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2011 ANNUAL REPORT
THE WAY FORWARD 

Table of contents

  • Page 1
    2 0 1 1 A N N UA L REPORT T H E WA Y F O R W A R D ›››

  • Page 2
    ... share data Net income per share: Basic Diluted Cash dividends declared Book value Selected ratios Return on common equity Return on tangible common equity (b) Tier 1 capital ratio Total capital ratio Tier 1 common capital ratio(b) Selected balance sheet data (period-end) Total assets Loans Deposits...

  • Page 3
    ... than $17 billion in credit and maintained our position as the nation's #1 Small Business Administration lender. We also continued our support of communities. We raised $68 billion for not-for-profits and public services. And we hired more than 3,000 military veterans as a proud founding member of...

  • Page 4
    ... Looking ahead, we believe our earnings power should grow over time, though we always expect volatility in our earnings - it is the nature of the various businesses we operate. 2011 was another year of challenges for JPMorgan Chase, the financial services industry and the economies of many countries...

  • Page 5
    ... Chairman and Chief Executive Officer During 2011, the firm raised capital and provided credit of over $1.8 trillion for our commercial and consumer clients, up 18% from the prior year. We provided more than $17 billion of credit to U.S. small businesses, up 52% over last year. We raised capital or...

  • Page 6
    ... to '10 '10 to '11  Small Business  Caud & Auto 55% 0% 52% 10% $91.1 $83.0 $99.6  Asset Management 19% 48% $110.1 $76.0  Commeucial/ Middle Mauket 23% 18% $156.3 $164.6 $156.3  Moutgage/ Home Equity 5% (5%) 2009 2010 2011 2009 2010 2011 The best way to build...

  • Page 7
    ...new One Chase - strengthening the customer experience An intense focus in 2012 on adapting our businesses successfully to the new regulatory framework Comments on global financial reform The mortgage business - the good, the bad and the ugly V. VI. VII. Comments on the future of investment banking...

  • Page 8
    ... knowledge and the deep understanding to find ways - large and small - to improve a system, streamline a process, and save time and money by making things work better for everybody. Our customers, employees, shareholder value and communities all come first Many people seem to think that shareholder...

  • Page 9
    ... assets under custody, manage $1.9 trillion of assets under supervision and protect $1.1 trillion of their deposits. We provide our consumer and business customers with more than $700 billion outstanding of loans. We also are prepared to lend them an additional $975 billion, under committed lines...

  • Page 10
    ... company at a detailed level While JPMorgan Chase has six lines of business that we report publicly, we essentially operate 60-70 businesses within and across the six lines of business. Each of these businesses is expected to attract great management, deliver best-in-class products and services...

  • Page 11
    ...all to support the plant and its employees); most of these jobs appear in small businesses. It is worth noting that both large and small businesses often have benefited from strong collaboration with the government in making certain types of investments. The American people started and paid for...

  • Page 12
    ... Last year, we described our international expansion plan in detail. It involves building out our global presence across our wholesale businesses (Asset Management, the Investment Bank and Treasury & Securities Services) in the rapidly expanding markets of Asia, Latin America, Africa and the Middle...

  • Page 13
    ... cash management, global custody, foreign exchange, trade finance and other services. • This strategy has led to a 73% rise in our trade finance loans, a total of $37 billion in 2011. We also increased other business with these same multinational corporations, including rates, foreign exchange...

  • Page 14
    ... 31, 2011 New builds added from 2009 to 2011 156 branches 1 new build 292 branches 54 new builds launched, International Banking has increased the number of U.S. Commercial Banking clients using our international treasury and foreign exchange products - to 2,500 clients - at a rate of approximately...

  • Page 15
    ...by investing more than $2 billion of the company's 401(k) and defined benefit plan assets. • E valuate and execute strategic acquisitions by working closely with the company's strategic investments team. • P rovide interest rate, foreign currency and commodity risk management services...

  • Page 16
    ... credit card fees or banking account. It means customers can have more needs met at the Chase branch - including not only being able to get a credit card, mortgage or checking account but also being able to talk with branch professionals about any problems they may be having with any of our products...

  • Page 17
    ... person at our firm. A new internal tool called "What Do You Think?" is giving our employees throughout the firm a chance to evaluate the products we offer customers, as well as the services we provide internally, from accounts payable to our online benefit enrollment and internal travel services...

  • Page 18
    ...of mobile banking applications. Chase mobile customers increased 57% over the past year to more than 8 million active users at the end of 2011. These customers transact online by paying their bills, checking their balances and transferring money between accounts. Some of our new consumer innovations...

  • Page 19
    ...wills, and any new requirements from two new regulators, the Consumer Financial Protection Bureau and the Office of Financial Research. We need to meet the new derivatives, clearinghouse and Volcker trading rules. We also must complete periodic Comprehensive Capital Analysis and Review (CCAR) stress...

  • Page 20
    ...all risk in the business and set overall risk limits from credit extensions to any market-making activities. Risk limits are set by product, by counterparty and by type of specific risk (for example, liquidity risk, interest rate risk, credit risk, country risk, market risk, private equity risk, and...

  • Page 21
    ...financial system Most banks and bankers have acknowledged the need for strong reform. JPMorgan Chase has consistently supported higher capital standards, more liquidity in the system, a Resolution Authority to better manage and unwind large financial firms, better regulation of the mortgage business...

  • Page 22
    ... Lending Credit cards; student and auto loans Commercial Lending Commercial and industrial lending Broker-Dealer Institutional and retail brokerage; securities lending; prime broker services Retail Banking Deposit products; mortgages and home equity Alternative Investments Hedge funds; private...

  • Page 23
    ...be actively engaged in the political process in the communities and countries where we operate. Governments are debating issues critical to the financial markets, our company, our shareholders and our customers. It is vital for officials and regulators to have input from people within our businesses...

  • Page 24
    ...." JPMorgan Chase Capital Levels (Basel I Tier 1 Common Ratio) March 16, 2008: Bear Stearns Acquisition Sept. 15, 2008: Lehman Failure Sept. 25, 2008: WaMu Acquisition Feb. 10, 2009: First Stress Test Announced (SCAP) Nov. 17, 2010: Second Stress Test Announced (CCAR1) Nov. 22, 2011: Third...

  • Page 25
    ... very actively manage our risk contrived the rule is: exposures, expenses and capital. Keep in • Many of the measures simply look at gross mind that during the real stress test after numbers - assets, gross derivatives expothe collapse of Lehman Brothers, our capital sure, cross-border lending...

  • Page 26
    ... wholesale funded in the notoriously fickle money markets. And no credit is given for deposits from companies (most of which are rather sticky), secure funding sources or long-term funding. • Another factor in the G-SIB calculation is whether a bank holds assets under custody. This is a business...

  • Page 27
    ... financial markets would continue uninterrupted. Credit card processing, ATM networks, checking accounts and debit cards would continue to function, but under the control of new owners and management. Similarly, custody services of client assets, payments processing, asset management, and securities...

  • Page 28
    ... for government securities and a lot less liquidity for everything else. Pension accounting is forcing pensions to hedge their liabilities by buying fixed-rate securities at precisely the wrong time. Banks hold large availablefor-sale securities portfolios to manage their assets and liability risk...

  • Page 29
    ... rate mortgages (option-ARM). These mortgages were packaged into securities (sometimes guaranteed by government entities and insurance companies), and home ownership was going up - it all seemed to be working. But as the process unfolded, unscrupulous mortgage officers were mis-selling mortgages...

  • Page 30
    ... the economic crisis is litigation relating to mortgage-backed securities issued by JPMorgan Chase, Bear Stearns and WaMu. Investors have brought securities litigation, trustees have demanded loan repurchases and regulators continue to scrutinize these transactions. As I always have said, we...

  • Page 31
    ... you can modify a mortgage only when it is better for the lender than foreclosing, all things considered (i.e., the net present value of a modified loan is worth more than going through a foreclosure process, with all its expense, and ultimately selling the home at a very distressed price). • If...

  • Page 32
    ... it also will be the best of JPMorgan Chase We have brought enormous resources to bear on fixing our mortgage business. Many of our top executives volunteered to help - and we now have some of our best people from finance, risk, technology and operations devoted to this effort. As a result, we are...

  • Page 33
    ... about $2 billion, with a through-the-cycle return on equity (ROE) of about 15%. We continue to invest in this business by growing our sales force and introducing technology applications to improve the customer experience. Over the past year, we added 700 loan officers - bringing our total to 3,800...

  • Page 34
    ...servicers get better at packaged sales and short sales and as real money investors start to buy foreclosed homes and rent them out for a good profit. Home prices still are going down a little bit, and they will stay depressed for a while. Distressed sales (short sales, foreclosure sales, real estate...

  • Page 35
    ...huge capital and investing needs of clients will drive real underlying growth of the investment banking business. And JPMorgan Chase is in the sweet spot because much of the growth will be with our clients - large, often multinational companies, government-related entities and large global investors...

  • Page 36
    ... for clients. Our market-making operations also help our issuer clients sell or raise approximately $430 billion of capital a year. We trade over a trillion dollars of securities, broadly defined, every day - for example, approximately 90,000 separate trades a day in our fixed income business alone...

  • Page 37
    ...bankrupted by violent moves in prices. Farmers have been doing hedging for a long time, and, in the modern world, it also applies to airlines, banks, investors and others who have exposures to oil, interest rates, foreign exchange rates, etc. We tightly manage our risk in derivatives by limiting our...

  • Page 38
    ... loans - not by trading. Loans and market making both serve a critical function: financing the American business machine. The Volcker Rule and derivatives rules need to be formulated in such a way as not to severely inhibit American banks' ability to compete and serve clients. If the Volcker Rule...

  • Page 39
    ..., top three positions in each of our major businesses and clear paths to growth, why hasn't the stock done better? There are many issues that are causing investors concern, creating legitimate reasons for why bank values are depressed. Our stock closed the year at $33.25, lower than it was five...

  • Page 40
    ... capital. And our organic growth and acquisitions unlikely will be able to use it all. So buying back stock is a great option - you can do the math yourself. Haircut our earnings numbers that analysts project and forecast buying back, say, $10 billion a year for three years at tangible book value...

  • Page 41
    ... worst financial markets since the Great Depression, your company could earn money, grow tangible book value, buy Bear Stearns and WaMu and expand our franchise. C LOS I N g Let me close by thanking our 260,000 employees. Day in and day out, they are the people who serve our clients, communities...

  • Page 42
    ... million customers From left to right: Gordon Smith, CEO, Card Services & Auto Todd Maclin, CEO, Consumer & Business Banking Frank Bisignano, Chief Administrative Officer and CEO, Mortgage Banking We will remember 2011 as a turning point. It's the year we united across the Chase businesses to work...

  • Page 43
    ...10 trillion in deposits and investments with our competitors. And they spend more than $300 billion annually on non-Chase-issued credit cards. Customers who say they are completely satisfied are 60% more likely to increase the number of Chase products they use, 26% less likely to switch banks and 61...

  • Page 44
    ... The business that customers are not doing with Chase represents a huge opportunity ($ in billions) 80 Satisfaction Rating for Chase Businesses Increased across the Board (score in percentage) Deposit & Investment Balances* Credit Card Spending* Card1 Consumer banking 2 Mortgage...

  • Page 45
    ...businesses and apply them to all. For example, we're working to make sure experiences in our telephone Customer Service Centers are consistent. In 2011, we simplified our automatic voice menus and the process to reach an agent. We have implemented new training on cultural awareness and communication...

  • Page 46
    ... skills and long-term career opportunities. We added 260 Chase branches, mostly in California and Florida. These new locations allow us to increase our lending to small businesses, offer more mortgages and refinancings, and help more people manage their money through savings and investments. We also...

  • Page 47
    ...In Treasury & Securities Services, about 30% of commercial dollars are deposited in branches • Branches bring in about 20% of U.S. retail assets under management • Commercial Banking clients account for 16 million branch transactions each year While the banking industry faces many short...

  • Page 48
    ... new Production business made money for the year on strong refinancing activity and lower repurchase losses. We also increased market share, becoming the #2 originator at the end of 2011, up from #3. Core Servicing (excluding legacy portfolio) was firmly profitable. Real Estate Portfolio performance...

  • Page 49
    .... Frank Bisignano, Mortgage Banking CEO, Chief Administrative Officer, JPMorgan Chase 2011 Highlights and Accomplishments • Ranked #2 in originations at year-end, #4 in home equity originations and #3 in servicing: - Increased retail market share to 12.6%, up 28% from 2010 and the largest...

  • Page 50
    Card Services & Auto After a difficult few years following the financial crisis, Card Services & Auto is now in an exciting time of growth. We made investments in new products, services and technologies that are paying off in higher market share and an improving customer experience. The challenging ...

  • Page 51
    ...' sales growth of 13%(e) year-over-year in 2011 on top of a strong 2010 indicates sustained and robust growth • Chase Paymentech is the thirdlargest merchant acquirer in the United States and processed 24.4 billion transactions with 18% yearover-year growth in sales volume • Credit card net...

  • Page 52
    ... performance continued to improve with nonperforming loans and net charge-offs now trending to pre-crisis levels. We are proud to have extended $111 billion in new and renewed financing to our clients in 2011, up from $92 billion in 2010. In 2011, Corporate Client Banking, which serves Commercial...

  • Page 53
    ...roles on syndicated lending transactions • Added more than 1,200 Middle Market clients • Increased International Banking revenue by 41% over 2010 • Integrated the Citi portfolio acquisition into the Commercial Term Lending business unit • Achieved the highest return on equity in our...

  • Page 54
    ... outstanding global wholesale franchises. As leaders in each of our businesses - the Investment Bank, Asset Management and Treasury & Securities Services - we serve many of the world's most successful corporations and individuals. Large multinationals and emerging companies, institutional investors...

  • Page 55
    ...activities across our lines of business that will grow revenue and strengthen customer relationships. The Global Corporate Bank, a partnership between Treasury & Securities Services and the Investment Bank that began in 2010, targets approximately 3,500 corporate, financial and public sector clients...

  • Page 56
    ..., wholesale activities across lines of business - Asset Management, Treasury & Securities Services (TSS) and Investment Banking - now are supervised through an International Steering Committee chaired by Mary Erdoes, Mike Cavanagh and myself. The Global Corporate Bank (GCB), less than two years old...

  • Page 57
    ... the year's 10 largest transactions, and achieved 18% market share(a) • 110 trading desks around the world execute, in an average quarter(b): - 5 million foreign exchange spot/forward transactions - 30,000 interest rate swaps - 10 billion North American equity shares • Global Corporate Bank...

  • Page 58
    ... cash management and trade finance capabilities. In WSS, continued development of international capital markets and growth in cross-border investment will increase investor client needs for global custody and other securities services. Our collaboration with the firm's other wholesale businesses...

  • Page 59
    ...2011 • Best Transaction Banking Business in Asia Pacific, The Asian Banker, 2011 • Global Bank of the Year for Risk Management, Treasury Management International, 2011 Trade Loans Up $16 Billion ($ in billions) Global Presence • Treasury & Securities Services has roughly 28,000 employees...

  • Page 60
    ... in J.P. Morgan Asset Management, entrusting us with $53 billion in net new long-term assets for the year. We marked our 11th consecutive quarter of positive inflows. We also experienced record loan growth, up 31% to $58 billion; deposit balances, up 38% to $127 billion; and mortgage production, up...

  • Page 61
    ... total net mutual fund flows, Strategic Insight • Leading Pan-European Fund Man- agement Firm, Thomson Reuters • #1 U.S. Real Estate Equity and Infrastructure Money Manager, Pensions & Investments • Best Global Brand in Private Banking, Financial Times • Asset Management Company...

  • Page 62
    ... in the country. We lent more than $17 billion to small businesses in 2011, up more than 52% from 2010 and 135% from 2009. We made nearly 400,000 new small business loans in 2011, up 45% from 2010. • Demonstrated our commitment to investing in the future of the communities where we operate. In...

  • Page 63
    ... Liquidity Risk Management Credit Risk Management Market Risk Management Country Risk Management Private Equity Risk Management Operational Risk Management Reputation and Fiduciary Risk Management Critical Accounting Estimates Used by the Firm Accounting and Reporting Developments Nonexchange-Traded...

  • Page 64
    ... Net income Overhead ratio Deposits-to-loans ratio Tier 1 capital ratio(f) Total capital ratio Tier 1 leverage ratio Tier 1 common capital ratio(g) Selected balance sheet data (period-end)(f) Trading assets Securities Loans Total assets Deposits Long-term debt(h) Common stockholders' equity Total...

  • Page 65
    ... further discussion of Tier 1 common capital ratio, see Regulatory capital on pages 119-122 of this Annual Report. (h) 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...

  • Page 66
    ... 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. 64 JPMorgan Chase & Co./2011 Annual Report

  • Page 67
    ... 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...

  • Page 68
    ... currency swap lines with the ECB in response to pressures in interbank term funding markets. Financial performance of JPMorgan Chase Year ended December 31, (in millions, except per share data and ratios) 2011 2010 Change (5)% 3 (17) (54) 9 13 Selected income statement data Total net revenue...

  • Page 69
    ... Global Investment Banking Fees for the year. Consumer & Business Banking within Retail Financial Services opened 260 new branches and increased deposits by 8% in 2011. In the Card business, credit card sales volume (excluding Commercial Card) was up 10% for the year. Treasury & Securities Services...

  • Page 70
    ...-related expense. Return on equity for the year was 30% on $8.0 billion of average allocated capital. Treasury & Securities Services net income increased from the prior year, driven by higher net revenue reflecting record deposit balances and a benefit from the Global Corporate Bank ("GCB") credit...

  • Page 71
    ... run off, management anticipates that approximately $1 billion of capital may become available for redeployment each year, subject to the capital requirements associated with the remaining portfolio. In Card, the net charge-off rate for the combined Chase and Washington Mutual credit card portfolios...

  • Page 72
    ... state and federal tax matters are resolved. For additional information related to the WaMu Global Settlement, see "Subsequent events" in Note 2, and "Washington Mutual Litigations" in Note 31 on page 183-184 and 298, respectively, of this Annual Report. 70 JPMorgan Chase & Co./2011 Annual Report

  • Page 73
    ... Year ended December 31, (in millions) Investment banking fees Principal transactions Lending- and deposit-related fees Asset management, administration and commissions Securities gains Mortgage fees and related income Credit card income Other income Noninterest revenue Net interest income Total net...

  • Page 74
    ... Total net revenue for 2010 was $102.7 billion, up by $2.3 billion, or 2%, from 2009. Results for 2010 were driven by a higher level of securities gains and private equity gains in Corporate/Private Equity, higher asset management fees in AM and administration fees in TSS, and higher other income...

  • Page 75
    ...during 2009 and higher auto operating lease income in Card. Net interest income was relatively flat in 2010 compared with 2009. The effect of lower loan balances was predominantly offset by the effect of the adoption of the new accounting guidance related to VIEs (which increased net interest income...

  • Page 76
    ... was driven by higher marketing expense in Card; higher professional services expense, due to continued investments in new product platforms in the businesses, including those related to international expansion; higher default-related expense, including costs associated with foreclosure affidavit...

  • Page 77
    ... of certain investments; the prior year included tax benefits associated with the resolution of tax audits. For additional information on income taxes, see Critical Accounting Estimates Used by the Firm on pages 168-172 and Note 26 on pages 279-281 of this Annual Report. 2010 compared with 2009 The...

  • Page 78
    ...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 2009 reported to managed basis results for Card, see Card's segment results on pages 94-97 of this Annual Report. For...

  • Page 79
    ... per share and ratios) Revenue Investment banking fees Principal transactions Lending- and depositrelated fees Asset management, administration and commissions Securities gains Mortgage fees and related income Credit card income Other income Noninterest revenue Net interest income Total net revenue...

  • Page 80
    ... investment securities due to portfolio mix and lower long-term interest rates. 2010 compared with 2009 Core net interest income decreased by $6.9 billion to $44.3 billion in 2010. The decrease was primarily driven by lower loan levels and yields in RFS, Card and IB compared with 78 Other financial...

  • Page 81
    ... - Credit Card - Merchant Services Auto Student Commercial Banking Businesses: Middle Market Banking Commercial Term Lending Corporate Client Banking Real Estate Banking Treasury & Securities Services Businesses: Treasury Services Worldwide Securities Services Asset Management Businesses: Private...

  • Page 82
    ... the business segment results for the periods indicated. Year ended December 31, (in millions) Investment Bank(a) Retail Financial Services Card Services & Auto Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity Total (a) Total net revenue 2011 $ 26...

  • Page 83
    ... risk management, market-making in cash securities and derivative instruments, prime brokerage, and research. Selected income statement data Year ended December 31, (in millions, except ratios) Revenue Investment banking fees Principal transactions(a) Lending- and deposit-related fees Asset...

  • Page 84
    ... by additional operating expense related to growth in business activities in 2011. Return on Equity was 17% on $40.0 billion of average allocated capital. 2010 compared with 2009 Net income was $6.6 billion, down 4% compared with the prior year. These results primarily reflected lower net revenue as...

  • Page 85
    ... Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and mortgage-backed securities; and exclude money market, short-term debt, and U.S. municipal securities. (d) Global Equity and equity-related ranking...

  • Page 86
    ...,079 4,542 2,523 25,400 $ 45,544 Regional revenue is based primarily on the domicile of the client and/ or location of the trading desk. Includes retained loans based on the domicile of the customer. Excludes loans held-for-sale and loans at fair value. 84 JPMorgan Chase & Co./2011 Annual Report

  • Page 87
    ...Annual Report. Selected income statement data Year ended December 31, (in millions, except ratios) Revenue Lending- and deposit-related fees Asset management, administration and commissions Mortgage fees and related income Credit card income Other income Noninterest revenue Net interest income Total...

  • Page 88
    ...233 2011 2010 2009 5.71 133 2.97 4.05 5.86 124 3.24 4.45 6.11 117 3.62 5.01 Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. Excludes PCI loans that were acquired...

  • Page 89
    ...5%, from the prior year resulting from investment in sales force and new branch builds. 2010 compared with 2009 Consumer & Business Banking reported net income of $3.7 billion, a decrease of $263 million, or 7%, compared with the prior year. Total net revenue was $17.7 billion, down 2% compared with...

  • Page 90
    ...,974 2011 2010 2009 Selected metrics As of or for the year ended December 31, (in millions, except ratios and where otherwise noted) Credit data and quality statistics Net charge-offs Net charge-off rate Allowance for loan losses Nonperforming assets Retail branch business metrics Investment sales...

  • Page 91
    ... Net production revenue Net mortgage servicing revenue: Operating revenue: Loan servicing revenue Changes in MSR asset fair value due to modeled amortization Total operating revenue Risk management: 4,134 4,575 4,942 $ 3,395 (1,347) 2,048 $ 3,440 (2,912) 528 $ 2,115 (1,612) 503 2011 2010 2009 2011...

  • Page 92
    ... liability on pages 115-118 of this Annual Report. (b) Loans at fair value consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. These loans 90 JPMorgan Chase & Co./2011 Annual Report

  • Page 93
    ... this Annual Report which summarizes loan delinquency information. At December 31, 2011, 2010 and 2009, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $11.5 billion, $9.4 billion and $9.0 billion, respectively, that are 90 or more days past due; and (2) real...

  • Page 94
    Management's discussion and analysis Real Estate Portfolios Selected income statement data Year ended December 31, (in millions, except ratios) Noninterest revenue Net interest income Total net revenue Provision for credit losses Noninterest expense Income/(loss) before income tax expense/(benefit)...

  • Page 95
    ... lives of the loans as long as cash flows are reasonably estimable, even if the underlying loans are contractually past due. Credit data and quality statistics As of or for the year ended December 31, (in millions, except ratios) Net charge-offs excluding PCI loans:(a) Home equity Prime mortgage...

  • Page 96
    Management's discussion and analysis CARD SERVICES & AUTO Card Services & Auto is one of the nation's largest credit card issuers, with over $132 billion in credit card loans. Customers have over 65 million open credit card accounts (excluding the commercial card portfolio), and used Chase credit ...

  • Page 97
    ... Student Total average loans on balance sheets Securitized credit card loans(b) Total average loans Equity Headcount(a) Credit data and quality statistics(a)(b) Net charge-offs: Credit Card Auto Student Total net charge-offs Net charge-off rate: Credit Card(e) Auto Student (f) (d) 2011 2010 2009...

  • Page 98
    ...-end loans Business metrics Credit Card, excluding Commercial Card(a) Sales volume (in billions) New accounts opened Open accounts (l) (g) As of or for the year ended December 31, (in millions, except ratios) Supplemental information(a)(m) 2011 2010 2009 Card Services, excluding Washington Mutual...

  • Page 99
    ... periods. (n) As a percentage of average managed loans. (o) Represents total net revenue less provision for credit losses. (p) At December 31, 2011, 2010 and 2009, the 30+ day delinquent loans for Card Services, excluding Washington Mutual and Commercial Card portfolios, were $3,047 million, $4,541...

  • Page 100
    ...-grade real estate properties. Lending and investment activity within the Community Development Banking and Chase Capital segments are included in other. Selected income statement data Year ended December 31, (in millions, except ratios) Revenue Lending- and deposit-related fees Asset management...

  • Page 101
    ... held at fair value, higher investment banking fees and increased community development investment-related revenue. On a client segment basis, revenue from Middle Market Banking was $3.1 billion, flat compared with the prior year. Revenue from Commercial Term Lending was $1.0 billion, an increase of...

  • Page 102
    ... ratios) Selected balance sheet data (period-end) Total assets Loans: Loans retained Loans held-for-sale and loans at fair value Total loans Equity Period-end loans by client segment Middle Market Banking Commercial Term Lending Corporate Client Banking(a) Real Estate Banking Other Total Commercial...

  • Page 103
    ... holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers, and manages depositary receipt programs globally. Selected income statement data Year ended December 31, (in millions, except ratio data) Revenue Lending- and deposit-related fees Asset...

  • Page 104
    ... trade loan and card product volumes. Worldwide Securities Services net revenue was $3.7 billion, relatively flat compared with the prior year as higher market levels and net inflows of assets under custody were offset by lower spreads in securities lending, lower volatility on foreign exchange...

  • Page 105
    ... of customer cash management programs. Description of selected products and services within TSS: Investor Services includes primarily custody, fund accounting and administration, and securities lending products sold principally to asset managers, insurance companies and public and private investment...

  • Page 106
    ... 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...

  • Page 107
    ...net-worth individuals, families, money managers, business owners and small corporations worldwide, including investment management, capital markets and risk management, tax and estate planning, banking, capital raising and specialty-wealth advisory services. Institutional brings comprehensive global...

  • Page 108
    ...year ended December 31, (in billions) Assets by asset class Liquidity Fixed income Equity and multi-asset Alternatives Total assets under management Custody/brokerage/ administration/deposits Total assets under supervision Assets by client segment Private Banking Institutional Retail(b) Total assets...

  • Page 109
    ...Washington Mutual transaction, as well as items related to the Bear Stearns merger, including merger costs, asset management liquidation costs and JPMorgan Securities broker retention expense. 2011 compared with 2010 Net income was $802 million, compared with $1.3 billion in the prior year. Private...

  • Page 110
    ... Annual Report. Unfunded commitments to third-party private equity funds were $789 million, $1.0 billion and $1.5 billion at December 31, 2011, 2010 and 2009, respectively. Private Equity Portfolio Selected income statement and balance sheet data Year ended December 31, (in millions) Private equity...

  • Page 111
    ... private banking clients). Deposits are based on the location from which the client relationship is managed. Loans outstanding are based predominantly on the domicile of the borrower and exclude loans held-for-sale and loans carried at fair value. JPMorgan Chase & Co./2011 Annual Report 109

  • Page 112
    Management's discussion and analysis BALANCE SHEET ANALYSIS Selected Consolidated Balance Sheets data December 31, (in millions) Assets Cash and due from banks Deposits with banks Federal funds sold and securities purchased under resale agreements Securities borrowed Trading assets: Debt and equity...

  • Page 113
    ...271 of this Annual Report. Other assets Other assets consist of private equity and other instruments, cash collateral pledged, corporate- and bankowned life insurance policies, assets acquired in loan satisfactions (including real estate owned), and all other assets. Other assets remained relatively...

  • Page 114
    ... management product, whereby excess client funds are transferred into commercial paper overnight sweep accounts. Commercial paper increased due to growth in the volume of liability balances in sweep accounts related to TSS's cash management product. Other borrowed funds, which includes short-term...

  • Page 115
    ...backed commercial paper by JPMorgan Chase & Co./2011 Annual Report Off-balance sheet lending-related financial instruments, guarantees, and other commitments JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers...

  • Page 116
    ... Contractual cash obligations 2011 By remaining maturity at December 31, (in millions) On-balance sheet obligations Deposits(a) Federal funds purchased and securities loaned or sold under repurchase agreements Commercial paper Other borrowed funds Long-term debt(a) Other(b) Total on-balance sheet...

  • Page 117
    ... exposure related to Washington Mutual presents minimal future risk to the Firm's financial results. The Firm also sells loans in securitization transactions with Ginnie Mae; these loans are typically insured or guaranteed by another government agency. The Firm, in its role as servicer, may...

  • Page 118
    ... relate to alleged misrepresentations primarily arising from: (i) credit quality and/or undisclosed debt of the borrower; (ii) income level and/or employment status of the borrower; and (iii) appraised value of collateral. Ineligibility of the borrower for the particular product, mortgage insurance...

  • Page 119
    ... from third parties - require application of a significant level of management judgment. Estimating the mortgage repurchase liability is further complicated by historical data that is not necessarily indicative of future expectations and uncertainty 117 JPMorgan Chase & Co./2011 Annual Report

  • Page 120
    ... for repurchase losses 2011 $ 3,285 (1,263) 1,535 (c) Unpaid principal balance of mortgage loan repurchases(a) Year ended December 31, (in millions) Ginnie Mae(b) GSEs and other(c)(d) Total 2011 $ 5,981 1,334 $ 7,315 2010 $ 8,717 1,773 $ 10,490 2009 $ 6,966 1,019 $ 7,985 2010 $ 1,705 (1,423) 3,003...

  • Page 121
    ... of the Firm's capital with the capital of other financial services companies. The Firm uses Tier 1 common along with the other capital measures to assess and monitor its capital position. At December 31, 2011 and 2010, JPMorgan Chase maintained Tier 1 and Total capital ratios in excess of the...

  • Page 122
    ... other intangible assets are net of any associated deferred tax liabilities. (b) Primarily includes trust preferred capital debt securities of certain business trusts. The Firm's Tier 1 common was $122.9 billion at December 31, 2011, an increase of $8.2 billion from December 31, 2010. The increase...

  • Page 123
    ... income ("AOCI") related to AFS securities and defined benefit pension and other postretirement employee benefit plans, and the deduction of the Firm's JPMorgan Chase & Co./2011 Annual Report defined benefit pension fund assets. The Firm estimates that its Tier 1 common ratio under Basel III rules...

  • Page 124
    ... Year ended December 31, (in billions) Credit risk Market risk Operational risk Private equity risk Economic risk capital Goodwill Other (a) 2011 $ 48.2 14.5 8.5 6.9 78.1 48.6 46.6 $ 173.3 $ 2010 49.7 15.1 7.4 6.2 78.4 48.6 34.5 $ 161.5 $ 2009 51.3 15.4 8.5 4.7 79.9 48.3 17.7 $ 145.9 Total...

  • Page 125
    ... $ $ 2010 40.0 24.6 18.4 8.0 6.5 6.5 64.3 168.3 Line of business equity Year ended December 31, (in billions) Investment Bank Retail Financial Services Card Services & Auto Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity Total common stockholders' equity...

  • Page 126
    ... be repurchasing common equity - for example, during internal trading "black-out periods." All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. 124 JPMorgan Chase & Co./2011 Annual Report

  • Page 127
    ...'s Risk Policy Committee. The Chief Risk Officer is also a member of the line of business risk committees. Within the Firm's Risk Management function are units responsible for credit risk, market risk, country risk, private equity risk and operational risk, as well as risk reporting, risk policy and...

  • Page 128
    ... Officer) Asset-Liability Committee Investment Committee Risk Working Group Markets Committee Global Counterparty Committee Investment Bank Risk Committee Retail Financial Services Risk Committee Card Services & Auto Risk Committee Commercial Banking Risk Committee Treasury & Securities...

  • Page 129
    ... reported to management on a daily, weekly and monthly basis, as appropriate. There are nine major risk types identified in the business activities of the Firm: liquidity risk, credit risk, market risk, interest rate risk, country risk, private equity risk, operational risk, legal and fiduciary risk...

  • Page 130
    ... was growth in the number of clients and level of deposits in AM and RFS (the RFS deposits were net of attrition related to the conversion of Washington Mutual Free Checking accounts). Average total deposits for the Firm were $1,012.0 billion and $881.1 billion for the years ended December 31, 2011...

  • Page 131
    ... preferred capital debt securities and $22.8 billion of IB structured notes. In addition to the unsecured long-term funding and issuances discussed above, the Firm securitizes consumer credit card loans, residential mortgages, auto loans and student loans for funding purposes. During the year ended...

  • Page 132
    ... lending as market stress eased since the end of 2009; net proceeds from sales and maturities of AFS securities used in the Firm's interest rate risk management activities in Corporate; and a net decrease in the credit card loan portfolio, driven by the expected runoff of the Washington Mutual...

  • Page 133
    ...-sponsored credit card securitization trusts; JPMorgan Chase & Co./2011 Annual Report a decline in deposits associated with wholesale funding activities due to the Firm's lower funding needs; lower deposit levels in TSS, offset partially by net inflows from existing customers and new business in...

  • Page 134
    ...to a variety of customers, from large corporate and institutional clients to the individual consumers and small businesses. Loans originated or acquired by the Firm's wholesale businesses are generally retained on the balance sheet. Credit risk management actively monitors the wholesale portfolio to...

  • Page 135
    ... Determining the allowance for credit losses and ensuring appropriate credit risk-based capital management billion of certain business banking loans in RFS and certain auto loans in Card that are risk-rated because they have characteristics similar to commercial loans. Probability of default is...

  • Page 136
    ...the ratio of nonaccrual loans to total loans, the net charge-off rate and the allowance for loan loss coverage ratio all declined. For further discussion of wholesale loans, see Note 14 on pages 231-252 of this Annual Report. The credit performance of the consumer portfolio across the entire product...

  • Page 137
    ...Loans retained Loans held-for-sale Loans at fair value Total loans - reported Derivative receivables Receivables from customers and interests in purchased receivables Total credit-related assets Lending-related commitments(a) Assets acquired in loan satisfactions Real estate owned Other Total assets...

  • Page 138
    ... at fair value Loans - reported Derivative receivables Receivables from customers and interests in purchased receivables(a) Total wholesale credit-related assets Lending-related commitments(b) Total wholesale credit exposure Net credit derivative hedges notional(c) Liquid securities and other cash...

  • Page 139
    .... Wholesale credit exposure - maturity and ratings profile Maturity profile(c) December 31, 2011 (in millions, except ratios) Loans retained Derivative receivables Less: Liquid securities and other cash collateral held against derivatives Total derivative receivables, net of all collateral Lending...

  • Page 140
    ... loans sales. The ratio of nonaccrual loans to total loans decreased to 2% from 5% in line with the decrease in real estate criticized exposure. For further information on commercial real estate loans, see Note 14 on pages 231-252 of this Annual Report. 138 JPMorgan Chase & Co./2011 Annual Report

  • Page 141
    ... and finance companies Real estate Healthcare State and municipal governments(b) Oil and gas Asset managers Consumer products Utilities Retail and consumer services Technology Central government Machinery and equipment manufacturing Transportation Metals/mining Insurance Business services Securities...

  • Page 142
    ... relative to total industry exposure due to • continued pressure on the traditional media business model from expanding digital and online technology. All other: All other at December 31, 2011 (excluding loans held-for-sale and loans at fair value), included $180.7 billion of credit exposure...

  • Page 143
    ... clients to high-net-worth individuals. For further discussion on loans, including information on credit quality indicators, see Note 14 on pages 231-252 of this Annual Report. The Firm actively manages wholesale credit exposure. One way of managing credit risk is through sales of loans and lending...

  • Page 144
    ... 36% 25 13 22 4 100% 35% $ As noted above, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the 142 Firm's derivatives transactions subject to collateral agreements - excluding foreign exchange spot trades, which JPMorgan Chase & Co./2011 Annual Report

  • Page 145
    ... and JPMorgan Chase & Co./2011 Annual Report collateral and other risk-reduction techniques. The Firm also manages its wholesale credit exposure by purchasing protection through single-name and portfolio credit derivatives to manage the credit risk associated with loans, lending-related commitments...

  • Page 146
    ... protection purchased in the context of country risk, see Country Risk Management on pages 163-165 of this Annual Report. Lending-related commitments JPMorgan Chase uses lending-related financial instruments, such as commitments and guarantees, to meet the financing needs of its customers. The...

  • Page 147
    ... serving the prime segment of the consumer credit market. For further information on consumer loans, see Note 14 on pages 231-252 of this Annual Report. A substantial portion of the consumer loans acquired in the Washington Mutual transaction were identified as PCI based on an analysis of high-risk...

  • Page 148
    ... as purchase accounting adjustments at the time of acquisition. To date, no charge-offs have been recorded for these loans. Represents prime mortgage loans held-for-sale. Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The...

  • Page 149
    ..., but remained elevated. Prime mortgages, including option adjustable-rate mortgages ("ARMs") and loans held-for-sale, were $76.2 billion at December 31, 2011, compared with $74.7 billion at December 31, 2010. The increase was due primarily to JPMorgan Chase & Co./2011 Annual Report 147

  • Page 150
    ... from 2010. Purchased credit-impaired loans: PCI loans at December 31, 2011, were $65.5 billion, compared with $72.8 billion at December 31, 2010. This portfolio represents loans acquired in the Washington Mutual transaction, which were recorded at fair value at the time of acquisition. During 2011...

  • Page 151
    ... 31, 2011 and 2010. The decline in home prices since 2007 has had a significant impact on the collateral values underlying the Firm's residential real estate loan portfolio. In general, the delinquency rate for loans with high LTV ratios is greater than the delinquency rate for loans in which...

  • Page 152
    ... at the date of acquisition and is also net of the allowance for loan losses at December 31, 2011 and 2010, of $1.9 billion and $1.6 billion for home equity, respectively, $1.9 billion and $1.8 billion for prime mortgage, respectively, $1.5 billion and $1.5 billion for option ARMs, respectively...

  • Page 153
    ... Total modified residential real estate loans - excluding PCI loans Modified PCI loans(c) Home equity Prime mortgage Subprime mortgage Option ARMs Total modified PCI loans (a) (b) $ 2011 On-balance sheet loans Nonaccrual on-balance sheet loans(d) 77 159 922 832 1,990 NA NA NA NA NA 2010 On-balance...

  • Page 154
    ... loans(b)(c) Home equity - senior lien Home equity - junior lien Prime mortgage, including option ARMs Subprime mortgage Auto Business banking Student and other Total nonaccrual loans Assets acquired in loan satisfactions Real estate owned Other Total assets acquired in loan satisfactions Total...

  • Page 155
    .... • Enhanced management information systems for loan modification, loss-mitigation and foreclosure activities. • Developed a comprehensive assessment of risks in servicing operations including, but not limited to, operational, transaction, legal and reputational risks. • Made technological...

  • Page 156
    ... 2011 and 2010, the net charge-off rates were 10.49% and 17.73% respectively. Credit Card Total credit card loans were $132.3 billion at December 31, 2011, a decrease of $5.4 billion from December 31, 2010, due to higher repayment rates, runoff of the Washington Mutual portfolio and the Firm's sale...

  • Page 157
    ... in other liabilities, totaled $673 million and $717 million at December 31, 2011 and 2010, respectively. The credit ratios in the table below are based on retained loan balances, which exclude loans held-for-sale and loans accounted for at fair value. JPMorgan Chase & Co./2011 Annual Report 155

  • Page 158
    ... of the guidance, the Firm consolidated its Firm-sponsored credit card securitization trusts, its Firm-administered multi-seller conduits and certain other consumer loan securitization entities, primarily mortgage-related. As a result, $7.4 billion, 156 JPMorgan Chase & Co./2011 Annual Report

  • Page 159
    ... as purchase accounting adjustments at the time of acquisition. Excludes the impact of PCI loans acquired as part of the Washington Mutual transaction. Provision for credit losses For the year ended December 31, 2011, the provision for credit losses was $7.6 billion down 54% from 2010. For the year...

  • Page 160
    ... Corporate/Private Equity. IB makes markets in products across the fixed income, foreign exchange, equities and commodities markets. This trading activity may lead to a potential decline in net income due to adverse changes in market rates. In addition to these risks, there are risks in IB's credit...

  • Page 161
    ... reported at fair value. Other VaR includes certain positions employed as part of the Firm's risk management function within the Chief Investment Office ("CIO") and in the Mortgage Production and Servicing business. CIO VaR includes positions, primarily in debt securities and credit products, used...

  • Page 162
    ... CIO and Mortgage Production and Servicing positions for 2011. This market risk related revenue is defined as the change in value of: principal transactions revenue for IB and CIO (less Private Equity gains/losses and revenue from longer-term CIO investments); trading-related net interest income for...

  • Page 163
    ..., corporate-wide basis. Business units transfer their interest rate risk to Treasury through a transfer-pricing system, which takes into account the elements of interest rate exposure that can be risk-managed in financial markets. These elements 161 JPMorgan Chase & Co./2011 Annual Report

  • Page 164
    ... such as senior management risk appetite, market volatility, product liquidity, accommodation of client business and management experience. Market risk management regularly reviews and updates risk limits. Senior management, including the Firm's Chief Executive Officer and Chief Risk Officer, is...

  • Page 165
    ...'s risk to an immediate JPMorgan Chase & Co./2011 Annual Report default of the counterparty or obligor, with zero recovery. For example: • Lending exposures are measured at the total committed amount (funded and unfunded), net of the allowance for credit losses and cash and marketable securities...

  • Page 166
    ... associated with a significant sovereign crisis. Country ratings and limits activity are actively monitored and reported on a regular basis. Country limit requirements are reviewed and approved by senior management as often as necessary, but at least annually. For further information on market-risk...

  • Page 167
    ... Chase & Co./2011 Annual Report The Firm's credit derivative activity is presented on a net basis, as market-making activities often result in selling and purchasing protection related to the same underlying reference entity. This presentation reflects the manner in which this exposure is managed...

  • Page 168
    ...and long-term holding periods associated with these investments differentiates private equity risk from the risk of positions held in the trading portfolios. The Firm's approach to managing private equity risk is consistent with the Firm's general risk governance structure. Targeted levels for total...

  • Page 169
    ... the performance and risks that may arise in the delivery of products or services to clients that give rise to such fiduciary duties, as well as those stemming from any of the Firm's fiduciary responsibilities under the Firm's various employee benefit plans. JPMorgan Chase & Co./2011 Annual Report...

  • Page 170
    ... pages 155- 157 and Note 15 on pages 252-255 of this Annual Report. The determination of the allowance for credit losses involves significant judgment on a number of matters, as discussed below. Wholesale loans and lending-related commitments The Firm's methodology for determining the allowance for...

  • Page 171
    ... the process the Firm follows in evaluating the risk factors related to its loans, including risk ratings, home price assumptions, and credit card loss estimates, management believes that its current estimate of the allowance for credit loss is appropriate. JPMorgan Chase & Co./2011 Annual Report...

  • Page 172
    ... this Annual Report. 2011 December 31, Total assets at Total level 3 (in billions, except ratio data) fair value assets Trading debt and equity instruments $ 351.5 $ 33.0 Derivative receivables - gross 1,884.5 35.0 Netting adjustment (1,792.0) - Derivative receivables - net 92.5 35.0 AFS securities...

  • Page 173
    ... (which are dependent on portfolio outstanding balances, net interest margin, operating expense, credit losses and the amount of capital necessary given the risk of business activities), and (b) the cost of equity used to discount those cash flows to a present value. Each of these factors requires...

  • Page 174
    ...tax assets in connection with certain net operating losses. The Firm performs regular reviews to ascertain whether deferred tax assets are realizable. These reviews include management's estimates and assumptions regarding future taxable income, which also incorporates various tax planning strategies...

  • Page 175
    ... of the Consolidated Financial Statements and will have no impact on the Firm's Consolidated Balance Sheets or results of operations. Balance sheet netting In December 2011, the FASB issued guidance that requires enhanced disclosures about derivatives and securities financing agreements that...

  • Page 176
    ... the normal course of business, JPMorgan Chase trades nonexchange-traded commodity derivative contracts. To determine the fair value of these contracts, the Firm uses various fair value estimation techniques, primarily based on internal models with significant observable market parameters. The Firm...

  • Page 177
    ... security of its financial, accounting, technology, data processing and other operating systems and facilities; • The other risks and uncertainties detailed in Part I, Item 1A: Risk Factors in the Firm's Annual Report on Form 10K for the year ended December 31, 2011. Any forward-looking statements...

  • Page 178
    ... LLP, an independent registered public accounting firm, as stated in their report which appears herein. James Dimon Chairman and Chief Executive Officer Douglas L. Braunstein Executive Vice President and Chief Financial Officer February 29, 2012 176 JPMorgan Chase & Co./2011 Annual Report

  • Page 179
    ... balance sheets and the related consolidated statements of income, changes in stockholders' equity and comprehensive income and cash flows present fairly, in all material respects, the financial position of JPMorgan Chase & Co. and its subsidiaries (the "Firm") at December 31, 2011 and 2010...

  • Page 180
    Consolidated statements of income Year ended December 31, (in millions, except per share data) Revenue Investment banking fees Principal transactions Lending- and deposit-related fees Asset management, administration and commissions Securities gains(a) Mortgage fees and related income Credit card ...

  • Page 181
    ...485) Total assets(a) Liabilities Deposits (included $4,933 and $4,369 at fair value) Federal funds purchased and securities loaned or sold under repurchase agreements (included $9,517 and $4,060 at fair value) Commercial paper Other borrowed funds (included $9,576 and $9,931 at fair value) Trading...

  • Page 182
    ...92,143 5,593 474 (228) 97,982 4,105 - 4,105 4,105 - 4,105 3,942 163 4,105 $ 7,800 - - - 7,800 $ 8,152 - - (352) 7,800 $ 31,939 1,213 (25,000) - 8,152 2011 2010 2009 The Notes to Consolidated Financial Statements are an integral part of these statements. 180 JPMorgan Chase & Co./2011 Annual Report

  • Page 183
    ... in) business acquisitions or dispositions Net maturities of asset-backed commercial paper guaranteed by the FRBB All other investing activities, net Net cash (used in)/provided by investing activities Financing activities Net change in: Deposits Federal funds purchased and securities loaned or sold...

  • Page 184
    ... in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity. For a discussion of the Firm's business segments, see Note 33 on pages 300-303 of this Annual Report. The accounting and financial...

  • Page 185
    ... found. Business changes and developments Fair value measurement Fair value option Derivative instruments Noninterest revenue Interest income and interest expense Pension and other postretirement employee benefit plans Employee stock-based incentives Securities Securities financing activities Loans...

  • Page 186
    ... to consolidated financial statements Other business events RBS Sempra transaction On July 1, 2010, JPMorgan Chase completed the acquisition of RBS Sempra Commodities' global oil, global metals and European power and gas businesses. The Firm acquired approximately $1.7 billion of net assets which...

  • Page 187
    ...observe a recent market price for a financial instrument that trades in inactive (or less active) markets or to reflect the cost of exiting largerthan-normal market-size risk positions (liquidity adjustments are not taken for positions classified within level 1 of the fair value hierarchy; see below...

  • Page 188
    ... and incorporates adjustments to sold these prices to account for differences between the security and the value of the underlying loans, which include credit characteristics, portfolio composition, and liquidity. Predominantly classified within level 2 186 JPMorgan Chase & Co./2011 Annual Report

  • Page 189
    ... market prices or data Level 1 or 2 Exchange-traded derivatives are valued using market observable Level 1 prices. Derivatives that are not exchange-traded, which include plain vanilla Level 2 or 3 options and interest rate and credit default swaps, are valued using internally developed models...

  • Page 190
    ... restrictions, where applicable Level 1 or 2 Fund investments (i.e., mutual/ collective investment funds, private equity funds, hedge funds, and real estate funds) Net Asset Value ("NAV") • NAV is validated by sufficient level of observable activity (i.e., purchases and sales) • Adjustments to...

  • Page 191
    ...(c) Other Total debt and equity instruments(d) Derivative receivables: Interest rate Credit Foreign exchange Equity Commodity Total derivative receivables(e) Total trading assets Available-for-sale securities: Mortgage-backed securities: U.S. government agencies(a) Residential - nonagency Commercial...

  • Page 192
    ...(c) Other Total debt and equity instruments(d) Derivative receivables: Interest rate Credit Foreign exchange Equity Commodity Total derivative receivables(e) Total trading assets Available-for-sale securities: Mortgage-backed securities: U.S. government agencies(a) Residential - nonagency Commercial...

  • Page 193
    ....7 billion at December 31, 2011 and 2010, respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances. (f) Private equity instruments represent investments within the Corporate/Private Equity line of business. The cost basis...

  • Page 194
    ... Non-U.S. government debt securities Corporate debt securities Loans Asset-backed securities Total debt instruments Equity securities Other Total trading assets - debt and equity instruments Net derivative receivables: Interest rate Credit Foreign exchange Equity Commodity Total net derivative...

  • Page 195
    ... Non-U.S. government debt securities Corporate debt securities Loans Asset-backed securities Total debt instruments Equity securities Other Total trading assets - debt and equity instruments Net derivative receivables: Interest rate Credit Foreign exchange Equity Commodity Total net derivative...

  • Page 196
    ...Other Total trading assets - debt and equity instruments Total net derivative receivables Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments All other Fair Value at January 1, 2009...

  • Page 197
    ... retained loans predominantly due to portfolio runoff; • $1.6 billion decrease in trading assets - debt and equity instruments, largely driven by sales and settlements of certain securities, partially offset by purchases of corporate debt; and 195 JPMorgan Chase & Co./2011 Annual Report

  • Page 198
    ... CVA, gross of hedges, includes results managed by the Credit Portfolio and other lines of business within the Investment Bank ("IB"). (b) Structured notes are recorded within long-term debt, other borrowed funds or deposits on the Consolidated Balance Sheets, depending upon the tenor and legal...

  • Page 199
    ... at fair value on the Consolidated Balance Sheets are carried at amounts that approximate fair value, due to their shortterm nature and generally negligible credit risk. These instruments include cash and due from banks; deposits with banks; federal funds sold; securities purchased under resale...

  • Page 200
    ... part of IB's client-driven activities. (Structured notes are financial instruments that contain embedded derivatives.) • Long-term beneficial interests issued by IB's consolidated securitization trusts where the underlying assets are carried at fair value. JPMorgan Chase & Co./2011 Annual Report

  • Page 201
    ...the risk associated with the structured notes is actively managed, the gains reported in this table do not include the income statement impact of such risk management instruments. (c) Reported in mortgage fees and related income. (d) Reported in other income. JPMorgan Chase & Co./2011 Annual Report...

  • Page 202
    ...and $3.8 billion, respectively, with a corresponding fair value of $(5) million and $(6) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 29 on pages 283-289 of this Annual Report. 200 JPMorgan Chase & Co./2011 Annual Report

  • Page 203
    ...any particular loan product (e.g., option adjustable rate mortgages ("ARMs")), industry segment (e.g., commercial real estate) or its exposure to residential real estate loans with high loan-to-value ratios results in a significant concentration of credit risk. Terms of loan products and collateral...

  • Page 204
    ... that could be obtained from purchasing or selling a related cash instrument without having to exchange upfront the full purchase or sales price. JPMorgan Chase makes markets in derivatives for customers and also uses derivatives to hedge or manage its own market risk exposures. The majority of the...

  • Page 205
    ... is discontinued. There are three types of hedge accounting designations: fair value hedges, cash flow hedges and net investment hedges. JPMorgan Chase uses fair value hedges primarily to hedge fixed-rate long-term debt, AFS securities and certain commodities inventories. For qualifying fair...

  • Page 206
    .... (c) Excludes $1.0 billion related to commodity derivatives that were embedded in a debt instrument and used as fair value hedging instruments that were recorded in the line item of the host contract (other borrowed funds) at December 31, 2010. 204 JPMorgan Chase & Co./2011 Annual Report

  • Page 207
    ... were recorded in principal transactions revenue. (d) Included $4.9 billion, $278 million and $(1.6) billion for the years ended December 31, 2011, 2010 and 2009, respectively, of revenue related to certain foreign exchange trading derivatives designated as fair value hedging instruments. (e) Hedge...

  • Page 208
    ...in AOCI at December 31, 2011, related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are hedged is 10 years, and such transactions primarily relate to core lending and borrowing activities. 206 JPMorgan Chase & Co./2011 Annual Report

  • Page 209
    ...associated with those activities, including net interest income earned on cash instruments used in trading activities and gains and losses on cash instruments that are risk managed without derivative instruments. JPMorgan Chase & Co./2011 Annual Report Credit risk, liquidity risk and credit-related...

  • Page 210
    ...of business at December 31, 2011 and 2010. The following table shows the impact of a single-notch and two-notch ratings downgrade to JPMorgan Chase & Co. and its subsidiaries, primarily JPMorgan Chase Bank, National Association ("JPMorgan Chase Bank, N.A.") at December 31, 2011 and 2010, related to...

  • Page 211
    ... purposes. First, in its capacity as a market-maker in the dealer/client business, the Firm actively risk manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. As a seller of protection, the...

  • Page 212
    ... and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below. Protection sold - credit derivatives and credit-related notes ratings(a)/maturity profile December 31, 2011 (in millions) Risk rating of reference entity Investment-grade...

  • Page 213
    ... Equity Debt Total underwriting Advisory(a) Total investment banking fees $ 1,181 2,934 4,115 1,796 $ 5,911 $ 1,589 3,172 4,761 1,429 $ 6,190 $ 2,487 2,739 5,226 1,861 $ 7,087 2011 2010 2009 Year ended December 31, (in millions) Trading revenue by risk exposure Interest rate Credit Foreign exchange...

  • Page 214
    ...) Interest income Loans Securities Trading assets Federal funds sold and securities purchased under resale agreements Securities borrowed Deposits with banks Other assets(a) Total interest income(b) Interest expense Interest-bearing deposits Short-term and other liabilities(c)(d) Long-term debt...

  • Page 215
    ...Chase's U.S. OPEB obligation is funded with corporate-owned life insurance ("COLI") purchased on the lives of eligible employees and retirees. While the Firm owns the COLI policies, COLI proceeds (death benefits, withdrawals and other distributions) may be used only to reimburse the Firm for its net...

  • Page 216
    ... in annual net periodic benefit cost if, as of the beginning of the year, the net gain or loss exceeds 10% of the greater of the accumulated postretirement benefit obligation or the market related value of assets. Any excess is amortized over the average JPMorgan Chase & Co./2011 Annual Report

  • Page 217
    ... in plan assets and benefit obligations recognized in other comprehensive income Net (gain)/loss arising during the year Prior service credit arising during the year Amortization of net loss Amortization of prior service (cost)/credit Curtailment (gain)/loss Settlement loss/(gain) Foreign exchange...

  • Page 218
    ...(4.29)-13.12% NA 0.77-10.65% NA 3.17-22.43% NA 2011 U.S. 2010 2009 2011 Non-U.S. 2010 2009 Plan assumptions JPMorgan Chase's expected long-term rate of return for U.S. defined benefit pension and OPEB plan assets is a blended average of the investment advisor's projected long-term (10 years or more...

  • Page 219
    ... accounts with an insurance company and are invested in equity and fixed income index funds. The investment policy for the Firm's U.S. defined benefit pension plan assets is to optimize the risk-return relationship as appropriate to the needs and goals using a global portfolio of various asset...

  • Page 220
    ... allocations are to debt securities of appropriate durations. Other assets, mainly equity securities, are then invested for capital appreciation, to provide long-term investment growth. Similar to the U.S. defined benefit pension plan, asset allocations for the U.K. plans are reviewed and rebalanced...

  • Page 221
    ...securities: Capital equipment Consumer goods Banks and finance companies Business services Energy Materials Real Estate Other Total equity securities Common/collective trust funds Limited partnerships:(c) Hedge funds Private equity Real estate Real assets(d) Total limited partnerships Corporate debt...

  • Page 222
    Notes to consolidated financial statements U.S. defined benefit pension plans December 31, 2010 (in millions) Cash and cash equivalents Equity securities: Capital equipment Consumer goods Banks and finance companies Business services Energy Materials Real estate Other Total equity securities Common/...

  • Page 223
    ... of level 3 Fair value, December 31, 2011 Year ended December 31, 2010 (in millions) U.S. defined benefit pension plans Equities Common/collective trust funds(a) Limited partnerships: Hedge funds Private equity Real estate Real assets Total limited partnerships Corporate debt securities Other Total...

  • Page 224
    ... 1,269 1,269 Year ended December 31, 2009 (in millions) U.S. defined benefit pension plans Equities Common/collective trust funds(a) Limited partnerships: Hedge funds Private equity Real estate Real assets Total limited partnerships Corporate debt securities Other Total U.S. plans Non-U.S. defined...

  • Page 225
    ... years ended December 31, 2011, 2010 and 2009, was $13.04, $12.27 and $8.24, respectively. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009, was $191 million, $154 million and $154 million, respectively. JPMorgan Chase & Co./2011 Annual Report...

  • Page 226
    ...cost related to share-based compensation awards to employees. Cash flows and tax benefits Income tax benefits related to stock-based incentive arrangements recognized in the Firm's Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009, were $1.0 billion, $1.3 billion...

  • Page 227
    ...mortgage-backed securities and obligations of U.S. states and municipalities for the year ended December 31, 2010; and certain prime and subprime mortgagebacked securities and obligations of U.S. states and municipalities for the year ended December 31, 2009. JPMorgan Chase & Co./2011 Annual Report...

  • Page 228
    ... cost 2010 Gross unrealized gains Gross unrealized losses Fair value December 31, (in millions) Available-for-sale debt securities Mortgage-backed securities: U.S. government agencies(a) Residential: Prime and Alt-A Subprime Non-U.S. Commercial Total mortgage-backed securities U.S. Treasury...

  • Page 229
    ... Certificates of deposit Non-U.S. government debt securities Corporate debt securities Asset-backed securities: Credit card receivables Collateralized loan obligations Other Total available-for-sale debt securities Available-for-sale equity securities Total securities with gross unrealized...

  • Page 230
    ... average credit enhancements associated with the below investment-grade positions that have experienced OTTI losses and those that have not are 1% and 18%, respectively. The Firm's cash flow estimates are based on a loan-level analysis that considers housing prices, loan-to-value ("LTV") ratio, loan...

  • Page 231
    ... months after default. The unrealized loss is considered temporary, based on management's assessment that the estimated future cash flows together with the credit enhancement levels for those securities remain sufficient to support the Firm's investment. JPMorgan Chase & Co./2011 Annual Report 229

  • Page 232
    ... of deposit Amortized cost Fair value Average yield(b) Non-U.S. government debt securities Amortized cost Fair value Average yield(b) Corporate debt securities Amortized cost Fair value Average yield(b) Asset-backed securities Amortized cost Fair value Average yield(b) Total available-for-sale debt...

  • Page 233
    ... 31, 2011 and 2010. For further information regarding assets pledged and collateral received in securities financing agreements, see Note 30 on page 289 of this Annual Report. Note 14 - Loans Loan accounting framework The accounting for a loan depends on management's strategy for the loan, and...

  • Page 234
    ... to consolidated financial statements income at the contractual rate of interest. Purchase price discounts or premiums, as well as net deferred loan fees or costs, are amortized into interest income over the life of the loan to produce a level rate of return. Nonaccrual loans Nonaccrual loans are...

  • Page 235
    ...investment portfolio that management decides to sell are transferred to the held-forsale portfolio at the lower of cost or fair value on the date of transfer. Credit-related losses are charged against the allowance for loan losses; losses due to changes in interest rates or foreign currency exchange...

  • Page 236
    ... real estate - PCI • Home equity • Prime mortgage • Subprime mortgage • Option ARMs (b) Credit card • Chase, excluding accounts originated by Washington Mutual • Accounts originated by Washington Mutual (a) Includes loans reported in IB, Commercial Banking ("CB"), Treasury & Securities...

  • Page 237
    ... sales related to loans accounted for at fair value. $ 121 $ 131 (24) 228 $ 215 $ 265 (16) 464 $ 291 127 21 439 2011 2010 2009 Wholesale loan portfolio Wholesale loans include loans made to a variety of customers from large corporate and institutional clients to certain high-net worth individuals...

  • Page 238
    ... % of criticized nonaccrual to total real estate retained loans $ $ Multifamily 2011 32,524 2,451 7.54% 412 1.27% $ $ 2010 30,604 3,798 12.41% 1,016 3.32% $ $ Commercial lessors 2011 14,444 1,662 11.51% 284 1.97% $ $ 2010 15,796 3,593 22.75% 1,549 9.81% 236 JPMorgan Chase & Co./2011 Annual Report

  • Page 239
    ... and development 2011 $ 3,148 297 9.43% $ 69 2.19% $ $ 2010 3,395 619 18.23% 174 5.13% $ $ 2011 4,568 382 8.36% 121 2.65% $ $ Other 2010 3,840 696 18.13% 198 5.16% $ $ Total real estate loans 2011 54,684 4,792 8.76% 886 1.62% $ $ 2010 53,635 8,706 16.23% 2,937 5.48% JPMorgan Chase & Co./2011 Annual...

  • Page 240
    ... or premiums on purchased loans. The following table presents the Firm's average impaired loans for the years ended 2011, 2010 and 2009. Year ended December 31, (in millions) Commercial and industrial Real estate Financial institutions Government agencies Other Total(a) $ $ 2011 1,309 $ 1,813 84...

  • Page 241
    ... excluding credit card loans, consist primarily of residential mortgages, home equity loans and lines of credit, auto loans, business banking loans, and student and other loans, with a primary focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by...

  • Page 242
    ...-off rates for this product class; and (ii) the lengthening of loss-mitigation timelines Residential real estate - excluding PCI loans Home equity December 31, (in millions, except ratios) Loan delinquency(a) Current and less than 30 days past due 30-149 days past due 150 or more days past due Total...

  • Page 243
    ... page) Mortgages Prime, including option ARMs 2011 2010 $ 59,855 3,475 12,866 76,196 4.96% - 11,516 3,462 $ 59,223 4,052 11,264 74,539 6.68% - 9,417 4,320 $ Subprime 2011 7,585 $ 820 1,259 9,664 $ 21.51% - $ - 1,781 2010 8,477 1,184 1,626 11,287 24.90% - - 2,210 $ Total residential real estate...

  • Page 244
    ... for an asset-specific allowance as described in Note 15 on pages 252-255 of this Annual Report. Home equity December 31, (in millions) Impaired loans With an allowance Without an allowance(a) Total impaired loans(b) Allowance for loan losses related to impaired loans Unpaid principal balance of...

  • Page 245
    ... of residential real estate loans, excluding PCI loans, modified in TDRs for the periods presented. Home equity Year ended December 31, 2011 (in millions) Beginning balance of TDRs New TDRs(a) Charge-offs post-modification(b) Foreclosures and other liquidations (e.g., short sales) Principal payments...

  • Page 246
    ... original agreement. The following table provides information about how residential real estate loans, excluding PCI loans, were permanently modified during the period presented. Home equity Year ended December 31, 2011 Number of loans approved for a trial modification, but not permanently modified...

  • Page 247
    ... amounts is proceeding normally. For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or nonaccrual. December 31, 2011 and 2010, excluded loans 30 days or more past due and...

  • Page 248
    ... $ 948 592 876 - 876 264 1,031 697 Auto 2011 2010 Business banking 2011 2010 Total other consumer(c) 2011 2010 (a) When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, then the loan does not require an allowance. This typically occurs...

  • Page 249
    ...for risk-rated business banking loans and auto loans, when the borrower has not made a loan payment by its scheduled due date after giving effect to the contractual grace period, if any. Purchased credit-impaired loans PCI loans are initially recorded at fair value at acquisition; PCI loans acquired...

  • Page 250
    Notes to consolidated financial statements Residential real estate - PCI loans The table below sets forth information about the Firm's consumer, excluding credit card, PCI loans. December 31, (in millions, except ratios) Carrying value(a) Related allowance for loan losses(b) Loan delinquency (based ...

  • Page 251
    ... (in millions, except ratios) Beginning balance Accretion into interest income Changes in interest rates on variable-rate loans Other changes in expected cash flows(a) Balance at December 31 Accretable yield percentage $ $ Total PCI 2011 19,097 (2,767) (573) 3,315 19,072 4.33% $ $ 2010 25,544 (3,232...

  • Page 252
    ...to consolidated financial statements Credit card loan portfolio The Credit card portfolio segment includes credit card loans originated and purchased by the Firm, including those acquired in the Washington Mutual transaction. Delinquency rates are the primary credit quality indicator for credit card...

  • Page 253
    ...report these loans as TDRs since the borrowers' credit lines remain closed. The following table presents average balances of impaired credit card loans and interest income recognized on those loans. Year ended December 31, (in millions) Chase, excluding Washington Mutual portfolio Washington Mutual...

  • Page 254
    ...credit card loans for the period presented. Chase, excluding Washington Mutual portfolio Year ended December 31, 2011 (in millions) New enrollments $ Short-term programs 141 $ Long-term programs 2,075 $ Washington Mutual portfolio Short-term programs 26 $ Long-term programs 448 $ Total credit card...

  • Page 255
    ..., may result in significant changes in the allowances for loan losses and lending-related commitments in future periods. At least quarterly, the allowance for credit losses is reviewed by the Chief Risk Officer, the Chief Financial Officer and the Controller of the Firm and discussed with the...

  • Page 256
    ... mortgage-related. As a result, $7.4 billion, $14 million and $127 million, respectively, of allowance for loan losses were recorded on-balance sheet with the consolidation of these entities. For further discussion, see Note 16 on pages 256-267 of this Annual Report. (b) Includes risk-rated loans...

  • Page 257
    ... credit card 8,927 - 10,421 (222) 10,199 16,032 25 14,785 $ $ 2009 Wholesale $ 7,145 $ 14 1,989 (262) 1,727 (673) 2 $ 4,761 $ Credit card 9,672 $ 7,353 15,410 (1,373) 14,037 8,037 9 11,034 $ Total 31...- $ 569,113 569,113 $ 1,577 989,518 991,095 JPMorgan Chase & Co./2011 Annual Report 255

  • Page 258
    ... and commercial mortgages, automobile and student loans Assist clients in accessing the financial markets in a cost-efficient manner and structures transactions to meet investor needs Annual Report page reference 257 257-260 257-260 257-260 Multi-seller conduits Investor intermediation activities...

  • Page 259
    ...student loans) primarily in its IB and RFS businesses. Depending on the particular transaction, as well as the respective business involved, the Firm may act as the servicer of the loans and/or retain certain beneficial interests in the securitization trusts. JPMorgan Chase & Co./2011 Annual Report...

  • Page 260
    ...: retained servicing (see Note 17 on pages 267-271 of this Annual Report for a discussion of MSRs); securities retained from loans sales to U.S. government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization...

  • Page 261
    ...or commercial mortgages. The Firm's consolidation analysis is largely dependent on the Firm's role and interest in the resecuritization trusts. During the years ended December 31, 2011, 2010 and 2009, the Firm transferred $24.9 billion, $33.9 billion and $19.1 billion, respectively, of securities to...

  • Page 262
    ... with qualifying tax-exempt investments, and that allow investors in tax-exempt securities to finance their investments at short-term tax-exempt rates. In a typical transaction, the vehicle purchases fixed-rate longer-term highly rated municipal bonds and funds the purchase by issuing two types...

  • Page 263
    ... its Consolidated Balance Sheets at fair value. The collateral purchased by such VIEs is largely investment-grade, with a significant amount being rated "AAA." The Firm divides its credit-related note structures broadly into two types: static and managed. 261 JPMorgan Chase & Co./2011 Annual Report

  • Page 264
    .... As a derivative counterparty, the Firm has a senior claim on the collateral of the VIE and reports such derivatives on its Consolidated Balance Sheets at fair value. Substantially all of the assets purchased by such VIEs are investment-grade. 262 JPMorgan Chase & Co./2011 Annual Report

  • Page 265
    ... 31, 2011 and 2010, respectively. For more information on AFS securities and loans, see Notes 12 and 14 on pages 225-230 and 231-252, respectively, of this Annual Report. VIE used in FRBNY transaction In conjunction with the Bear Stearns merger, in June 2008, the Federal Reserve Bank of New York...

  • Page 266
    ... The Firm securitizes and sells a variety of loans, including residential mortgage, credit card, automobile, student and commercial (primarily related to real estate) loans, as well as debt securities. The primary purposes of these securitization transactions are to satisfy investor demand and to...

  • Page 267
    ... not consolidate these securitization vehicles as it is not the primary beneficiary. For a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans with the purchaser. See Note 29 on pages 283-289 of this Annual Report for additional...

  • Page 268
    ... loans and real estate owned are insured or guaranteed by U.S. government agencies, and where applicable, reimbursement is proceeding normally. For additional information, refer to Note 14 on pages 231-252 of this Annual Report. JPMorgan Chase's interest in securitized assets held at fair value...

  • Page 269
    ... presents goodwill attributed to the business segments. December 31, (in millions) Investment Bank Retail Financial Services Card Services & Auto Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity Total goodwill 2011 2010 2009 $ 5,276 $ 5,278 $ 4,959 16,489...

  • Page 270
    ... the Firm's overall estimated cost of equity (estimated using the Capital Asset Pricing Model), as adjusted for the risk characteristics specific to each reporting unit (for example, for higher levels of risk or uncertainty associated with the business or management's forecasts and assumptions). To...

  • Page 271
    ... such as costs to service, home prices, mortgage spreads, ancillary income, and assumptions used to derive prepayment speeds, as well as changes to the valuation models themselves. (b) Includes changes related to commercial real estate of $(9) million, JPMorgan Chase & Co./2011 Annual Report

  • Page 272
    ... 2011, 2010 and 2009. Year ended December 31, (in millions) RFS mortgage fees and related income Net production revenue: Production revenue Repurchase losses Net production revenue Net mortgage servicing revenue Operating revenue: Loan servicing revenue Changes in MSR asset fair value due to modeled...

  • Page 273
    ...their fair value upon completion of a business combination or certain other transactions, and generally represent the value of customer relationships or arrangements. Subsequently, the Firm's intangible assets with finite lives, including core deposit intangibles, purchased credit card relationships...

  • Page 274
    ...' fair value. JPMorgan Chase capitalizes certain costs associated with the acquisition or development of internal-use software. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the software's expected useful life and reviewed for impairment...

  • Page 275
    ... by assets totaling $89.4 billion and $92.0 billion at December 31, 2011 and 2010, respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments. Included $34.7 billion and $38.8 billion of outstanding structured notes accounted for at fair value...

  • Page 276
    ....1 billion in 2016. The weighted-average contractual interest rates for total long-term debt excluding structured notes accounted for at fair value were 3.57% and 3.50% as of December 31, 2011 and 2010, respectively. In order to modify exposure to interest rate and currency exchange rate movements...

  • Page 277
    ..., including unamortized original-issue discount. The principal amount of debentures issued to the trusts includes the impact of hedging and purchase accounting fair value adjustments that were recorded on the Firm's Consolidated Financial Statements. JPMorgan Chase & Co./2011 Annual Report 275

  • Page 278
    ...the years ended December 31, 2011, 2010 and 2009 were as follows. Year ended December 31, (in millions) Issued - balance at January 1 New open market issuances Total issued - balance at December 31 Treasury - balance at January 1 Purchase of treasury stock Share repurchases related to employee stock...

  • Page 279
    ...Part II, Item 5: Market for registrant's common equity, related stockholder matters and issuer purchases of equity securities, on pages 18-20 of JPMorgan Chase's 2011 Form 10-K. The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934...

  • Page 280
    ... fair value and amortized cost of securities accounted for as AFS. (c) The net change during 2009 was due primarily to overall market spread and market liquidity improvement as well as changes in the composition of investments. (d) Included after-tax unrealized losses not related to credit on debt...

  • Page 281
    ... equity and certain tax benefits associated with the Firm's employee stock-based compensation plans. The tax effect of all items recorded directly to stockholders' equity resulted in an increase of $927 million in 2011, an JPMorgan Chase & Co./2011 Annual Report Deferred income tax expense/(benefit...

  • Page 282
    ... $ 2010 6,608 813 2009 $ 5,894 584 (a) The prior-year period has been revised to conform with the current presentation. JPMorgan Chase has recorded deferred tax assets of $1.5 billion at December 31, 2011, in connection with U.S. federal, state and local, and non-U.S. subsidiary net operating loss...

  • Page 283
    ... long-term debt and other instruments qualifying as Tier 2 capital, and the aggregate allowance for credit losses up to a certain percentage of risk-weighted assets. Total capital is Tier 1 capital plus Tier 2 capital. Under the risk-based capital guidelines of the Federal Reserve, JPMorgan Chase...

  • Page 284
    Notes to consolidated financial statements The following table presents the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase and its significant banking subsidiaries at December 31, 2011 and 2010. These amounts are determined in accordance with regulations issued by the ...

  • Page 285
    ...and carrying values of off-balance sheet lending-related financial instruments, guarantees and other commitments at December 31, 2011 and 2010. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm...

  • Page 286
    ... 3 years Total Total Lending-related Consumer, excluding credit card: Home equity - senior lien $ 933 $ 4,780 $ 4,870 $ 5,959 $ 16,542 Home equity - junior lien 2,096 8,964 8,075 7,273 26,408 Prime mortgage 1,500 - - - 1,500 Subprime mortgage - - - - - Auto 6,431 97 149 17 6,694 Business banking...

  • Page 287
    ..., such as commercial paper facilities, bond financings, acquisition financings, trade and similar transactions. The carrying values of standby and other letters of credit were $698 million and $707 million at December 31, 2011 and 2010, respectively, which were classified in accounts payable and...

  • Page 288
    ... guarantees are recorded on the Consolidated Balance Sheets at fair value in trading assets and trading liabilities. The total notional value of the derivatives that the Firm deems to be guarantees was $75.6 billion and $87.8 billion at December 31, 2011 and 2010, respectively. The notional amount...

  • Page 289
    .... Loans sold with recourse The Firm provides servicing for mortgages and certain commercial lending products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit risk to the Firm is the cost of temporary servicing 287 JPMorgan Chase & Co./2011 Annual Report

  • Page 290
    ... historical experience, management expects the risk of loss to be remote. Credit card charge-backs Chase Paymentech Solutions, Card's merchant services business and a subsidiary of JPMorgan Chase Bank, N.A., is a global leader in payment processing and merchant acquiring. Under the rules of Visa USA...

  • Page 291
    ... both long-term debt and structured notes sold as part of the Firm's market-making activities. These guarantees are not included in the table on page 284 of this Note. For additional information, see Note 21 on pages 273-275 of this Annual Report. Total rental expense was as follows. Year ended...

  • Page 292
    ... purchased from J.P. Morgan Securities LLC, Chase Investment Services Corp. and Bear, Stearns & Co. Inc. by individual investors, charities and small- to medium-sized businesses. The Firm also agreed to a substantively similar 290 settlement in principle with the Office of Financial Regulation...

  • Page 293
    ... of those false statements, Bear Stearns' common stock traded at artificially inflated prices during the Class Period. In addition, several individual shareholders of Bear Stearns have also commenced or threatened to commence their JPMorgan Chase & Co./2011 Annual Report own arbitration proceedings...

  • Page 294
    ... backed by subprime residential real estate collateral. Plaintiffs claim that JPMorgan Investment Management and related defendants are liable for losses of more than $1 billion in market value of these securities. The first case was filed by NM Homes One, Inc. in federal District Court in New York...

  • Page 295
    ... JPMorgan Chase, as Madoff's long-time bank, facilitated the maintenance of Madoff's Ponzi scheme and overlooked signs of wrongdoing in order to obtain profits and fees. The complaint asserts common law claims that purport to seek JPMorgan Chase & Co./2011 Annual Report approximately $19 billion in...

  • Page 296
    Notes to consolidated financial statements federal district court in New York on behalf of purchasers of MF Global's publicly traded securities including the securities issued pursuant to MF Global's February 2011 and August 2011 convertible note offerings. The complaint, which asserts violations of...

  • Page 297
    ...JPMorgan Chase & Co. and J.P. Morgan Securities LLC relating to settlements of claims against originators involving loans included in a number of Bear Stearns securitizations. In both investigations, the SEC staff has invited the Firm to submit responses to the proposed actions. Mortgage Foreclosure...

  • Page 298
    ... Actions") have been filed against JPMorgan Chase and Bear Stearns, as well as numerous other providers and brokers, alleging antitrust violations in the reportedly $100 billion to $300 billion annual market for financial instruments related to municipal bond offerings referred to collectively...

  • Page 299
    ... in the Firm's securities lending business. A fifth lawsuit was filed in New York state court by an individual participant in the program. Three of the purported class actions, which have been consolidated, relate to investments of approximately $500 million in medium-term notes of Sigma Finance Inc...

  • Page 300
    ... proceedings. Plaintiffs, which now include only holders of Washington Mutual Bank debt following their voluntary dismissal of claims brought as holders of WMI common stock and debt, have filed an amended complaint alleging that JPMorgan Chase caused 298 JPMorgan Chase & Co./2011 Annual Report

  • Page 301
    ... operations The following table presents income statement-related and balance sheet-related information for JPMorgan Chase by major international geographic area. The Firm defines international activities for purposes of this footnote presentation as business transactions that involve clients...

  • Page 302
    ... equity and business loans, and investments across the 23-state footprint from New York and Florida to California. As one of the largest mortgage originators in the U.S., Chase helps customers buy or refinance homes resulting in approximately $150 billion of JPMorgan Chase & Co./2011 Annual Report

  • Page 303
    ...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...

  • Page 304
    ... Services & Auto Commercial Banking Treasury & Securities Services Asset Management Corporate/Private Equity $ 2009 27 228 40 6 11 6 163 (d) (e) (f) On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual from the FDIC for $1.9 billion. The fair value of the net...

  • Page 305
    ...) Treasury & Securities Services 2011 $ 4,544 3,158 7,702 1 Asset Management 2011 $ 7,895 1,648 9,543 67 Corporate/Private Equity 2011 $ 3,638 $ 505 4,143 (36) Reconciling Items(f)(g) 2011 $ (1,995) $ (530) (2,525) - Total 2011 $ 49,545 47,689 97,234 7,574 $ 2010 $ 4,757 2,624 7,381 (47) 2009...

  • Page 306
    ...Net income of subsidiaries(a) Parent company net loss Cash dividends from subsidiaries(a) Other, net Net cash provided by operating activities Investing activities Net change in: Deposits with banking subsidiaries Available-for-sale securities: Purchases Proceeds from sales and maturities Loans, net...

  • Page 307
    ... equity Return on tangible common equity Return on assets Overhead ratio Deposits-to-loans ratio Tier 1 capital ratio Total capital ratio Tier 1 leverage ratio Tier 1 common capital ratio(d) Selected balance sheet data (period-end) Trading assets Securities Loans Total assets Deposits Long-term debt...

  • Page 308
    ... funds to long-term debt. Prior periods have been revised to conform with the current presentation. Excludes the impact of residential real estate PCI loans. For further discussion, see Allowance for credit losses on pages 155-157 of this Annual Report. Net charge-offs and net charge-off rates...

  • Page 309
    ... consolidated variable interest entities. Reflects a benefit from the favorable market environments for U.S. dollar-roll financings. Federal funds purchased represent overnight funds. Securities loaned or sold under repurchase agreements generally mature between one day and three months. Commercial...

  • Page 310
    ... Equity: Includes Private Equity, Treasury and Chief Investment Office, and Corporate Other, which includes other centrally managed expense and discontinued operations. Credit card securitizations: For periods ended prior to the January 1, 2010, adoption of new guidance relating to the accounting...

  • Page 311
    .... Home equity - junior lien: Represents loans where JP Morgan Chase holds a security interest that is subordinate in rank to other liens. Interchange income: A fee paid to a credit card issuer in the clearing and settlement of a sales or cash advance transaction. Interests in purchased receivables...

  • Page 312
    ..."): A special purpose investment vehicle that provides investors with the ability to participate directly in the ownership or financing of realestate related assets by pooling their capital to purchase and manage income property (i.e., equity REIT) and/or JPMorgan Chase & Co./2011 Annual Report 310

  • Page 313
    ... Managers and Loan Officers, who specialize in marketing and sales of various business banking products (i.e., business loans, letters of credit, deposit accounts, Chase Paymentech, etc.) and mortgage products to existing and new clients. Seed capital: Initial JPMorgan capital invested in products...

  • Page 314
    ... JPMorgan Chase & Co. Brussels, Belgium Michael A. Chaney Chairman National Australia Bank Limited Perth, Western Australia Hon. Henry A. Kissinger Chairman Kissinger Associates, Inc. New York, New York Cees J.A. van Lede Former Chairman and Chief Executive Officer, Board of Management Akzo...

  • Page 315
    ... National-Gottesman Inc. Roger N. Farah President and Chief Operating Officer Ralph Lauren Corporation Richard W. Kunes Executive Vice President, Chief Financial Officer The Estée Lauder Companies James F. McCann Chief Executive Officer 1-800-Flowers.com Fred Wilpon Chairman Sterling Equities...

  • Page 316
    ...Officer Douglas B. Petno Commercial Banking CEO Douglas L. Braunstein Chief Financial Officer Mary Callahan Erdoes Asset Management CEO Gordon A. Smith Card, Merchant Services & Auto Finance CEO Michael J. Cavanagh Treasury & Securities Services CEO 314 JPMorgan Chase & Co./2011 Annual Report

  • Page 317
    ... Investment Bank Ryan McInerney Consumer Banking Kimberly B. Davis Global Philanthropy Barry Sommers Chase Wealth Management Matthew E. Zames Investment Bank Other Corporate Officers Anthony J. Horan Secretary Sarah M. Youngwood Investor Relations JPMorgan Chase & Co./2011 Annual Report...

  • Page 318
    Regional Chief Executive Officers Asia Pacific Gaby A. Abdelnour Europe, Middle East, Africa Daniel E. Pinto Latin America Nicolas Aguzin Senior Country Officers Asia Pacific Australia/New Zealand Robert C. Priestley China Zili Shao Hong Kong Michael Fung India Kalpana Morparia Indonesia Haryanto ...

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    JPMorgan Chase & Co. Corporate headquarters 270 Park Avenue New York, NY 10017-2070 Telephone: 212-270-6000 jpmorganchase.com Principal subsidiaries JPMorgan Chase bank, National Association Chase bank USA, National Association J.P. Morgan Securities LLC J.P. Morgan Securities Ltd. Annual Report on ...

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