  
Add: Employee stock options, SARs and warrants(a)
    32.5       24.2  
 
Total weighted-average diluted shares outstanding(b)
    4,014.1       3,994.7  
 
Net income per share
  $ 1.28     $ 0.74  
 
 
(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 85 million and 239 million for the three months ended March 31, 2011 and 2010, 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.

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NOTE 20 — 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), cash flow hedging activities, and net loss and prior service costs/(credit) related to the Firm’s defined benefit pension and OPEB plans.
                                         
                            Net loss and prior        
                            service costs/(credit)     Accumulated  
As of or for the three months ended   Unrealized     Translation             of defined benefit     other  
March 31, 2011   gains/(losses) on     adjustments,             pension and     comprehensive  
(in millions)   AFS securities(b)     net of hedges     Cash flow hedges     OPEB plans     income/(loss)  
 
Balance at January 1, 2011
  $ 2,498 (c)   $ 253     $ 206     $ (1,956 )   $ 1,001  
Net change
    (251) (d)     24 (e)     (79) (f)     17 (g)     (289 )
 
Balance at March 31, 2011
  $ 2,247 (c)   $ 277     $ 127     $ (1,939 )   $ 712  
 
                                         
                            Net loss and prior    
                            service costs/(credit)   Accumulated
As of or for the three months ended   Unrealized   Translation           of defined benefit   other
March 31, 2010   gains/(losses) on   adjustments,           pension and   comprehensive
(in millions)   AFS securities(b)   net of hedges   Cash flow hedges   OPEB plans   income/(loss)
 
Balance at January 1, 2010
  $ 2,032 (c)   $ (16 )   $ 181     $ (2,288 )   $ (91 )
Cumulative effect of change in accounting principle(a)
    (129 )                       (129 )
Net change
    796 (d)     31 (e)     85 (f)     69 (g)     981  
 
Balance at March 31, 2010
  $ 2,699 (c)   $ 15     $ 266     $ (2,219 )   $ 761  
 
 
(a)   Reflects the effect of adoption of accounting guidance related to the consolidation of VIEs. AOCI decreased by $129 million due to the adoption of the accounting guidance related to VIEs, as a result of the reversal of the fair value adjustments taken on retained AFS securities that were eliminated in consolidation; for further discussion see Note 16 on pages 244—259 of JPMorgan Chase’s 2010 Annual Report.
 
(b)   Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS.
 
(c)   At March 31, 2011, January 1, 2011, March 31, 2010, and January 1, 2010, included after-tax unrealized losses not related to credit on debt securities for which credit losses have been recognized in income of $(65) million, $(81) million, $(193) million and $(226) million, respectively.
 
(d)   The net change for the three months ended March 31, 2011, was due primarily to decreased market value on pass-through agency MBS and agency collateralized mortgage obligations, as well as on foreign government debt, partially offset by the narrowing of spreads on collateralized loan obligations and foreign residential MBS. The net change for the three months ended March 31, 2010, was due primarily to the narrowing of spreads on commercial and nonagency residential MBS, as well as on collateralized loan obligations; also reflected increased market value on pass-through agency residential MBS.
 
(e)   At March 31, 2011 and 2010, included after-tax gains/(losses) on foreign currency translation from operations for which the functional currency is other than the U.S. dollar of $262 million and $(170) million, respectively, partially offset by after-tax gains/(losses) on hedges of $(238) million and $201 million, respectively. The Firm may not hedge its entire exposure to foreign currency translation on net investments in foreign operations.
 
(f)   The net change for the three months ended March 31, 2011, included $71 million of after-tax gains recognized in income, and $(8) million of after-tax losses, representing the net change in derivative fair value that was reported in comprehensive income. The net change for the three months ended March 31, 2010, included $(2) million of after-tax losses recognized in income and $83 million of after-tax gains, representing the net change in derivative fair value that was reported in comprehensive income.
 
(g)   The net changes for the three-month periods ended March 31, 2011 and 2010, were due to after-tax adjustments based on the final year-end actuarial valuations for the U.S. and non-U.S. defined benefit pension and OPEB plans (for 2010 and 2009, respectively); and the amortization of net loss and prior service credit into net periodic benefit cost.

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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 Firm’s maximum possible credit risk should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and 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 30 on pages 275–280 of JPMorgan Chase’s 2010 Annual Report.
To provide for the risk of loss inherent in wholesale and consumer (excluding credit card) related contracts, an allowance for credit losses on lending-related commitments is maintained. See Note 14 on pages 139–140 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, 2011, and December 31, 2010. 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 prior notice or, in some cases, without notice as permitted by law. The Firm may reduce or close home equity lines of credit when there are significant decreases in the value of the underlying property, or when there has been a demonstrable decline in the creditworthiness of the borrower.
Off–balance sheet lending-related financial instruments, guarantees and other commitments
                                 
    Contractual amount   Carrying value(j)
    March 31,   December 31,   March 31,   December 31,
(in millions)   2011   2010   2011   2010
 
Lending-related
                               
Consumer, excluding credit card:
                               
Home equity – senior lien
  $ 17,406     $ 17,662     $     $  
Home equity – junior lien
    30,146       30,948              
Prime mortgage
    745       1,266              
Subprime mortgage
                       
Auto
    5,947       5,246       1       2  
Business banking
    9,808       9,702       5       4  
Student and other
    508       579              
 
Total consumer, excluding credit card
    64,560       65,403       6       6  
 
Credit card
    565,813       547,227              
 
Total consumer
    630,373       612,630       6       6  
 
Wholesale:
                               
Other unfunded commitments to extend credit(a)(b)
    206,679       199,859       340       364  
Standby letters of credit and other financial guarantees(a)(b)(c)(d)
    95,361       94,837       706       705  
Unused advised lines of credit
    47,578       44,720              
Other letters of credit(a)(d)
    5,943       6,663       1       2  
 
Total wholesale
    355,561       346,079       1,047       1,071  
 
Total lending-related
  $ 985,934     $ 958,709     $ 1,053     $ 1,077  
 
Other guarantees and commitments
                               
Securities lending indemnifications(e)
  $ 200,627     $ 181,717     $NA   $NA
Derivatives qualifying as guarantees(f)
    87,360       87,768       372       294  
Unsettled reverse repurchase and securities borrowing agreements(g)
    47,021       39,927              
Other guarantees and commitments(h)
    6,373       6,492       (6 )     (6 )
Loan sale and securitization-related indemnifications:
                               
Repurchase liability(i)
  NA   NA     3,474       3,285  
Loans sold with recourse
    10,823       10,982       148       153  
 
 
(a)   At March 31, 2011, and December 31, 2010, represents the contractual amount net of risk participations totaling $570 million and $542 million, respectively, for other unfunded commitments to extend credit; $22.8 billion and $22.4 billion, respectively, for standby letters of credit and other financial guarantees; and $1.3 billion and $1.1 billion, respectively, for other letters of credit. In regulatory filings with the Federal Reserve Board these commitments are shown gross of risk participations.
 

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(b)   Included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other not-for-profit entities of $43.9 billion and $43.4 billion, at March 31, 2011, and December 31, 2010, respectively.
 
(c)   At March 31, 2011, and December 31, 2010, included unissued standby letters of credit commitments of $41.5 billion and $41.6 billion, respectively.
 
(d)   At March 31, 2011, and December 31, 2010, JPMorgan Chase held collateral relating to $38.0 billion and $37.8 billion, respectively, of standby letters of credit; and $2.0 billion and $2.1 billion, respectively, of other letters of credit.
 
(e)   At March 31, 2011, and December 31, 2010, collateral held by the Firm in support of securities lending indemnification agreements was $203.4 billion and $185.0 billion, respectively. Securities lending collateral comprises primarily cash, and securities issued by governments that are members of the Organisation for Economic Co-operation and Development (“OECD”) and U.S. government agencies.
 
(f)   Represents notional amounts of derivatives qualifying as guarantees. The carrying value at March 31, 2011, and December 31, 2010, reflected derivative payables of $467 million and $390 million, respectively, less derivative receivables of $95 million and $96 million, respectively.
 
(g)   At March 31, 2011, and December 31, 2010, the amount of commitments related to forward starting reverse repurchase agreements and securities borrowing agreements were $12.5 billion and $14.4 billion, respectively. Commitments related to unsettled reverse repurchase agreements and securities borrowing agreements with regular way settlement periods were $34.5 billion and $25.5 billion at March 31, 2011, and December 31, 2010, respectively.
 
(h)   At March 31, 2011, and December 31, 2010, included unfunded commitments of $943 million and $1.0 billion, respectively, to third-party private equity funds; and $1.3 billion and $1.4 billion, respectively, to other equity investments. These commitments included $885 million and $1.0 billion, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3 on pages 94–105 of this Form 10-Q. In addition, at both March 31, 2011, and December 31, 2010, included letters of credit hedged by derivative transactions and managed on a market risk basis of $3.8 billion.
 
(i)   Represents estimated 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 pages 158–159 of this Note.
 
(j)   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.
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit are generally compromised of 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.
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 $5.5 billion and $5.9 billion at March 31, 2011, and December 31, 2010, respectively. For further information, see Note 3 and Note 4 on pages 94–105 and 105–106 respectively, of this Form 10-Q.
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 30 on pages 275–280 of JPMorgan Chase’s 2010 Annual Report. The recorded amounts of the liabilities related to guarantees and indemnifications at March 31, 2011, and December 31, 2010, excluding the allowance for credit losses on lending-related commitments, are discussed on pages 158–159 of this Note.
Standby letters of credit
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 $707 million at both March 31, 2011, and December 31, 2010, respectively, which were classified in accounts payable and other liabilities on the Consolidated Balance Sheets; these carrying values include $342 million and $347 million, respectively, for the allowance for lending-related commitments, and $365 million and $360 million, respectively, for the guarantee liability and corresponding asset.

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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, 2011, and December 31, 2010.
Standby letters of credit and other financial guarantees and other letters of credit
                                 
    March 31, 2011   December 31, 2010
    Standby letters of           Standby letters of    
    credit and other   Other letters   credit and other   Other letters
(in millions)   financial guarantees   of credit   financial guarantees   of credit
 
Investment-grade(a)
  $ 71,244     $ 4,761     $ 70,236     $ 5,289  
Noninvestment-grade(a)
    24,117       1,182       24,601       1,374  
 
Total contractual amount(b)
  $ 95,361 (c)   $ 5,943     $ 94,837 (c)   $ 6,663  
 
Allowance for lending-related commitments
  $ 341     $ 1     $ 345     $ 2  
Commitments with collateral
    38,034       1,986       37,815       2,127  
 
 
(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, 2011, and December 31, 2010, represented contractual amount net of risk participations totaling $22.8 billion and $22.4 billion, respectively, for standby letters of credit and other financial guarantees; and $1.3 billion and $1.1 billion, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
 
(c)   At March 31, 2011, and December 31, 2010, included unissued standby letters of credit commitments of $41.5 billion and $41.6 billion, respectively.
Derivatives qualifying as guarantees
In addition to the contracts described above, the Firm transacts certain derivative contracts that meet the characteristics of a guarantee under U.S. GAAP. For further information on these derivatives, see Note 30 on pages 275–280 of JPMorgan Chase’s 2010 Annual Report. The total notional value of the derivatives that the Firm deems to be guarantees was $87.4 billion and $87.8 billion at March 31, 2011, and December 31, 2010, respectively. The notional amount generally represents the Firm’s maximum exposure to derivatives qualifying as guarantees. However, exposure to certain stable value derivatives is contractually limited to a substantially lower percentage of the notional amount; the notional amount on these stable value contracts was $26.1 billion and $25.9 billion and the maximum exposure to loss was $2.7 billion, at both March 31, 2011, and December 31, 2010. The fair values of the contracts reflects the probability of whether the Firm will be required to perform under the contract. The fair value related to derivative guarantees were derivative payables of $467 million and $390 million and derivative receivables of $95 million and $96 million at March 31, 2011, and December 31, 2010, 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.
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 107–113 of this Form 10-Q, and Note 6 on pages 191–199 of JPMorgan Chase’s 2010 Annual Report.
Loan sale- and securitization-related indemnifications
Indemnifications for breaches of representations and warranties
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 Notes 13 and 15 on pages 122–138 and 141–149, respectively, of this Form 10-Q, and Notes 14 and 16 on pages 220–238 and 244–259, respectively of JPMorgan Chase’s 2010 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; however, predominantly all of the repurchase demands received by the Firm and the Firm’s losses realized to date are related to loans sold to the GSEs.
The Firm has recognized a repurchase liability of $3.5 billion and $3.3 billion, as of March 31, 2011, and December 31, 2010, respectively, which is reported in accounts payable and other liabilities net of probable recoveries from third parties.
Substantially all of the estimates and assumptions underlying the Firm’s established methodology for computing its recorded repurchase liability — including factors such as the amount of probable future demands from purchasers, the ability of the Firm to cure identified defects, the severity of loss upon repurchase or foreclosure, and recoveries from third parties — require application of a significant level of management judgment. Estimating the repurchase liability is further complicated by limited and rapidly changing historical data and uncertainty surrounding numerous external factors, including: (i) 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 and mortgage insurers. While the Firm uses the best information available to it in

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estimating its repurchase liability, the estimation process is inherently uncertain and imprecise and, accordingly, losses in excess of the amounts accrued as of March 31, 2011, are reasonably possible.
The Firm believes the estimate of the range of reasonably possible losses, in excess of reserves established, for its repurchase liability is from $0 to approximately $1.8 billion at March 31, 2011. This estimated range of reasonably possible loss is based on an assumed peak to trough decline in home prices of 44%, which is an additional 11 percentage point decline in home prices beyond the Firm’s current assumptions. Such a decline could increase the level of loan delinquencies, thereby potentially increasing the repurchase demand rate from the GSEs and increasing loss severity on repurchased loans, each of which could affect the Firm’s repurchase liability. The Firm does not consider such a further decline in home prices to be likely to occur, and actual repurchase losses could vary significantly from the Firm’s recorded 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 repurchase liability for each of the periods presented.
Summary of changes in repurchase liability
                 
Three months ended March 31, (in millions)   2011   2010
 
Repurchase liability at beginning of period
  $ 3,285     $ 1,705  
Realized losses(a)
    (231 )     (246 )
Provision for repurchase losses
    420       523  
 
Repurchase liability at end of period
  $ 3,474     $ 1,982  
 
 
(a)   Includes principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expenses. Make-whole settlements were $115 million and $105 million at March 31, 2011 and 2010, respectively.
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 issued by the trust. At March 31, 2011, and December 31, 2010, the unpaid principal balance of loans sold with recourse totaled $10.8 billion and $11.0 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 this guarantee, was $148 million and $153 million at March 31, 2011, and December 31, 2010, respectively.

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NOTE 22 — PLEDGED ASSETS AND COLLATERAL
For a discussion of the Firm’s pledged assets and collateral, see Note 31 on pages 280–281 of JPMorgan Chase’s 2010 Annual Report.
Pledged assets
At March 31, 2011, 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, 2011, and December 31, 2010, the Firm had pledged $305.4 billion and $288.7 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 141–149 of this Form 10-Q, and Note 16 on pages 244–259 of JPMorgan Chase’s 2010 Annual Report, for additional information on assets and liabilities of consolidated VIEs. For further information regarding pledged assets, see Note 31 on page 281 of JPMorgan Chase’s 2010 Annual Report.
Collateral
At March 31, 2011, and December 31, 2010, the Firm had accepted assets as collateral that it could sell or repledge, deliver or otherwise use with a fair value of approximately $730.4 billion and $655.0 billion, respectively. This collateral was generally obtained under resale agreements, securities borrowing agreements, customer margin loans and derivative agreements. Of the collateral received, approximately $544.2 billion and $521.3 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. For further information regarding collateral, see Note 31 on page 281 of JPMorgan Chase’s 2010 Annual Report.
NOTE 23 — LITIGATION
As of March 31, 2011, the Firm and its subsidiaries are defendants or putative defendants in more than 10,000 legal proceedings, in the form of regulatory/government investigations as well as private, civil litigations. 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 claims or 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 $4.5 billion at March 31, 2011. 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 of them are currently in preliminary stages), the existence of multiple defendants (including the Firm) in many of such proceedings 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 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. 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 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 auction-rate securities purchased from J.P. Morgan Securities LLC (“JPMorgan Securities”; formerly J.P. Morgan Securities Inc.), 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

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for the State of Florida and the North American Securities Administrator 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 $25 million to all states. The Firm is currently in the process of finalizing consent agreements with NASAA’s member states; over 40 of these consent agreements have been finalized to date.
The Firm also faces a number of civil actions relating to the Firm’s sales of auction-rate securities, including a putative securities class action in the United States District Court for the Southern District of New York that seeks unspecified damages, and individual arbitrations and lawsuits in various forums brought by institutional and individual investors that, together, seek damages totaling more than $200 million relating to the Firm’s sales of auction-rate securities. One action is brought by an issuer of auction-rate securities. The actions generally allege that the Firm and other firms manipulated the market for auction-rate securities by placing bids at auctions that affected these securities’ clearing rates or otherwise supported the auctions without properly disclosing these activities. Some actions also allege that the Firm misrepresented that auction-rate securities were short-term instruments. The Firm has filed motions to dismiss each of the actions pending in federal court, which are being coordinated before the Southern District. These motions are currently pending.
Additionally, the Firm was named in two putative antitrust class actions in the United States District Court for the Southern District of New York. The actions allege that the Firm, along with numerous other financial institution defendants, colluded to maintain and stabilize the auction-rate securities market and then to withdraw their support for the auction-rate securities market. In January 2010, the District Court dismissed both actions. An appeal is pending in the Second Circuit Court of Appeals.
Bear Stearns Hedge Fund Matters. Bear Stearns, certain current or former subsidiaries of Bear Stearns, including Bear Stearns Asset Management, Inc. (“BSAM”) and Bear, Stearns & Co. Inc., and certain current or former Bear Stearns employees 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 four civil actions pending in the United States District Court for the Southern District of New York relating to the Funds. Two of these actions involve derivative lawsuits brought on behalf of purchasers of partnership interests in the two U.S. feeder funds, alleging that the Bear Stearns defendants mismanaged the Funds and made material misrepresentations to and/or withheld information from investors in the feeder funds. These actions seek, among other things, unspecified compensatory damages based on alleged investor losses. The third 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, and seeks compensatory and punitive damages. Motions to dismiss in these three cases have been granted in part and denied in part. An agreement in principle has been reached, pursuant to which BSAM would pay a maximum of approximately $19 million to settle the one derivative action relating to the feeder fund to the High Grade Fund. BSAM has reserved the right not to proceed with this settlement if plaintiff is unable to secure the participation of investors whose net contributions meet a prescribed percentage of the aggregate net contributions to the High Grade Fund. The agreement in principle remains subject to documentation and approval by the Court. In the other two actions, the parties have been ordered by the Court to engage in settlement discussions and discovery has been limited for the duration of that process. Total alleged losses in these three actions exceed $1 billion.
The fourth 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 May 2007 $4 billion securitization, known as a “CDO-squared,” for which BSAM served as collateral manager. This securitization was composed of certain collateralized debt obligation (“CDO”) holdings that were purchased by BofA from the Funds. Bank of America seeks in excess of $3 billion in damages. Defendants’ motion to dismiss in this action was largely denied, an amended complaint was filed and discovery is ongoing.
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 and 120 million common shares outstanding, and the price of those securities declined from a high of $172.61 to a low of $30 at the end of the period. The

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actions, originally commenced in several federal courts, allege that the defendants issued materially false and misleading statements regarding Bear Stearns’ business and financial results and that, as a result of those false statements, Bear Stearns’ common stock traded at artificially inflated prices during the Class Period. Separately, several individual shareholders of Bear Stearns have commenced or threatened to commence arbitration proceedings and lawsuits asserting claims similar to those in the putative class actions. Certain of these matters have been dismissed or settled. In addition, Bear Stearns and certain of its former officers and/or directors have also been named as defendants in a number of purported class actions commenced in the United States District Court for the Southern District of New York seeking to represent the interests of participants in the Bear Stearns Employee Stock Ownership Plan (“ESOP”) during the time period of December 2006 to March 2008. These actions, brought under the Employee Retirement Income Security Act (“ERISA”), allege that defendants breached their fiduciary duties to plaintiffs and to the other participants and beneficiaries of the ESOP by (a) failing to manage prudently the ESOP’s investment in Bear Stearns securities; (b) failing to communicate fully and accurately about the risks of the ESOP’s investment in Bear Stearns stock; (c) failing to avoid or address alleged conflicts of interest; and (d) failing to monitor those who managed and administered the ESOP.
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 are asserting claims for breach of fiduciary duty, violations of federal securities laws, waste of 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.
All of the above-described actions filed in federal courts were ordered transferred and joined for pre-trial purposes before the United States District Court for the Southern District of New York. Defendants moved to dismiss the purported securities class action, the shareholders’ derivative action and the ERISA action. In January 2011, the District Court granted the motions to dismiss the derivative and ERISA actions, and denied the motion as to the securities action. Plaintiffs in the derivative action have filed a motion for reconsideration of the dismissal as well as an appeal. Plaintiffs in the ESOP action have filed a motion to alter the judgment and for leave to amend their amended consolidated complaint. Discovery will now commence in the securities action.
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 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 judge directed four current and former JPMorgan Chase personnel and JPMorgan Chase Bank, N.A. (as well as other individuals and three other 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 that together seek substantial 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 individual actions by Enron investors, an action by an Enron counterparty, and a purported class action filed on behalf of JPMorgan Chase employees who participated in the Firm’s 401(k) plan asserting claims under the ERISA for alleged breaches of fiduciary duties by JPMorgan Chase, its directors and named officers. That action has been dismissed, and is on appeal to the United States Court of Appeals for the Second Circuit.
Interchange Litigation. A group of merchants has filed a series of putative class action complaints in several federal courts. The complaints allege that VISA and MasterCard, as well as certain other banks and their respective bank holding companies, conspired to set the price of credit and debit card interchange fees, enacted respective association 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 would be lower or eliminated but for the challenged

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conduct. Based on publicly available estimates, Visa and MasterCard branded payment cards generated approximately $40 billion of interchange fees industry-wide in 2009. All cases have been consolidated in the United States District Court for the Eastern District of New York for pretrial proceedings. The Court has dismissed all claims relating to periods prior to January 2004. The Court has not yet ruled on motions relating to the remainder of the case. Fact and expert discovery in the case have closed. The Court has not yet ruled on plaintiffs’ class certification motion.
In addition to the consolidated class action complaint, plaintiffs filed supplemental complaints challenging the initial public offerings (“IPOs”) of MasterCard and Visa (the “IPO Complaints”). With respect to the MasterCard IPO, plaintiffs allege that 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. Briefing is expected to be completed in June 2011.
Investment Management Litigation. Four cases have been filed claiming that investment portfolios managed by JPMorgan 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 federal District Court in 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, which was filed by Assured Guaranty (U.K.) in New York state court, the New York State Appellate Division allowed plaintiff to proceed with its claims for breach of fiduciary duty and gross negligence, and for breach of contract based on alleged violations of the Delaware Insurance Code. JPMorgan Investment Management’s appeal is pending in the New York State Court of Appeals. Discovery is also proceeding. 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. Plaintiff appealed and the appeal is pending. The fourth case was filed by CMMF LLP in New York state court. The amended complaint 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 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. The Firm has moved to dismiss plaintiffs’ amended complaint in its entirety. 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 against the estate of Lehman’s broker-dealer, which could be unpaid if the Firm is required to return any collateral to Lehman. Discovery is underway with a trial scheduled for 2012. In addition, in April 2011 the Firm and the SIPA Trustee for LBHI’s U.S. broker-dealer subsidiary, Lehman Brothers Inc. (“LBI”) announced that they had reached an agreement to return more than $800 million in alleged LBI customer assets to the LBI Estate for distribution to its customer claimants. The agreement is subject to the approval of the Bankruptcy Court. The Firm has also responded to various regulatory inquiries regarding the Lehman matter.
     Madoff Litigation. JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., JPMorgan Securities LLC, and JPMorgan Securities Ltd. have been named as defendants in a lawsuit brought by the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (the “Trustee”). The Trustee asserts 28 causes of action against JPMorgan Chase, 16 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 are for, among other things, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, conversion 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 purports to seek approximately $6 billion in damages from JPMorgan Chase, and to recover approximately $425 million in transfers that JPMorgan Chase allegedly received directly or indirectly from Bernard

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Madoff’s brokerage firm. JPMorgan Chase has filed a motion to return the case from the Bankruptcy Court to the District Court, and intends to seek the dismissal of all or most of the Trustee’s claims once that motion is decided.
Separately, J.P. Morgan Trust Company (Cayman) Limited, JPMorgan (Suisse) SA, J.P. Morgan Securities Ltd., and Bear Stearns Alternative Assets International Ltd. have been named as defendants in several suits in Bankruptcy Court and state and federal courts 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 advance theories of mistake and restitution and seek to recover payments previously made to defendants by the funds totaling approximately $140 million.
In addition, a purported class action is pending against JPMorgan Chase in the United States District Court for the Southern District of New York, as is a motion by separate potential class plaintiffs to add claims against JPMorgan Chase, JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and J.P. Morgan Securities Ltd. to an already-pending purported class action in the same court. The allegations in these complaints largely track those raised by the Trustee. Defendants’ motions to dismiss and opposition to the motions for leave to amend are currently due on June 29, 2011.
Finally, JPMorgan Chase is a defendant in five actions pending in the New York state court and one individual action in federal court in New York. The allegations in all of these actions are essentially identical, and involve claims against the Firm for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, conversion and unjust enrichment. In the federal action, the Firm prevailed on its motion to dismiss before the District Court, and plaintiff appealed. In the state court actions, the Firm’s motion to dismiss has been fully-briefed and the parties are awaiting the court’s decision. The Firm has also responded to various governmental inquiries concerning the Madoff matter.
Mortgage-Backed Securities 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 or underwriter in mortgage-backed securities (“MBS”) offerings. These cases include purported class action suits, actions by individual purchasers of securities, actions by insurance companies that guaranteed payments of principal and interest for particular tranches and an action by a trustee. Although the allegations vary by lawsuit, these cases generally allege that the offering documents for more than $100 billion of securities issued by dozens of securitization trusts contained material misrepresentations and omissions, including statements regarding 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.
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 have moved to dismiss these actions. One of those motions has been granted in part to dismiss all claims relating to MBS offerings in which a named plaintiff was not a purchaser or the claims were barred by statutes of limitations. The other two motions remain pending. In addition, 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 in three now-consolidated purported class action cases pending in the Western District of Washington. Defendants’ motion to dismiss was granted in part to dismiss all claims relating to MBS offerings in which a named plaintiff was not a purchaser. Plaintiffs are seeking class certification, and discovery is ongoing.
In other actions brought against the Firm as an MBS issuer (and, in some cases, also as an underwriter) certain JPMorgan Chase entities, several Bear Stearns entities, and certain Washington Mutual affiliates are defendants in ten separate individual actions commenced by the Federal Home Loan Banks of Pittsburgh, Seattle, San Francisco, Chicago, Indianapolis, Atlanta and Boston in various state courts around the country; and certain JPMorgan Chase, Bear Stearns and Washington Mutual entities are also among the defendants named in separate individual actions commenced by various institutional investors in federal and states courts. Certain of the state court proceedings have been removed to federal court, and motions to remand are pending.
EMC Mortgage Corporation (“EMC”), a subsidiary of JPMorgan Chase, and certain other JPMorgan Chase entities are defendants in four pending actions commenced by bond insurers that guaranteed payments of principal and interest on approximately $3.6 billion of certain classes of seven different MBS offerings sponsored by EMC. Two of those actions, commenced by Assured Guaranty Corp. and Syncora Guarantee, Inc., respectively, are pending in the United States District Court for the Southern District of New York. The third action, filed by Ambac Assurance Corporation, was dismissed on jurisdictional grounds by the United States District for the Southern District of New York. The dismissal is on appeal to the United States Court of Appeals for the Second Circuit. Ambac has also filed a nearly identical complaint

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in New York state court. Defendants have moved to stay the state court proceeding pending the outcome of the federal appeal. The fourth action, commenced by CIFG Assurance North America, Inc., is pending in state court in Texas. In each action, plaintiff claims that the underlying mortgage loans had origination defects that purportedly violate certain representations and warranties given by EMC to plaintiffs, and that EMC has breached the relevant agreements between the parties by failing to repurchase allegedly defective mortgage loans. In addition, the Ambac and CIFG complaints allege fraudulent inducement. Each action seeks unspecified damages and an order compelling EMC to repurchase those loans. The CIFG complaint seeks punitive damages.
In the actions against the Firm solely as an underwriter of other issuers’ MBS offerings, the Firm has contractual rights to indemnification from the issuers, but those indemnity rights may prove effectively unenforceable where the issuers are now defunct, such as affiliates of IndyMac Bancorp (“IndyMac Trusts”) and Thornburg Mortgage (“Thornburg”). With respect to the IndyMac Trusts, JPMorgan Securities, along with numerous other underwriters and individuals, is named as a defendant, both in its own capacity and as successor to Bear Stearns in a purported class action pending in the United States District Court for the Southern District of New York brought on behalf of purchasers of securities in various Indy-Mac Trust MBS offerings. The Court in that action has dismissed claims as to certain such securitizations, including all offerings in which no named plaintiff purchased securities, and allowed claims as to other offerings to proceed. Plaintiffs’ motion to certify a class of investors in certain offerings is pending, and discovery is ongoing. In addition, JPMorgan Securities and JPMorgan Chase are named as defendants in an individual action filed by the Federal Home Loan Bank of Pittsburgh in connection with a single offering by an affiliate of IndyMac Bancorp. Discovery in that action is ongoing. Separately, JPMorgan Securities, as successor to Bear, Stearns & Co. Inc., along with other underwriters and certain individuals, are defendants in an action pending in state court in California brought by MBIA Insurance Corp. (“MBIA”). The action relates to certain securities issued by IndyMac trusts in offerings in which Bear Stearns was an underwriter, and as to which MBIA provided guaranty insurance policies. MBIA purports to be subrogated to the rights of the MBS holders, and seeks recovery of sums it has paid and will pay pursuant to those policies. Discovery is ongoing. With respect to Thornburg, a Bear Stearns subsidiary is also a named defendant in a purported class action pending in the United States District Court for the District of New Mexico along with a number of other financial institutions that served as depositors and/or underwriters for three Thornburg MBS offerings. Defendants have moved to dismiss this action.
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’s underwriting and issuance of MBS and its participation in offerings of certain collateralized debt obligations. As has been previously reported, JPMorgan Securities has been cooperating with the staff of the SEC’s Division of Enforcement regarding its investigation of certain collateralized debt obligations, and is currently in advanced discussions with the staff concerning a potential resolution of that investigation. There can be no assurance that any such resolution will be finalized or approved.
In addition to the above mortgage-related matters, the Firm is now a defendant in an action commenced by Deutsche Bank, described in more detail below with respect to the Washington Mutual Litigations.
Mortgage Foreclosure Investigations and Litigation. Multiple state and federal officials have announced investigations into the procedures followed by mortgage servicing companies and banks, including JPMorgan Chase & Co. and its affiliates, relating to foreclosure and loss mitigation processes. The Firm is cooperating with these investigations, and these investigations could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, as well as significant legal costs in responding to governmental investigations and additional litigation. The Office of the Comptroller of the Currency and the Federal Reserve have issued Consent Orders as to JPMorgan Chase Bank, N.A., and JPMorgan Chase & Co., respectively. In their Orders, the regulators have mandated significant changes to the Firm’s servicing and default business and outlined requirements to implement these changes. Included in these requirements is the retention of an independent consultant to conduct an independent review of certain residential foreclosure actions or proceedings for loans serviced by the Firm that have been pending at any time from January 1, 2009 to December 31, 2010, as well as residential foreclosure sales that occurred during this time period. These regulators have reserved the right to impose civil monetary penalties at a later date. Investigations by other state and federal authorities remain pending.
Four purported class action lawsuits have also been filed against the Firm relating to its mortgage foreclosure procedures. Additionally, Bank of America has tendered defense of a purported class action brought against it involving an EMC loan. One of the cases has been voluntarily dismissed with prejudice by the plaintiff. The Firm has moved to dismiss the remaining cases.
As of January 2011, the Firm had resumed initiation of new foreclosure proceedings in nearly all states in which it had previously suspended such proceedings, utilizing revised procedures in connection with the execution of affidavits and other documents used by Firm employees in the foreclosure process. The Firm is also in the process of reviewing pending

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foreclosure matters to determine whether remediation of specific documentation is necessary, and is resuming pending foreclosures as the review, and if necessary, remediation, of each pending matter is completed.
Municipal Derivatives Investigations and Litigation. The Department of Justice (in conjunction with the Internal Revenue Service), the Securities and Exchange Commission (“SEC”), a group of state attorneys general and the Office of the Comptroller of the Currency (“OCC”) have been investigating JPMorgan Chase and Bear Stearns for possible antitrust, securities and tax-related violations in connection with the bidding or sale of guaranteed investment contracts and derivatives to municipal issuers. The Philadelphia Office of the SEC provided notice to JPMorgan Securities that it intends to recommend that the SEC bring civil charges in connection with its investigation. JPMorgan Securities has responded to that notice, as well as to a separate notice that the Philadelphia Office of the SEC provided to Bear, Stearns & Co. Inc. The Firm has been cooperating with all of these investigations, and is seeking to resolve them on a negotiated basis.
Purported class action lawsuits and individual actions (the “Municipal Derivatives 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.” The Municipal Derivatives Actions have been consolidated 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. All of these cases have been coordinated for pretrial purposes in the United States District Court for the Southern District of New York. Discovery is ongoing.
Following J.P. Morgan Securities’ settlement with the SEC in connection with certain Jefferson County, Alabama (the “County”) warrant underwritings and swap transactions, various parties have brought civil litigation against the Firm. The County and a putative class of sewer rate payers have filed complaints against the Firm and several other defendants in Alabama state court. The suits allege that the Firm made payments to certain third parties in exchange for being chosen to underwrite more than $3 billion in warrants issued by the County and chosen 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 a mandamus petition with the Alabama Supreme Court, seeking immediate appellate review of this decision. The mandamus petition in the County’s lawsuit was denied in April 2011. The mandamus petition in the lawsuit brought by sewer ratepayers remains pending.
Separately, two insurance companies that guaranteed the payment of principal and interest on warrants issued by Jefferson 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. Discovery is proceeding.
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 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 denied by the District Court. That ruling is currently on appeal. Discovery is proceeding in the District Court. Plaintiffs’ motion for class certification is pending.
Petters Bankruptcy and Related Matters. JPMorgan Chase and certain of its affiliates, including One Equity Partners, LLC (“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 entities affiliated with Petters (collectively, “Petters”) and the

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Polaroid Corporation. The principal actions against JPMorgan Chase and its affiliates have been brought by the receiver in Petters’ personal bankruptcy and the trustees in the bankruptcy proceedings for three Petters entities, and generally seek to avoid, on fraudulent transfer and preference grounds, certain purported transfers in connection with (i) the 2005 acquisition of Polaroid by Petters, 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 have also sought to transfer those actions to the United States District Court for the District of Minnesota, where the receiver’s action is pending.
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. All discovery has been completed. JPMorgan Chase has moved for partial summary judgment as to plaintiffs’ duty of loyalty claim, in which it is alleged that the Firm created an impermissible conflict of interest by providing repurchase financing to Sigma while also holding Sigma medium-term notes in securities lending accounts.
The fourth putative class action concerns investments of approximately $500 million in Lehman Brothers medium-term notes. The Firm has moved to dismiss the amended complaint and is awaiting a decision. Discovery is proceeding while the motion is pending. 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.
Service Members Civil Relief Act and Housing and Economic Recovery Act Investigations and Litigation. Multiple government officials have announced inquiries into the Firm’s procedures related to the Service Members Civil Relief Act (“SCRA”) and the Housing and Economic Recovery Act of 2008 (“HERA”). These inquiries have been prompted by the Firm’s public statements about its SCRA and HERA compliance and actions to remedy certain instances in which the Firm mistakenly charged active or recently-active military personnel mortgage interest and fees in excess of that permitted by SCRA and HERA, and in a number of instances, foreclosed on borrowers protected by SCRA and HERA. The Firm has implemented a number of procedural enhancements and controls to strengthen its SCRA and HERA compliance. In addition, an individual borrower filed a nationwide class action in United States District Court for South Carolina against the Firm alleging violations of the SCRA related to home loans. The Firm agreed to pay $27 million plus attorneys’ fees, in addition to reimbursements previously paid by the Firm, to settle the class action. The settlement is subject to court approval.
Washington Mutual Litigations. Subsequent to JPMorgan Chase’s acquisition from the Federal Deposit Insurance Corporation (“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 have asserted rights and interests in certain assets. The assets in dispute include 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 have since been involved in litigations over these and other claims pending in 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 “Global Settlement Agreement”). The Global Settlement Agreement is incorporated into WMI’s proposed Chapter 11 plan (“the Plan”) that has been submitted to the Bankruptcy Court. If approved by the Bankruptcy Court, the Global Settlement would resolve numerous disputes among WMI, JPMorgan Chase, the FDIC in

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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.
Other proceedings related to Washington Mutual’s failure are also pending before the Bankruptcy Court. 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 Bankruptcy Court considered confirmation of the Plan, including the Global Settlement Agreement, in hearings in early December 2010. In early January 2011, the Bankruptcy Court issued an opinion in which it concluded that the Global Settlement Agreement is fair and reasonable, but that the Plan cannot be confirmed until the parties correct certain deficiencies, which include the scope of releases. None of these deficiencies relates to the Disputed Assets. The Equity Committee has filed a petition seeking a direct appeal to the United States Court of Appeals for the Third Circuit from so much of the Bankruptcy Court’s ruling that found the settlement to be fair and reasonable. A revised Plan was filed with the Bankruptcy Court in February 2011, and the Bankruptcy Court has scheduled confirmation hearings for early June 2011. If the Global Settlement is effected and the Plan is confirmed, then the Firm currently estimates it will not incur net additional liabilities beyond those already reflected in its balance sheet for the numerous disputes covered by the Global Settlement.
Other proceedings 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 WMI subsidiaries in connection with those securitization agreements. The case includes assertions that JPMorgan Chase may have assumed liabilities relating to the mortgage securitization agreements. In April 2011, 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.
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 an allegedly too-low price. 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. Plaintiffs’ appeal of this dismissal is pending.
* * *
In addition to the various legal proceedings discussed above, JPMorgan Chase and its subsidiaries are named as defendants or otherwise involved in a substantial number of other legal proceedings. The Firm believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and it intends to defend itself vigorously 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. During the three months ended March 31, 2011 and 2010, the Firm incurred $1.1 billion and $2.9 billion, respectively, of litigation expense. 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 the eventual outcome of the currently pending matters will be, what the timing of the ultimate resolution of these pending matters will be or what the eventual loss, fines, penalties or impact related to each currently pending matter may be. 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

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assurance the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by the Firm; 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.
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, Commercial Banking, Treasury & Securities Services and Asset Management, as well as a Corporate/Private Equity segment. The business segments are determined based on the products and services provided, or the type of customer served, and 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 15 of this Form 10-Q, and pages 67–68 and Note 34 on pages 290–293 of JPMorgan Chase’s 2010 Annual Report.

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Segment results
The following tables provide a summary of the Firm’s segment results for the three months ended March 31, 2011 and 2010, on a managed basis. Total net revenue (noninterest revenue and net interest income) for each of the segments is presented on a fully tax-equivalent basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits are presented in the managed results on a basis comparable to taxable securities and investments. This approach allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these items is recorded within income tax expense/(benefit).
Effective January 1, 2011, capital allocated to CS was reduced, largely reflecting portfolio runoff and the improving risk profile of the business; capital allocated to TSS was increased. 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.
Segment results and reconciliation(a)
                                 
Three months ended March 31, 2011   Investment   Retail Financial   Card   Commercial
(in millions, except ratios)   Bank   Services   Services   Banking
 
Noninterest revenue
  $ 6,176     $ 1,645     $ 782     $ 502  
Net interest income
    2,057       4,630       3,200       1,014  
 
Total net revenue
    8,233       6,275       3,982       1,516  
Provision for credit losses
    (429 )     1,326       226       47  
Credit allocation income(b)
                       
Noninterest expense
    5,016       5,262       1,555       563  
 
Income/(loss) before income tax expense/(benefit)
    3,646       (313 )     2,201       906  
Income tax expense/(benefit)
    1,276       (105 )     858       360  
 
Net income/(loss)
  $ 2,370     $ (208 )   $ 1,343     $ 546  
 
Average common equity
  $ 40,000     $ 28,000     $ 13,000     $ 8,000  
Average assets
    815,828       364,266       138,113       140,400  
Return on average common equity
    24 %     (3 )%     42 %     28 %
Overhead ratio
    61       84       39       37  
 
                                         
Three months ended March 31, 2011   Treasury &   Asset   Corporate/   Reconciling    
(in millions, except ratios)   Securities Services   Management   Private Equity   Items(c)   Total
 
Noninterest revenue
  $ 1,137     $ 2,020     $ 1,478     $ (424 )   $ 13,316  
Net interest income
    703       386       34       (119 )     11,905  
 
Total net revenue
    1,840       2,406       1,512       (543 )     25,221  
Provision for credit losses
    4       5       (10 )           1,169  
Credit allocation income/(expense)(b)
    27                   (27 )      
Noninterest expense
    1,377       1,660       562             15,995  
 
Income before income tax expense/(benefit)
    486       741       960       (570 )     8,057  
Income tax expense/(benefit)
    170       275       238       (570 )     2,502  
 
Net income
  $ 316     $ 466     $ 722     $     $ 5,555  
 
Average common equity
  $ 7,000     $ 6,500     $ 66,915     $     $ 169,415  
Average assets
    47,873       68,918       529,054     NA     2,104,452  
Return on average common equity
    18 %     29 %   NM   NM     13 %
Overhead ratio
    75       69     NM   NM     63  
 
                                 
Three months ended March 31, 2010   Investment   Retail Financial   Card   Commercial
(in millions, except ratios)   Bank   Services   Services   Banking
 
Noninterest revenue
  $ 6,191     $ 2,752     $ 758     $ 500  
Net interest income
    2,128       5,024       3,689       916  
 
Total net revenue
    8,319       7,776       4,447       1,416  
Provision for credit losses
    (462 )     3,733       3,512       214  
Credit allocation income(b)
                       
Noninterest expense
    4,838       4,242       1,402       539  
 
Income/(loss) before income tax expense/(benefit)
    3,943       (199 )     (467 )     663  
Income tax expense/(benefit)
    1,472       (68 )     (164 )     273  
 
Net income/(loss)
  $ 2,471     $ (131 )   $ (303 )   $ 390  
 
Average common equity
  $ 40,000     $ 28,000     $ 15,000     $ 8,000  
Average assets
    676,122       393,867       156,968       133,013  
Return on average common equity
    25 %     (2 )%     (8 )%     20 %
Overhead ratio
    58       55       32       38  
 

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Three months ended March 31, 2010   Treasury &   Asset   Corporate/   Reconciling    
(in millions, except ratios)   Securities Services   Management   Private Equity   Items(c)   Total
 
Noninterest revenue
  $ 1,146     $ 1,774     $ 1,281     $ (441 )   $ 13,961  
Net interest income
    610       357       1,076       (90 )     13,710  
 
Total net revenue
    1,756       2,131       2,357       (531 )     27,671  
Provision for credit losses
    (39 )     35       17             7,010  
Credit allocation income/(expense)(b)
    (30 )                 30        
Noninterest expense
    1,325       1,442       2,336             16,124  
 
Income/(loss) before income tax expense/(benefit)
    440       654       4       (501 )     4,537  
Income tax expense/(benefit)
    161       262       (224 )     (501 )     1,211  
 
Net income
  $ 279     $ 392     $ 228     $     $ 3,326  
 
Average common equity
  $ 6,500     $ 6,500     $ 52,094     $     $ 156,094  
Average assets
    38,273       62,525       577,912     NA     2,038,680  
Return on average common equity
    17 %     24 %   NM   NM     8 %
Overhead ratio
    75       68     NM   NM     58  
 
(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 credit exposures related to the Global Corporate Bank (“GCB”) on behalf of IB and TSS. Effective January 1, 2011, IB and TSS will share the economics related to the Firm’s GCB clients. Included within this allocation are net revenues, provision for credit losses, as well as expenses. Prior-year period reflected a reimbursement to IB for a portion of the total costs of managing the credit portfolio. IB recognizes this credit allocation as a component of all other income.
(c)   Segment managed results reflect revenue on a fully tax-equivalent 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. Tax-equivalent adjustments for the three months ended March 31, 2011 and 2010, were as follows.
                 
    Three months ended March 31,
(in millions)   2011   2010
 
Noninterest revenue
  $ 451     $ 411  
Net interest income
    119       90  
Income tax expense
    570       501  
 

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(PWC LOGO)
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, 2011, and the related consolidated statements of income for the three-month periods ended March 31, 2011 and March 31, 2010, and the consolidated statements of cash flows and consolidated statements of changes in stockholders’ equity and comprehensive income for the three-month periods ended March 31, 2011 and March 31, 2010, included in the Firm’s Quarterly Report on Form 10-Q for the period ended March 31, 2011. 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, 2010, 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 28, 2011, 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, 2010, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
(PRICEWATERHOUSECOOPERS LLP)
May 6, 2011
 
PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017

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JPMORGAN CHASE & CO.
CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST AND RATES
(Taxable-Equivalent Interest and Rates; in millions, except rates)
                                                 
    Three months ended March 31, 2011     Three months ended March 31, 2010  
    Average             Rate     Average             Rate  
    balance     Interest     (annualized)     balance     Interest     (annualized)  
 
Assets
                                               
Deposits with banks
  $ 37,155     $ 101       1.11 %   $ 64,229     $ 95       0.60 %
Federal funds sold and securities purchased under resale agreements
    202,481       543       1.09       170,036       407       0.97  
Securities borrowed
    114,589       47       0.17       114,636       29       0.10  
Trading assets — debt instruments
    275,512       2,925       4.31       248,089       2,791       4.56  
Securities
    318,936       2,271       2.89 (d)     337,441       2,944       3.54 (d)
Loans
    688,133       9,531       5.62       725,136       10,576       5.91  
Other assets(a)
    49,887       148       1.20       27,885       93       1.36  
 
Total interest-earning assets
    1,686,693       15,566       3.74       1,687,452       16,935       4.07  
Allowance for loan losses
    (31,802 )                     (38,937 )                
Cash and due from banks
    29,334                       30,023                  
Trading assets — equity instruments
    141,951                       83,674                  
Trading assets — derivative receivables
    85,437                       78,683                  
Goodwill
    48,846                       48,542                  
Other intangible assets:
                                               
Mortgage servicing rights
    14,024                       15,155                  
Purchased credit card relationships
    858                       1,197                  
Other intangibles
    3,070                       3,110                  
Other assets
    126,041                       129,781                  
 
Total assets
  $ 2,104,452                     $ 2,038,680                  
 
 
                                               
Liabilities
                                               
Interest-bearing deposits
  $ 700,921     $ 922       0.53 %   $ 677,431     $ 844       0.51 %
Short-term and other liabilities(b)(c)
    508,902       818       0.65       478,629       562       0.48  
Beneficial interests issued by consolidated VIEs
    72,932       214       1.19       98,104       330       1.36  
Long-term debt(c)
    269,156       1,588       2.39       281,744       1,399       2.01  
 
Total interest-bearing liabilities
    1,551,911       3,542       0.93       1,535,908       3,135       0.83  
Noninterest-bearing deposits
    229,461                       200,075                  
Trading liabilities — equity instruments
    7,872                       5,728                  
Trading liabilities — derivative payables
    71,288                       59,053                  
All other liabilities, including the allowance for lending-related commitments
    66,705                       73,670                  
 
Total liabilities
    1,927,237                       1,874,434                  
 
Stockholders’ equity
                                               
Preferred stock
    7,800                       8,152                  
Common stockholders’ equity
    169,415                       156,094                  
 
Total stockholders’ equity
    177,215                       164,246                  
 
Total liabilities and stockholders’ equity
  $ 2,104,452                     $ 2,038,680                  
 
Interest rate spread
                    2.81 %                     3.24 %
Net interest income and net yield on interest-earning assets
          $ 12,024       2.89 %           $ 13,800       3.32 %
 
(a)   Includes margin loans.
 
(b)   Includes brokerage customer payables.
 
(c)   Effective January 1, 2011, long-term advances from FHLBs were reclassified from other borrowed funds to long-term debt. The prior-year period has been revised to conform with the current presentation; average long-term FHLBs advances for the three months ended March 31, 2010 were $19.2 billion.
 
(d)   For the quarters ended March 31, 2011 and 2010, the annualized rates for AFS securities, based on amortized cost, were 2.92% and 3.59%, respectively.

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GLOSSARY OF TERMS
ACH: Automated Clearing House.
Advised lines of credit: An authorization which specifies the maximum amount of a credit facility the Firm has made available to an obligor on a revolving but nonbinding basis. The borrower receives written or oral advice of this facility. The Firm may cancel this facility at any time.
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. Excludes assets managed by American Century Companies, Inc., in which the Firm has a 40% ownership interest as of March 31, 2011.
Assets under supervision: Represent assets under management as well as custody, brokerage, administration and deposit accounts.
Beneficial interests issued by consolidated VIEs: Represents the interests 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.
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 the Chief Investment Office, as well as Corporate Other, which includes other centrally managed expense and discontinued operations.
Credit derivatives: Contractual agreements that provide protection against a credit event on one or more referenced credits. The nature of a credit event is established by the protection buyer and protection seller at the inception of a transaction, and such events include bankruptcy, insolvency or failure to meet payment obligations when due. The buyer of the credit derivative pays a periodic fee in return for a payment by the protection seller upon the occurrence, if any, of a credit event.
Deposit margin: Represents net interest income expressed as a percentage of average deposits.
FASB: Financial Accounting Standards Board.
FDIC: Federal Deposit Insurance Corporation.
FICO: Fair Isaac Corporation.
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.
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.
Interchange income: A fee paid to a credit card issuer in the clearing and settlement of a sales or cash advance transaction.
Interests in purchased receivables: Represents an ownership interest in cash flows of an underlying pool of receivables transferred by a third-party seller into a bankruptcy-remote entity, generally a trust.
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.

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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 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.
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 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.

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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.
OPEB: Other postretirement employee benefits.
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”), 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.
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.
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: 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.
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: Realized and unrealized gains and losses from trading activities (including physical commodities inventories that are accounted for at the lower of cost or fair value) and changes in fair value associated with financial instruments held predominantly by IB for which the fair value option was elected. Principal transactions revenue also includes private equity gains and losses.
Purchased credit-impaired (“PCI”) loans: Acquired loans deemed to be credit-impaired under the FASB guidance for PCI loans. 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., FICO score, 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. Wholesale loans are determined to be credit-impaired if they meet the definition of an impaired loan under U.S. GAAP at the acquisition date. Consumer loans are determined to be credit-impaired based on specific risk characteristics of the loan, including product type, LTV ratios, FICO scores, and past due status.
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.

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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 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.
Sales specialists: Retail branch office personnel who specialize in the marketing of a single product, including mortgages, investments and business banking, by partnering with the personal bankers.
Stress testing: A scenario that measures market risk under unlikely but plausible events in abnormal markets.
Taxable-equivalent basis: Total net revenue for each of the business segments and the Firm is presented on a taxable-equivalent basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits is presented in the managed results on a basis comparable to fully taxable securities and investments. This non-GAAP financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these 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”) from the FDIC. For additional information, see Note 2 on pages 166–170 of JPMorgan Chase’s 2010 Annual Report.
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.
Equity 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.

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Retail Financial Services
Description of selected business metrics within Retail Banking:
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 personnel who specialize in the marketing of a single product, including mortgages, investments and business banking, by partnering with the personal bankers.
Mortgage banking 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, late fees and other ancillary fees; and
 
    Modeled servicing portfolio runoff (or time decay).
(b) Risk management comprises:
    Changes in the MSR asset fair value 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.
Mortgage origination channels comprise the following:
Retail — Borrowers who are buying or refinancing 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 — A third-party mortgage broker refers loan applications to a mortgage banker at the Firm. Brokers are independent loan originators that specialize in finding and counseling borrowers but do not provide funding for loans. The Firm exited the broker channel during 2008.
Correspondent — Banks, thrifts, other mortgage banks and other financial institutions that sell closed loans to the Firm.
Correspondent negotiated transactions (“CNTs”) — These transactions occur when mid-to large-sized mortgage lenders, banks and bank-owned mortgage companies sell servicing to the Firm, on an as-originated basis, and exclude purchased bulk servicing transactions. These transactions supplement traditional production channels and provide growth opportunities in the servicing portfolio in stable and periods of rising interest rates.
Card Services
Description of selected business metrics within CS:
Sales volume — Dollar amount of cardmember purchases, net of returns.
Open accounts — Cardmember accounts with charging privileges.
Merchant acquiring 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.
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.

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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-family 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 segments.
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 a broad range of products and services enabling clients to transfer, invest and manage the receipt and disbursement of funds, while providing the related information reporting. These products and services include U.S. dollar and multi-currency clearing, ACH, lockbox, disbursement and reconciliation services, check deposits, other check and currency–related services, trade finance and logistics solutions, deposit products, sweeps and money market mutual funds.
Investment banking products provide clients with sophisticated capital-raising alternatives, as well as balance sheet and risk management tools through loan syndications, investment-grade debt, asset-backed securities, private placements, high-yield bonds, equity underwriting, advisory, interest rate derivatives, foreign exchange hedges and securities sales.
Other product revenue primarily includes tax-equivalent adjustments generated from Community Development Banking segment activity and certain income derived from principal transactions.
CB selected business metrics:
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.
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. Excludes assets managed by American Century Companies, Inc., in which the Firm has a 40% ownership interest as of March 31, 2011.
Assets under supervision — Represents assets under management as well as custody, brokerage, administration and deposit accounts.

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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 brings 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 provides worldwide investment management services and retirement planning and administration through third-party and direct distribution of a full range of investment vehicles.
Private Banking offers 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.
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 the newly-enacted 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;
 
  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 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;

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  Competitive pressures;
 
  Changes in the credit quality of the Firm’s customers and counterparties;
 
  Adequacy of the Firm’s risk management framework;
 
  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;
 
  The other risks and uncertainties detailed in Part 1, Item 1A: Risk Factors in the Firm’s Annual Report on Form 10-K for the year ended December 31, 2010.
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.
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 81–84 of this Form 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 defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective. See Exhibits 31.1 and 31.2 for the Certification statements issued by the Chairman and Chief Executive Officer, and Chief Financial Officer.
The Firm is committed to maintaining high standards of internal control over financial reporting. Nevertheless, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
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 2010 Annual Report on Form 10-K, see the discussion of the Firm’s material litigation in Note 23 on pages 160–169 of this Form 10-Q.
Item 1A Risk Factors
For a discussion of certain risk factors affecting the Firm, see Part I, Item 1A: Risk Factors, on pages 5–12 of JPMorgan Chase’s 2010 Annual Report on Form 10-K; and Forward-Looking Statements on pages 180–181 of this Form 10-Q.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
During the first quarter of 2011, 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, 2011, 9,172 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 26, 2011, 17,566 shares were issued to retired employees who had deferred receipt of such common shares pursuant to the Corporate Performance Incentive Plan.
Stock repurchases under the stock repurchase program
On March 18, 2011, the Board of Directors authorized the repurchase of up to $15.0 billion of the Firm’s common stock, of which up to $8.0 billion is approved for 2011. The authorization commenced on March 22, 2011, and replaced the Firm’s previous $10.0 billion repurchase program. During the three months ended March 31, 2011, the Firm repurchased an aggregate of 2 million shares for $95 million at an average price per share of $45.66. For the four months ended April 30, 2011, the Firm has repurchased an aggregate of 18 million shares for $820 million at an average price per share of $45.11. As of March 31, 2011, $14.9 billion of authorized repurchase capacity remained, of which $7.9 billion of approved capacity remains for use during 2011.
Management and the Board will continue to assess and make decisions regarding alternatives for deploying capital, as appropriate, over the course of the year. Any planned use of the repurchase

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program over the repurchases approved for 2011, will be reviewed by the Firm with the banking regulators before taking action.
The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common stock – for example during internal trading “black-out periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information.
The authorization to repurchase common stock will be utilized at management’s discretion, and the timing of purchases and the exact number of shares purchased is subject to various factors, including market conditions; legal 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 potential investment opportunities. The repurchase program does not include specific price targets or timetables; may be executed through open market purchases or privately negotiated transactions, including through the use of Rule 10b5-1 programs; and may be suspended at any time. For a discussion of restrictions on stock repurchases, see Note 23 on pages 267–268 of JPMorgan Chase’s 2010 Annual Report.
                         
                    Dollar value of remaining
Three months ended   Total shares   Average price paid   authorized repurchase
March 31, 2011   repurchased   per share(a)   (in millions)(b)
 
January
        $     $ 3,222  
February
                3,222  
March
                       
Repurchases under the $10.0 billion program
                (c)
Repurchases under the $15.0 billion program
    2,081,440       45.66       14,905 (d)
 
First quarter
    2,081,440     $ 45.66     $ 14,905  
 
(a)   Excludes commissions cost.
 
(b)   The amount authorized by the Board of Directors excludes commissions cost.
 
(c)   The unused portion of the $10.0 billion program was cancelled when the $15.0 billion program was authorized.
 
(d)   Dollar value remaining under the new $15.0 billion program.
Stock repurchases under the stock-based incentive plans
Participants in the Firm’s stock-based incentive plans may have shares 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 share repurchase program. Shares repurchased pursuant to these plans during the first quarter of 2011 were as follows.
                 
Three months ended   Total shares   Average price paid
March 31, 2011   repurchased   per share
 
January
    124     $ 44.78  
February
           
March
    318       46.33  
 
First quarter
    442     $ 45.89  
 
Item 3 Defaults Upon Senior Securities
None.
Item 5 Other Information
None.

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Item 6 Exhibits
15 — Letter re: Unaudited Interim Financial Information.
31.1 — Certification(a)
31.2 — Certification(a)
32 — Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(a)(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)   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, 2011, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated Statements of Income for the three months ended March 31, 2011 and 2010, (ii) the Consolidated Balance Sheets as of March 31, 2011, and December 31, 2010, (iii) the Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the three months ended March 31, 2011 and 2010, (iv) the Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010, and (v) the Notes to Consolidated Financial Statements.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
             
 
      JPMORGAN CHASE & CO.    
 
           
 
      (Registrant)    
 
           
 
Date: May 6, 2011
  By   /s/ Louis Rauchenberger    
 
           
 
      Louis Rauchenberger    
 
           
 
      Managing Director and Controller    
 
      [Principal Accounting Officer]    

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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.
 
††   As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

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