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 June 30, 2009		Commission file number 1-5805

JPMORGAN CHASE & CO.

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. (Check one):

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 July 31, 2009: 3,932,572,941

 

 

FORM 10-Q
TABLE OF CONTENTS

		Page
Part I — Financial information
Item 1 Consolidated Financial Statements — JPMorgan Chase & Co.:
Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2009 and 2008			92
Consolidated Balance Sheets (unaudited) at June 30, 2009, and December 31, 2008			93
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (unaudited) for the six months ended June 30, 2009 and 2008			94
Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2009 and 2008			95
Notes to Consolidated Financial Statements (unaudited)			96
Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and six months ended June 30, 2009 and 2008			167
Glossary of Terms and Line of Business Metrics			169
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations:
Consolidated Financial Highlights			3
Introduction			5
Executive Overview			7
Consolidated Results of Operations			11
Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures			15
Business Segment Results			18
Balance Sheet Analysis			48
Off-Balance Sheet Arrangements and Contractual Cash Obligations			51
Capital Management			53
Risk Management			58
Supervision and Regulation			86
Critical Accounting Estimates Used by the Firm			86
Accounting and Reporting Developments			90
Forward-Looking Statements			176
Item 3 Quantitative and Qualitative Disclosures About Market Risk			177
Item 4 Controls and Procedures			177
Part II — Other information
Item 1 Legal Proceedings			177
Item 1A  Risk Factors			179
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			179
Item 3 Defaults Upon Senior Securities			181
Item 4 Submission of Matters to a Vote of Security Holders			181
Item 5 Other Information			181
Item 6 Exhibits			181
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

JPMORGAN CHASE & CO.

(unaudited)
(in millions, except per share, headcount and ratios)																						Six months ended June 30,
As of or for the period ended,		2Q09				1Q09				4Q08				3Q08				2Q08				2009				2008
Selected income statement data
Noninterest revenue		$	12,953			$	11,658			$	3,394			$	5,743			$	10,105			$	24,611			$	19,336
Net interest income			12,670				13,367				13,832				8,994				8,294				26,037				15,953
Total net revenue			25,623				25,025				17,226				14,737				18,399				50,648				35,289
Noninterest expense			13,520				13,373				11,255				11,137				12,177				26,893				21,108
Pre-provision profit			12,103				11,652				5,971				3,600				6,222				23,755				14,181
Provision for credit losses			8,031				8,596				7,755				3,811				3,455				16,627				7,879
Provision for credit losses — accounting conformity(a)			—				—				(442	)			1,976				—				—				—
Income (loss) before income tax expense and extraordinary gain			4,072				3,056				(1,342	)			(2,187	)			2,767				7,128				6,302
Income tax expense (benefit)(b)			1,351				915				(719	)			(2,133	)			764				2,266				1,926
Income (loss) before extraordinary gain			2,721				2,141				(623	)			(54	)			2,003				4,862				4,376
Extraordinary gain(c)			—				—				1,325				581				—				—				—
Net income		$	2,721			$	2,141			$	702			$	527			$	2,003			$	4,862			$	4,376
Per common share
Basic earnings(d)
Income (loss) before extraordinary gain		$	0.28			$	0.40			$	(0.29	)		$	(0.08	)		$	0.54			$	0.68			$	1.21
Net income			0.28				0.40				0.06				0.09				0.54				0.68				1.21
Diluted earnings(d)(e)
Income (loss) before extraordinary gain		$	0.28			$	0.40			$	(0.29	)		$	(0.08	)		$	0.53			$	0.68			$	1.20
Net income			0.28				0.40				0.06				0.09				0.53				0.68				1.20
Cash dividends declared per share			0.05				0.05				0.38				0.38				0.38				0.10				0.76
Book value per share			37.36				36.78				36.15				36.95				37.02
Common shares outstanding
Weighted-average: Basic			3,811.5				3,755.7				3,737.5				3,444.6				3,426.2				3,783.6				3,411.1
Diluted(d)			3,824.1				3,758.7				3,737.5	(k)			3,444.6	(k)			3,453.1				3,791.4				3,438.2
Common shares at period end(f)			3,924.1				3,757.7				3,732.8				3,726.9				3,435.7
Share price(g)
High		$	38.94			$	31.64			$	50.63			$	49.00			$	49.95			$	38.94			$	49.95
Low			25.29				14.96				19.69				29.24				33.96				14.96				33.96
Close			34.11				26.58				31.53				46.70				34.31
Market capitalization			133,852				99,881				117,695				174,048				117,881
Financial ratios
Return on common equity (“ROE”)(h)
Income (loss) before extraordinary gain			3	%			5	%			(3	)%			(1	)%			6	%			4	%			7	%
Net income			3				5				1				1				6				4				7
Return on assets (“ROA”)
Income (loss) before extraordinary gain			0.54				0.42				(0.11	)			(0.01	)			0.48				0.48				0.54
Net income			0.54				0.42				0.13				0.12				0.48				0.48				0.54
Overhead ratio			53				53				65				76				66				53				60
Tier 1 common capital ratio			7.7				7.3				7.0				6.8				7.1
Tier 1 capital ratio			9.7				11.4				10.9				8.9				9.2
Total capital ratio			13.3				15.2				14.8				12.6				13.4
Tier 1 leverage ratio			6.2				7.1				6.9				7.2				6.4
Selected balance sheet data (period-end)
Trading assets		$	395,626			$	429,700			$	509,983			$	520,257			$	531,997
Securities			345,563				333,861				205,943				150,779				119,173
Loans			680,601				708,243				744,898				761,381				538,029
Total assets			2,026,642				2,079,188				2,175,052				2,251,469				1,775,670
Deposits			866,477				906,969				1,009,277				969,783				722,905
Long-term debt			254,226				243,569				252,094				238,034				260,192
Common stockholders’ equity			146,614				138,201				134,945				137,691				127,176
Total stockholders’ equity			154,766				170,194				166,884				145,843				133,176
Headcount			220,255				219,569				224,961				228,452				195,594

(unaudited)
(in millions, except ratios)																						Six months ended June 30,
As of or for the period ended,		2Q09				1Q09				4Q08				3Q08				2Q08				2009				2008
Credit quality metrics
Allowance for credit losses		$	29,818			$	28,019			$	23,823			$	19,765			$	13,932
Allowance for loan losses to ending loans(i)			5.01	%			4.53	%			3.62	%			2.87	%			2.57	%
Nonperforming assets		$	17,517			$	14,654			$	12,714			$	9,520			$	6,233
Net charge-offs			6,019				4,396				3,315				2,484				2,130			$	10,415			$	4,036
Net charge-off rate			3.52	%			2.51	%			1.80	%			1.91	%			1.67	%			3.01	%			1.60	%
Wholesale net charge-off rate			1.19				0.32				0.33				0.10				0.08				0.75				0.13
Consumer net charge-off rate			4.69				3.61				2.59				3.13				2.77				4.15				2.60
Managed Card net charge-off rate(j)			10.03				7.72				5.56				5.00				4.98				8.85				4.68

(a)		The third and fourth quarters of 2008 included an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutual Bank’s banking operations.
(b)		The income tax benefit in the third quarter of 2008 includes the realization of a benefit from the release of deferred tax liabilities associated with the undistributed earnings of certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely.
(c)		JPMorgan Chase acquired the banking operations of Washington Mutual Bank for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price, which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain.
(d)		Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period amounts have been revised as required. For further discussion of FSP EITF 03-6-1, see Note 21 on page 158 of this Form 10-Q.
(e)		The calculation of second quarter 2009 earnings per share includes a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred capital. For further discussion, see “Impact on diluted earnings per share of redemption of TARP preferred stock issued to the U.S. Treasury” on page 18 of this Form 10-Q.
(f)		On June 5, 2009, the Firm issued 163 million shares of its common stock at $35.25 per share; and on September 30, 2008, the Firm issued 284 million shares of its common stock at $40.50 per share.
(g)		JPMorgan Chase’s common stock is listed and traded on the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan Chase’s common stock are from the New York Stock Exchange Composite Transaction Tape.
(h)		The calculation of second quarter 2009 net income applicable to common equity includes a one-time, noncash reduction of $1.1 billion resulting from repayment of TARP preferred capital. Excluding this reduction the adjusted ROE was 6% for the second quarter 2009. For further discussion of adjusted ROE, see “Explanation and reconciliation of the Firm’s use of non-GAAP financial measures” on pages 15-18 of this Form 10-Q.
(i)		Excludes the impact of home lending purchased credit-impaired loans, loans from Washington Mutual Master Trust, loans held-for-sale and loans at fair value. For additional information, refer to Allowance for credit losses on pages 78-80 of this Form 10-Q.
(j)		Beginning in the fourth quarter of 2008, Managed Card net charge-offs reflect the impact of purchase accounting adjustments related to the acquisition of Washington Mutual Bank’s banking operations and the consolidation of the Washington Mutual Master Trust.
(k)		Common equivalent shares have been excluded from the computation of diluted earnings per share for the third and fourth quarters of 2008, as the effect on income (loss) before extraordinary gain would be antidilutive.

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 for JPMorgan Chase. See the Glossary of Terms on pages 169-173 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 JPMorgan Chase’s actual results to differ materially from those set forth in such forward-looking statements. For a discussion of some of these risks and uncertainties, see Forward-looking Statements on pages 176-177 and Part II, Item 1A: Risk Factors on page 179 of this Form 10-Q, and JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the U.S. Securities and Exchange Commission (“2008 Annual Report” or “2008 Form 10-K”), including Part I, Item 1A: Risk factors.

INTRODUCTION

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 $2.0 trillion in assets, $154.8 billion in stockholders’ equity and operations in more than 60 countries as of June 30, 2009. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing and asset management. 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 U.S. national banking association with 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 Inc., 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 Investment Bank’s (“IB”) clients 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. IB also selectively commits the Firm’s own capital to principal investing and trading activities.

Retail Financial Services

Retail Financial Services (“RFS”), which includes the Retail Banking and Consumer Lending reporting segments, 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 more than 5,200 bank branches (third-largest nationally) and 14,100 ATMs (second-largest nationally), as well as online and mobile banking around the clock. More than 21,400 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. Consumers also can obtain loans through more than 16,100 auto dealerships and 4,800 schools and universities nationwide.

Card Services

Chase Card Services (“CS”) is one of the nation’s largest credit card issuers, with more than 151 million cards in circulation and more than $171 billion in managed loans. In the six months ended June 30, 2009, customers used Chase cards to meet more than $158 billion worth of their spending needs. Chase has a market leadership position in building loyalty and rewards programs with many of the world’s most respected brands and through its proprietary products, which include the Chase Freedom program.

Through its merchant acquiring business, Chase Paymentech Solutions, Chase is one of the leading processors of MasterCard and Visa payments.

Commercial Banking

Commercial Banking (“CB”) serves more than 26,000 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 30,000 real estate investors/owners. Delivering extensive industry knowledge, local expertise and dedicated service, 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 the Commercial Banking, Retail Financial Services and Asset Management businesses to serve clients firmwide. As a result, 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 it manages depositary receipt programs globally.

Asset Management

Asset Management (“AM”), with assets under supervision of $1.5 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, 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.

OTHER BUSINESS EVENTS

FDIC Special Assessment

On May 22, 2009, the Federal Deposit Insurance Corporation (“FDIC”) announced a five basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. The maximum amount of the special assessment for any institution is 10 basis points times such institution’s average U.S. deposits for the second quarter. The FDIC announced that the special assessment will be collected on September 30, 2009. As of June 30, 2009, the Firm had accrued $675 million for the special assessment, which is reported in the Corporate/Private Equity segment.

Issuance of common stock

On June 5, 2009, the Firm issued $5.8 billion, or 163 million shares, of common stock. The common stock was issued to satisfy a regulatory supervisory condition requiring the Firm to demonstrate it could access the equity capital markets in order to be eligible to redeem Series K preferred stock issued to the U.S. Treasury under the Troubled Asset Relief Program (“TARP”). Proceeds from this issuance were used for general corporate purposes.

TARP Repayment / EPS Impact

On June 17, 2009, the Firm redeemed all of the outstanding shares of Series K preferred stock issued to the U.S. Treasury pursuant to TARP and repaid the full $25.0 billion principal amount. As a result of this redemption, the Firm incurred a one-time, noncash reduction of approximately $1.1 billion in the calculation of earnings per share (“EPS”) (i.e., a reduction in net income applicable to common stockholders), reflecting the accelerated amortization of issuance discount on the Series K preferred stock. The effect of this adjustment was to reduce reported diluted earnings per common share for the second quarter of 2009 by $0.27 per share. Following discussions with the U.S. Treasury regarding the warrant issued in connection with its purchase of the Series K preferred stock, on July 7, 2009, JPMorgan Chase notified the U.S. Treasury that it had revoked its warrant repurchase notice. JPMorgan Chase understands, based on the U.S. Treasury’s public statements, that the U.S. Treasury intends to pursue a public auction of the warrant. The U.S. Treasury has advised JPMorgan Chase that the Firm will be permitted to participate in any such auction.

EXECUTIVE OVERVIEW

This overview of management’s discussion and analysis 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.

Financial performance of JPMorgan Chase

		Three months ended June 30,												Six months ended June 30,
(in millions, except per share data and ratios)		2009				2008				Change				2009				2008				Change
Selected income statement data
Total net revenue		$	25,623			$	18,399				39	%		$	50,648			$	35,289				44	%
Total noninterest expense			13,520				12,177				11				26,893				21,108				27
Pre-provision profit			12,103				6,222				95				23,755				14,181				68
Provision for credit losses			8,031				3,455				132				16,627				7,879				111
Net income			2,721				2,003				36				4,862				4,376				11
Diluted earnings per share(a)(b)		$	0.28			$	0.53				(47	)		$	0.68			$	1.20				(43	)
Return on common equity(c)			3	%			6	%							4	%			7	%

(a)		Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period amounts have been revised. For further discussion of FSP EITF 03-6-1, see Note 21 on page 158 of this Form 10-Q.
(b)		The calculation of second quarter 2009 earnings per share includes a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred capital. For further discussion, see “Impact on diluted earnings per share of redemption of TARP preferred stock issued to the U.S. Treasury” on page 18 of this Form 10-Q.
(c)		The calculation of second quarter 2009 net income applicable to common equity includes a one-time, noncash reduction of $1.1 billion resulting from repayment of TARP preferred capital. Excluding this reduction, the adjusted ROE was 6% for the second quarter of 2009. For further discussion of adjusted ROE, see “Explanation and reconciliation of the Firm’s use of non-GAAP financial measures” on pages 15-18 of this Form 10-Q.

Business overview

JPMorgan Chase reported second-quarter 2009 net income of $2.7 billion, or $0.28 per share, compared with net income of $2.0 billion, or $0.53 per share, in the second quarter of 2008. Current-quarter earnings per share reflected a one-time, noncash reduction in net income applicable to common stockholders of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred capital. Return on common equity for the quarter was 3%, compared with 6% in the prior year.

The increase in earnings from the second quarter of 2008 was driven by record net revenue, predominantly offset by a higher provision for credit losses and increased noninterest expense. Both revenue and expense were higher due to the impact of the acquisition of the banking operations of Washington Mutual Bank (“Washington Mutual”) on September 25, 2008. In addition, record Fixed Income Markets revenue and investment banking fees in the Investment Bank contributed to revenue growth. Growth in noninterest expense predominantly reflected an accrual for the FDIC special assessment and higher ongoing FDIC insurance premiums. High levels of credit costs in Retail Financial Services and Card Services drove the increase in the provision for credit losses, as weak economic conditions and housing price declines continued to negatively affect these businesses.

Net income for the first six months of 2009 was $4.9 billion, or $0.68 per share, compared with $4.4 billion, or $1.20 per share, in the first half of 2008. Earnings per share for the first six months reflected the reduction in net income resulting from repayment of TARP preferred capital. The increase in earnings from the comparable 2008 six-month period was due to the same drivers as for the 2009 second quarter: the Washington Mutual acquisition and higher Fixed Income revenue and investment banking fees. The first half of 2009 also reflected higher net revenue from mortgage servicing rights (“MSR”) risk management results in Retail Financial Services, higher noninterest expense resulting from higher compensation expense in both the Investment Bank and Retail Financial Services, and higher FDIC insurance premiums and increased credit costs.

The global economy began to stabilize in the second quarter of 2009, with developing economies rebounding significantly and contraction in developed economies slowing. Credit conditions improved in the quarter, with most credit spreads falling from previous wide levels. The credit and asset-purchase programs implemented by the Board of Governors of the Federal Reserve System (“Federal Reserve”), which were modified and in some cases extended in the quarter, helped measurably. The Federal Reserve has announced it intends to have purchased up to $1,750 billion of Treasury, mortgage-backed and agency-debt securities by the spring of 2010; this and the results of the “stress tests” conducted as part of the Supervisory Capital Assessment Program (“SCAP”), which showed that most of the largest U.S. financial institutions had strong capital cushions, reinforced market confidence. Following release of the SCAP results, those banks that participated in the Capital Purchase Program (“CPP”) and met the requirements established by their primary federal banking supervisors for the repayment of funds provided by the TARP, were permitted to repay such funds; many, including JPMorgan Chase, did so. The narrowing of credit spreads enabled businesses to refinance outstanding debt and raise new capital, resulting in

strong activity in capital markets that aided bank earnings, and recoveries in many stock markets bolstered consumer and business sentiment. Notwithstanding these favorable market developments, conditions remain fragile and are dependent on the approximately $2 trillion of credit provided by the Federal Reserve through its various market-supporting initiatives. In addition, economic activity was too slow to prevent deterioration in the labor markets: the U.S. unemployment rate rose to 9.5% in the second quarter, the highest level reached since the peak of the 1982 recession.

The improving sentiment amid a continued challenging economic environment was also reflected in JPMorgan Chase’s line-of-business results in the second quarter of 2009. Four of the Firm’s six main lines of business reported double-digit growth in net revenue, resulting in record firmwide net revenue. The Investment Bank reported record fees and Fixed Income Markets revenue and maintained its leadership positions across products; Commercial Banking continued to grow revenue and earnings; Asset Management maintained good global investment performance; Retail Financial Services reported favorable retail branch production metrics, and Treasury & Securities Services delivered another quarter of solid performance. Although each of the lines of business was negatively affected to some degree by the challenging environment, Card Services and Consumer Lending, a business segment in Retail Financial Services, were hit hardest, with continued high levels of credit costs contributing to a net loss in each business.

JPMorgan Chase maintained a strong balance sheet in the quarter. Even after the repayment in full of $25 billion of TARP preferred capital and the addition of $2 billion to credit reserves, the Firm ended the quarter with a Tier 1 capital ratio of 9.7% and a Tier 1 common capital ratio of 7.7%. The total allowance for credit losses at June 30, 2009, was $29.8 billion, and the firmwide loan loss coverage ratio was 5.0%. Management believes these strong capital and reserve levels, combined with the Firm’s significant earnings power, will allow the Firm to continue to reinvest in its businesses over the long term.

The Firm remains committed to helping bring stability to the communities in which it operates and to the financial system overall. During the quarter, JPMorgan Chase extended approximately $150 billion in new credit to consumer and corporate customers and approved 138,000 trial mortgage modifications, bringing total foreclosures prevented since 2007 to 565,000.

The discussion that follows highlights the current-quarter performance of each business segment, compared with the prior-year quarter, and discusses results on a managed basis unless otherwise noted. For more information about managed basis, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 15-18 of this Form 10-Q .

Investment Bank net income increased, reflecting higher net revenue and lower noninterest expense, partially offset by a higher provision for credit losses. Record investment banking fees were driven by record equity underwriting fees. Fixed Income Markets revenue was also a record, driven by strong results across all products, as well as the absence of markdowns related to leveraged lending funded and unfunded commitments and mortgage-related exposure. The provision for credit losses increased due to higher charge-offs as well as a higher allowance, reflecting continued deterioration in the credit environment.

Retail Financial Services net income declined, as a higher provision for credit losses and higher noninterest expense were partially offset by higher net revenue, reflecting the impact of the Washington Mutual transaction, wider loan and deposit spreads, and higher deposit balances. The provision for credit losses included a significant addition to the allowance for loan losses, as weak economic conditions and housing price declines drove higher estimated losses for the home equity and mortgage loan portfolios. The increase in noninterest expense reflected the impact of the Washington Mutual transaction, higher servicing expense and higher FDIC insurance premiums.

Card Services reported a net loss, compared with net income in the prior year. The decrease was driven by a higher provision for credit losses, partially offset by higher net revenue. The increase in managed net revenue was driven by the impact of the Washington Mutual transaction, wider loan spreads and higher merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint venture. These benefits were offset partially by the impact of the credit enhancement provided by the Firm for certain of its securitization trusts, lower securitization income, higher revenue reversals associated with higher charge-offs, and a decreased level of fees. The provision for credit losses reflected a higher level of charge-offs due to continued deterioration in the credit environment. Noninterest expense increased due to the dissolution of the Chase Paymentech Solutions joint venture and the impact of the Washington Mutual transaction.

Commercial Banking net income increased, driven by higher net revenue reflecting the impact of the Washington Mutual transaction, predominantly offset by a higher provision for credit losses and higher noninterest expense. Revenue increased due to wider loan spreads, record levels of lending- and deposit-related fees, a shift to higher-spread liability products and overall growth in liability balances. These benefits were offset predominantly by spread compression on liability products and lower loan balances. The increase in the provision for credit losses reflected continued deterioration in the credit environment. Noninterest expense rose due to the impact of the Washington Mutual transaction and higher FDIC insurance premiums, partially offset by lower headcount-related expense.

Treasury & Securities Services net income decreased, driven by lower net revenue offset partially by lower noninterest expense. Worldwide Securities Services revenue declined, driven by the effect of market depreciation on assets under custody and lower securities lending balances, primarily as a result of declines in asset valuations and demand. Revenue in Treasury Services increased, reflecting growth across cash management products and higher trade revenue driven by wider spreads, partially offset by spread compression on deposit products. Noninterest expense decreased, reflecting lower headcount-related expense offset partially by higher FDIC insurance premiums.

Asset Management net income declined, due to lower net revenue and a higher provision for credit losses offset partially by lower noninterest expense. The decline in net revenue was due to the effect of lower market levels and lower placement fees; these effects were offset partially by higher valuations of seed capital investments, wider loan and deposit spreads and higher deposit balances. The increase in the provision for credit losses reflected continued deterioration in the credit environment. Noninterest expense decreased due to lower performance-based compensation and lower headcount-related expense, largely offset by the impact of the Bear Stearns merger and higher FDIC insurance premiums.

Corporate/Private Equity reported net income, compared with a net loss in the prior year, reflecting higher levels of trading and investment income in the investment securities portfolio and a gain from the sale of MasterCard shares, partially offset by an accrual for the FDIC special assessment.

Firmwide, the managed provision for credit losses was $9.7 billion, up by $5.4 billion. The total consumer-managed provision for credit losses was $8.5 billion, compared with $3.8 billion in the prior year, reflecting higher net charge-offs and an increase in the allowance for credit losses, largely related to home lending. Consumer-managed net charge-offs were $7.0 billion (6.18% net charge-off rate), compared with $2.9 billion in the prior year (3.08% net charge-off rate). The wholesale provision for credit losses was $1.2 billion, compared with $505 million in the prior year, reflecting an increase in the allowance for credit losses, largely in the Investment Bank. Wholesale net charge-offs were $679 million (1.19% net charge-off rate), compared with net charge-offs of $41 million in the prior year (0.08% net charge-off rate). The Firm’s nonperforming assets totaled $17.5 billion at June 30, 2009, up from the prior-year level of $6.2 billion. The allowance for credit losses increased by $1.8 billion during the quarter; this resulted in a loan loss coverage ratio at June 30, 2009 of 5.01%, compared with 4.53% at March 31, 2009. The above net charge-off rates and loan loss coverage ratio exclude purchased credit-impaired loans accounted for under SOP 03-3, loans held-for-sale and loans at fair value. Furthermore, the loan loss coverage ratio also excludes loans from the Washington Mutual Master Trust, which were consolidated on the Firm’s balance sheet at fair value during the second quarter of 2009.

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 JPMorgan Chase’s actual results to differ materially from those set forth in such forward-looking statements.

JPMorgan Chase’s outlook for the second half of 2009 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment and client activity levels. Each of these linked factors will affect the performance of the Firm and its lines of business. The Firm continues to monitor the global and U.S. economic environments. The outlook for capital markets remains uncertain and there continues to be a potential for further declines in U.S. housing prices and an increase in the unemployment rate. In addition, as a result of recent market conditions, the U.S. Congress and regulators have increased their focus on regulation of financial institutions; any legislation or regulations that may be adopted as a result could limit or restrict the Firm’s operations, or impose additional costs upon the Firm in order to comply with such new laws or rules.

Given the potential stress on the consumer from rising unemployment and continued downward pressure on housing prices, management is still cautious with respect to the credit outlook for the consumer loan portfolios. Possible continued deterioration in credit trends could require additions to the consumer allowance for credit losses. Based on management’s current economic outlook, quarterly net charge-offs could, over the next several quarters, reach $1.4

billion for the home equity portfolio, $600 million for the prime mortgage portfolio and $500 million for the subprime mortgage portfolio. The managed net charge-off rate for Card Services (excluding the Washington Mutual credit card portfolio) could approach 10% in the third quarter of 2009, and thereafter will remain highly dependent on unemployment levels; the managed net charge-off rate for the Washington Mutual credit card portfolio is expected to approach 24% by the end of 2009. These charge-off rates could increase if the economic environment deteriorates even further than management’s current expectations. Similarly, the wholesale provision for credit losses, nonperforming assets and charge-offs are likely to increase over the remainder of the year as a result of continued deterioration in the credit environment.

The Investment Bank is operating in an uncertain environment. Trading results could be volatile, particularly if there is further disruption in the credit or mortgage markets, or a significant decline in overall liquidity levels. In addition, if the Firm’s own credit spreads tighten, as was the case in the second quarter of 2009, the change in the fair value of certain trading liabilities would also negatively affect trading results. Finally, the Investment Bank’s results will be affected by the credit environment, as noted above.

Although management expects underlying growth in Retail Banking, results will be under pressure from the credit environment and ongoing lower consumer spending levels. In addition, there could be a decline in average retail deposits in the second half of the year due to anticipated downward repricing of certain legacy Washington Mutual deposits.

In Card Services, management expects, in addition to rising credit costs as noted above, continued pressure on both charge volumes and credit card receivables growth, reflecting continued lower levels of consumer spending.

Commercial Bank results could be negatively impacted by rising net charge-offs on real estate-related exposure, a decline in loan demand and reduced liability balances.

Earnings in Treasury & Securities Services and Asset Management will be affected by the impact of market levels on assets under management, supervision and custody. Additionally, earnings in Treasury & Securities Services could be affected by declines in liability balances.

Net interest income levels will be largely related to the size of the investment portfolio in Corporate, although the high level of trading gains in the second quarter of 2009 is not likely to be repeated. Private Equity results will depend on capital market activity and market levels, as well as the performance of the broader economy and investment-specific issues. Due to current economic conditions, there is the possibility of modest write-downs in Private Equity over the near term.

CONSOLIDATED RESULTS OF OPERATIONS

This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis. Factors that related 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 107-111 of JPMorgan Chase’s 2008 Annual Report.

Total net revenue

		Three months ended June 30,												Six months ended June 30,
(in millions)		2009				2008				Change				2009				2008				Change
Investment banking fees		$	2,106			$	1,612				31	%		$	3,492			$	2,828				23	%
Principal transactions			3,097				752				312				5,098				(51	)		NM
Lending & deposit-related fees			1,766				1,105				60				3,454				2,144				61
Asset management, administration and commissions			3,124				3,628				(14	)			6,021				7,224				(17	)
Securities gains			347				647				(46	)			545				680				(20	)
Mortgage fees and related income			784				696				13				2,385				1,221				95
Credit card income			1,719				1,803				(5	)			3,556				3,599				(1	)
Other income			10				(138	)		NM					60				1,691				(96	)
Noninterest revenue			12,953				10,105				28				24,611				19,336				27
Net interest income			12,670				8,294				53				26,037				15,953				63
Total net revenue		$	25,623			$	18,399				39			$	50,648			$	35,289				44

Total net revenue for the second quarter of 2009 was $25.6 billion, up by $7.2 billion, or 39%, from the second quarter of 2008, partially reflecting the impact of the Washington Mutual transaction. Revenue growth was also driven by record trading revenue, higher net interest income and record investment banking fees. These benefits were offset partially by reduced fees and commissions resulting from lower market levels. Total net revenue for the first six months of 2009 was $50.6 billion, up $15.4 billion, or 44%, from the prior year, largely reflecting the same drivers noted for the second quarter, and higher mortgage fees and related income resulting from positive MSR risk management results. The growth in revenue for the six months was offset partially by the absence of proceeds from the sale of Visa shares in its initial public offering in the first quarter of 2008, and by reduced fees and commissions resulting from lower market levels.

Investment banking fees increased to a record $2.1 billion in the quarter, reflecting record equity underwriting fees, and higher debt underwriting fees and advisory fees. Investment banking fees for the first six months of 2009 also increased from the comparable prior-year period, reflecting the same drivers noted for the second quarter of 2009. For a further discussion of investment banking fees, which are primarily recorded in IB, see IB segment results on pages 20-23 of this Form 10-Q.

Principal transactions revenue, which consists of revenue from the Firm’s trading and private equity investing activities, rose from the second quarter and first six months of 2008. Trading revenue increased to a record level in the second quarter of 2009, driven by gains on trading positions in the Corporate/Private equity segment and strong results across all fixed-income products, as well as the absence of markdowns related to leveraged lending funded and unfunded commitments and mortgage-related exposures. The quarter also included modest gains on these exposures, compared with losses in the second quarter of 2008 on leveraged lending funded and unfunded commitments of $696 million and losses on mortgage-related exposures of $405 million. These benefits were offset partially by an aggregate loss of $1.9 billion in the second quarter of 2009 from the tightening of the Firm’s credit spreads on certain structured liabilities and derivatives, compared with a benefit of $414 million in the second quarter of 2008. In the first six months of 2009, trading revenue rose due to strong results across all fixed income products and lower markdowns related to leveraged lending funded and unfunded commitments and mortgage-related exposures. The increase was offset by a loss of $840 million from the tightening of the Firm’s credit spreads on certain structured liabilities and derivatives, compared with a benefit of $1.8 billion in the first half of 2008. Private equity revenue declined in the second quarter and first six months of 2009, driven by investment losses compared with gains in the same periods of 2008. For a further discussion of principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 20-23 and 46-48 respectively, and Note 3 on pages 99-114 of this Form 10-Q.

Lending- and deposit-related fees rose from the second quarter and first six months of 2008, predominantly reflecting the impact of the Washington Mutual transaction and organic growth in both lending- and deposit-related fees in RFS and CB, as well as in IB. For a further discussion of lending- and deposit-related fees, which are mostly recorded in RFS, CB and TSS, see the RFS segment results on pages 24-31, the CB segment results on pages 36-38, and the TSS segment results on pages 39-42 of this Form 10-Q.

The decline in asset management, administration and commissions revenue compared with the second quarter and first six months of 2008 reflected lower asset management fees in AM, resulting from lower market levels; lower administration fees in TSS, driven by the effect of market depreciation on assets under custody and lower securities lending balances; and lower brokerage commissions revenue in IB, predominantly related to lower transaction volume. For additional information on these fees and commissions, see the segment discussions for IB on pages 20-23, RFS on pages 24-31, TSS on pages 39-42, and AM on pages 42-46 of this Form 10-Q.

The decrease in securities gains compared with the corresponding 2008 periods was due to lower gains from the sale of MasterCard shares, which totaled $241 million in the second quarter of 2009, compared with $668 million in the prior-year quarter. This was offset partially by higher gains from the repositioning of the Corporate investment securities portfolio as a result of lower interest rates, and in connection with managing the Firm’s structural interest rate risk. For a further discussion of securities gains, which are mostly recorded in the Firm’s Corporate business, see the Corporate/Private Equity segment discussion on pages 46-48 of this Form 10-Q.

Mortgage fees and related income increased from the second quarter and first six months of 2008 as higher net mortgage servicing revenue was offset partially by lower production revenue. Mortgage production revenue declined as an increase in reserves for the repurchase of previously-sold loans and markdowns on the mortgage warehouse were largely offset by wider margins on new originations. The increase in net mortgage servicing revenue was driven by growth in third-party loans serviced, and, for the first six months of 2008, positive MSR risk management results. For a discussion of mortgage fees and related income, which is recorded primarily in RFS’ Consumer Lending business, see the Consumer Lending discussion on pages 27-31 of this Form 10-Q.

Credit card income decreased compared with the second quarter and first six months of 2008, driven by lower servicing fees earned in connection with CS securitization activities due to higher credit losses, offset partially by wider loan margins on securitized credit card loans. The decrease in credit card income was offset by higher merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint venture, and higher interchange income. For a further discussion of credit card income, see the CS segment results on pages 32-35 of this Form 10-Q.

Other income increased in the second quarter of 2009 due to a $423 million loss incurred in the second quarter of 2008, reflecting the Firm’s 49.4% ownership in Bear Stearns’ losses from April 8 to May 30, 2008, offset partially by lower securitization results at CS. For the first six months of 2009, other income decreased due predominantly to the absence of $1.5 billion in proceeds from the sale of Visa shares in its initial public offering in the first quarter of 2008, lower securitization results at CS, and the dissolution of the Chase Paymentech Solutions joint venture. These items were offset partially by the absence of the aforementioned $423 million loss and lower markdowns on certain investments.

Net interest income rose from the second quarter and first six months of 2008, due predominantly to the following: the impact of the Washington Mutual transaction, higher investment-related net interest income in Corporate/Private Equity, wider spreads on consumer loans and higher trading-related net interest income in IB. The increase in net interest income was offset partially by narrower spreads on liability and deposit balances in the wholesale businesses. The Firm’s total average interest-earning assets for the second quarter of 2009 were $1.7 trillion, up 32% from the second quarter of 2008, driven by an increase in available-for-sale (“AFS”) securities and loans from the Washington Mutual transaction, and organic growth. The Firm’s total average interest-bearing liabilities for the second quarter of 2009 were $1.5 trillion, up 22% from the second quarter of 2008, driven by higher federal funds purchased and securities loaned or sold under repurchase agreements, as well as the impact of the Washington Mutual transaction and Bear Stearns merger. The net interest yield on the Firm’s interest-earning assets, on a fully taxable-equivalent basis, was 3.07%, an increase of 36 basis points from the second quarter of 2008, driven predominantly by an increase in higher-yielding assets associated with the Washington Mutual transaction and trading-related net interest income in IB. The Firm’s total average interest-earning assets for the first six months of 2009 were $1.7 trillion, up 35% from the first six months of 2008, and total average interest-bearing liabilities for the first six months of 2009 were $1.5 trillion, up 26% from the first half of 2008. The net interest yield on the Firm’s interest-earning assets, on a fully taxable-equivalent basis, was 3.18%, an increase of 53 basis points from the first six months of 2008. The drivers of the year-to-date increases were similar to the drivers of the quarterly increases.

Provision for credit losses		Three months ended June 30,												Six months ended June 30,
(in millions)		2009				2008				Change				2009				2008				Change
Wholesale		$	1,244			$	505				146	%		$	2,774			$	1,252				122	%
Consumer			6,787				2,950				130				13,853				6,627				109
Total provision for credit losses		$	8,031			$	3,455				132			$	16,627			$	7,879				111
Provision for credit losses
The provision for credit losses in the second quarter and first six months of 2009 rose compared with the equivalent periods of 2008 due to increases in both the consumer and wholesale provisions. The consumer provision reflected additions to the allowance for loan losses for the home equity, mortgage and credit card portfolios, as weak economic conditions and housing price declines continued to drive higher estimated losses for these portfolios. The increase in the wholesale provision was driven by a higher allowance for loan losses, reflecting continued deterioration in the credit environment. For a more detailed discussion of the loan portfolio and the allowance for loan losses, see the segment discussions for RFS on pages 24-31, CS on pages 32-35, IB on pages 20-23 and CB on pages 36-38, and the Credit Risk Management section on pages 62-80 of this Form 10-Q.
Noninterest expense
The following table presents the components of noninterest expense.
		Three months ended June 30,												Six months ended June 30,
(in millions)		2009				2008				Change				2009				2008				Change
Compensation expense		$	6,917			$	6,913				—	%		$	14,505			$	11,864				22	%
Noncompensation expense:
Occupancy expense			914				669				37				1,799				1,317				37
Technology, communications and equipment expense			1,156				1,028				12				2,302				1,996				15
Professional & outside services			1,518				1,450				5				3,033				2,783				9
Marketing			417				413				1				801				959				(16	)
Other expense(a)			2,190				1,233				78				3,565				1,402				154
Amortization of intangibles			265				316				(16	)			540				632				(15	)
Total noncompensation expense			6,460				5,109				26				12,040				9,089				32
Merger costs			143				155				(8	)			348				155				125
Total noninterest expense		$	13,520			$	12,177				11			$	26,893			$	21,108				27

(a)		Includes $675 million accrued for an FDIC special assessment.

Total noninterest expense for the second quarter of 2009 was $13.5 billion, up $1.3 billion, or 11%, from the second quarter of 2008. The increase was driven by the impact of the Washington Mutual transaction, the accrual of $0.7 billion for the FDIC special assessment, higher FDIC insurance premiums and increased mortgage-related servicing expense. For the first six months of 2009, total noninterest expense was $26.9 billion, up $5.8 billion, or 27% from the prior year due primarily to the aforementioned items, and higher performance-based compensation expense.

Compensation expense in the second quarter of 2009 was relatively flat compared with the second quarter of 2008 as the impact of the Washington Mutual transaction was offset by lower performance-based compensation expense in the Investment Bank. Compensation expense increased for the first six months of 2009 due to higher performance-based compensation expense in the Investment Bank, in addition to the impact of the Washington Mutual transaction.

Noncompensation expense increased from the second quarter of 2008 due predominantly to the accrual of $0.7 billion for the FDIC special assessment and higher FDIC insurance premiums, as well as the impact of the Washington Mutual transaction. Also contributing to the increase was higher mortgage servicing-related expense due to increased delinquencies and defaults, which included an increase in foreclosed property expense of $0.3 billion partially offset by lower litigation-related expense and the impact of the dissolution of the Chase Paymentech Solutions joint venture. Noncompensation expense increased from the first six months of 2008 primarily due to the drivers discussed for the quarter, along with an increase in other expense reflecting a lower level of benefits from litigation-related items in the current year compared with the prior year. This was partially offset by lower credit card marketing expense.

For information on merger costs, refer to Note 10 on page 128 of this Form 10-Q.

Income tax expense

The following table presents the Firm’s income before income tax expense, income tax expense and effective tax rate.

		Three months ended June 30,								Six months ended June 30,
(in millions, except rate)		2009				2008				2009				2008
Income before income tax expense		$	4,072			$	2,767			$	7,128			$	6,302
Income tax expense			1,351				764				2,266				1,926
Effective tax rate			33.2	%			27.6	%			31.8	%			30.6	%

The increase in the effective tax rate compared with the second quarter and first six months of 2008 was primarily the result of higher reported pretax income and changes in the proportion of income subject to federal, state and local taxes, partially offset by increased business tax credits. In addition, the second quarter of 2008 reflected a benefit from the release of deferred tax liabilities associated with earnings of certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely, offset by losses representing the Firm’s 49.4% ownership in Bear Stearns’ losses from April 8 to May 30, 2008, for which no income tax benefit was recorded. For a further discussion of 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 United States of America (“U.S. GAAP”); these financial statements appear on pages 92-95 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 that assume credit card loans securitized by CS remain on the balance sheet, and it presents revenue on a fully taxable-equivalent (“FTE”) basis. These adjustments do not have any impact on net income as reported by the lines of business or by the Firm as a whole.

The presentation of CS results on a managed basis assumes that credit card loans that have been securitized and sold in accordance with SFAS 140 remain on the Consolidated Balance Sheets, and that the earnings on the securitized loans are classified in the same manner as the earnings on retained loans recorded on the Consolidated Balance Sheets. JPMorgan Chase uses the concept of managed basis to evaluate the credit performance and overall financial performance of the entire managed credit card portfolio. Operations are funded and decisions are made about allocating resources, such as employees and capital, based on managed financial information. In addition, the same underwriting standards and ongoing risk monitoring are used for both loans on the Consolidated Balance Sheets and securitized loans. Although securitizations result in the sale of credit card receivables to a trust, JPMorgan Chase retains the ongoing customer relationships, as the customers may continue to use their credit cards; accordingly, the customer’s credit performance will affect both the securitized loans and the loans retained on the Consolidated Balance Sheets. JPMorgan Chase believes managed basis information is useful to investors, enabling them to understand both the credit risks associated with the loans reported on the Consolidated Balance Sheets and the Firm’s retained interests in securitized loans. For a reconciliation of reported to managed basis results for CS, see CS segment results on pages 32-35 of this Form 10-Q. For information regarding the securitization process, and loans and residual interests sold and securitized, see Note 15 on pages 139-147 of this Form 10-Q.

Total net revenue for each of the business segments and the Firm is presented 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 these items is recorded within income tax expense.

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.

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

		Three months ended June 30, 2009
		Reported				Credit				Fully tax-equivalent				Managed
(in millions, except per share and ratios)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	2,106			$	—			$	—			$	2,106
Principal transactions			3,097				—				—				3,097
Lending & deposit—related fees			1,766				—				—				1,766
Asset management, administration and commissions			3,124				—				—				3,124
Securities gains			347				—				—				347
Mortgage fees and related income			784				—				—				784
Credit card income			1,719				(294	)			—				1,425
Other income			10				—				335				345
Noninterest revenue			12,953				(294	)			335				12,994
Net interest income			12,670				1,958				87				14,715
Total net revenue			25,623				1,664				422				27,709
Noninterest expense			13,520				—				—				13,520
Pre-provision profit			12,103				1,664				422				14,189
Provision for credit losses			8,031				1,664				—				9,695
Income before income tax expense			4,072				—				422				4,494
Income tax expense			1,351				—				422				1,773
Net income		$	2,721			$	—			$	—			$	2,721
Diluted earnings per share(a)(b)		$	0.28			$	—			$	—			$	0.28
Return on assets			0.54	%		NM				NM					0.51	%
Overhead ratio			53			NM				NM					49
		Three months ended June 30, 2008
		Reported				Credit				Fully tax-equivalent				Managed
(in millions, except per share and ratios)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	1,612			$	—			$	—			$	1,612
Principal transactions			752				—				—				752
Lending & deposit—related fees			1,105				—				—				1,105
Asset management, administration and commissions			3,628				—				—				3,628
Securities gains			647				—				—				647
Mortgage fees and related income			696				—				—				696
Credit card income			1,803				(843	)			—				960
Other income			(138	)			—				247				109
Noninterest revenue			10,105				(843	)			247				9,509
Net interest income			8,294				1,673				202				10,169
Total net revenue			18,399				830				449				19,678
Noninterest expense			12,177				—				—				12,177
Pre-provision profit			6,222				830				449				7,501
Provision for credit losses			3,455				830				—				4,285
Income before income tax expense			2,767				—				449				3,216
Income tax expense			764				—				449				1,213
Net income		$	2,003			$	—			$	—			$	2,003
Diluted earnings per share(a)		$	0.53			$	—			$	—			$	0.53
Return on assets			0.48	%		NM				NM					0.46	%
Overhead ratio			66			NM				NM					62

		Six months ended June 30, 2009
		Reported				Credit				Fully tax-equivalent				Managed
(in millions, except per share and ratios)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	3,492			$	—			$	—			$	3,492
Principal transactions			5,098				—				—				5,098
Lending & deposit—related fees			3,454				—				—				3,454
Asset management, administration and commissions			6,021				—				—				6,021
Securities gains			545				—				—				545
Mortgage fees and related income			2,385				—				—				2,385
Credit card income			3,556				(834	)			—				2,722
Other income			60				—				672				732
Noninterest revenue			24,611				(834	)			672				24,449
Net interest income			26,037				3,962				183				30,182
Total net revenue			50,648				3,128				855				54,631
Noninterest expense			26,893				—				—				26,893
Pre-provision profit			23,755				3,128				855				27,738
Provision for credit losses			16,627				3,128				—				19,755
Income before income tax expense			7,128				—				855				7,983
Income tax expense			2,266				—				855				3,121
Net income		$	4,862			$	—			$	—			$	4,862
Diluted earnings per share(a)(b)		$	0.68			$	—			$	—			$	0.68
Return on assets			0.48	%		NM				NM					0.46	%
Overhead ratio			53			NM				NM					49
		Six months ended June 30, 2008
		Reported				Credit				Fully tax-equivalent				Managed
(in millions, except per share and ratios)		results				card(c)				adjustments				basis
Revenue
Investment banking fees		$	2,828			$	—			$	—			$	2,828
Principal transactions			(51	)			—				—				(51	)
Lending & deposit—related fees			2,144				—				—				2,144
Asset management, administration and commissions			7,224				—				—				7,224
Securities gains			680				—				—				680
Mortgage fees and related income			1,221				—				—				1,221
Credit card income			3,599				(1,780	)			—				1,819
Other income			1,691				—				450				2,141
Noninterest revenue			19,336				(1,780	)			450				18,006
Net interest income			15,953				3,291				326				19,570
Total net revenue			35,289				1,511				776				37,576
Noninterest expense			21,108				—				—				21,108
Pre-provision profit			14,181				1,511				776				16,468
Provision for credit losses			7,879				1,511				—				9,390
Income before income tax expense			6,302				—				776				7,078
Income tax expense			1,926				—				776				2,702
Net income		$	4,376			$	—			$	—			$	4,376
Diluted earnings per share(a)		$	1.20			$	—			$	—			$	1.20
Return on assets			0.54	%		NM				NM					0.52	%
Overhead ratio			60			NM				NM					56

Three months ended June 30,		2009												2008
(in millions)		Reported				Securitized				Managed				Reported				Securitized				Managed
Loans — Period-end		$	680,601			$	85,790			$	766,391			$	538,029			$	79,120			$	617,149
Total assets — average			2,038,372				81,588				2,119,960				1,668,699				74,580				1,743,279

Six months ended June 30,		2009												2008
(in millions)		Reported				Securitized				Managed				Reported				Securitized				Managed
Loans — Period-end		$	680,601			$	85,790			$	766,391			$	538,029			$	79,120			$	617,149
Total assets — average			2,052,666				82,182				2,134,848				1,619,248				73,084				1,692,332

(a)		Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period amounts have been revised. For further discussion of FSP EITF 03-6-1, see Note 21 on page 158 of this Form 10-Q.
(b)		The calculation of second quarter 2009 earnings per share includes a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred capital (see the table below).
(c)		Credit card securitizations affect CS. See pages 32-35 of this Form 10-Q for further information.

The calculation of second quarter 2009 net income applicable to common equity includes a one-time, non-cash reduction of $1.1 billion resulting from the repayment of TARP preferred capital. Excluding this reduction ROE would have been 6% for the second quarter of 2009 as disclosed in the table below. The Firm views the adjusted ROE, a non-GAAP financial measure, as meaningful because it increases the comparability to prior periods.

		Three months ended June 30, 2009
						Excluding the TARP
(in millions, except ratios)		As reported				redemption
Return on equity
Net income		$	2,721			$	2,721
Less: Preferred stock dividends			473				473
Less: Accelerated amortization from redemption of preferred stock issued to the U.S. Treasury			1,112				—
Net income applicable to common equity		$	1,136			$	2,248
Average common stockholders’ equity		$	140,865			$	140,865
ROE			3	%			6	%

Net income applicable to common equity for the second quarter of 2009 includes a one-time, noncash reduction of approximately $1.1 billion resulting from the repayment of TARP preferred capital. The following table presents the calculations of the effect on net income applicable to common stockholders and the $0.27 reduction to diluted earnings per share which resulted from this repayment.

		Three months ended June 30, 2009
						Effect of TARP
(in millions, except per share)		As reported				redemption
Diluted earnings per share
Net income		$	2,721			$	—
Less: Preferred stock dividends			473				—
Less: Accelerated amortization from redemption of preferred stock issued to the U.S. Treasury			1,112				1,112
Net income applicable to common equity		$	1,136			$	(1,112	)
Less: Dividends and undistributed earnings allocated to participating securities			64				(64	)
Net income applicable to common stockholders		$	1,072			$	(1,048	)
Total weighted average diluted shares outstanding			3,824.1				3,824.1
Net income per share		$	0.28			$	(0.27	)

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.

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 40-41 of JPMorgan Chase’s 2008 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.

Segment Results — Managed Basis^(a)(b)

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

Three months ended																																						Return
June 30,		Total net revenue												Noninterest expense												Net income (loss)												on equity
(in millions, except ratios)		2009				2008				Change				2009				2008				Change				2009				2008				Change				2009				2008
Investment Bank(c)		$	7,301			$	5,500				33	%		$	4,067			$	4,734				(14	)%		$	1,471			$	394				273	%			18	%			7	%
Retail Financial Services			7,970				5,110				56				4,079				2,680				52				15				503				(97	)			—				12
Card Services			4,868				3,775				29				1,333				1,185				12				(672	)			250			NM					(18	)			7
Commercial Banking			1,453				1,106				31				535				476				12				368				355				4				18				20
Treasury & Securities Services			1,900				2,019				(6	)			1,288				1,317				(2	)			379				425				(11	)			30				49
Asset Management			1,982				2,064				(4	)			1,354				1,400				(3	)			352				395				(11	)			20				31
Corporate/Private Equity(c)			2,235				104			NM					864				385				124				808				(319	)		NM				NM				NM
Total		$	27,709			$	19,678				41	%		$	13,520			$	12,177				11	%		$	2,721			$	2,003				36	%			3	%			6	%
Six months ended																																						Return
June 30,		Total net revenue												Noninterest expense												Net income (loss)												on equity
(in millions, except ratios)		2009				2008				Change				2009				2008				Change				2009				2008				Change				2009				2008
Investment Bank(c)		$	15,672			$	8,541				83	%		$	8,841			$	7,287				21	%		$	3,077			$	307			NM					19	%			3	%
Retail Financial Services			16,805				9,873				70				8,250				5,252				57				489				192				155	%			4				2
Card Services			9,997				7,679				30				2,679				2,457				9				(1,219	)			859			NM					(16	)			12
Commercial Banking			2,855				2,173				31				1,088				961				13				706				647				9				18				19
Treasury & Securities Services			3,721				3,932				(5	)			2,607				2,545				2				687				828				(17	)			28				48
Asset Management			3,685				3,965				(7	)			2,652				2,723				(3	)			576				751				(23	)			17				30
Corporate/Private Equity(c)			1,896				1,413				34				776				(117	)		NM					546				792				(31	)		NM				NM
Total		$	54,631			$	37,576				45	%		$	26,893			$	21,108				27	%		$	4,862			$	4,376				11	%			4	%			7	%