UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the Quarterly Period Ended March 31, 2011       Commission file number 1-5805

JPMORGAN CHASE & CO.

(Exact name of registrant as specified in its charter)

Delaware		13-2624428
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
270 Park Avenue, New York, New York		10017
(Address of principal executive offices)		(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes o No

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

þ Yes o No

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

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

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

o Yes þ No

Number of shares of common stock outstanding as of April 30, 2011: 3,973,684,787

 

 

FORM 10-Q

		Page
Part I — Financial information
Item 1 Consolidated Financial Statements – JPMorgan Chase & Co.:
Consolidated Statements of Income (unaudited) for the three months ended March 31, 2011 and 2010			90
Consolidated Balance Sheets (unaudited) at March 31, 2011, and December 31, 2010			91
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (unaudited) for the three months ended March 31, 2011 and 2010			92
Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2011 and 2010			93
Notes to Consolidated Financial Statements (unaudited)			94
Report of Independent Registered Public Accounting Firm			172
Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three months ended March 31, 2011 and 2010			173
Glossary of Terms and Line of Business Metrics			174
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			11
Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures			13
Business Segment Results			15
International Operations			40
Balance Sheet Analysis			41
Off–Balance Sheet Arrangements			44
Capital Management			49
Risk Management			53
Supervision and Regulation			85
Critical Accounting Estimates Used by the Firm			86
Accounting and Reporting Developments			89
Forward-Looking Statements			180
Item 3 Quantitative and Qualitative Disclosures About Market Risk			181
Item 4 Controls and Procedures			181
Part II — Other information
Item 1 Legal Proceedings			181
Item 1A Risk Factors			181
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			181
Item 3 Defaults Upon Senior Securities			182
Item 5 Other Information			182
Item 6 Exhibits			183
EX-15
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

JPMORGAN CHASE & CO.

CONSOLIDATED FINANCIAL HIGHLIGHTS

(unaudited)
(in millions, except per share, headcount and ratio data)
As of or for the period ended,		1Q11				4Q10				3Q10				2Q10				1Q10
Selected income statement data
Total net revenue		$	25,221			$	26,098			$	23,824			$	25,101			$	27,671
Total noninterest expense			15,995				16,043				14,398				14,631				16,124
Pre-provision profit(a)			9,226				10,055				9,426				10,470				11,547
Provision for credit losses			1,169				3,043				3,223				3,363				7,010
Income before income tax expense			8,057				7,012				6,203				7,107				4,537
Income tax expense			2,502				2,181				1,785				2,312				1,211
Net income		$	5,555			$	4,831			$	4,418			$	4,795			$	3,326
Per common share data
Net income per share: Basic		$	1.29			$	1.13			$	1.02			$	1.10			$	0.75
Diluted			1.28				1.12				1.01				1.09				0.74
Cash dividends declared per share			0.25				0.05				0.05				0.05				0.05
Book value per share			43.34				43.04				42.29				40.99				39.38
Common shares outstanding
Average: Basic			3,981.6				3,917.0				3,954.3				3,983.5				3,970.5
Diluted			4,014.1				3,935.2				3,971.9				4,005.6				3,994.7
Common shares at period-end			3,986.6				3,910.3				3,925.8				3,975.8				3,975.4
Share price(b)
High		$	48.36			$	43.12			$	41.70			$	48.20			$	46.05
Low			42.65				36.21				35.16				36.51				37.03
Close			46.10				42.42				38.06				36.61				44.75
Market capitalization			183,783				165,875				149,418				145,554				177,897
Selected ratios
Return on common equity (“ROE”)			13	%			11	%			10	%			12	%			8	%
Return on tangible common equity (“ROTCE”)			18				16				15				17				12
Return on assets (“ROA”)			1.07				0.92				0.86				0.94				0.66
Overhead ratio			63				61				60				58				58
Deposits-to-loans ratio			145				134				131				127				130
Tier 1 capital ratio			12.3				12.1				11.9				12.1				11.5
Total capital ratio			15.6				15.5				15.4				15.8				15.1
Tier 1 leverage ratio			7.2				7.0				7.1				6.9				6.6
Tier 1 common capital ratio(c)			10.0				9.8				9.5				9.6				9.1
Selected balance sheet data (period-end)
Trading assets		$	501,148			$	489,892			$	475,515			$	397,508			$	426,128
Securities			334,800				316,336				340,168				312,013				344,376
Loans			685,996				692,927				690,531				699,483				713,799
Total assets			2,198,161				2,117,605				2,141,595				2,014,019				2,135,796
Deposits			995,829				930,369				903,138				887,805				925,303
Long-term debt(d)			269,616				270,653				271,495				260,442				278,685
Common stockholders’ equity			172,798				168,306				166,030				162,968				156,569
Total stockholders’ equity			180,598				176,106				173,830				171,120				164,721
Headcount			242,929				239,831				236,810				232,939				226,623
Credit quality metrics
Allowance for credit losses		$	30,438			$	32,983			$	35,034			$	36,748			$	39,126
Allowance for loan losses to total retained loans			4.40	%			4.71	%			4.97	%			5.15	%			5.40	%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(e)			4.10				4.46				5.12				5.34				5.64
Nonperforming assets		$	14,986			$	16,557			$	17,656			$	18,156			$	19,019
Net charge-offs(f)			3,720				5,104				4,945				5,714				7,910
Net charge-off rate(f)			2.22	%			2.95	%			2.84	%			3.28	%			4.46	%
Wholesale net charge-off rate			0.30				0.49				0.49				0.44				1.84
Consumer net charge-off rate(f)			3.18				4.12				3.90				4.49				5.56

(a)		Pre-provision profit is total net revenue less noninterest expense. The Firm believes that this financial measure is useful in assessing the ability of a lending institution to generate income in excess of its provision for credit losses.
(b)		Share prices shown for JPMorgan Chase’s common stock are from the New York Stock Exchange. JPMorgan Chase’s common stock is also listed and traded on the London Stock Exchange and the Tokyo Stock Exchange.
(c)		The Firm uses Tier 1 common capital (“Tier 1 common”) along with the other capital measures to assess and monitor its capital position. The Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common divided by risk-weighted assets. For further discussion, see Regulatory capital on pages 49–51 of this Form 10-Q.
(d)		Effective January 1, 2011, the long-term portion of advances from Federal Home Loan Banks (“FHLBs”) was reclassified from other borrowed funds to long-term debt. Prior periods have been revised to conform with the current presentation.
(e)		Excludes the impact of home lending purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 79–81 of this Form 10-Q.
(f)		Net charge-offs and net charge-off rates for the fourth quarter of 2010 include the effect of $632 million of charge-offs related to the estimated net realizable value of the collateral underlying delinquent residential home loans. Because these losses were previously recognized in the provision and allowance for loan losses, this adjustment had no impact on the Firm’s net income.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of the Form 10-Q provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”). See the Glossary of terms on pages 174–177 for definitions of terms used throughout this Form 10-Q. The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. For a discussion of such risks and uncertainties, see Forward-looking Statements on pages 180–181 and Part I, Item 1A, Risk Factors, on pages 5–12 of JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the U.S. Securities and Exchange Commission (“2010 Annual Report” or “2010 Form 10-K”), to which reference is hereby made.

INTRODUCTION

JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with $2.2 trillion in assets, $180.6 billion in stockholders’ equity and operations in more than 60 countries as of March 31, 2011. The Firm is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.

JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national bank with branches in 23 states in the U.S.; and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national bank that is the Firm’s credit card issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm.

JPMorgan Chase’s activities are organized, for management reporting purposes, into six business segments, as well as Corporate/Private Equity. The Firm’s wholesale businesses comprise the Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management segments. The Firm’s consumer businesses comprise the Retail Financial Services and Card Services segments. A description of the Firm’s business segments, and the products and services they provide to their respective client bases, follows.

Investment Bank

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

Retail Financial Services

Retail Financial Services (“RFS”) serves consumers and businesses through personal service at bank branches and through ATMs, online banking and telephone banking, as well as through auto dealerships and school financial-aid offices. Customers can use nearly 5,300 bank branches (third-largest nationally) and more than 16,200 ATMs (second-largest nationally), as well as online and mobile banking around the clock. More than 29,200 branch salespeople assist customers with checking and savings accounts, mortgages, home equity and business loans, and investments across the 23-state footprint from New York and Florida to California. Consumers also can obtain loans through more than 16,300 auto dealerships and 1,300 schools and universities nationwide.

Card Services

Card Services (“CS”) is one of the nation’s largest credit card issuers, with over $128 billion in loans and over 91 million open accounts. In the three months ended March 31, 2011, customers used Chase cards to meet over $77 billion of their spending needs. Through its merchant acquiring business, Chase Paymentech Solutions, CS is a global leader in payment processing and merchant acquiring.

Commercial Banking

Commercial Banking (“CB”) delivers extensive industry knowledge, local expertise and dedicated service to nearly 24,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from $10 million to $2 billion, and nearly 35,000 real estate investors/owners. CB partners with the Firm’s other businesses to provide comprehensive solutions, including lending, treasury services, investment banking and asset management, to meet its clients’ domestic and international financial needs.

Treasury & Securities Services

Treasury & Securities Services (“TSS”) is a global leader in transaction, investment and information services. TSS is one of the world’s largest cash management providers and a leading global custodian. Treasury Services (“TS”) provides cash management, trade, wholesale card and liquidity products and services to small- and mid-sized companies, multinational corporations, financial institutions and government entities. TS partners with IB, CB, RFS and Asset Management businesses to serve clients firmwide. Certain TS revenue is included in other segments’ results. Worldwide Securities Services holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers, and manages depositary receipt programs globally.

Asset Management

Asset Management (“AM”), with assets under supervision of $1.9 trillion, is a global leader in investment and wealth management. AM clients include institutions, retail investors and high-net-worth individuals in every major market throughout the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity products, including money-market instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and retirement services for corporations and individuals. The majority of AM’s client assets are in actively managed portfolios.

EXECUTIVE OVERVIEW

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

Economic environment

The U.S. economic recovery continued in the first quarter of 2011 as the labor market appeared to strengthen, even though disruptive winter weather appeared to slow the economy’s momentum. Despite growing confidence that the U.S. and global economic recovery remains on track, new threats to the global economy emerged that could disrupt activity, at least for a short while. The earthquake and tsunami in Japan represented a significant setback to that country’s important economy and probably disrupted activity elsewhere as well. Furthermore, a surge in oil prices in the wake of political unrest in the Middle East threatened to slow global demand. Concerns about inflation, driven by rising commodity prices, including the impact of widespread crop destruction in 2010 on food prices around the world, resulted in varying actions being taken by several central banks.

The pace of growth in the U.S. economy, which has been unusually slow for a recovery, has been hampered by the depressed housing market. Growth is likely to remain moderate as a result of the planned phase-out of the 2008 fiscal stimulus initiative and additional spending cuts agreed to as part of the final 2011 federal budget plan. The Federal Reserve maintained its accommodative stance in the first quarter of 2011, holding the target range for the federal funds rate steady at zero to one-quarter percent, and continued to indicate that economic conditions were likely to warrant a low federal funds rate for an extended period. To promote a stronger pace of economic recovery, the Federal Reserve also decided to continue expanding its holdings of securities as announced in the fourth quarter of 2010. In particular, the Federal Reserve is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Federal Reserve downplayed recent commodity pressures as transitory, while noting that it would be monitoring inflation developments carefully.

Financial performance of JPMorgan Chase

		Three months ended March 31,
(in millions, except per share data and ratios)		2011				2010				Change
Selected income statement data
Total net revenue		$	25,221			$	27,671				(9	)%
Total noninterest expense			15,995				16,124				(1	)
Pre-provision profit			9,226				11,547				(20	)
Provision for credit losses			1,169				7,010				(83	)
Net income			5,555				3,326				67
Diluted earnings per share			1.28				0.74				73
Return on common equity			13	%			8	%
Capital ratios
Tier 1 capital			12.3				11.5
Tier 1 common			10.0				9.1

Business overview

JPMorgan Chase reported first-quarter 2011 net income of $5.6 billion, or $1.28 per share, on net revenue of $25.2 billion. Net income was up 67%, compared with net income of $3.3 billion, or $0.74 per share, in the first quarter of 2010. Return on common equity for the quarter was 13%, compared with 8% in the prior year. Current-quarter EPS included a $2.0 billion pretax ($0.29 per share after-tax) benefit from a reduction in the allowance for loan losses for credit card loans; a $1.1 billion pretax ($0.16 per share after-tax) decrease in the fair value of the mortgage servicing rights asset to reflect higher estimated servicing costs to enhance servicing processes (for additional information regarding mortgage servicing rights, see Note 16 on pages 149–152 of this Form 10-Q); and a $650 million pretax ($0.10 per share after-tax) expense for estimated costs of foreclosure-related matters.

The increase in net income for the first quarter of 2011 was driven by a significantly lower provision for credit losses, partially offset by lower net revenue. The decrease in the provision for credit losses reflected improvements in both the consumer and wholesale provisions. The decline in net revenue was due to lower net interest income, reflecting a decline in loan and securities balances, lower mortgage fees and related income in Retail Financial Services and lower securities gains in the Corporate/Private Equity segment. These declines were partially offset by higher investment banking fees in the Investment Bank. Noninterest expense was flat compared with the first quarter of 2010, as lower noncompensation expense offset higher compensation expense.

The Firm’s first-quarter results reflected a strong quarter across the Investment Bank and solid performance from Card Services, Commercial Banking, Treasury & Securities Services and Asset Management. Retail Financial Services demonstrated good underlying performance, as the business continued to invest in building branches and adding to its sales force. However, RFS’ results were more than offset by very high expenses for mortgage-related issues, including the provision for credit losses, the impact of increased servicing costs on the fair value of the Firm’s mortgage servicing rights asset, expense for the estimated costs of foreclosure-related matters, and mortgage repurchase losses.

The continued improvement in the credit environment during the first quarter of 2011 benefited all of JPMorgan Chase’s businesses. Delinquency trends in the consumer businesses were favorable, and lower estimated losses in the credit card portfolio resulted in a reduction in the allowance for credit losses in CS. In addition, net charge-offs were lower in most businesses compared with the prior year. Total firmwide credit reserves at March 31, 2011, were $30.4 billion, resulting in a firmwide loan loss coverage ratio of 4.10% of total loans.

JPMorgan Chase’s balance sheet remained strong, ending the first quarter with a Tier 1 Common ratio of 10.0%. In the quarter, the Firm’s Board of Directors increased the annual dividend to $1.00 per share, up from $0.20 per share, and authorized a new $15 billion multi-year common stock repurchase program, of which up to $8.0 billion of common stock repurchases is approved for 2011. The Firm intends to operate its business with the objectives of maintaining a Basel I Tier 1 Common ratio of at least 9.0% and meeting the Basel III requirements substantially ahead of time. Total stockholders’ equity at March 31, 2011, was $180.6 billion.

The Firm provided credit to and raised capital for its clients of over $450 billion during the quarter. These efforts have a meaningful impact on the communities in which the Firm operates. JPMorgan Chase originated mortgages to over 180,000 people; provided credit cards to approximately 2.6 million people; lent or increased credit to over 7,500 small businesses; lent to over 500 not-for-profit and government entities, including states, municipalities, hospitals and universities; extended or increased loan limits to approximately 1,500 middle-market companies; and lent to or raised capital for more than 3,500 corporations. In addition, the Firm added 16,300 employees over the last twelve months, including more than 9,800 in the U.S. JPMorgan Chase remains committed to helping homeowners and preventing foreclosures. Since the beginning of 2009, the Firm has offered 1,098,000 trial modifications to struggling homeowners, with 324,000 modifications completed.

The discussion that follows highlights the performance of each business segment compared with the prior-year quarter and presents results on a managed basis. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see pages 13–15 of this Form 10-Q.

Investment Bank net income decreased slightly from the prior-year record, reflecting higher noninterest expense, slightly lower net revenue and a lower benefit from the provision for credit losses. Net revenue reflected higher investment banking fees, including record debt underwriting fees, and strong client revenues in Fixed Income and Equity Markets. Credit Portfolio revenue was a loss, primarily reflecting the negative net impact of credit-related valuation adjustments, largely offset by net interest income and fees on retained loans. The provision for credit losses was a smaller benefit in the first quarter of 2011 compared with the first quarter of 2010, reflecting a reduction in the allowance for loan losses, primarily as a result of loan sales and net repayments. Noninterest expense increased, driven by higher compensation expense, partially offset by lower noncompensation expense.

Retail Financial Services reported a larger net loss compared with the prior year. Net revenue decreased, driven by lower mortgage fees and related income, lower loan balances due to portfolio runoff, and narrower loan spreads. The provision for credit losses decreased, as delinquency trends and net charge-offs improved compared with the prior year. However, the current-quarter provision continued to reflect elevated losses in the mortgage and home equity portfolios. Noninterest expense increased, due largely to an expense taken for estimated costs of foreclosure-related matters.

Card Services reported net income compared with a net loss in the prior year, as a lower provision for credit losses was partially offset by lower net revenue. The decrease in net revenue was driven by a decline in net interest income, reflecting lower average loan balances, the impact of legislative changes and a decreased level of fees. These decreases were largely offset by a decrease in revenue reversals associated with lower net charge-offs. The provision for credit losses decreased from the prior year, reflecting lower net charge-offs and a reduction in the allowance for loan losses due to lower estimated losses. Noninterest expense increased, due to the transfer of the Commercial Card business to CS from TSS and higher marketing expense. Sales volume, excluding the Commercial Card portfolio, was $77.5 billion, an increase of 12% from the prior year.

Commercial Banking net income increased, driven by a reduction in the provision for credit losses and higher net revenue. The increase in net revenue was driven by growth in liability balances, wider loan spreads, and growth in loan balances, partially offset by spread compression on liability products. The provision for credit losses decreased from the

prior year, reflecting stabilization of the credit quality of the loan portfolio. Noninterest expense increased, primarily reflecting higher headcount-related expense.

Treasury & Securities Services net income increased from the prior year, driven by higher net revenue, largely offset by higher noninterest expense. Worldwide Securities Services net revenue increased, driven by net inflows of assets under custody, higher market levels and higher net interest income. Assets under custody were a record $16.6 trillion, an increase of 9% from the prior year. Treasury Services net revenue increased as well, driven by higher net interest income and higher trade loan volumes, offset by the transfer of the Commercial Card business to CS. Noninterest expense for TSS increased, driven by continued investment in new product platforms, primarily related to international expansion, partially offset by the transfer of the Commercial Card business to CS.

Asset Management net income increased from the prior year, reflecting higher net revenue and a lower provision for credit losses, largely offset by higher noninterest expense. The growth in net revenue was driven by the effect of higher market levels, net inflows to products with higher margins and higher loan originations, partially offset by lower performance fees. Assets under supervision increased 12% from the prior year due to the effect of higher market levels and record net inflows to long-term products, partially offset by net outflows in liquidity products. Noninterest expense increased, largely resulting from an increase in headcount.

Corporate/Private Equity net income increased from the prior year, driven by significantly lower noninterest expense. Noninterest expense in the first quarter of 2010 included significant additions to litigation reserves. Private equity gains increased compared with the prior year, while net interest income and securities gains decreased.

2011 Business outlook

The following forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. As noted above, these risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on pages 180-181 and Risk Factors on page 181 of this Form 10-Q.

JPMorgan Chase’s outlook for the remainder of 2011 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client activity levels, and regulatory, litigation and legislative developments in the U.S. and other countries where the Firm does business. Each of these linked factors will affect the performance of the Firm and its lines of business. Economic and macroeconomic factors, such as market and credit trends, customer behavior, client business strategies and competition, are all expected to affect the Firm’s businesses.

In the Mortgage Banking, Auto & Other Consumer Lending business within RFS, if mortgage interest rates remain at current levels or rise in the future, management anticipates that loan production and margins will be negatively affected, resulting in lower revenue for this business for full-year 2011 when compared with 2010. In addition, revenue in 2011 will continue to be negatively affected by continued elevated levels of repurchases of mortgages previously sold, predominantly to U.S. government-sponsored entities (“GSEs”). Management estimates that realized repurchase losses could be approximately $1.2 billion on an annualized basis for the remainder of 2011.

The Firm expects noninterest expense in Mortgage Banking, Auto & Other Consumer Lending to remain at the elevated level seen in the first quarter of 2011 (excluding the $650 million expense for foreclosure-related matters) for the remainder of the year reflecting increased servicing costs to enhance its mortgage servicing processes, particularly loan modification and foreclosure procedures, and to comply with the Consent Orders entered into with the banking regulators. (See Note 23 on pages 160–169 of this Form 10-Q for further information about the Consent Orders). In addition to increased noninterest expense resulting from increased servicing costs, it is also likely that the Firm will incur fines and penalties as well as other costs in connection with the settlement of the governmental investigations related to its mortgage servicing procedures.

In the Real Estate Portfolios business within RFS, management believes that, based on the current outlook for delinquencies and loss severity, total quarterly net charge-offs could be approximately $1.2 billion for the remainder of 2011. Given current origination and production levels, combined with management’s current estimate of portfolio runoff levels, the residential real estate portfolio is expected to decline by approximately 10% to 15% annually for the foreseeable future. The annual reduction in the residential real estate portfolio is expected to reduce net interest income in

each period, including a reduction of approximately $700 million for full-year 2011 from the 2010 level, assuming no changes in interest rates during the year. However, over time, the reduction in net interest income is expected to be more than offset by an improvement in credit costs and lower expenses. As the portfolio continues to run off, management anticipates that approximately $1.0 billion of capital may become available for redeployment each year, subject to the capital requirements associated with the remaining portfolio.

In CS, management expects end-of-period outstandings for the Chase portfolio (excluding the Washington Mutual and Commercial Card portfolios) to stabilize in the second half of 2011, and that outstandings for such portfolio will be approximately $120 billion by the end of 2011, reflecting a better mix of customers. However, if current high repayment rates persist, outstandings could be lower than $120 billion by the end of 2011. Management estimates that the Washington Mutual portfolio could decline to $10 billion by the end of 2011.

The annual impact of the portfolio runoff will result in an approximately $1.4 billion reduction in net interest income from the 2010 level. Net interest income for 2011 will also be reduced by the full-year impact from implementation of the CARD Act. In addition, if higher repayment rates persist, as noted above, net interest income could also be negatively affected.

Net charge-off rates for both the Chase and Washington Mutual credit card portfolios are anticipated to continue to improve. If current delinquency trends continue, management anticipates the net charge-off rate for the Chase portfolio (excluding the Washington Mutual and Commercial Card portfolios) could be approximately 5.5% for the second quarter of 2011. Furthermore, if current delinquency trends continue, management believes the net charge-off rate for the Chase portfolio could approach 4.5% by the middle of 2012, which management believes represents the “through-the-cycle” net charge off rate for this portfolio.

Management expectations related to future RFS and CS results depend on the health of the U.S. economic environment. Although the positive economic data seen in early 2011 seemed to imply that the U.S. economy is not falling back into recession, high unemployment rates and the difficult housing market have been persistent. Further declines in U.S. housing prices and increases in the unemployment rate remain possible; were this to occur, currently anticipated results for both RFS and CS could be adversely affected.

In IB, TSS and AM, revenue will be affected by market levels, volumes and volatility, which will influence client flows and assets under management, supervision and custody. In addition, IB and CB results will be affected by the credit environment, which will influence levels of charge-offs, repayments and provision for credit losses.

In Private Equity, within the Corporate/Private Equity segment, earnings will likely continue to be volatile and be influenced by capital markets activity, market levels, the performance of the broader economy and investment-specific issues. Corporate’s net interest income levels will generally trend with the size and duration of the investment securities portfolio. Corporate net income, excluding Private Equity, and excluding material litigation expense and significant nonrecurring items, if any, is anticipated to trend toward approximately $300 million per quarter.

Furthermore, continued repositioning of the investment securities portfolio in Corporate, changes in the mix of loans within the consumer loan portfolio and other factors could result in modest downward pressure on the Firm’s net interest margin in the second quarter of 2011.

The Firm faces litigation in its various roles as issuer and/or underwriter in mortgage-backed securities (“MBS”) offerings, primarily related to offerings involving third parties other than the GSEs. The Firm separately evaluates its exposure to such litigation in establishing its litigation reserves. It is possible that these matters will take a number of years to resolve; their ultimate resolution is inherently uncertain and reserves for such litigation matters may need to be increased in the future.

Regarding regulatory reform, JPMorgan Chase intends to continue to work with its regulators as they proceed with the extensive rulemaking required to implement financial reform. The Firm will continue to devote substantial resources to achieving implementation of regulatory reforms to meet all the new rules and regulations, both in letter and spirit. The Firm expects to make numerous changes in its business as it implements regulatory reforms in ways that meet the needs and expectations of its customers. In February 2011, the FDIC issued, pursuant to the Dodd-Frank Act, a final rule

changing its methodology for calculating the assessment rate. Under the new rule, the assessment base changes from domestic deposits to average consolidated total assets less average tangible equity. These changes became effective on April 1, 2011, and, based on the Firm’s understanding of the final rule, are expected to result in an aggregate annualized increase of approximately $500 million in the assessments that the Firm’s bank subsidiaries pay to the deposit insurance fund.

Management and the Firm’s Board of Directors continually evaluate ways to deploy the Firm’s strong capital base in order to enhance shareholder value. Such alternatives could include the repurchase of common stock, increasing the common stock dividend and pursuing alternative investment opportunities. During the first quarter of 2011, the Firm increased its quarterly dividend to $0.25 per share, an increase of $0.20 per share from the prior-quarter level. The Firm expects to return to a payout ratio of approximately 30% of normalized earnings over time.

In addition, the Board authorized a new $15 billion, multi-year repurchase program for its common stock, of which up to $8.0 billion is approved for 2011. The Firm expects to utilize the repurchase program to, at a minimum, essentially repurchase the same amount of shares that it issues for employee stock-based incentive awards. Beyond this, the Firm intends to repurchase common stock only when it is generating capital in excess of what is needed to fund its organic growth and when, in management’s judgment, such repurchases provide excellent value to the Firm’s existing shareholders. Management and the Board will continue to assess and make decisions regarding alternatives for deploying capital, as appropriate, over the course of the year. Any planned future dividend increases over the current level, or planned use of the repurchase program over the repurchases approved for 2011, will be reviewed by the Firm with its banking regulators before taking action.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three months ended March 31, 2011 and 2010. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 86–89 of this Form 10-Q and pages 149–154 of JPMorgan Chase’s 2010 Annual Report.

Revenue

		Three months ended March 31,
(in millions)		2011				2010				Change
Investment banking fees		$	1,793			$	1,461				23	%
Principal transactions			4,745				4,548				4
Lending- and deposit-related fees			1,546				1,646				(6	)
Asset management, administration and commissions			3,606				3,265				10
Securities gains			102				610				(83	)
Mortgage fees and related income			(487	)			658			NM
Credit card income			1,437				1,361				6
Other income			574				412				39
Noninterest revenue			13,316				13,961				(5	)
Net interest income			11,905				13,710				(13	)
Total net revenue		$	25,221			$	27,671				(9	)%

Total net revenue for the first quarter of 2011 was $25.2 billion, down by $2.5 billion, or 9%, from the first quarter of 2010. Results were driven by lower net interest income, mortgage fees and related income in RFS, and securities gains in Corporate/Private Equity. These declines were partially offset by higher investment banking fees in IB.

Investment banking fees included record debt underwriting fees and higher advisory fees, related to stronger industry-wide loan syndication and M&A volumes compared with the prior year; these were partially offset by lower equity underwriting fees. For additional information on investment banking fees, which are primarily recorded in IB, see IB segment results on pages 16–19 of this Form 10-Q.

Principal transactions revenue, which consists of revenue from trading and private equity investing activities, increased compared with the first quarter of 2010, driven by higher private equity gains, as a result of continued improvement in market conditions related to certain portfolio investments. Trading revenue, although lower than the record level of the prior year, reflected strong client revenue in IB. For additional information on principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 16–19 and 38–39, respectively, and Note 6 on page 113 of this Form 10-Q.

Lending- and deposit-related fees decreased, reflecting lower deposit-related fees in RFS associated, in part, with legislation on non-sufficient funds and overdraft fees. For additional information on lending- and deposit-related fees, which are mostly recorded in RFS, CB, TSS and IB, see RFS on pages 20–27, CB on pages 30–31, TSS on pages 32–34 and IB segment results on pages 16–19 of this Form 10-Q.

Asset management, administration and commissions revenue increased from the first quarter of 2010. The increase largely reflected higher asset management fees in AM, driven by the effect of higher market levels and net inflows to products with higher margins, partially offset by lower performance fees. Also contributing to the increase were higher administration fees in TSS, reflecting net inflows of assets under custody and the effects of higher market levels; and higher Equity Markets-related commissions revenue in IB. For additional information on these fees and commissions, see the segment discussions for AM on pages 34–37 and TSS on pages 32–34 of this Form 10-Q.

Securities gains decreased from the first quarter of 2010, due to a lower volume of securities sales in the Firm’s investment portfolio. For additional information on securities gains, which are mostly recorded in the Firm’s Corporate segment, see the Corporate/Private Equity segment discussion on pages 38–39 of this Form 10-Q.

Mortgage fees and related income decreased compared with the first quarter of 2010, driven by an MSR risk management loss; this loss reflected a $1.1 billion decrease in the fair value of the MSR asset related to the estimated impact of higher servicing costs to enhance servicing processes, particularly loan modification and foreclosure procedures, and costs to comply with Consent Orders entered into with banking regulators. An increase in production revenue, driven by higher mortgage origination volumes and wider margins, partially offset the decline. For additional information on mortgage fees and related income, which is recorded primarily in RFS, see RFS’s Mortgage Banking, Auto & Other Consumer

Lending discussion on pages 23–25 of this Form 10-Q. For additional information on repurchase losses, see the repurchase liability discussion on pages 46–48 and Note 21 on pages 156–159 of this Form 10-Q.

Credit card income increased in the first quarter of 2011, largely reflecting higher customer charge volume on debit and credit cards. For additional information on credit card income, see the CS and RFS segment results on pages 28–30, and pages 20–27, respectively, of this Form 10-Q.

Other income increased compared with the first quarter of 2010, driven by valuation adjustments on certain assets in IB, as well as higher auto operating lease income in RFS, as a result of growth in lease volume.

Net interest income decreased in the first quarter of 2011 compared with the prior year. The decrease was driven by lower yields on securities and lower average securities balances in Corporate, resulting from investment portfolio repositioning; lower average loan balances, primarily in CS and RFS, reflecting the expected runoff of credit card balances and residential real estate loans; and lower fees on credit card receivables, reflecting the impact of legislative changes. The decrease was offset partially by lower revenue reversals associated with lower credit card charge-offs, and higher deposit balances. The Firm’s average interest-earning assets were $1.7 trillion in the first quarter of 2011, and the net yield on those assets, on a fully taxable-equivalent (“FTE”) basis, was 2.89%, a decrease of 43 basis points from the first quarter of 2010. For further information on the impact of the legislative changes on the Consolidated Statements of Income, see CS discussion on Credit Card Legislation on page 79 of JPMorgan Chase’s 2010 Annual Report.

Provision for credit losses		Three months ended March 31,
(in millions)		2011				2010				Change
Wholesale		$	(386	)		$	(236	)			(64	)%
Consumer, excluding credit card			1,329				3,734				(64	)
Credit card			226				3,512				(94	)
Total consumer			1,555				7,246				(79	)
Total provision for credit losses		$	1,169			$	7,010				(83	)%

The provision for credit losses decreased compared with the first quarter of 2010, due to a decrease in both the consumer and wholesale provisions. The consumer, excluding credit card, provision was down from the prior year, driven by the absence of additions to the allowance for loan losses and lower net charge-offs. The credit card provision was down from the prior year, driven primarily by improved delinquency trends and a reduction in the allowance for loan losses as a result of lower estimated losses. The wholesale provision reflected a higher benefit compared with the prior year, primarily reflecting continued improvement in the credit environment from the prior year. For a more detailed discussion of the loan portfolio and the allowance for credit losses, see the segment discussions for RFS on pages 20–27, CS on pages 28–30, IB on pages 16–19 and CB on pages 30–31, and the Allowance for credit losses section on pages 79–81 of this Form 10-Q.

Noninterest expense

		Three months ended March 31,
(in millions)		2011				2010				Change
Compensation expense		$	8,263			$	7,276				14	%
Noncompensation expense:
Occupancy			978				869				13
Technology, communications and equipment			1,200				1,137				6
Professional and outside services			1,735				1,575				10
Marketing			659				583				13
Other(a)(b)			2,943				4,441				(34	)
Amortization of intangibles			217				243				(11	)
Total noncompensation expense			7,732				8,848				(13	)
Total noninterest expense		$	15,995			$	16,124				(1	)%

(a)		Included litigation expense of $1.1 billion and $2.9 billion for the three months ended March 31, 2011 and 2010, respectively.
(b)		Included foreclosed property expense of $210 million and $303 million for the three months ended March 31, 2011 and 2010, respectively.

Total noninterest expense for the first quarter of 2011 was $16.0 billion, down slightly from $16.1 billion in the first quarter of 2010. A decrease in noncompensation expense, largely due to lower additions to litigation reserves in the first quarter of 2011, offset the increase in compensation expense.

Compensation expense increased from the prior year, predominantly due to higher salary and benefits expense in support of on-going initiatives in IB, as well as additions for sales force and default-related employees in RFS, and front office staff in AM.

The aforementioned decrease in noncompensation expense from the first quarter of 2010 was predominantly related to a net decline in mortgage-related litigation expense (Corporate and IB decreased, partially offset by an increase in RFS). The following items in noncompensation expense were higher in the first quarter of 2011: other expense for the estimated costs of foreclosure-related matters in RFS; professional services expense, due to continued investments in new product platforms in the businesses, including those related to international expansion; occupancy expense, largely reflecting a net increase in charges for excess real estate and higher depreciation expense; marketing expense in CS; and all other expense, reflecting additional operating expense related to business activity in IB. For a further discussion of litigation expense, see the Litigation reserve discussion in Note 23 on pages 160–169 of this Form 10-Q. For a discussion of amortization of intangibles, refer to the Balance Sheet Analysis on pages 41–43, and Note 16 on pages 149–152 of this Form 10-Q.

Income tax expense

		Three months ended March 31,
(in millions, except rate)		2011				2010
Income before income tax expense		$	8,057			$	4,537
Income tax expense			2,502				1,211
Effective tax rate			31.1	%			26.7	%

The increase in the effective tax rate compared with the prior year was primarily the result of higher reported pretax income and changes in the mix of income subject to U.S. federal and state and local taxes, as well as significantly lower tax benefits recognized upon the resolution of tax audits. These factors were partially offset by deferred tax benefits associated with state and local income taxes. For additional information on income taxes, see Critical Accounting Estimates Used by the Firm on pages 86–89 of this Form 10-Q.

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

The Firm prepares its consolidated financial statements using accounting principles generally accepted in the U.S. (“U.S. GAAP”); these financial statements appear on pages 90–93 of this Form 10-Q. That presentation, which is referred to as “reported” basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.

In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s results and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the business segments) on a FTE basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits is presented in the managed results on a basis comparable to taxable securities and investments. This non-GAAP financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to tax-exempt items is recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.

Tangible common equity (“TCE”) represents common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less identifiable intangible assets (other than MSRs) and goodwill, net of related deferred tax liabilities. ROTCE, a non-GAAP financial ratio, measures the Firm’s earnings as a percentage of TCE and is, in management’s view, a meaningful measure to assess the Firm’s use of equity.

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

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

		Three months ended March 31, 2011
						Fully
		Reported				tax-equivalent				Managed
(in millions, except per share and ratios)		results				adjustments				basis
Revenue
Investment banking fees		$	1,793			$	—			$	1,793
Principal transactions			4,745				—				4,745
Lending–and deposit–related fees			1,546				—				1,546
Asset management, administration and commissions			3,606				—				3,606
Securities gains			102				—				102
Mortgage fees and related income			(487	)			—				(487	)
Credit card income			1,437				—				1,437
Other income			574				451				1,025
Noninterest revenue			13,316				451				13,767
Net interest income			11,905				119				12,024
Total net revenue			25,221				570				25,791
Noninterest expense			15,995				—				15,995
Pre-provision profit			9,226				570				9,796
Provision for credit losses			1,169				—				1,169
Income before income tax expense			8,057				570				8,627
Income tax expense			2,502				570				3,072
Net income		$	5,555			$	—			$	5,555
Diluted earnings per share		$	1.28			$	—			$	1.28
Return on assets			1.07	%		NM					1.07	%
Overhead ratio			63			NM					62

		Three months ended March 31, 2010
						Fully
		Reported				tax-equivalent				Managed
(in millions, except per share and ratios)		results				adjustments				basis
Revenue
Investment banking fees		$	1,461			$	—			$	1,461
Principal transactions			4,548				—				4,548
Lending–and deposit–related fees			1,646				—				1,646
Asset management, administration and commissions			3,265				—				3,265
Securities gains			610				—				610
Mortgage fees and related income			658				—				658
Credit card income			1,361				—				1,361
Other income			412				411				823
Noninterest revenue			13,961				411				14,372
Net interest income			13,710				90				13,800
Total net revenue			27,671				501				28,172
Noninterest expense			16,124				—				16,124
Pre-provision profit			11,547				501				12,048
Provision for credit losses			7,010				—				7,010
Income before income tax expense			4,537				501				5,038
Income tax expense			1,211				501				1,712
Net income		$	3,326			$	—			$	3,326
Diluted earnings per share		$	0.74			$	—			$	0.74
Return on assets			0.66	%		NM					0.66	%
Overhead ratio			58			NM					57

Average tangible common equity

		Three months ended
		March 31,				December 31,				September 30,				June 30,				March 31,
(in millions)		2011				2010				2010				2010				2010
Common stockholders’ equity		$	169,415			$	166,812			$	163,962			$	159,069			$	156,094
Less: Goodwill			48,846				48,831				48,745				48,348				48,542
Less: Certain identifiable intangible assets			3,928				4,054				4,094				4,265				4,307
Add: Deferred tax liabilities(a)			2,595				2,621				2,620				2,564				2,541
Tangible common equity (TCE)		$	119,236			$	116,548			$	113,743			$	109,020			$	105,786

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

Other financial measures

The Firm also discloses the allowance for loan losses to total retained loans, excluding home lending purchased credit-impaired loans. For a further discussion of this credit metric, see Allowance for credit losses on pages 79–81 of this Form 10-Q.

BUSINESS SEGMENT RESULTS

The Firm is managed on a line of business basis. The business segment financial results presented reflect the current organization of JPMorgan Chase. There are six major reportable business segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services and Asset Management, as well as a Corporate/Private Equity segment. The business segments are determined based on the products and services provided, or the type of customer served, and reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis.

Description of business segment reporting methodology

Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results allocates income and expense using market-based methodologies. For a further discussion of those methodologies, see Business Segment Results — Description of business segment reporting methodology on pages 67–68 of JPMorgan Chase’s 2010 Annual Report. The Firm continues to assess the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.

Business segment capital allocation changes

Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, economic risk measures and regulatory capital requirements. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2011, capital allocated to CS was reduced and that of TSS was increased. For further information about these capital changes, see Line of business equity on pages 52–53 of this Form 10-Q.

Segment Results – Managed Basis^(a)

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

Three months ended
March 31,		Total net revenue												Noninterest expense												Pre-provision profit
(in millions, except ratios)		2011				2010				Change				2011				2010				Change				2011				2010				Change
Investment Bank(b)		$	8,233			$	8,319				(1	)%		$	5,016			$	4,838				4	%		$	3,217			$	3,481				(8	)%
Retail Financial Services			6,275				7,776				(19	)			5,262				4,242				24				1,013				3,534				(71	)
Card Services			3,982				4,447				(10	)			1,555				1,402				11				2,427				3,045				(20	)
Commercial Banking			1,516				1,416				7				563				539				4				953				877				9
Treasury & Securities Services			1,840				1,756				5				1,377				1,325				4				463				431				7
Asset Management			2,406				2,131				13				1,660				1,442				15				746				689				8
Corporate/Private Equity(b)			1,539				2,327				(34	)			562				2,336				(76	)			977				(9	)		NM
Total		$	25,791			$	28,172				(8	)%		$	15,995			$	16,124				(1	)%		$	9,796			$	12,048				(19	)%

Three months ended																										Return
March 31,		Provision for credit losses												Net income/(loss)												on equity
(in millions, except ratios)		2011				2010				Change				2011				2010				Change				2011				2010
Investment Bank(b)		$	(429	)		$	(462	)			7	%		$	2,370			$	2,471				(4	)%			24	%			25	%
Retail Financial Services			1,326				3,733				(64	)			(208	)			(131	)			(59	)			(3	)			(2	)
Card Services			226				3,512				(94	)			1,343				(303	)		NM					42				(8	)
Commercial Banking			47				214				(78	)			546				390				40				28				20
Treasury & Securities Services			4				(39	)		NM					316				279				13				18				17
Asset Management			5				35				(86	)			466				392				19				29				24
Corporate/Private Equity(b)			(10	)			17			NM					722				228				217			NM				NM
Total		$	1,169			$	7,010				(83	)%		$	5,555			$	3,326				67	%			13	%			8	%

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

INVESTMENT BANK

For a discussion of the business profile of IB, see pages 69—71 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 4 of this Form 10-Q.

Selected income statement data		Three months ended March 31,
(in millions, except ratios)		2011				2010				Change
Revenue
Investment banking fees		$	1,779			$	1,446				23	%
Principal transactions			3,398				3,931				(14	)
Lending- and deposit-related fees			214				202				6
Asset management, administration and commissions			619				563				10
All other income(a)			166				49				239
Noninterest revenue			6,176				6,191				—
Net interest income			2,057				2,128				(3	)
Total net revenue(b)			8,233				8,319				(1	)
Provision for credit losses			(429	)			(462	)			7
Noninterest expense
Compensation expense			3,294				2,928				13
Noncompensation expense			1,722				1,910				(10	)
Total noninterest expense			5,016				4,838				4
Income before income tax expense			3,646				3,943				(8	)
Income tax expense			1,276				1,472				(13	)
Net income		$	2,370			$	2,471				(4	)
Financial ratios
Return on common equity			24	%			25	%
Return on assets			1.18				1.48
Overhead ratio			61				58
Compensation expense as a percentage of total net revenue			40				35
Revenue by business
Investment banking fees:
Advisory		$	429			$	305				41
Equity underwriting			379				413				(8	)
Debt underwriting			971				728				33
Total investment banking fees			1,779				1,446				23
Fixed income markets(c)			5,238				5,464				(4	)
Equity markets(d)			1,406				1,462				(4	)
Credit portfolio(a)(e)			(190	)			(53	)			(258	)
Total net revenue		$	8,233			$	8,319				(1	)

(a)		IB manages credit exposures related to Global Corporate Bank (“GCB”) on behalf of IB and TSS. Effective January 1, 2011, IB and TSS will share the economics related to the Firm’s GCB clients. IB recognizes this sharing agreement within all other income. The prior-year period reflected the reimbursement from TSS for a portion of the total costs of managing the credit portfolio on behalf of TSS.
(b)		Total net revenue included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing and alternative energy investments as well as tax-exempt income from municipal bond investments of $438 million and $403 million for the quarters ended March 31, 2011 and 2010, respectively.
(c)		Fixed income markets primarily include revenue related to market-making across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets.
(d)		Equities markets primarily include revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services.
(e)		Credit portfolio revenue includes net interest income, fees and loan sale activity, as well as gains or losses on securities received as part of a loan restructuring, for IB’s credit portfolio. Credit portfolio revenue also includes the results of risk management related to the Firm’s lending and derivative activities. See pages 59—81 of the Credit Risk Management section of this Form 10-Q for further discussion.

Quarterly results

Net income was $2.4 billion, down 4% from the prior-year record, reflecting higher noninterest expense, slightly lower net revenue and a lower benefit from the provision for credit losses.

Net revenue was $8.2 billion, compared with $8.3 billion in the prior year. Investment banking fees were $1.8 billion, up 23% from the prior year; these consisted of record debt underwriting fees of $971 million (up 33%), equity underwriting fees of $379 million (down 8%), and advisory fees of $429 million (up 41%). Fixed Income and Equity Markets revenue was $6.6 billion, compared with $6.9 billion in the prior year, reflecting strong client revenues. Credit Portfolio revenue was a loss of $190 million, primarily reflecting the negative net impact of credit-related valuation adjustments largely offset by net interest income and fees on retained loans.

The provision for credit losses was a benefit of $429 million, compared with a benefit of $462 million in the prior year. The current-quarter benefit primarily reflected a reduction in the allowance for loan losses, primarily related to loan sales and net repayments. The ratio of the allowance for loan losses to end-of-period loans retained was 2.52%, compared with 4.91% in the prior year, driven by the improved quality of the loan portfolio. Net charge-offs were $123 million, compared with net charge-offs of $697 million in the prior year.

Noninterest expense was $5.0 billion, up 4% from the prior year driven by higher compensation expense, partially offset by lower noncompensation expense.

ROE was 24% on $40.0 billion of allocated capital.

Selected metrics		Three months ended March 31,
(in millions, except headcount and ratios)		2011				2010				Change
Selected balance sheet data (period-end)
Loans:
Loans retained(a)		$	52,712			$	53,010				(1	)%
Loans held-for-sale and loans at fair value			5,070				3,594				41
Total loans			57,782				56,604				2
Equity			40,000				40,000				—
Selected balance sheet data (average)
Total assets		$	815,828			$	676,122				21
Trading assets—debt and equity instruments			368,956				284,085				30
Trading assets—derivative receivables			67,462				66,151				2
Loans:
Loans retained(a)			53,370				58,501				(9	)
Loans held-for-sale and loans at fair value			3,835				3,150				22
Total loans			57,205				61,651				(7	)
Adjusted assets(b)			611,038				506,635				21
Equity			40,000				40,000				—
Headcount			26,494				24,977				6
Credit data and quality statistics
Net charge-offs		$	123			$	697				(82	)
Nonperforming assets:
Nonaccrual loans:
Nonaccrual loans retained(a)(c)			2,388				2,459				(3	)
Nonaccrual loans held-for-sale and loans at fair value			259				282				(8	)
Total nonperforming loans			2,647				2,741				(3	)
Derivative receivables			21				363				(94	)
Assets acquired in loan satisfactions			73				185				(61	)
Total nonperforming assets			2,741				3,289				(17	)
Allowance for credit losses:
Allowance for loan losses			1,330				2,601				(49	)
Allowance for lending-related commitments			424				482				(12	)
Total allowance for credit losses			1,754				3,083				(43	)
Net charge-off rate(a)(d)			0.93	%			4.83	%
Allowance for loan losses to period-end loans retained(a)(d)			2.52				4.91
Allowance for loan losses to nonaccrual loans retained(a)(c)(d)			56				106
Nonaccrual loans to period-end loans			4.58				4.84
Market risk—average trading and credit portfolio VaR — 95% confidence level
Trading activities:
Fixed income		$	49			$	69				(29	)
Foreign exchange			11				13				(15	)
Equities			29				24				21
Commodities and other			13				15				(13	)
Diversification(e)			(38	)			(49	)			22
Total trading VaR(f)			64				72				(11	)
Credit portfolio VaR(g)			26				19				37
Diversification(e)			(7	)			(9	)			22
Total trading and credit portfolio VaR		$	83			$	82				1

(a)		Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and excluded loans held-for-sale and loans at fair value.
(b)		Adjusted assets, a non-GAAP financial measure, equals total assets minus: (1) securities purchased under resale agreements and securities borrowed less securities sold, not yet purchased; (2) assets of consolidated variable interest entities (“VIEs”); (3) cash and securities segregated and on deposit for regulatory and other purposes; (4) goodwill and intangibles; (5) securities received as collateral. The amount of adjusted assets is presented to assist the reader in comparing IB’s asset and capital levels to other investment banks in the securities industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a company’s capital adequacy. IB believes an adjusted asset amount that excludes the assets discussed above, which were considered to have a low risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry.
(c)		Allowance for loan losses of $567 million and $811 million were held against these nonaccrual loans at March 31, 2011 and 2010, respectively.
(d)		Loans held-for-sale and loans at fair value were excluded when calculating the allowance coverage ratio and net charge-off rate.

(e)		Average value-at-risk (“VaR”) was less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflects the fact that the risks were not perfectly correlated. The risk of a portfolio of positions is therefore usually less than the sum of the risks of the positions themselves.
(f)		Trading VaR includes substantially all trading activities in IB, including the credit spread sensitivities of certain mortgage products and syndicated lending facilities that the Firm intends to distribute; however, particular risk parameters of certain products are not fully captured, for example, correlation risk. Trading VaR does not include the debit valuation adjustments (“DVA”) taken on derivative and structured liabilities to reflect the credit quality of the Firm. See VaR discussion on pages 81–84 and the DVA Sensitivity table on page 84 of this Form 10-Q for further details.
(g)		Credit portfolio VaR includes the derivative credit valuation adjustments (“CVA”), hedges of the CVA and mark-to-market (“MTM”) hedges of the retained loan portfolio, which are all reported in principal transactions revenue. This VaR does not include the retained loan portfolio, which is not MTM.

According to Dealogic, for the first three months of 2011, the Firm was ranked #1 in Investment Banking fees generated based on revenue, and #1 in Global Announced M&A; #1 in Global Syndicated Loans; #3 in Global Debt, Equity and Equity-related; #3 in Global Long-Term Debt; and #7 in Global Equity and Equity-related, based on volume.

		Three months ended March 31, 2011								Full-year 2010
Market shares and rankings(a)		Market Share				Rankings				Market Share				Rankings
Global investment banking fees(b)			8.6	%			#1				7.6	%			#1
Debt, equity and equity-related
Global			6.6				3				7.2				1
U.S.			11.8				1				11.1				1
Syndicated loans
Global			12.3				1				8.5				1
U.S.			24.5				1				19.3				2
Long-term debt(c)
Global			6.7				3				7.2				2
U.S.			11.8				1				10.9				2
Equity and equity-related
Global(d)			5.7				7				7.3				3
U.S.			9.5				4				12.6				2
Announced M&A(e)
Global			26.8				1				16.3				3
U.S.			44.5				1				23.0				3

(a)		Source: Dealogic. Global Investment Banking fees reflects ranking of fees and market share. Remainder of rankings reflects transaction volume rank and market share.
(b)		Global IB fees exclude money market, short-term debt and shelf deals.
(c)		Long-term debt tables include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities (“ABS”) and mortgage-backed securities; and exclude money market, short-term debt, and U.S. municipal securities.
(d)		Equity and equity-related rankings include rights offerings and Chinese A-Shares.
(e)		Global announced M&A is based on transaction value at announcement; all other rankings are based on transaction proceeds, with full credit to each book manager/equal if joint. Because of joint assignments, market share of all participants will add up to more than 100%. M&A for year-to-date 2011 and full-year 2010 reflects the removal of any withdrawn transactions. U.S. announced M&A represents any U.S. involvement ranking.

International metrics		Three months ended March 31,
(in millions)		2011				2010				Change
Total net revenue:(a)
Asia/Pacific		$	1,122			$	988				14	%
Latin America/Caribbean			327				310				5
Europe/Middle East/Africa			2,592				2,875				(10	)
North America			4,192				4,146				1
Total net revenue		$	8,233			$	8,319				(1	)
Loans (period-end): (b)
Asia/Pacific		$	5,472			$	6,195				(12	)
Latin America/Caribbean			2,190				2,035				8
Europe/Middle East/Africa			14,059				12,510				12
North America			30,991				32,270				(4	)
Total loans		$	52,712			$	53,010				(1	)

(a)		Regional revenues are based primarily on the domicile of the client and/or location of the trading desk.
(b)		Includes retained loans based on the domicile of the customer. Excludes loans held-for-sale and loans at fair value.

RETAIL FINANCIAL SERVICES

For a discussion of the business profile of RFS, see pages 72-78 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 4 of this Form 10-Q.

Selected income statement data		Three months ended March 31,
(in millions, except ratios)		2011				2010				Change
Revenue
Lending- and deposit-related fees		$	746			$	841				(11	)%
Asset management, administration and commissions			487				452				8
Mortgage fees and related income			(489	)			655			NM
Credit card income			537				450				19
Other income			364				354				3
Noninterest revenue			1,645				2,752				(40	)
Net interest income			4,630				5,024				(8	)
Total net revenue(a)			6,275				7,776				(19	)
Provision for credit losses			1,326				3,733				(64	)
Noninterest expense
Compensation expense			1,971				1,770				11
Noncompensation expense			3,231				2,402				35
Amortization of intangibles			60				70				(14	)
Total noninterest expense			5,262				4,242				24
Income/(loss) before income tax expense/(benefit)			(313	)			(199	)			(57	)
Income tax expense/(benefit)			(105	)			(68	)			(54	)
Net income/(loss)		$	(208	)		$	(131	)			(59	)
Financial ratios
Return on common equity			(3	)%			(2	)%
Overhead ratio			84				55
Overhead ratio excluding core deposit intangibles(b)			83				54