Edgar Filing: JPMORGAN CHASE & CO

CORP Q1 2012

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934



For the quarterly period ended		Commission file
March 31, 2012		number 1-5805

JPMorgan Chase & Co.

(Exact name of registrant as specified in its charter)



Delaware	13-2624428
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer 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.

T Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

T Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer T Accelerated filer o

Non-accelerated filer (Do not check if a smaller reporting company) o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes T No

Number of shares of common stock outstanding as of April 30, 2012: 3,806,666,475

FORM 10-Q

TABLE OF CONTENTS



Part I - Financial information		Page
Item 1	Consolidated Financial Statements – JPMorgan Chase & Co.:
	Consolidated statements of income (unaudited) for the three months ended March 31, 2012 and 2011	85
	Consolidated statements of comprehensive income (unaudited) for the three months ended March 31, 2012 and 2011	86
	Consolidated balance sheets (unaudited) at March 31, 2012, and December 31, 2011	87
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2012 and 2011	88
	Consolidated statements of cash flows (unaudited) for the three months ended March 31, 2012 and 2011	89
	Notes to Consolidated Financial Statements (unaudited)	90
	Report of Independent Registered Public Accounting Firm	166
	Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three months ended March 31, 2012 and 2011	167
	Glossary of Terms and Line of Business Metrics	168
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations:
	Consolidated Financial Highlights	3
	Introduction	4
	Executive Overview	6
	Consolidated Results of Operations	10
	Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures	12
	Business Segment Results	14
	International Operations	35
	Balance Sheet Analysis	36
	Off-Balance Sheet Arrangements	38
	Capital Management	42
	Risk Management	46
	Supervision and Regulation	79
	Critical Accounting Estimates Used by the Firm	80
	Accounting and Reporting Developments	83
	Forward-Looking Statements	84
Item 3	Quantitative and Qualitative Disclosures About Market Risk	175
Item 4	Controls and Procedures	175
Part II - Other information
Item 1	Legal Proceedings	175
Item 1A	Risk Factors	175
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	175
Item 3	Defaults Upon Senior Securities	176
Item 4	Mine Safety Disclosure	176
Item 5	Other Information	176
Item 6	Exhibits	176

JPMorgan Chase & Co.

Consolidated financial highlights



(unaudited) (in millions, except per share, headcount and ratio data)
As of or for the period ended,	1Q12			4Q11			3Q11			2Q11			1Q11
Selected income statement data
Total net revenue	$	26,712		$	21,471		$	23,763		$	26,779		$	25,221
Total noninterest expense	18,345			14,540			15,534			16,842			15,995
Pre-provision profit^(a)	8,367			6,931			8,229			9,937			9,226
Provision for credit losses	726			2,184			2,411			1,810			1,169
Income before income tax expense	7,641			4,747			5,818			8,127			8,057
Income tax expense	2,258			1,019			1,556			2,696			2,502
Net income	$	5,383		$	3,728		$	4,262		$	5,431		$	5,555
Per common share data
Net income per share: Basic	$	1.31		$	0.90		$	1.02		$	1.28		$	1.29
Diluted	1.31			0.90			1.02			1.27			1.28
Cash dividends declared per share^(b)	0.30			0.25			0.25			0.25			0.25
Book value per share	47.60			46.59			45.93			44.77			43.34
Tangible book value per share^(c)	34.91			33.69			33.05			32.01			30.77
Common shares outstanding
Average: Basic	3,818.8			3,801.9			3,859.6			3,958.4			3,981.6
Diluted	3,833.4			3,811.7			3,872.2			3,983.2			4,014.1
Common shares at period-end	3,822.0			3,772.7			3,798.9			3,910.2			3,986.6
Share price^(d)
High	$	46.49		$	37.54		$	42.55		$	47.80		$	48.36
Low	34.01			27.85			28.53			39.24			42.65
Close	45.98			33.25			30.12			40.94			46.10
Market capitalization	175,737			125,442			114,422			160,083			183,783
Selected ratios
Return on common equity (“ROE”)	12		%	8		%	9		%	12		%	13		%
Return on tangible common equity (“ROTCE”)^(c)	16			11			13			17			18
Return on assets (“ROA”)	0.96			0.65			0.76			0.99			1.07
Return on risk-weighted assets^(e)	1.76			1.21			1.40			1.82			1.90
Overhead ratio	69			68			65			63			63
Deposits-to-loans ratio	157			156			157			152			145
Tier 1 capital ratio	12.6			12.3			12.1			12.4			12.3
Total capital ratio	15.6			15.4			15.3			15.7			15.6
Tier 1 leverage ratio	7.1			6.8			6.8			7.0			7.2
Tier 1 common capital ratio^(f)	10.4			10.1			9.9			10.1			10.0
Selected balance sheet data (period-end)
Trading assets	$	456,000		$	443,963		$	461,531		$	458,722		$	501,148
Securities	381,742			364,793			339,349			324,741			334,800
Loans	720,967			723,720			696,853			689,736			685,996
Total assets	2,320,330			2,265,792			2,289,240			2,246,764			2,198,161
Deposits	1,128,512			1,127,806			1,092,708			1,048,685			995,829
Long-term debt	255,831			256,775			273,688			279,228			269,616
Common stockholders’ equity	181,928			175,773			174,487			175,079			172,798
Total stockholders’ equity	189,728			183,573			182,287			182,879			180,598
Headcount	261,453			260,157			256,663			250,095			242,929
Credit quality metrics
Allowance for credit losses	$	26,621		$	28,282		$	29,036		$	29,146		$	30,438
Allowance for loan losses to total retained loans	3.63		%	3.84		%	4.09		%	4.16		%	4.40		%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans^(g)	3.11			3.35			3.74			3.83			4.10
Nonperforming assets^(h)	$	11,953		$	11,315		$	12,468		$	13,435		$	15,149
Net charge-offs	2,387			2,907			2,507			3,103			3,720
Net charge-off rate	1.35		%	1.64		%	1.44		%	1.83		%	2.22		%


(a)	Pre-provision profit is total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses.


(b)	On March 13, 2012, the Board of Directors increased the Firm’s quarterly stock dividend from $0.25 to $0.30 per share.

(c)

Tangible book value per share and ROTCE are non-GAAP financial ratios. ROTCE measures the Firm’s earnings as a percentage of tangible common equity. Tangible book value per share represents the Firm’s tangible common equity divided by period-end common shares. For further discussion of these ratios, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 12–13 of this Form 10-Q.


(d)	Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange. JPMorgan Chase’s common stock is also listed and traded on the London Stock Exchange and the Tokyo Stock Exchange.


(e)	Return on Basel I risk-weighted assets is the annualized earnings of the Firm divided by its average risk-weighted assets.


(f)	Basel I Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common capital (“Tier 1 common”) divided by risk-weighted assets. The Firm uses Tier 1 common capital along with the other capital measures to assess and monitor its capital position. For further discussion of Tier 1 common capital ratio, see Regulatory capital on pages 42–44 of this Form 10-Q.


(g)	Excludes the impact of residential real estate purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 70–72 of this Form 10-Q.


(h)	Prior period amounts have been revised to include both defaulted derivatives and derivatives that have been risk rated as nonperforming; in prior periods only the amount of defaulted derivatives was reported.



INTRODUCTION

This section of the Form 10-Q provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”). See the Glossary of terms on pages 168–171 for definitions of terms used throughout this Form 10-Q.

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. For a discussion of such risks and uncertainties, see Forward-looking Statements on page 84 and Part II, Item 1A: Risk Factors, on page 175 of this Form 10-Q, and Part I, Item 1A, Risk Factors, on pages 7–17 of JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the U.S. Securities and Exchange Commission (“2011 Annual Report” or “2011 Form 10-K”), to which reference is hereby made.

JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; the Firm has $2.3 trillion in assets and $189.7 billion in stockholders’ equity as of March 31, 2012. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management and private equity. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.

JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national bank with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national bank that is the Firm’s credit card–issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J.P. Morgan Securities Ltd., a subsidiary of JPMorgan Chase Bank, N.A.

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 & Auto segments. A description of the Firm’s business segments, and the products and services they provide to their respective client bases, follows.

Investment Bank

J.P. Morgan is one of the world’s leading investment banks, with deep client relationships and broad product capabilities. The clients of the Investment Bank (“IB”) are corporations, financial institutions, governments and institutional investors. The Firm offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, sophisticated risk management, market-making in cash securities and derivative instruments, prime brokerage, and research.

Retail Financial Services

Retail Financial Services (“RFS”) serves consumers and businesses through personal service at bank branches and through ATMs, online banking and telephone banking. RFS is organized into Consumer & Business Banking and Mortgage Banking (including Mortgage Production and Servicing, and Real Estate Portfolios). Consumer & Business Banking includes branch banking and business banking activities. Mortgage Production and Servicing includes mortgage origination and servicing activities. Real Estate Portfolios comprises residential mortgages and home equity loans, including the PCI portfolio acquired in the Washington Mutual transaction. Customers can use more than 5,500 bank branches (third largest nationally) and more than 17,600 ATMs (largest nationally), as well as online and mobile banking around the clock. More than 33,400 branch salespeople assist customers with checking and savings accounts, mortgages, home equity and business loans, and investments across the 23-state footprint from New York and Florida to California. As one of the largest mortgage originators in the U.S., Chase helps customers buy or refinance homes resulting in approximately $150 billion of mortgage originations annually. Chase also services more than 8 million mortgages and home equity loans.

Card Services & Auto

Card Services & Auto (“Card”) is one of the nation’s largest credit card issuers, with over $125 billion in credit card loans. Customers have over 64 million open credit card accounts (excluding the commercial card portfolio), and used Chase credit cards to meet over $86 billion of their spending needs in the three months ended March 31, 2012. Through its Merchant Services business, Chase Paymentech Solutions, Card is a global leader in payment processing and merchant acquiring. Consumers also can obtain loans through more than 17,200 auto dealerships and 2,000 schools and universities nationwide.

Commercial Banking

Commercial Banking (“CB”) delivers extensive industry knowledge, local expertise and dedicated service to more than 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 to meet its clients’ domestic and international financial needs, including lending, treasury services, investment banking and asset management.

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 $2.0 trillion, is a global leader in investment and wealth management. AM clients include institutions, retail investors and high-net-worth individuals in every major market throughout the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity products, including money-market instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and retirement services for corporations and individuals. The majority of AM’s client assets are in actively managed portfolios.



EXECUTIVE OVERVIEW

This executive overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a complete description of events, trends and uncertainties, as well as the capital, liquidity, credit and market risks, and the critical accounting estimates affecting the Firm and its various lines of business, this Form 10-Q should be read in its entirety.

Economic environment

The global economy expanded moderately in the first quarter of 2012, but regional growth trends diverged. In the U.S., labor market conditions continued to improve as companies added jobs at the fastest pace since the spring of 2006, the total amount of hours logged by workers accelerated, weekly layoffs continued to move lower, and the unemployment rate, although elevated, declined. Household spending continued to advance and business fixed investment, although soft in recent months, remained solid. The mild winter reduced household utility bills and freed up resources for other spending, and retail sales grew steadily. At the same time, sales of motor vehicles, a benchmark of consumer confidence, grew faster than the industry expected. The housing sector remained depressed but the drag on the economy is easing and builder sentiment improved. Longer-term inflation expectations remained stable, even with recent increases in oil and gasoline prices.

Strains in global financial markets eased following measures taken by the European Central Bank (“ECB”) in the fourth quarter of 2011 to support bank lending and money market activity. However, Europe’s financial crisis continued to pose significant downside risks to the economic outlook as economic activity in Europe continued to contract at a moderate rate and the growth of emerging European economies slowed significantly. Growth in the Asian region slowed in some areas but that region’s economies continued to expand at a solid pace.

The Board of Governors of the Federal Reserve System (the “Federal Reserve”) maintained the target range for the federal funds rate at zero to one-quarter percent and began to offer guidance that economic conditions are likely to warrant exceptionally low levels for the federal funds rate, at least through late 2014.



Financial performance of JPMorgan Chase
	Three months ended March 31,
(in millions, except per share data and ratios)	2012			2011			Change
Selected income statement data
Total net revenue	$	26,712		$	25,221		6	%
Total noninterest expense	18,345			15,995			15
Pre-provision profit	8,367			9,226			(9	)
Provision for credit losses	726			1,169			(38	)
Net income	5,383			5,555			(3	)
Diluted earnings per share	1.31			1.28			2
Return on common equity	12		%	13		%
Capital ratios
Tier 1 capital	12.6			12.3
Tier 1 common	10.4			10.0

Business overview

JPMorgan Chase reported first-quarter 2012 net income of $5.4 billion, or $1.31 per share, on net revenue of $26.7 billion. Net income declined by $172 million, or 3%, compared with net income of $5.6 billion, or $1.28 per share, in the first quarter of 2011. ROE for the quarter was 12%, compared with 13% for the prior-year quarter. Results in the first quarter of 2012 included the following significant items: $1.8 billion pretax benefit ($0.28 per share after-tax increase in earnings) from the reduction in the allowance for loan losses, related to mortgage and credit card loans; $1.1 billion pretax benefit ($0.17 per share after-tax increase in earnings) from the Washington Mutual bankruptcy settlement, in Corporate; $2.5 billion pretax expense ($0.39 per share after-tax reduction in earnings) for additional litigation reserves, predominantly for mortgage-related matters, in Corporate; and $0.9 billion pretax loss ($0.14 per share after-tax reduction in earnings) from debit valuation adjustments (“DVA”) in the Investment Bank, resulting from tightening of the Firm’s credit spreads.

The decrease in net income from the first quarter of 2011 was driven by higher noninterest expense, largely offset by higher net revenue. The increase in net revenue was driven by higher mortgage fees and related income and a $1.1 billion benefit from the Washington Mutual bankruptcy settlement, partially offset by lower principal transactions revenue, driven by a $907 million loss from DVA. The increase in noninterest expense was predominantly driven by higher compensation and noncompensation expense, including $2.5 billion of additional litigation reserves, predominantly for mortgage-related matters.

Results in the first quarter of 2012 reflected positive credit trends for the consumer real estate and credit card portfolios. Estimated losses declined for these portfolios, and the Firm reduced the related allowance for loan losses by a total of $1.8 billion in the first quarter. However, costs

and losses associated with mortgage-related issues continued to negatively affect the mortgage business. Trends in the Firm’s credit metrics across the wholesale portfolios were stable and continued to be strong. Firmwide, net charge-offs were $2.4 billion for the quarter, down $1.3 billion from the first quarter of 2011, and nonperforming assets were $12.0 billion, down 21%. Based upon regulatory guidance issued in the first quarter of 2012, the Firm began reporting performing junior liens that are subordinate to senior liens that are 90 days or more past due as nonaccrual loans, a component of nonperforming assets. For more information on the new regulatory guidance, see Consumer Credit Portfolio on pages 60–69 of this Form 10-Q. Total firmwide credit reserves at March 31, 2012, were $26.6 billion, resulting in a loan loss coverage ratio of 3.11% of total loans, excluding the PCI portfolio.

While several significant items affected the Firm’s results, overall, the Firm’s performance in the first quarter was solid. The Investment Bank, in particular, reported strong results driven by continued leadership and improved market conditions. Consumer & Business Banking within Retail Financial Services increased average deposits by 8% compared with the first quarter last year; Business Banking loan originations were up 8% as well. Mortgage Banking (also within Retail Financial Services) application volume increased 33% from the prior-year quarter, and Retail channel originations were a record, up 11% from the prior-year quarter. In the Card business, credit card sales volume (excluding Commercial Card) was up 12% compared with the first quarter of 2011. Commercial Banking reported its seventh consecutive quarter of loan growth, including record middle-market loans. Treasury & Securities Services reported record assets under custody of $17.9 trillion, and Asset Management reported record assets under supervision of $2.0 trillion. The first quarter was also the twelfth consecutive quarter of positive long-term flows into assets under management.

During the first quarter of 2012, the Firm provided credit and raised capital of over $445 billion for its commercial and consumer clients. This included more than $4 billion of credit to U.S. small businesses, up 35% compared with the prior year. The Firm originated more than 200,000 mortgages in the first quarter and remains committed to helping struggling homeowners; JPMorgan Chase has offered more than 1.3 million mortgage modifications since 2009, and has completed more than 490,000.

JPMorgan Chase continued to strengthen its balance sheet, ending the first quarter with Basel I Tier 1 common capital of $128 billion, or 10.4%, up from $123 billion, or 10.1% at year-end 2011. The Firm estimated that its Basel III Tier 1 common ratio was approximately 8.2% at March 31, 2012. (The Basel I and III Tier 1 common ratios are non-GAAP financial measures, which the Firm uses along with the other capital measures, to assess and monitor its capital position.) For further discussion of the Tier 1 common

capital ratios, see Regulatory capital on pages 42–45 of this Form 10-Q. During the first quarter of 2012, the Board of Directors of JPMorgan Chase increased the Firm’s quarterly common stock dividend to $0.30 per share, an increase of $0.05 per share. The Board of Directors also authorized a new $15 billion common equity repurchase program, of which up to $12 billion of repurchases is approved for 2012 and up to $3 billion is approved for the first quarter of 2013.

The discussion that follows highlights the performance of each business segment compared with the prior year and presents results on a managed basis. Managed basis starts with the reported results under the accounting principles generally accepted in the United States of America (“U.S. GAAP”) and, for each line of business and the Firm as a whole, includes certain reclassifications to present total net revenue on a fully taxable-equivalent (“FTE”) 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 12–13 of this Form 10-Q.

Investment Bank net income decreased from the prior year as lower net revenue and a lower benefit from the provision for credit losses were partially offset by lower noninterest expense. Net revenue included the $907 million loss from DVA. Excluding the DVA impact, net revenue was approximately flat to the level in the prior year. Fixed Income and Equity Markets revenue decreased slightly, excluding DVA, compared with the prior year and reflected continued solid client revenue. Investment banking fees also decreased. Lower compensation expense drove the decline in noninterest expense from the prior-year level.

Retail Financial Services reported net income in the current quarter compared with a net loss in the prior year, driven by higher net revenue and a lower provision for credit losses. Growth in net revenue was driven by higher mortgage fees and related income, partially offset by lower net interest income, resulting from lower loan balances due to portfolio runoff, and lower debit card revenue. The provision for credit losses was a benefit in the first quarter of 2012, compared with an expense in the prior year, and reflected lower net charge-offs and a $1.0 billion reduction of the allowance for loan losses, due to lower estimated losses as mortgage delinquency trends improved.

Card Services & Auto net income decreased compared with the prior year reflecting a higher provision for credit losses. The current-quarter provision reflected lower net charge-offs and a reduction of $750 million to the allowance for loan losses due to lower estimated losses. The prior-year provision included a reduction of $2.0 billion to the allowance for loan losses.

The decline in net revenue was driven by lower net interest income, reflecting lower average loan balances and narrower loan spreads, partially offset by lower revenue reversals associated with lower charge-offs. Credit card sales volume, excluding the Commercial Card portfolio, was

up 12% from the first quarter of 2011. The increase in noninterest expense was primarily due to an expense related to a non-core product that is being exited.

Commercial Banking net income increased, driven by an increase in net revenue, partially offset by higher noninterest expense and an increase in the provision for credit losses. The increase in revenue reflected higher net interest income driven by growth in liability and loan balances, largely offset by spread compression on liability and loan products. The increase in noninterest expense primarily reflected higher headcount-related expense.

Treasury & Securities Services net income increased as higher net revenue was largely offset by higher noninterest expense. Treasury Services drove the increase in net revenue, with higher deposit balances and higher trade finance loan volumes contributing to revenue growth in the business. Worldwide Securities Services net revenue increased modestly compared with the prior year. Assets under custody were a record $17.9 trillion, up 8% from the prior year. Higher noninterest expense was primarily driven by continued expansion into new markets.

Asset Management net income decreased, reflecting higher noninterest expense and lower net revenue. The modest decline in net revenue was primarily due to lower credit-related fees, lower performance fees, lower brokerage commissions and narrower deposit spreads. The decline was predominantly offset by higher deposit and loan balances, net inflows to products with higher margins, and higher valuations of seed capital investments. Assets under supervision at the end of the first quarter of 2012 were a record $2.0 trillion, an increase of $105 billion from the prior year. Assets under management of $1.4 trillion were also a record. Both increases were due to net inflows to long-term products and the impact of higher market levels. In addition, deposit and custody inflows contributed to the increase in assets under supervision. The increase in noninterest expense was due to higher headcount-related expense.

Corporate/Private Equity reported a net loss in the first quarter of 2012 compared with net income in the first quarter of 2011. Net income and revenue in Private Equity declined, driven by lower private equity gains due to the absence of prior-year valuation gains on private investments. Corporate reported a net loss, driven by higher litigation reserves, predominantly for mortgage-related matters, partially offset by a $1.1 billion benefit from the Washington Mutual bankruptcy settlement.

2012 Business outlook

The following forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on page 84 and Risk Factors on page 175 of this Form 10-Q.

JPMorgan Chase’s outlook for the remainder of 2012 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these linked factors will affect the performance of the Firm and its lines of business.

In the Consumer & Business Banking business within RFS, the Firm estimates that, given the current low interest rate environment, spread compression will likely negatively affect 2012 net income by approximately $400 million for the full year. In addition, the effect of the Durbin Amendment will likely reduce annualized net income by approximately $600 million.

In the Mortgage Production and Servicing business within RFS, revenue in 2012 could be negatively affected by continued elevated levels of repurchases of mortgages previously sold, predominantly to U.S. government-sponsored entities (“GSEs”). Management estimates that realized mortgage repurchase losses could be approximately $350 million per quarter in 2012. Also for Mortgage Production and Servicing, management expects the business to continue to incur elevated default and foreclosure-related costs including additional costs associated with the Firm’s mortgage servicing processes, particularly its loan modification and foreclosure procedures. (See Mortgage servicing-related matters on pages 67–69 and Note 16 on pages 144–146 of this Form 10-Q.) In addition, management believes that the high margins experienced in the first quarter of 2012 will not be sustainable over time.

For Real Estate Portfolios within RFS, management believes that quarterly net charge-offs could be less than $900 million. Given management’s current estimate of portfolio runoff levels, the existing residential real estate portfolio is expected to decline by approximately 10% to 15% in 2012 from year-end 2011 levels. This reduction in the residential real estate portfolio is expected to reduce net interest income by approximately $500 million in 2012. However, over time, the reduction in net interest income is expected to be more than offset by an improvement in credit costs and lower expenses. In addition, as the portfolio continues to run off, management anticipates that approximately $1 billion of capital may become available for redeployment each year, subject to the capital requirements associated with the remaining portfolio.

In Card, the net charge-off rate for the credit card portfolio could decrease in the second quarter of 2012 to approximately 4.25%.

The currently anticipated results of RFS and Card described above could be adversely affected by further declines in U.S. housing prices or increases in the unemployment rate. Given ongoing weak economic conditions, combined with a high level of uncertainty concerning the residential real estate markets, management continues to closely monitor the portfolios in these businesses.

In IB, TSS, CB and AM, revenue will be affected by market levels, volumes and volatility, which will influence client flows and assets under management, supervision and custody. For the IB, the second quarter of 2012 has started weaker than the seasonally strong first quarter. CB and TSS will continue to experience low net interest margins as long as market interest rates remain low. In addition, the wholesale credit environment will influence levels of charge-offs, repayments and the provision for credit losses for IB, CB, TSS and AM.

In Private Equity, within the Corporate/Private Equity segment, earnings will likely continue to be volatile and be influenced by capital markets activity, market levels, the performance of the broader economy and investment-specific issues.

In Corporate, within the Corporate/Private Equity segment, net income (excluding Private Equity results and litigation expense) for the second quarter is currently estimated to be a loss of approximately $800 million. (Prior guidance for Corporate quarterly net income (excluding Private Equity results, litigation expense and nonrecurring significant items) was approximately $200 million.) Actual second quarter results could be substantially different from the current estimate and will depend on market levels and portfolio actions related to investments held by the Chief Investment Office (CIO), as well as other activities in Corporate during the remainder of the quarter.

Since March 31, 2012, CIO has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed. The losses in CIO's synthetic credit portfolio have been partially offset by realized gains from sales, predominantly of credit-related positions, in CIO's AFS securities portfolio. As of March 31, 2012, the value of CIO's total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value.

The Firm is currently repositioning CIO's synthetic credit portfolio, which it is doing in conjunction with its assessment of the Firm's overall credit exposure. As this repositioning is being effected in a manner designed to maximize economic value, CIO may hold certain of its current synthetic credit positions for the longer term.

Accordingly, net income in Corporate likely will be more volatile in future periods than it has been in the past.

The Firm faces a variety of exposures resulting from repurchase demands and litigation arising out of its various roles as issuer and/or underwriter of mortgage-backed securities (“MBS”) offerings in private-label securitizations. It is possible that these matters will take a number of years to resolve and their ultimate resolution is currently uncertain. Reserves for such matters may need to be increased in the future; however, with the additional litigation reserves taken in the first quarter of 2012, absent any materially adverse developments that could change management’s current views, JPMorgan Chase does not currently anticipate further material additions to its litigation reserves for mortgage-backed securities-related matters over the remainder of the year.

Regulatory developments

JPMorgan Chase is subject to regulation under state and federal laws in the U.S., as well as the applicable laws of each of the various other jurisdictions outside the U.S. in which the Firm does business. The Firm is currently experiencing a period of unprecedented change in regulation and supervision, and such changes could have a significant impact on how the Firm conducts business. The Firm continues to work diligently in assessing and understanding the implications of the regulatory changes it is facing, and is devoting substantial resources to implementing all the new rules and regulations while meeting the needs and expectations of its clients. The Firm expects heightened scrutiny by its regulators of its compliance with new and existing regulations, and expects that regulators will more frequently bring formal enforcement actions for violations of law rather than resolving those violations through informal supervisory processes. While the Firm has made a preliminary assessment of the likely impact of these anticipated changes, the Firm cannot, given the current status of the regulatory and supervisory developments, quantify the possible effects on its business and operations of all of the significant changes that are currently underway. For further discussion of regulatory developments, see Supervision and regulation on pages 1–7 and Risk factors on pages 7–17 of JPMorgan Chase’s 2011 Form 10-K.



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, 2012 and 2011. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 80–82 of this Form 10-Q and pages 168–172 of JPMorgan Chase’s 2011 Annual Report.



Revenue
	Three months ended March 31,
(in millions)	2012		2011			Change
Investment banking fees	$	1,381	$	1,793		(23	)%
Principal transactions	3,382		4,745			(29	)
Lending- and deposit-related fees	1,517		1,546			(2	)
Asset management, administration and commissions	3,392		3,606			(6	)
Securities gains	536		102			425
Mortgage fees and related income	2,010		(487		)	NM
Credit card income	1,316		1,437			(8	)
Other income	1,512		574			163
Noninterest revenue	15,046		13,316			13
Net interest income	11,666		11,905			(2	)
Total net revenue	$	26,712	$	25,221		6	%

Total net revenue for the first quarter of 2012 was $26.7 billion, an increase of $1.5 billion, or 6%, from the prior-year quarter. Results were driven by higher mortgage fees and related income in RFS and a $1.1 billion benefit from the Washington Mutual bankruptcy settlement. The increase was partially offset by lower principal transactions revenue in Corporate/Private Equity and IB.

Investment banking fees for the first quarter of 2012 decreased compared with the prior year, in particular, for debt underwriting and equity underwriting, as well as advisory fees, due primarily to lower industry-wide volumes. For additional information on investment banking fees, which are primarily recorded in IB, see IB segment results on pages 15–17, and Note 6 on page 110 of this Form 10-Q.

Principal transactions revenue, which consists of revenue from the Firm’s market-making and private equity investing activities, decreased compared with the first quarter of 2011, driven by lower market-making revenue and lower private equity gains. Principal transactions revenue included a $907 million loss from DVA on certain structured notes and derivative liabilities resulting from the tightening of the Firm’s credit spreads. Excluding DVA, principal transactions revenue was down slightly, with continued solid client revenue, and particularly strong results in rates-related and equity products. Lower private equity gains were primarily due to the absence of prior-year valuation gains on private investments. For additional information on

principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 15–17 and 33–34, respectively, and Note 6 on page 110 of this Form 10-Q.

Lending- and deposit-related fees remained relatively unchanged compared with the prior year. For additional information on lending- and deposit-related fees, which are mostly recorded in RFS, CB, TSS and IB, see RFS on pages 18–24, CB on pages 27–28, TSS on pages 29–30 and IB on pages 15–17 of this Form 10-Q.

Asset management, administration and commissions revenue decreased compared with the first quarter of 2011, reflecting lower brokerage commissions in IB and AM; lower asset management fees in AM, driven by lower performance fees, partially offset by net inflows to products with higher margins. For additional information on these fees and commissions, see the segment discussions for

AM on pages 31–32, and Note 6 on page 110 of this Form 10-Q.

Securities gains increased compared with the level in the first quarter of 2011, primarily due to the repositioning of the investment securities portfolio in response to changes in the current market environment and to rebalancing exposures. For additional information on securities gains, which are mostly recorded in the Firm’s Corporate/Private Equity segment, see the Corporate/Private Equity segment discussion on pages 33–34, and Note 11 on pages 113–117 of this Form 10-Q.

Mortgage fees and related income increased compared with the first quarter of 2011. Higher production revenue (excluding repurchase losses), contributed to the increase in mortgage fees and related income, reflecting wider margins, driven by market conditions and product mix, and higher volumes, due to a favorable refinancing environment. In addition, the prior year included a $1.1 billion decrease in the fair value of the mortgage servicing rights (“MSR”) asset for the estimated impact of increased servicing costs. For additional information on mortgage fees and related income, which is recorded primarily in RFS, see RFS’s Mortgage Production and Servicing discussion on pages 20–22, and Note 16 on pages 144–146 of this Form 10-Q. For additional information on repurchase losses, see the Mortgage repurchase liability discussion on pages 38–41 and Note 21 on pages 150–154 of this Form 10-Q.

Credit card income decreased in the first quarter of 2012, due to lower debit card revenue, reflecting the impact of the Durbin Amendment, and to a lesser extent, lower revenue from fee-based products. The decline was partially offset by lower partner revenue-sharing due to the impact of the Kohl’s portfolio sale on April 1, 2011, as well as higher net interchange income associated with higher customer transaction volume on credit cards. For additional information on credit card income, see the Card and RFS segment results on pages 25–26, and pages 18–24, respectively, of this Form 10-Q.

Other income increased in the first quarter of 2012, driven by a $1.1 billion benefit from the Washington Mutual bankruptcy settlement. For additional information on the bankruptcy settlement, see Note 2 on pages 90–91 and Note 23 on pages 154–163, respectively, of this Form 10-Q.

Net interest income decreased in the first quarter of 2012 compared with the prior year, primarily driven by lower loan yields due to changes in portfolio mix and market rates, and higher long-term debt cost. The decrease was partially offset by higher average loan balances, in particular, in the wholesale businesses, lower interest-bearing deposit cost and higher levels of investment securities. The Firm’s average interest-earning assets were $1.8 trillion for the first quarter of 2012, and the net yield on those assets, on a FTE basis, was 2.61%, a decrease of 28 basis points from the first quarter of 2011.



Provision for credit losses
	Three months ended March 31,
(in millions)	2012		2011			Change
Wholesale	$	89	$	(386	)	NM %
Consumer, excluding credit card	1		1,329			(100	)
Credit card	636		226			181
Total consumer	637		1,555			(59	)
Total provision for credit losses	$	726	$	1,169		(38	)%

The provision for credit losses declined by $443 million compared with the first quarter of 2011. The consumer, excluding credit card, provision for credit losses decreased, reflecting a $1.0 billion reduction in the allowance for loan losses, due to lower estimated losses in the non-PCI residential real estate portfolio as delinquency trends improved. The wholesale provision for credit losses was $89 million, compared with a benefit of $386 million in the first quarter of 2011; the prior year reflected a reduction in the allowance for loan losses due to an improvement in the credit environment. The current-quarter credit card provision reflected lower net charge-offs and a reduction of $750 million to the allowance for loan losses due to lower estimated losses; the prior-year provision included a reduction of $2.0 billion to the allowance for loan losses.

For a more detailed discussion of the loan portfolio and the allowance for credit losses, see the segment discussions for RFS on pages 18–24, Card on pages 25–26, IB on pages 15–17 and CB on pages 27–28, and the Allowance for credit losses section on pages 70–72 of this Form 10-Q.



Noninterest expense
	Three months ended March 31,
(in millions)	2012		2011		Change
Compensation expense	$	8,613	$	8,263	4	%
Noncompensation expense:
Occupancy	961		978		(2	)
Technology, communications and equipment	1,271		1,200		6
Professional and outside services	1,795		1,735		3
Marketing	680		659		3
Other^(a)	4,832		2,943		64
Amortization of intangibles	193		217		(11	)
Total noncompensation expense	9,732		7,732		26
Total noninterest expense	$	18,345	$	15,995	15	%


(a)	Included litigation expense of $2.7 billion and $1.1 billion for the three months ended March 31, 2012 and 2011, respectively.

Total noninterest expense for the first quarter of 2012 was $18.3 billion, up by $2.4 billion, or 15%, from the comparable quarter in 2011. The increase was driven predominantly by additional litigation expense.

Compensation expense increased from the prior year, due to investments in sales force and new branch builds in RFS, and increased headcount in AM, partially offset by lower compensation expense in IB.

The increase in noncompensation expense in the first quarter of 2012 primarily reflected $2.5 billion of additional litigation reserves, predominantly for mortgage-related matters, in Corporate, partially offset by lower expense for foreclosure-related matters in RFS. Other contributors to the increase included the impact of continued investments in the businesses and higher servicing expense (excluding foreclosure-related matters)

in RFS.



Income tax expense
(in millions, except rate)	Three months ended March 31,
(in millions, except rate)	2012			2011
Income before income tax expense	$	7,641		$	8,057
Income tax expense	2,258			2,502
Effective tax rate	29.6		%	31.1		%

The decrease in the effective tax rate compared with the prior year was primarily the result of lower reported pretax income in combination with changes in the mix of income and expenses subject to U.S. federal, state and local taxes, and to increases in tax-exempt income and business tax credits. These factors were partially offset by the tax effect of the Washington Mutual bankruptcy settlement, which is discussed in Note 2 on pages 90–91 and in Note 23 on pages 154–163 of this Form 10-Q. The current and prior year periods include deferred tax benefits associated with state and local income taxes and tax benefits associated with the resolution of tax audits.

EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES

The Firm prepares its consolidated financial statements using U.S. GAAP; these financial statements appear on pages 85–89 of this Form 10-Q. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.

In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s results and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the business segments) on a FTE basis. Accordingly, revenue from investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable

investments and securities. This non-GAAP financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.

Management also uses certain non-GAAP financial measures at the business-segment level, because it believes these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the particular business segment and, therefore, facilitate a comparison of the business segment with the performance of its competitors. Non-GAAP financial measures used by the Firm may not be comparable to similarly named non-GAAP financial measures used by other companies.

The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis.



	Three months ended March 31,
	2012								2011
(in millions, except ratios)	Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis			Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis
Other income	$	1,512		$	534	$	2,046		$	574		$	451	$	1,025
Total noninterest revenue	15,046			534		15,580			13,316			451		13,767
Net interest income	11,666			171		11,837			11,905			119		12,024
Total net revenue	26,712			705		27,417			25,221			570		25,791
Pre-provision profit	8,367			705		9,072			9,226			570		9,796
Income before income tax expense	7,641			705		8,346			8,057			570		8,627
Income tax expense	$	2,258		$	705	$	2,963		$	2,502		$	570	$	3,072
Overhead ratio	69		%	NM		67		%	63		%	NM		62		%


(a)	Predominantly recognized in IB and CB business segments and Corporate/Private Equity.

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

assess and monitor the Firm’s capital position. TCE, ROTCE, and TBVS are meaningful to the Firm, as well as analysts and investors, in assessing the Firm’s use of equity. For additional information on Tier 1 common under Basel I and III, see Regulatory capital on pages 42–45 of this Form 10-Q. In addition, all of the aforementioned measures are useful to the Firm, as well as analysts and investors, in facilitating comparisons with competitors.



Average tangible common equity
	Three months ended March 31,
(in millions)	2012		2011
Common stockholders’ equity	$	177,711	$	169,415
Less: Goodwill	48,218		48,846
Less: Certain identifiable intangible assets	3,137		3,928
Add: Deferred tax liabilities^(a)	2,724		2,595
Tangible common equity	$	129,080	$	119,236


(a)	Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill and other intangibles when calculating TCE.

Core net interest income

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



Core net interest income data^(a)
	Three months ended March 31,
(in millions, except rates)	2012			2011			Change
Net interest income – managed basis	$	11,837		$	12,024		(2	)%
Impact of market-based net interest income	1,569			1,834			(14	)
Core net interest income	$	10,268		$	10,190		1

Average interest-earning assets – managed basis	$	1,821,513		$	1,686,693		8
Impact of market-based earning assets	490,750			520,924			(6	)
Core average interest-earning assets	$	1,330,763		$	1,165,769		14	%
Net interest yield on interest-earning assets – managed basis	2.61		%	2.89		%
Net interest yield on market-basedactivity	1.29			1.43
Core net interest yield on core average interest-earning assets	3.10		%	3.54		%


(a)	Includes core lending, investing and deposit-raising activities on a managed basis, across RFS, Card, CB, TSS, AM and Corporate/Private Equity, as well as IB credit portfolio loans.

First quarter of 2012 compared with the first quarter of 2011

Core net interest income increased by $78 million to $10.3 billion, and core average interest-earning assets increased by $165.0 billion to $1,330.8 billion. The increases in net interest income and interest-earning assets were driven by higher levels of deposits with banks and other short-term investments due to wholesale and retail client deposit growth. The core net interest yield decreased by 44 basis points to 3.10%, driven by lower yields on loans and investment securities due to change in portfolio mix, and higher levels of deposits with banks and other short term investments.

Other financial measures

The Firm also discloses the allowance for loan losses to total retained loans, excluding residential real estate PCI loans. For a further discussion of this credit metric, see Allowance for Credit Losses on pages 70–72 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 & Auto, 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 the lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures, on pages 12–13 of this Form 10-Q.

Description of business segment reporting methodology

Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results allocates income and expense

using market-based methodologies. For a further discussion of those methodologies, see Business Segment Results – Description of business segment reporting methodology on pages 79–80 of JPMorgan Chase’s 2011 Annual Report. The Firm continues to assess the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.

Business segment capital allocation changes

Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, economic risk measures and regulatory capital requirements. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2012, the Firm revised the capital allocated to certain businesses, reflecting additional refinement of each segment’s estimated Basel III Tier 1 common capital requirements and balance sheet trends. For further information about these capital changes, see Line of business equity on page 45 of this Form 10-Q.

Segment Results – Managed Basis

The following table summarizes the business segment results for the periods indicated.



Three months ended March 31,	Total net revenue						Noninterest expense						Pre-provision profit/(loss)^(b)
(in millions)	2012		2011		Change		2012		2011		Change		2012			2011		Change
Investment Bank^(a)	$	7,321	$	8,233	(11	)%	$	4,738	$	5,016	(6	)%	$	2,583		$	3,217	(20	)%
Retail Financial Services	7,649		5,466		40		5,009		4,900		2		2,640			566		366
Card Services & Auto	4,714		4,791		(2	)	2,029		1,917		6		2,685			2,874		(7	)
Commercial Banking	1,657		1,516		9		598		563		6		1,059			953		11
Treasury & Securities Services	2,014		1,840		9		1,473		1,377		7		541			463		17
Asset Management	2,370		2,406		(1	)	1,729		1,660		4		641			746		(14	)
Corporate/Private Equity^(a)	1,692		1,539		10		2,769		562		393		(1,077		)	977		NM
Total	$	27,417	$	25,791	6	%	$	18,345	$	15,995	15	%	$	9,072		$	9,796	(7	)%



Three months ended March 31,	Provision for credit losses								Net income/(loss)
(in millions)	2012			2011			Change		2012			2011			Change
Investment Bank^(a)	$	(5	)	$	(429	)	99	%	$	1,682		$	2,370		(29	)%
Retail Financial Services	(96		)	1,199			NM		1,753			(399		)	NM
Card Services & Auto	738			353			109		1,183			1,534			(23	)
Commercial Banking	77			47			64		591			546			8
Treasury & Securities Services	2			4			(50	)	351			316			11
Asset Management	19			5			280		386			466			(17	)
Corporate/Private Equity^(a)	(9		)	(10		)	10		(563		)	722			NM
Total	$	726		$	1,169		(38	)%	$	5,383		$	5,555		(3	)%


(a)	Corporate/Private Equity includes an adjustment to offset IB’s inclusion of a credit allocation income/(expense) to TSS in total net revenue; TSS reports the credit allocation as a separate line item on its income statement (not within total net revenue).


(b)	Pre-provision profit is total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses.



INVESTMENT BANK

For a discussion of the business profile of IB, see pages 81-84 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 4 of this Form 10-Q.



Selected income statement data
	Three months ended March 31,
(in millions, except ratios)	2012			2011			Change
Revenue
Investment banking fees	$	1,375		$	1,779		(23	)%
Principal transactions^(a)	3,210			3,398			(6	)
Asset management, administration and commissions	565			619			(9	)
All other income^(b)	268			380			(29	)
Noninterest revenue	5,418			6,176			(12	)
Net interest income	1,903			2,057			(7	)
Total net revenue^(c)	7,321			8,233			(11	)

Provision for credit losses	(5		)	(429		)	99

Noninterest expense
Compensation expense	2,901			3,294			(12	)
Noncompensation expense	1,837			1,722			7
Total noninterest expense	4,738			5,016			(6	)
Income before income tax expense	2,588			3,646			(29	)
Income tax expense	906			1,276			(29	)
Net income	$	1,682		$	2,370		(29	)%
Financial ratios
Return on common equity	17		%	24		%
Return on assets	0.86			1.18
Overhead ratio	65			61
Compensation expense as a percentage of total net revenue	40			40


(a)	Principal transactions included DVA related to derivatives and structured liabilities measured at fair value, DVA (losses) were $(907) million and $(46) million for the three months ended March 31, 2012 and 2011, respectively.


(b)	All other income included lending- and deposit-related fees. In addition, IB manages traditional credit exposures related to Global Corporate Bank (“GCB”) on behalf of IB and TSS, and IB and TSS share the economics related to the Firm’s GCB clients. IB recognizes this sharing agreement within all other income.


(c)	Total net revenue included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing and alternative energy investments as well as tax-exempt income from municipal bond investments of $509 million and $438 million for the three months ended March 31, 2012 and 2011, respectively.

The following table provides IB's total net revenue by business.



	Three months ended March 31,
(in millions)	2012			2011			Change
Revenue by business
Investment banking fees:
Advisory	$	281		$	429		(34	)%
Equity underwriting	276			379			(27	)
Debt underwriting	818			971			(16	)
Total investment banking fees	1,375			1,779			(23	)
Fixed income markets^(a)	4,664			5,238			(11	)
Equity markets^(b)	1,294			1,406			(8	)
Credit portfolio^(c)(d)	(12		)	(190		)	94
Total net revenue	$	7,321		$	8,233		(11	)


(a)	Fixed income markets primarily include revenue related to market-making across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets. Includes DVA gains/(losses) of ($352) million and $95 million for the three months ended March 31, 2012 and 2011, respectively.


(b)	Equity markets primarily include revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services. Includes DVA gains/(losses) of ($130) million and ($72) million for the three months ended March 31, 2012 and 2011, respectively.

(c)

Credit portfolio revenue includes net interest income, fees and loan sale activity, as well as gains or losses on securities received as part of a loan restructuring, for IB’s credit portfolio. Credit portfolio revenue also includes the results of risk management related to the Firm’s lending and derivative activities. Includes DVA gains/(losses) of ($425) million and ($69) million for the three months ended March 31, 2012 and 2011, respectively. See pages 58–59 of the Credit Risk Management section of this Form 10-Q for further discussion.


(d)	IB manages traditional credit exposures related to GCB on behalf of IB and TSS, and IB and TSS share the economics related to the Firm’s GCB clients. IB recognizes this sharing agreement within all other income.

Quarterly results

Net income was $1.7 billion, down 29% from the prior year. These results reflected lower net revenue and a lower benefit from the provision for credit losses, partially offset by lower noninterest expense. Net revenue was $7.3 billion, compared with $8.2 billion in the prior year, and included a $907 million loss from DVA, compared with a $46 million loss in the prior year. Excluding the impact of DVA, net revenue was $8.2 billion and net income was $2.2 billion.

Investment banking fees were $1.4 billion (down 23%), which consists of debt underwriting fees of $818 million (down 16%), equity underwriting fees of $276 million (down 27%), and advisory fees of $281 million (down 34%) primarily due to lower industry-wide volumes. Combined Fixed Income and Equity Markets revenue was $6.0 billion, down 10% from the prior year, and included DVA losses of $352 million in Fixed Income Markets and $130 million in Equity Markets. Excluding the impact of DVA, Fixed Income and Equity Markets combined revenue was $6.4 billion, down 3% from the prior year, with continued solid client revenue, and particularly strong results in rates-related and equity products. Credit Portfolio

reported a loss of $12 million, and reflected DVA losses of $425 million, which more than offset net interest income and fees on retained loans, and credit valuation adjustment (“CVA”)gains net of hedges.

The provision for credit losses was a benefit of $5 million, compared with a benefit in the prior year of $429 million. The ratio of the allowance for loan losses to end-of-period loans retained was 2.06%, compared with 2.52% in the prior year.

Noninterest expense was $4.7 billion, down 6% from the prior year, driven by lower compensation expense. The ratio of compensation to net revenue was 35%, excluding DVA.

Return on equity was 17% (23%, excluding DVA) on $40.0 billion of average allocated capital.



Selected metrics
	As of or for the three months ended March 31,
(in millions, except headcount)	2012		2011		Change
Selected balance sheet data (period-end)
Total assets	$	812,959	$	853,452	(5	)%
Loans:
Loans retained^(a)	67,213		52,712		28
Loans held-for-sale and loans at fair value	5,451		5,070		8
Total loans	72,664		57,782		26
Equity	40,000		40,000		—
Selected balance sheet data (average)
Total assets	$	789,569	$	815,828	(3	)
Trading assets-debt and equity instruments	313,267		368,956		(15	)
Trading assets-derivative receivables	76,225		67,462		13
Loans:
Loans retained^(a)	66,710		53,370		25
Loans held-for-sale and loans at fair value	2,767		3,835		(28	)
Total loans	69,477		57,205		21
Adjusted assets^(b)	559,566		611,038		(8	)
Equity	40,000		40,000		—

Headcount	25,707		26,494		(3	)%


(a)	Loans retained included credit portfolio loans, leveraged leases and other held-for-investment loans.

(b)

Adjusted assets, a non-GAAP financial measure, equals total assets minus: (1) securities purchased under resale agreements and securities borrowed less securities sold, not yet purchased; (2) assets of consolidated variable interest entities (“VIEs”); (3) cash and securities segregated and on deposit for regulatory and other purposes; (4) goodwill and intangibles; and (5) securities received as collateral. The amount of adjusted assets is presented to assist the reader in comparing IB’s asset and capital levels to other investment banks in the securities industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a company’s capital adequacy. IB believes an adjusted asset amount that excludes the assets discussed above, which were considered to have a low risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry.



Selected metrics
	As of or for the three months ended March 31,
(in millions, except ratios)	2012			2011			Change
Credit data and quality statistics
Net charge-offs/(recoveries)	$	(35	)	$	123		NM %
Nonperforming assets:
Nonaccrual loans:
Nonaccrual loans retained^(a)	695			2,388			(71	)
Nonaccrual loansheld-for-sale and loans at fair value	182			259			(30	)
Total nonaccrual loans	877			2,647			(67	)
Derivative receivables^(b)	317			180			76
Assets acquired in loan satisfactions	79			73			8
Total nonperforming assets	1,273			2,900			(56	)
Allowance for credit losses:
Allowance for loan losses	1,386			1,330			4
Allowance for lending-related commitments	530			424			25
Total allowance for credit losses	1,916			1,754			9
Net charge-off/(recovery) rate^(c)	(0.21		)%	0.93		%
Allowance for loan losses to period-end loans retained	2.06			2.52
Allowance for loan losses to nonaccrual loans retained^(a)	199			56
Nonaccrual loans to period-end loans	1.21			4.58
Market risk-average trading and credit portfolio VaR – 95% confidence level
Trading activities:
Fixed income	$	60		$	49		22
Foreign exchange	11			11			—
Equities	17			29			(41	)
Commodities and other	21			13			62
Diversification benefit to IB trading VaR^(d)	(46		)	(38		)	(21	)
Total trading VaR^(e)	63			64			(2	)
Credit portfolio VaR^(f)	32			26			23
Diversification benefit to total other VaR^(d)	(14		)	(7		)	(100	)
Total trading and credit portfolio VaR	$	81		$	83		(2	)%


(a)	Allowance for loan losses of $225 million and $567 million were held against these nonaccrual loans at March 31, 2012 and 2011, respectively.


(b)	Prior period amounts have been revised to include both defaulted derivatives and derivatives that have been risk rated as nonperforming; in prior periods only the amount of defaulted derivatives was reported.


(c)	Loans held-for-sale and loans at fair value were excluded when calculating the net charge-off/(recovery) rate.


(d)	Average value-at-risk (“VaR”) was less than the sum of the VaR of the components described above, due to portfolio diversification. The diversification effect reflects the fact that the risks were not perfectly correlated. The risk of a portfolio of positions is therefore usually less than the sum of the risks of the positions themselves.


(e)	Trading VaR includes substantially all market-making and client-driven activities as well as certain risk management activities in IB, including the credit spread sensitivities of certain mortgage products

and syndicated lending facilities that the Firm intends to distribute; however, particular risk parameters of certain products are not fully captured, for example, correlation risk. Trading VaR does not include the DVA on derivative and structured liabilities to reflect the credit quality of the Firm. See VaR discussion on pages 73–75 and the DVA sensitivity table on page 75 of this Form 10-Q for further details.


(f)	Credit portfolio VaR includes the derivative CVA, hedges of the CVA and the fair value of hedges of the retained loan portfolio, which are all reported in principal transactions revenue. This VaR does not include the retained loan portfolio, which is not reported at fair value.



Market shares and rankings^(a)
	Three months ended March 31, 2012		Full-year 2011
	Market Share	Rankings	Market Share	Rankings
Global investment banking fees^(b)	7.9%	#1	8.0%	#1
Debt, equity and equity-related
Global	7.2	1	6.7	1
U.S.	11.7	1	11.1	1
Syndicated loans
Global	9.0	2	10.9	1
U.S.	16.0	2	21.2	1
Long-term debt^(c)
Global	7.1	1	6.7	1
U.S.	11.4	1	11.2	1
Equity and equity-related
Global^(d)	8.6	3	6.8	3
U.S.	11.3	3	12.5	1
Announced M&A^(e)
Global	22.3	1	18.5	2
U.S.	21.7	1	27.1	2

(a)

Source: Dealogic. Global Investment Banking fees reflects ranking of fees and market share. Remainder of rankings reflects transaction volume rank and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit to each book manager/equal if joint.


(b)	Global Investment Banking fees rankings exclude money market, short-term debt and shelf deals.


(c)	Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities; and exclude money market, short-term debt, and U.S. municipal securities.


(d)	Global Equity and equity-related ranking includes rights offerings and Chinese A-Shares.


(e)	Announced M&A reflects the removal of any withdrawn transactions. U.S. announced M&A represents any U.S. involvement ranking.

According to Dealogic, the Firm was ranked #1 in Global Investment Banking Fees generated during the first three months of 2012, based on revenue; #1 in Global Debt, Equity and Equity-related; #1 in Global Long-Term Debt; #2 in Global Syndicated Loans; #3 in Global Equity and Equity-related; and #1 in Global Announced M&A, based on volume.



International metrics	Three months ended March 31,
(in millions)	2012		2011		Change
Total net revenue^(a)
Europe/Middle East/Africa	$	2,400	$	2,592	(7	)%
Asia/Pacific	758		1,122		(32	)
Latin America/Caribbean	339		327		4
North America	3,824		4,192		(9	)
Total net revenue	$	7,321	$	8,233	(11	)
Loans retained (period-end)^(b)
Europe/Middle East/Africa	$	16,358	$	14,059	16
Asia/Pacific	7,969		5,472		46
Latin America/Caribbean	3,764		2,190		72
North America	39,122		30,991		26
Total loans	$	67,213	$	52,712	28	%


(a)	Regional revenue is based primarily on the domicile of the client and/or location of the trading desk.


(b)	Includes retained loans based on the domicile of the customer.



RETAIL FINANCIAL SERVICES

For a discussion of the business profile of RFS, see pages 85-93 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 4 of this Form 10-Q.



Selected income statement data
Three months ended March 31,
(in millions, except ratios)	2012			2011			Change
Revenue
Lending- and deposit-related fees	$	748		$	736		2	%
Asset management, administration and commissions	527			485			9
Mortgage fees and related income	2,008			(489		)	NM
Credit card income	315			537			(41	)
Other income	126			111			14
Noninterest revenue	3,724			1,380			170
Net interest income	3,925			4,086			(4	)
Total net revenue	7,649			5,466			40

Provision for credit losses	(96		)	1,199			NM

Noninterest expense
Compensation expense	2,305			1,876			23
Noncompensation expense	2,653			2,964			(10	)
Amortization of intangibles	51			60			(15	)
Total noninterest expense	5,009			4,900			2
Income/(loss) before income tax expense/(benefit)	2,736			(633		)	NM
Income tax expense/(benefit)	983			(234		)	NM
Net income/(loss)	$	1,753		$	(399	)	NM
Financial ratios
Return on common equity	27		%	(6		)%
Overhead ratio	65			90
Overhead ratio excluding core deposit intangibles^(a)	65			89

(a)

RFS uses the overhead ratio (excluding the amortization of core deposit intangibles (“CDI”)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation would result in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would therefore result in an improving overhead ratio over time, all things remaining equal. This non-GAAP ratio excluded Consumer & Business Banking’s CDI amortization expense related to prior business combination transactions of $51 million and $60 million for the three months ended March 31, 2012 and 2011, respectively.

Quarterly results

Retail Financial Services reported net income of $1.8 billion, compared with a net loss of $399 million in the prior year.

Net revenue was $7.6 billion, an increase of $2.2 billion, or 40%, compared with the prior year. Net interest income was $3.9 billion, down by $161 million, or 4%, largely reflecting lower loan balances due to portfolio runoff. Noninterest revenue was $3.7 billion, an increase of $2.3 billion, driven by higher mortgage fees and related income, partially offset by lower debit card revenue.

The provision for credit losses was a benefit of $96 million compared with provision expense of $1.2 billion in the prior year. The current-quarter provision reflected lower net charge-offs and a $1.0 billion reduction in the allowance for loan losses, due to lower estimated losses as mortgage delinquency trends improved. The prior-year provision for credit losses reflected higher net charge-offs. See Consumer Credit Portfolio on pages 60–69 of this Form 10-Q for the net charge-off amounts and rates.

Noninterest expense was $5.0 billion, an increase of $109 million, or 2%, from the prior year.



Selected metrics
As of or for the three months ended March 31,
(in millions, except headcount and ratios)	2012		2011		Change
Selected balance sheet data (period-end)
Total assets	$	269,442	$	289,336	(7	)%
Loans:
Loans retained	227,491		247,128		(8	)
Loans held-for-sale and loans at fair value^(a)	12,496		12,234		2
Total loans	239,987		259,362		(7	)
Deposits	413,901		379,605		9
Equity	26,500		25,000		6
Selected balance sheet data (average)
Total assets	$	271,973	$	297,938	(9	)
Loans:
Loans retained	230,170		250,443		(8	)
Loans held-for-sale and loans at fair value^(a)	15,621		17,519		(11	)
Total loans	245,791		267,962		(8	)
Deposits	399,561		371,787		7
Equity	26,500		25,000		6

Headcount	134,321		118,547		13


(a)	Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets.



As of or for the three months ended March 31,
(in millions, except ratios)	2012			2011			Change
Credit data and quality statistics
Net charge-offs	$	904		$	1,199		(25	)%
Nonaccrual loans:
Nonaccrual loans retained	8,191			8,278			(1	)
Nonaccrual loans held-for-sale and loans at fair value	101			150			(33	)
Total nonaccrual loans ^(a)(b)(c)(d)	8,292			8,428			(2	)
Nonperforming assets^(a)(b)(c)(d)	9,109			9,632			(5	)
Allowance for loan losses	14,247			15,554			(8	)
Net charge-off rate^(e)	1.58		%	1.94		%
Net charge-off rateexcluding PCI loans^(e)	2.20			2.72
Allowance for loan losses to ending loans retained	6.26			6.29
Allowance for loan losses to ending loans retainedexcluding PCI loans^(f)	5.22			6.02
Allowance for loan losses to nonaccrual loans retained^(a)(d)(f)	104			128
Nonaccrual loans to total loans^(d)	3.46			3.25
Nonaccrual loans to total loans excluding PCI loans^(a)(d)	4.71			4.47


(a)	Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.


(b)	Certain of these loans are classified as trading assets on the Consolidated Balance Sheets.

(c)

At March 31, 2012 and 2011, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $11.8 billion and $8.8 billion, respectively, that are 90 or more days past due; and (2) real estate owned insured by U.S. government agencies of $1.2 billion and $2.3 billion, respectively. These amounts were excluded from nonaccrual loans as reimbursement of insured amounts is proceeding normally. For further discussion, see Note 13 on pages 118–135 of this Form 10-Q, which summarizes loan delinquency information.


(d)	For more information on the new reporting of performing junior liens that are subordinate to senior liens that are 90 days or more past due based on new regulatory guidance issued in the first quarter of 2012, see Consumer Credit Portfolio on pages 60-69 of this Form 10-Q.


(e)	Loans held-for-sale and loans accounted for at fair value were excluded when calculating the net charge-off rate.


(f)	An allowance for loan losses of $5.7 billion and $4.9 billion was recorded for PCI loans at March 31, 2012 and 2011, respectively; these amounts were also excluded from the applicable ratios.

Consumer & Business Banking



Selected income statement data
Three months ended March 31,
(in millions, except ratios)	2012			2011			Change
Noninterest revenue	$	1,585		$	1,757		(10	)%
Net interest income	2,675			2,659			1
Total net revenue	4,260			4,416			(4	)

Provision for credit losses	96			119			(19	)

Noninterest expense	2,866			2,799			2
Income before income tax expense	1,298			1,498			(13	)
Net income	$	774		$	893		(13	)
Overhead ratio	67		%	63		%
Overhead ratio excluding core deposit intangibles^(a)	66			62


(a)	Consumer & Business Banking uses the overhead ratio (excluding the amortization of CDI), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. See footnote (a) to the selected income statement data table on page 18 of this Form 10-Q for further details.

Quarterly results

Consumer & Business Banking reported net income of $774 million, a decrease of $119 million, or 13%, compared with the prior year.

Net revenue was $4.3 billion, down 4% from the prior year. Net interest income was $2.7 billion, relatively flat compared with the prior year, driven by the effect of higher deposit balances, predominantly offset by the impact of lower deposit spreads. Noninterest revenue was $1.6 billion, a decrease of 10%, driven by lower debit card revenue, reflecting the impact of the Durbin Amendment.

The provision for credit losses was $96 million, compared with $119 million in the prior year. Net charge-offs were $96 million, compared with $119 million in the prior year.

Noninterest expense was $2.9 billion, up 2% from the prior year, due to investments in sales force and new branch builds.



Selected metrics
As of or for the three months ended March 31, (in millions, except ratios and where otherwise noted)
	2012			2011			Change
Business metrics
Business banking origination volume	$	1,540		$	1,425		8	%
End-of-period loans	17,822			16,957			5
End-of-period deposits:
Checking	159,075			137,463			16
Savings	200,662			180,345			11
Time and other	35,642			44,001			(19	)
Total end-of-period deposits	395,379			361,809			9
Average loans	17,667			16,886			5
Average deposits:
Checking	147,455			131,954			12
Savings	197,199			175,133			13
Time and other	36,121			45,035			(20	)
Total average deposits	380,775			352,122			8
Deposit margin	2.68		%	2.88		%
Average assets	$	30,857		$	29,409		5
Credit data and quality statistics
Net charge-offs	$	96		$	119		(19	)
Net charge-off rate	2.19		%	2.86		%
Allowance for loan losses	$	798		$	875		(9	)
Nonperforming assets	$	663		$	822		(19	)
Retail branch business metrics
Investment sales volume	$	6,598		$	6,584		—
Client investment assets	147,083			138,150			6
% managed accounts	26		%	22		%
Number of:
Branches	5,541			5,292			5
Chase Private Client branch locations	366			16			NM
ATMs	17,654			16,265			9
Personal bankers	24,198			21,894			11
Sales specialists	6,110			5,039			21
Client advisors	3,131			3,051			3
Active online customers (in thousands)	17,915			17,339			3
Active mobile customers (in thousands)	8,570			6,025			42
Chase Private Clients	32,857			4,829			NM
Checking accounts (in thousands)	27,034			26,622			2

Mortgage Production and Servicing



Selected income statement data
Three months ended March 31,
(in millions, except ratios)	2012		2011			Change
Mortgage fees and related income	$	2,008	$	(489	)	NM%
Other noninterest revenue	123		104			18
Net interest income	177		271			(35	)
Total net revenue	2,308		(114		)	NM

Provision for credit losses	—		4			NM

Noninterest expense	1,724		1,746