10-Q 1 y78644e10vq.htm FORM 10-Q e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
     
For the Quarterly Period Ended June 30, 2009   Commission file number 1-5805
JPMORGAN CHASE & CO.
(Exact name of registrant as specified in its charter)
     
Delaware   13-2624428
     
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
270 Park Avenue, New York, New York   10017
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code (212) 270-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
 
Number of shares of common stock outstanding as of July 31, 2009: 3,932,572,941
 
 
 

 


 

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

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

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(unaudited)                                            
(in millions, except ratios)                                           Six months ended June 30,
As of or for the period ended,   2Q09   1Q09   4Q08   3Q08   2Q08   2009   2008
 
Credit quality metrics
                                                       
Allowance for credit losses
  $ 29,818     $ 28,019     $ 23,823     $ 19,765     $ 13,932                  
Allowance for loan losses to ending loans(i)
    5.01 %     4.53 %     3.62 %     2.87 %     2.57 %                
Nonperforming assets
  $ 17,517     $ 14,654     $ 12,714     $ 9,520     $ 6,233                  
Net charge-offs
    6,019       4,396       3,315       2,484       2,130     $ 10,415     $ 4,036  
Net charge-off rate
    3.52 %     2.51 %     1.80 %     1.91 %     1.67 %     3.01 %     1.60 %
Wholesale net charge-off rate
    1.19       0.32       0.33       0.10       0.08       0.75       0.13  
Consumer net charge-off rate
    4.69       3.61       2.59       3.13       2.77       4.15       2.60  
Managed Card net charge-off rate(j)
    10.03       7.72       5.56       5.00       4.98       8.85       4.68  
 
(a)   The third and fourth quarters of 2008 included an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutual Bank’s banking operations.
 
(b)   The income tax benefit in the third quarter of 2008 includes the realization of a benefit from the release of deferred tax liabilities associated with the undistributed earnings of certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely.
 
(c)   JPMorgan Chase acquired the banking operations of Washington Mutual Bank for $1.9 billion. The fair value of the net assets acquired exceeded the purchase price, which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain.
 
(d)   Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period amounts have been revised as required. For further discussion of FSP EITF 03-6-1, see Note 21 on page 158 of this Form 10-Q.
 
(e)   The calculation of second quarter 2009 earnings per share includes a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred capital. For further discussion, see “Impact on diluted earnings per share of redemption of TARP preferred stock issued to the U.S. Treasury” on page 18 of this Form 10-Q.
 
(f)   On June 5, 2009, the Firm issued 163 million shares of its common stock at $35.25 per share; and on September 30, 2008, the Firm issued 284 million shares of its common stock at $40.50 per share.
 
(g)   JPMorgan Chase’s common stock is listed and traded on the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan Chase’s common stock are from the New York Stock Exchange Composite Transaction Tape.
 
(h)   The calculation of second quarter 2009 net income applicable to common equity includes a one-time, noncash reduction of $1.1 billion resulting from repayment of TARP preferred capital. Excluding this reduction the adjusted ROE was 6% for the second quarter 2009. For further discussion of adjusted ROE, see “Explanation and reconciliation of the Firm’s use of non-GAAP financial measures” on pages 15-18 of this Form 10-Q.
 
(i)   Excludes the impact of home lending purchased credit-impaired loans, loans from Washington Mutual Master Trust, loans held-for-sale and loans at fair value. For additional information, refer to Allowance for credit losses on pages 78-80 of this Form 10-Q.
 
(j)   Beginning in the fourth quarter of 2008, Managed Card net charge-offs reflect the impact of purchase accounting adjustments related to the acquisition of Washington Mutual Bank’s banking operations and the consolidation of the Washington Mutual Master Trust.
 
(k)   Common equivalent shares have been excluded from the computation of diluted earnings per share for the third and fourth quarters of 2008, as the effect on income (loss) before extraordinary gain would be antidilutive.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the Form 10-Q provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations for JPMorgan Chase. See the Glossary of Terms on pages 169-173 for definitions of terms used throughout this Form 10-Q. The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause JPMorgan Chase’s actual results to differ materially from those set forth in such forward-looking statements. For a discussion of some of these risks and uncertainties, see Forward-looking Statements on pages 176-177 and Part II, Item 1A: Risk Factors on page 179 of this Form 10-Q, and JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the U.S. Securities and Exchange Commission (“2008 Annual Report” or “2008 Form 10-K”), including Part I, Item 1A: Risk factors.
INTRODUCTION
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with $2.0 trillion in assets, $154.8 billion in stockholders’ equity and operations in more than 60 countries as of June 30, 2009. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a U.S. national banking association with branches in 23 states; and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national bank that is the Firm’s credit card-issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities Inc., the Firm’s U.S. investment banking firm.
JPMorgan Chase’s activities are organized, for management reporting purposes, into six business segments, as well as Corporate/Private Equity. The Firm’s wholesale businesses comprise the Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management segments. The Firm’s consumer businesses comprise the Retail Financial Services and Card Services segments. A description of the Firm’s business segments, and the products and services they provide to their respective client bases, follows.
Investment Bank
J.P. Morgan is one of the world’s leading investment banks, with deep client relationships and broad product capabilities. The Investment Bank’s (“IB”) clients are corporations, financial institutions, governments and institutional investors. The Firm offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, sophisticated risk management, market-making in cash securities and derivative instruments, prime brokerage and research. IB also selectively commits the Firm’s own capital to principal investing and trading activities.
Retail Financial Services
Retail Financial Services (“RFS”), which includes the Retail Banking and Consumer Lending reporting segments, serves consumers and businesses through personal service at bank branches and through ATMs, online banking and telephone banking, as well as through auto dealerships and school financial-aid offices. Customers can use more than 5,200 bank branches (third-largest nationally) and 14,100 ATMs (second-largest nationally), as well as online and mobile banking around the clock. More than 21,400 branch salespeople assist customers with checking and savings accounts, mortgages, home equity and business loans, and investments across the 23-state footprint from New York and Florida to California. Consumers also can obtain loans through more than 16,100 auto dealerships and 4,800 schools and universities nationwide.
Card Services
Chase Card Services (“CS”) is one of the nation’s largest credit card issuers, with more than 151 million cards in circulation and more than $171 billion in managed loans. In the six months ended June 30, 2009, customers used Chase cards to meet more than $158 billion worth of their spending needs. Chase has a market leadership position in building loyalty and rewards programs with many of the world’s most respected brands and through its proprietary products, which include the Chase Freedom program.
Through its merchant acquiring business, Chase Paymentech Solutions, Chase is one of the leading processors of MasterCard and Visa payments.

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Commercial Banking
Commercial Banking (“CB”) serves more than 26,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from $10 million to $2 billion, and nearly 30,000 real estate investors/owners. Delivering extensive industry knowledge, local expertise and dedicated service, CB partners with the Firm’s other businesses to provide comprehensive solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.
Treasury & Securities Services
Treasury & Securities Services (“TSS”) is a global leader in transaction, investment and information services. TSS is one of the world’s largest cash management providers and a leading global custodian. Treasury Services (“TS”) provides cash management, trade, wholesale card and liquidity products and services to small and mid-sized companies, multinational corporations, financial institutions and government entities. TS partners with the Commercial Banking, Retail Financial Services and Asset Management businesses to serve clients firmwide. As a result, certain TS revenue is included in other segments’ results. Worldwide Securities Services holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers, and it manages depositary receipt programs globally.
Asset Management
Asset Management (“AM”), with assets under supervision of $1.5 trillion, is a global leader in investment and wealth management. AM clients include institutions, retail investors and high-net-worth individuals in every major market throughout the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity, including money-market instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and retirement services for corporations and individuals. The majority of AM’s client assets are in actively managed portfolios.
OTHER BUSINESS EVENTS
FDIC Special Assessment
On May 22, 2009, the Federal Deposit Insurance Corporation (“FDIC”) announced a five basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. The maximum amount of the special assessment for any institution is 10 basis points times such institution’s average U.S. deposits for the second quarter. The FDIC announced that the special assessment will be collected on September 30, 2009. As of June 30, 2009, the Firm had accrued $675 million for the special assessment, which is reported in the Corporate/Private Equity segment.
Issuance of common stock
On June 5, 2009, the Firm issued $5.8 billion, or 163 million shares, of common stock. The common stock was issued to satisfy a regulatory supervisory condition requiring the Firm to demonstrate it could access the equity capital markets in order to be eligible to redeem Series K preferred stock issued to the U.S. Treasury under the Troubled Asset Relief Program (“TARP”). Proceeds from this issuance were used for general corporate purposes.
TARP Repayment / EPS Impact
On June 17, 2009, the Firm redeemed all of the outstanding shares of Series K preferred stock issued to the U.S. Treasury pursuant to TARP and repaid the full $25.0 billion principal amount. As a result of this redemption, the Firm incurred a one-time, noncash reduction of approximately $1.1 billion in the calculation of earnings per share (“EPS”) (i.e., a reduction in net income applicable to common stockholders), reflecting the accelerated amortization of issuance discount on the Series K preferred stock. The effect of this adjustment was to reduce reported diluted earnings per common share for the second quarter of 2009 by $0.27 per share. Following discussions with the U.S. Treasury regarding the warrant issued in connection with its purchase of the Series K preferred stock, on July 7, 2009, JPMorgan Chase notified the U.S. Treasury that it had revoked its warrant repurchase notice. JPMorgan Chase understands, based on the U.S. Treasury’s public statements, that the U.S. Treasury intends to pursue a public auction of the warrant. The U.S. Treasury has advised JPMorgan Chase that the Firm will be permitted to participate in any such auction.

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EXECUTIVE OVERVIEW
This overview of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a complete description of events, trends and uncertainties, as well as the capital, liquidity, credit and market risks, and the critical accounting estimates affecting the Firm and its various lines of business, this Form 10-Q should be read in its entirety.
Financial performance of JPMorgan Chase
                                                 
    Three months ended June 30,   Six months ended June 30,
(in millions, except per share data and ratios)   2009   2008   Change   2009   2008   Change
 
Selected income statement data
                                               
Total net revenue
  $ 25,623     $ 18,399       39 %   $ 50,648     $ 35,289       44 %
Total noninterest expense
    13,520       12,177       11       26,893       21,108       27  
Pre-provision profit
    12,103       6,222       95       23,755       14,181       68  
Provision for credit losses
    8,031       3,455       132       16,627       7,879       111  
Net income
    2,721       2,003       36       4,862       4,376       11  
 
                                               
Diluted earnings per share(a)(b)
  $ 0.28     $ 0.53       (47 )   $ 0.68     $ 1.20       (43 )
Return on common equity(c)
    3 %     6 %             4 %     7 %        
 
(a)   Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period amounts have been revised. For further discussion of FSP EITF 03-6-1, see Note 21 on page 158 of this Form 10-Q.
 
(b)   The calculation of second quarter 2009 earnings per share includes a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred capital. For further discussion, see “Impact on diluted earnings per share of redemption of TARP preferred stock issued to the U.S. Treasury” on page 18 of this Form 10-Q.
 
(c)   The calculation of second quarter 2009 net income applicable to common equity includes a one-time, noncash reduction of $1.1 billion resulting from repayment of TARP preferred capital. Excluding this reduction, the adjusted ROE was 6% for the second quarter of 2009. For further discussion of adjusted ROE, see “Explanation and reconciliation of the Firm’s use of non-GAAP financial measures” on pages 15-18 of this Form 10-Q.
Business overview
JPMorgan Chase reported second-quarter 2009 net income of $2.7 billion, or $0.28 per share, compared with net income of $2.0 billion, or $0.53 per share, in the second quarter of 2008. Current-quarter earnings per share reflected a one-time, noncash reduction in net income applicable to common stockholders of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred capital. Return on common equity for the quarter was 3%, compared with 6% in the prior year.
The increase in earnings from the second quarter of 2008 was driven by record net revenue, predominantly offset by a higher provision for credit losses and increased noninterest expense. Both revenue and expense were higher due to the impact of the acquisition of the banking operations of Washington Mutual Bank (“Washington Mutual”) on September 25, 2008. In addition, record Fixed Income Markets revenue and investment banking fees in the Investment Bank contributed to revenue growth. Growth in noninterest expense predominantly reflected an accrual for the FDIC special assessment and higher ongoing FDIC insurance premiums. High levels of credit costs in Retail Financial Services and Card Services drove the increase in the provision for credit losses, as weak economic conditions and housing price declines continued to negatively affect these businesses.
Net income for the first six months of 2009 was $4.9 billion, or $0.68 per share, compared with $4.4 billion, or $1.20 per share, in the first half of 2008. Earnings per share for the first six months reflected the reduction in net income resulting from repayment of TARP preferred capital. The increase in earnings from the comparable 2008 six-month period was due to the same drivers as for the 2009 second quarter: the Washington Mutual acquisition and higher Fixed Income revenue and investment banking fees. The first half of 2009 also reflected higher net revenue from mortgage servicing rights (“MSR”) risk management results in Retail Financial Services, higher noninterest expense resulting from higher compensation expense in both the Investment Bank and Retail Financial Services, and higher FDIC insurance premiums and increased credit costs.
The global economy began to stabilize in the second quarter of 2009, with developing economies rebounding significantly and contraction in developed economies slowing. Credit conditions improved in the quarter, with most credit spreads falling from previous wide levels. The credit and asset-purchase programs implemented by the Board of Governors of the Federal Reserve System (“Federal Reserve”), which were modified and in some cases extended in the quarter, helped measurably. The Federal Reserve has announced it intends to have purchased up to $1,750 billion of Treasury, mortgage-backed and agency-debt securities by the spring of 2010; this and the results of the “stress tests” conducted as part of the Supervisory Capital Assessment Program (“SCAP”), which showed that most of the largest U.S. financial institutions had strong capital cushions, reinforced market confidence. Following release of the SCAP results, those banks that participated in the Capital Purchase Program (“CPP”) and met the requirements established by their primary federal banking supervisors for the repayment of funds provided by the TARP, were permitted to repay such funds; many, including JPMorgan Chase, did so. The narrowing of credit spreads enabled businesses to refinance outstanding debt and raise new capital, resulting in

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strong activity in capital markets that aided bank earnings, and recoveries in many stock markets bolstered consumer and business sentiment. Notwithstanding these favorable market developments, conditions remain fragile and are dependent on the approximately $2 trillion of credit provided by the Federal Reserve through its various market-supporting initiatives. In addition, economic activity was too slow to prevent deterioration in the labor markets: the U.S. unemployment rate rose to 9.5% in the second quarter, the highest level reached since the peak of the 1982 recession.
The improving sentiment amid a continued challenging economic environment was also reflected in JPMorgan Chase’s line-of-business results in the second quarter of 2009. Four of the Firm’s six main lines of business reported double-digit growth in net revenue, resulting in record firmwide net revenue. The Investment Bank reported record fees and Fixed Income Markets revenue and maintained its leadership positions across products; Commercial Banking continued to grow revenue and earnings; Asset Management maintained good global investment performance; Retail Financial Services reported favorable retail branch production metrics, and Treasury & Securities Services delivered another quarter of solid performance. Although each of the lines of business was negatively affected to some degree by the challenging environment, Card Services and Consumer Lending, a business segment in Retail Financial Services, were hit hardest, with continued high levels of credit costs contributing to a net loss in each business.
JPMorgan Chase maintained a strong balance sheet in the quarter. Even after the repayment in full of $25 billion of TARP preferred capital and the addition of $2 billion to credit reserves, the Firm ended the quarter with a Tier 1 capital ratio of 9.7% and a Tier 1 common capital ratio of 7.7%. The total allowance for credit losses at June 30, 2009, was $29.8 billion, and the firmwide loan loss coverage ratio was 5.0%. Management believes these strong capital and reserve levels, combined with the Firm’s significant earnings power, will allow the Firm to continue to reinvest in its businesses over the long term.
The Firm remains committed to helping bring stability to the communities in which it operates and to the financial system overall. During the quarter, JPMorgan Chase extended approximately $150 billion in new credit to consumer and corporate customers and approved 138,000 trial mortgage modifications, bringing total foreclosures prevented since 2007 to 565,000.
The discussion that follows highlights the current-quarter performance of each business segment, compared with the prior-year quarter, and discusses results on a managed basis unless otherwise noted. For more information about managed basis, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 15-18 of this Form 10-Q .
Investment Bank net income increased, reflecting higher net revenue and lower noninterest expense, partially offset by a higher provision for credit losses. Record investment banking fees were driven by record equity underwriting fees. Fixed Income Markets revenue was also a record, driven by strong results across all products, as well as the absence of markdowns related to leveraged lending funded and unfunded commitments and mortgage-related exposure. The provision for credit losses increased due to higher charge-offs as well as a higher allowance, reflecting continued deterioration in the credit environment.
Retail Financial Services net income declined, as a higher provision for credit losses and higher noninterest expense were partially offset by higher net revenue, reflecting the impact of the Washington Mutual transaction, wider loan and deposit spreads, and higher deposit balances. The provision for credit losses included a significant addition to the allowance for loan losses, as weak economic conditions and housing price declines drove higher estimated losses for the home equity and mortgage loan portfolios. The increase in noninterest expense reflected the impact of the Washington Mutual transaction, higher servicing expense and higher FDIC insurance premiums.
Card Services reported a net loss, compared with net income in the prior year. The decrease was driven by a higher provision for credit losses, partially offset by higher net revenue. The increase in managed net revenue was driven by the impact of the Washington Mutual transaction, wider loan spreads and higher merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint venture. These benefits were offset partially by the impact of the credit enhancement provided by the Firm for certain of its securitization trusts, lower securitization income, higher revenue reversals associated with higher charge-offs, and a decreased level of fees. The provision for credit losses reflected a higher level of charge-offs due to continued deterioration in the credit environment. Noninterest expense increased due to the dissolution of the Chase Paymentech Solutions joint venture and the impact of the Washington Mutual transaction.

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Commercial Banking net income increased, driven by higher net revenue reflecting the impact of the Washington Mutual transaction, predominantly offset by a higher provision for credit losses and higher noninterest expense. Revenue increased due to wider loan spreads, record levels of lending- and deposit-related fees, a shift to higher-spread liability products and overall growth in liability balances. These benefits were offset predominantly by spread compression on liability products and lower loan balances. The increase in the provision for credit losses reflected continued deterioration in the credit environment. Noninterest expense rose due to the impact of the Washington Mutual transaction and higher FDIC insurance premiums, partially offset by lower headcount-related expense.
Treasury & Securities Services net income decreased, driven by lower net revenue offset partially by lower noninterest expense. Worldwide Securities Services revenue declined, driven by the effect of market depreciation on assets under custody and lower securities lending balances, primarily as a result of declines in asset valuations and demand. Revenue in Treasury Services increased, reflecting growth across cash management products and higher trade revenue driven by wider spreads, partially offset by spread compression on deposit products. Noninterest expense decreased, reflecting lower headcount-related expense offset partially by higher FDIC insurance premiums.
Asset Management net income declined, due to lower net revenue and a higher provision for credit losses offset partially by lower noninterest expense. The decline in net revenue was due to the effect of lower market levels and lower placement fees; these effects were offset partially by higher valuations of seed capital investments, wider loan and deposit spreads and higher deposit balances. The increase in the provision for credit losses reflected continued deterioration in the credit environment. Noninterest expense decreased due to lower performance-based compensation and lower headcount-related expense, largely offset by the impact of the Bear Stearns merger and higher FDIC insurance premiums.
Corporate/Private Equity reported net income, compared with a net loss in the prior year, reflecting higher levels of trading and investment income in the investment securities portfolio and a gain from the sale of MasterCard shares, partially offset by an accrual for the FDIC special assessment.
Firmwide, the managed provision for credit losses was $9.7 billion, up by $5.4 billion. The total consumer-managed provision for credit losses was $8.5 billion, compared with $3.8 billion in the prior year, reflecting higher net charge-offs and an increase in the allowance for credit losses, largely related to home lending. Consumer-managed net charge-offs were $7.0 billion (6.18% net charge-off rate), compared with $2.9 billion in the prior year (3.08% net charge-off rate). The wholesale provision for credit losses was $1.2 billion, compared with $505 million in the prior year, reflecting an increase in the allowance for credit losses, largely in the Investment Bank. Wholesale net charge-offs were $679 million (1.19% net charge-off rate), compared with net charge-offs of $41 million in the prior year (0.08% net charge-off rate). The Firm’s nonperforming assets totaled $17.5 billion at June 30, 2009, up from the prior-year level of $6.2 billion. The allowance for credit losses increased by $1.8 billion during the quarter; this resulted in a loan loss coverage ratio at June 30, 2009 of 5.01%, compared with 4.53% at March 31, 2009. The above net charge-off rates and loan loss coverage ratio exclude purchased credit-impaired loans accounted for under SOP 03-3, loans held-for-sale and loans at fair value. Furthermore, the loan loss coverage ratio also excludes loans from the Washington Mutual Master Trust, which were consolidated on the Firm’s balance sheet at fair value during the second quarter of 2009.
Business outlook
The following forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause JPMorgan Chase’s actual results to differ materially from those set forth in such forward-looking statements.
JPMorgan Chase’s outlook for the second half of 2009 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment and client activity levels. Each of these linked factors will affect the performance of the Firm and its lines of business. The Firm continues to monitor the global and U.S. economic environments. The outlook for capital markets remains uncertain and there continues to be a potential for further declines in U.S. housing prices and an increase in the unemployment rate. In addition, as a result of recent market conditions, the U.S. Congress and regulators have increased their focus on regulation of financial institutions; any legislation or regulations that may be adopted as a result could limit or restrict the Firm’s operations, or impose additional costs upon the Firm in order to comply with such new laws or rules.
Given the potential stress on the consumer from rising unemployment and continued downward pressure on housing prices, management is still cautious with respect to the credit outlook for the consumer loan portfolios. Possible continued deterioration in credit trends could require additions to the consumer allowance for credit losses. Based on management’s current economic outlook, quarterly net charge-offs could, over the next several quarters, reach $1.4

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billion for the home equity portfolio, $600 million for the prime mortgage portfolio and $500 million for the subprime mortgage portfolio. The managed net charge-off rate for Card Services (excluding the Washington Mutual credit card portfolio) could approach 10% in the third quarter of 2009, and thereafter will remain highly dependent on unemployment levels; the managed net charge-off rate for the Washington Mutual credit card portfolio is expected to approach 24% by the end of 2009. These charge-off rates could increase if the economic environment deteriorates even further than management’s current expectations. Similarly, the wholesale provision for credit losses, nonperforming assets and charge-offs are likely to increase over the remainder of the year as a result of continued deterioration in the credit environment.
The Investment Bank is operating in an uncertain environment. Trading results could be volatile, particularly if there is further disruption in the credit or mortgage markets, or a significant decline in overall liquidity levels. In addition, if the Firm’s own credit spreads tighten, as was the case in the second quarter of 2009, the change in the fair value of certain trading liabilities would also negatively affect trading results. Finally, the Investment Bank’s results will be affected by the credit environment, as noted above.
Although management expects underlying growth in Retail Banking, results will be under pressure from the credit environment and ongoing lower consumer spending levels. In addition, there could be a decline in average retail deposits in the second half of the year due to anticipated downward repricing of certain legacy Washington Mutual deposits.
In Card Services, management expects, in addition to rising credit costs as noted above, continued pressure on both charge volumes and credit card receivables growth, reflecting continued lower levels of consumer spending.
Commercial Bank results could be negatively impacted by rising net charge-offs on real estate-related exposure, a decline in loan demand and reduced liability balances.
Earnings in Treasury & Securities Services and Asset Management will be affected by the impact of market levels on assets under management, supervision and custody. Additionally, earnings in Treasury & Securities Services could be affected by declines in liability balances.
Net interest income levels will be largely related to the size of the investment portfolio in Corporate, although the high level of trading gains in the second quarter of 2009 is not likely to be repeated. Private Equity results will depend on capital market activity and market levels, as well as the performance of the broader economy and investment-specific issues. Due to current economic conditions, there is the possibility of modest write-downs in Private Equity over the near term.

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CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis. Factors that related primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 86-89 of this Form 10-Q and pages 107-111 of JPMorgan Chase’s 2008 Annual Report.
Total net revenue
                                                 
    Three months ended June 30,   Six months ended June 30,
(in millions)   2009   2008   Change   2009   2008   Change
 
Investment banking fees
  $ 2,106     $ 1,612       31 %   $ 3,492     $ 2,828       23 %
Principal transactions
    3,097       752       312       5,098       (51 )   NM
Lending & deposit-related fees
    1,766       1,105       60       3,454       2,144       61  
Asset management, administration and commissions
    3,124       3,628       (14 )     6,021       7,224       (17 )
Securities gains
    347       647       (46 )     545       680       (20 )
Mortgage fees and related income
    784       696       13       2,385       1,221       95  
Credit card income
    1,719       1,803       (5 )     3,556       3,599       (1 )
Other income
    10       (138 )   NM     60       1,691       (96 )
                           
Noninterest revenue
    12,953       10,105       28       24,611       19,336       27  
Net interest income
    12,670       8,294       53       26,037       15,953       63  
                           
Total net revenue
  $ 25,623     $ 18,399       39     $ 50,648     $ 35,289       44  
 
Total net revenue for the second quarter of 2009 was $25.6 billion, up by $7.2 billion, or 39%, from the second quarter of 2008, partially reflecting the impact of the Washington Mutual transaction. Revenue growth was also driven by record trading revenue, higher net interest income and record investment banking fees. These benefits were offset partially by reduced fees and commissions resulting from lower market levels. Total net revenue for the first six months of 2009 was $50.6 billion, up $15.4 billion, or 44%, from the prior year, largely reflecting the same drivers noted for the second quarter, and higher mortgage fees and related income resulting from positive MSR risk management results. The growth in revenue for the six months was offset partially by the absence of proceeds from the sale of Visa shares in its initial public offering in the first quarter of 2008, and by reduced fees and commissions resulting from lower market levels.
Investment banking fees increased to a record $2.1 billion in the quarter, reflecting record equity underwriting fees, and higher debt underwriting fees and advisory fees. Investment banking fees for the first six months of 2009 also increased from the comparable prior-year period, reflecting the same drivers noted for the second quarter of 2009. For a further discussion of investment banking fees, which are primarily recorded in IB, see IB segment results on pages 20-23 of this Form 10-Q.
Principal transactions revenue, which consists of revenue from the Firm’s trading and private equity investing activities, rose from the second quarter and first six months of 2008. Trading revenue increased to a record level in the second quarter of 2009, driven by gains on trading positions in the Corporate/Private equity segment and strong results across all fixed-income products, as well as the absence of markdowns related to leveraged lending funded and unfunded commitments and mortgage-related exposures. The quarter also included modest gains on these exposures, compared with losses in the second quarter of 2008 on leveraged lending funded and unfunded commitments of $696 million and losses on mortgage-related exposures of $405 million. These benefits were offset partially by an aggregate loss of $1.9 billion in the second quarter of 2009 from the tightening of the Firm’s credit spreads on certain structured liabilities and derivatives, compared with a benefit of $414 million in the second quarter of 2008. In the first six months of 2009, trading revenue rose due to strong results across all fixed income products and lower markdowns related to leveraged lending funded and unfunded commitments and mortgage-related exposures. The increase was offset by a loss of $840 million from the tightening of the Firm’s credit spreads on certain structured liabilities and derivatives, compared with a benefit of $1.8 billion in the first half of 2008. Private equity revenue declined in the second quarter and first six months of 2009, driven by investment losses compared with gains in the same periods of 2008. For a further discussion of principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 20-23 and 46-48 respectively, and Note 3 on pages 99-114 of this Form 10-Q.

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Lending- and deposit-related fees rose from the second quarter and first six months of 2008, predominantly reflecting the impact of the Washington Mutual transaction and organic growth in both lending- and deposit-related fees in RFS and CB, as well as in IB. For a further discussion of lending- and deposit-related fees, which are mostly recorded in RFS, CB and TSS, see the RFS segment results on pages 24-31, the CB segment results on pages 36-38, and the TSS segment results on pages 39-42 of this Form 10-Q.
The decline in asset management, administration and commissions revenue compared with the second quarter and first six months of 2008 reflected lower asset management fees in AM, resulting from lower market levels; lower administration fees in TSS, driven by the effect of market depreciation on assets under custody and lower securities lending balances; and lower brokerage commissions revenue in IB, predominantly related to lower transaction volume. For additional information on these fees and commissions, see the segment discussions for IB on pages 20-23, RFS on pages 24-31, TSS on pages 39-42, and AM on pages 42-46 of this Form 10-Q.
The decrease in securities gains compared with the corresponding 2008 periods was due to lower gains from the sale of MasterCard shares, which totaled $241 million in the second quarter of 2009, compared with $668 million in the prior-year quarter. This was offset partially by higher gains from the repositioning of the Corporate investment securities portfolio as a result of lower interest rates, and in connection with managing the Firm’s structural interest rate risk. For a further discussion of securities gains, which are mostly recorded in the Firm’s Corporate business, see the Corporate/Private Equity segment discussion on pages 46-48 of this Form 10-Q.
Mortgage fees and related income increased from the second quarter and first six months of 2008 as higher net mortgage servicing revenue was offset partially by lower production revenue. Mortgage production revenue declined as an increase in reserves for the repurchase of previously-sold loans and markdowns on the mortgage warehouse were largely offset by wider margins on new originations. The increase in net mortgage servicing revenue was driven by growth in third-party loans serviced, and, for the first six months of 2008, positive MSR risk management results. For a discussion of mortgage fees and related income, which is recorded primarily in RFS’ Consumer Lending business, see the Consumer Lending discussion on pages 27-31 of this Form 10-Q.
Credit card income decreased compared with the second quarter and first six months of 2008, driven by lower servicing fees earned in connection with CS securitization activities due to higher credit losses, offset partially by wider loan margins on securitized credit card loans. The decrease in credit card income was offset by higher merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint venture, and higher interchange income. For a further discussion of credit card income, see the CS segment results on pages 32-35 of this Form 10-Q.
Other income increased in the second quarter of 2009 due to a $423 million loss incurred in the second quarter of 2008, reflecting the Firm’s 49.4% ownership in Bear Stearns’ losses from April 8 to May 30, 2008, offset partially by lower securitization results at CS. For the first six months of 2009, other income decreased due predominantly to the absence of $1.5 billion in proceeds from the sale of Visa shares in its initial public offering in the first quarter of 2008, lower securitization results at CS, and the dissolution of the Chase Paymentech Solutions joint venture. These items were offset partially by the absence of the aforementioned $423 million loss and lower markdowns on certain investments.
Net interest income rose from the second quarter and first six months of 2008, due predominantly to the following: the impact of the Washington Mutual transaction, higher investment-related net interest income in Corporate/Private Equity, wider spreads on consumer loans and higher trading-related net interest income in IB. The increase in net interest income was offset partially by narrower spreads on liability and deposit balances in the wholesale businesses. The Firm’s total average interest-earning assets for the second quarter of 2009 were $1.7 trillion, up 32% from the second quarter of 2008, driven by an increase in available-for-sale (“AFS”) securities and loans from the Washington Mutual transaction, and organic growth. The Firm’s total average interest-bearing liabilities for the second quarter of 2009 were $1.5 trillion, up 22% from the second quarter of 2008, driven by higher federal funds purchased and securities loaned or sold under repurchase agreements, as well as the impact of the Washington Mutual transaction and Bear Stearns merger. The net interest yield on the Firm’s interest-earning assets, on a fully taxable-equivalent basis, was 3.07%, an increase of 36 basis points from the second quarter of 2008, driven predominantly by an increase in higher-yielding assets associated with the Washington Mutual transaction and trading-related net interest income in IB. The Firm’s total average interest-earning assets for the first six months of 2009 were $1.7 trillion, up 35% from the first six months of 2008, and total average interest-bearing liabilities for the first six months of 2009 were $1.5 trillion, up 26% from the first half of 2008. The net interest yield on the Firm’s interest-earning assets, on a fully taxable-equivalent basis, was 3.18%, an increase of 53 basis points from the first six months of 2008. The drivers of the year-to-date increases were similar to the drivers of the quarterly increases.

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Provision for credit losses   Three months ended June 30,   Six months ended June 30,
(in millions)   2009   2008   Change   2009   2008   Change
 
Wholesale
  $ 1,244     $ 505       146 %   $ 2,774     $ 1,252       122 %
Consumer
    6,787       2,950       130       13,853       6,627       109  
                     
Total provision for credit losses
  $ 8,031     $ 3,455       132     $   16,627     $ 7,879       111  
 
 
Provision for credit losses
The provision for credit losses in the second quarter and first six months of 2009 rose compared with the equivalent periods of 2008 due to increases in both the consumer and wholesale provisions. The consumer provision reflected additions to the allowance for loan losses for the home equity, mortgage and credit card portfolios, as weak economic conditions and housing price declines continued to drive higher estimated losses for these portfolios. The increase in the wholesale provision was driven by a higher allowance for loan losses, reflecting continued deterioration in the credit environment. For a more detailed discussion of the loan portfolio and the allowance for loan losses, see the segment discussions for RFS on pages 24-31, CS on pages 32-35, IB on pages 20-23 and CB on pages 36-38, and the Credit Risk Management section on pages 62-80 of this Form 10-Q.
 
Noninterest expense
 
The following table presents the components of noninterest expense.
 
    Three months ended June 30,   Six months ended June 30,
(in millions)   2009   2008   Change   2009   2008   Change
 
Compensation expense
  $ 6,917     $ 6,913       %   $ 14,505     $ 11,864       22 %
Noncompensation expense:
                                               
Occupancy expense
    914       669       37       1,799       1,317       37  
Technology, communications and equipment expense
    1,156       1,028       12       2,302       1,996       15  
Professional & outside services
    1,518       1,450       5       3,033       2,783       9  
Marketing
    417       413       1       801       959       (16 )
Other expense(a)
    2,190       1,233       78       3,565       1,402       154  
Amortization of intangibles
    265       316       (16 )     540       632       (15 )
                     
Total noncompensation expense
    6,460       5,109       26       12,040       9,089       32  
Merger costs
    143       155       (8 )     348       155       125  
                     
Total noninterest expense
  $ 13,520     $ 12,177       11     $ 26,893     $ 21,108       27  
 
(a)   Includes $675 million accrued for an FDIC special assessment.
Total noninterest expense for the second quarter of 2009 was $13.5 billion, up $1.3 billion, or 11%, from the second quarter of 2008. The increase was driven by the impact of the Washington Mutual transaction, the accrual of $0.7 billion for the FDIC special assessment, higher FDIC insurance premiums and increased mortgage-related servicing expense. For the first six months of 2009, total noninterest expense was $26.9 billion, up $5.8 billion, or 27% from the prior year due primarily to the aforementioned items, and higher performance-based compensation expense.
Compensation expense in the second quarter of 2009 was relatively flat compared with the second quarter of 2008 as the impact of the Washington Mutual transaction was offset by lower performance-based compensation expense in the Investment Bank. Compensation expense increased for the first six months of 2009 due to higher performance-based compensation expense in the Investment Bank, in addition to the impact of the Washington Mutual transaction.
Noncompensation expense increased from the second quarter of 2008 due predominantly to the accrual of $0.7 billion for the FDIC special assessment and higher FDIC insurance premiums, as well as the impact of the Washington Mutual transaction. Also contributing to the increase was higher mortgage servicing-related expense due to increased delinquencies and defaults, which included an increase in foreclosed property expense of $0.3 billion partially offset by lower litigation-related expense and the impact of the dissolution of the Chase Paymentech Solutions joint venture. Noncompensation expense increased from the first six months of 2008 primarily due to the drivers discussed for the quarter, along with an increase in other expense reflecting a lower level of benefits from litigation-related items in the current year compared with the prior year. This was partially offset by lower credit card marketing expense.
For information on merger costs, refer to Note 10 on page 128 of this Form 10-Q.

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Income tax expense
The following table presents the Firm’s income before income tax expense, income tax expense and effective tax rate.
                                 
    Three months ended June 30,   Six months ended June 30,
(in millions, except rate)   2009   2008   2009   2008
 
Income before income tax expense
  $   4,072     $   2,767     $   7,128     $   6,302  
Income tax expense
    1,351       764       2,266       1,926  
Effective tax rate
    33.2 %     27.6 %     31.8 %     30.6 %
 
The increase in the effective tax rate compared with the second quarter and first six months of 2008 was primarily the result of higher reported pretax income and changes in the proportion of income subject to federal, state and local taxes, partially offset by increased business tax credits. In addition, the second quarter of 2008 reflected a benefit from the release of deferred tax liabilities associated with earnings of certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely, offset by losses representing the Firm’s 49.4% ownership in Bear Stearns’ losses from April 8 to May 30, 2008, for which no income tax benefit was recorded. For a further discussion of income taxes, see Critical Accounting Estimates used by the Firm on pages 86-89 of this Form 10-Q.

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EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its consolidated financial statements using accounting principles generally accepted in the United States of America (“U.S. GAAP”); these financial statements appear on pages 92-95 of this Form 10-Q. That presentation, which is referred to as “reported basis,” provides the reader with an understanding of the Firm’s results that can be tracked consistently from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.
In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s results and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications that assume credit card loans securitized by CS remain on the balance sheet, and it presents revenue on a fully taxable-equivalent (“FTE”) basis. These adjustments do not have any impact on net income as reported by the lines of business or by the Firm as a whole.
The presentation of CS results on a managed basis assumes that credit card loans that have been securitized and sold in accordance with SFAS 140 remain on the Consolidated Balance Sheets, and that the earnings on the securitized loans are classified in the same manner as the earnings on retained loans recorded on the Consolidated Balance Sheets. JPMorgan Chase uses the concept of managed basis to evaluate the credit performance and overall financial performance of the entire managed credit card portfolio. Operations are funded and decisions are made about allocating resources, such as employees and capital, based on managed financial information. In addition, the same underwriting standards and ongoing risk monitoring are used for both loans on the Consolidated Balance Sheets and securitized loans. Although securitizations result in the sale of credit card receivables to a trust, JPMorgan Chase retains the ongoing customer relationships, as the customers may continue to use their credit cards; accordingly, the customer’s credit performance will affect both the securitized loans and the loans retained on the Consolidated Balance Sheets. JPMorgan Chase believes managed basis information is useful to investors, enabling them to understand both the credit risks associated with the loans reported on the Consolidated Balance Sheets and the Firm’s retained interests in securitized loans. For a reconciliation of reported to managed basis results for CS, see CS segment results on pages 32-35 of this Form 10-Q. For information regarding the securitization process, and loans and residual interests sold and securitized, see Note 15 on pages 139-147 of this Form 10-Q.
Total net revenue for each of the business segments and the Firm is presented on a FTE basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits is presented in the managed results on a basis comparable to taxable securities and investments. This non-GAAP financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these items is recorded within income tax expense.
Management also uses certain non-GAAP financial measures at the business-segment level, because it believes these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the particular business segment and, therefore, facilitate a comparison of the business segment with the performance of its competitors.

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

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    Six months ended June 30, 2009
    Reported   Credit   Fully tax-equivalent   Managed
(in millions, except per share and ratios)   results   card(c)   adjustments   basis
 
Revenue
                               
Investment banking fees
  $ 3,492     $     $     $ 3,492  
Principal transactions
    5,098                   5,098  
Lending & deposit—related fees
    3,454                   3,454  
Asset management, administration and commissions
    6,021                   6,021  
Securities gains
    545                   545  
Mortgage fees and related income
    2,385                   2,385  
Credit card income
    3,556       (834 )           2,722  
Other income
    60             672       732  
 
Noninterest revenue
    24,611       (834 )     672       24,449  
Net interest income
    26,037       3,962       183       30,182  
 
Total net revenue
    50,648       3,128       855       54,631  
Noninterest expense
    26,893                   26,893  
 
Pre-provision profit
    23,755       3,128       855       27,738  
Provision for credit losses
    16,627       3,128             19,755  
 
Income before income tax expense
    7,128             855       7,983  
Income tax expense
    2,266             855       3,121  
 
Net income
  $ 4,862     $     $     $ 4,862  
 
Diluted earnings per share(a)(b)
  $ 0.68     $     $     $ 0.68  
Return on assets
    0.48 %   NM     NM       0.46 %
Overhead ratio
    53     NM     NM       49  
 
 
    Six months ended June 30, 2008
    Reported   Credit   Fully tax-equivalent   Managed
(in millions, except per share and ratios)   results   card(c)   adjustments   basis
 
Revenue
                               
Investment banking fees
  $ 2,828     $     $     $ 2,828  
Principal transactions
    (51 )                 (51 )
Lending & deposit—related fees
    2,144                   2,144  
Asset management, administration and commissions
    7,224                   7,224  
Securities gains
    680                   680  
Mortgage fees and related income
    1,221                   1,221  
Credit card income
    3,599       (1,780 )           1,819  
Other income
    1,691             450       2,141  
 
Noninterest revenue
    19,336       (1,780 )     450       18,006  
Net interest income
    15,953       3,291       326       19,570  
 
Total net revenue
    35,289       1,511       776       37,576  
Noninterest expense
    21,108                   21,108  
 
Pre-provision profit
    14,181       1,511       776       16,468  
Provision for credit losses
    7,879       1,511             9,390  
 
Income before income tax expense
    6,302             776       7,078  
Income tax expense
    1,926             776       2,702  
 
Net income
  $ 4,376     $     $     $ 4,376  
 
Diluted earnings per share(a)
  $ 1.20     $     $     $ 1.20  
Return on assets
    0.54 %   NM     NM       0.52 %
Overhead ratio
    60     NM     NM       56  
 
                                                 
Three months ended June 30,   2009   2008
(in millions)   Reported   Securitized   Managed   Reported   Securitized   Managed
 
Loans — Period-end
  $ 680,601     $ 85,790     $ 766,391     $ 538,029     $ 79,120     $ 617,149  
Total assets — average
    2,038,372       81,588       2,119,960       1,668,699       74,580       1,743,279  
 
                                                 
Six months ended June 30,   2009   2008
(in millions)   Reported   Securitized   Managed   Reported   Securitized   Managed
 
Loans — Period-end
  $ 680,601     $ 85,790     $ 766,391     $ 538,029     $ 79,120     $ 617,149  
Total assets — average
    2,052,666       82,182       2,134,848       1,619,248       73,084       1,692,332  
 
(a)   Effective January 1, 2009, the Firm implemented FSP EITF 03-6-1. Accordingly, prior-period amounts have been revised. For further discussion of FSP EITF 03-6-1, see Note 21 on page 158 of this Form 10-Q.
 
(b)   The calculation of second quarter 2009 earnings per share includes a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of TARP preferred capital (see the table below).
 
(c)   Credit card securitizations affect CS. See pages 32-35 of this Form 10-Q for further information.

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Impact on ROE of redemption of TARP preferred stock issued to the U.S. Treasury
The calculation of second quarter 2009 net income applicable to common equity includes a one-time, non-cash reduction of $1.1 billion resulting from the repayment of TARP preferred capital. Excluding this reduction ROE would have been 6% for the second quarter of 2009 as disclosed in the table below. The Firm views the adjusted ROE, a non-GAAP financial measure, as meaningful because it increases the comparability to prior periods.
                 
    Three months ended June 30, 2009
        Excluding the TARP
(in millions, except ratios)   As reported   redemption
 
Return on equity
               
 
Net income
  $ 2,721     $ 2,721  
Less: Preferred stock dividends
  473     473  
Less: Accelerated amortization from redemption of preferred stock issued to the U.S. Treasury
    1,112        
 
Net income applicable to common equity
  $ 1,136     $ 2,248
 
Average common stockholders’ equity
  $ 140,865     $ 140,865  
 
ROE
    3 %     6 %
 
Impact on diluted earnings per share of redemption of TARP preferred stock issued to the U.S. Treasury
Net income applicable to common equity for the second quarter of 2009 includes a one-time, noncash reduction of approximately $1.1 billion resulting from the repayment of TARP preferred capital. The following table presents the calculations of the effect on net income applicable to common stockholders and the $0.27 reduction to diluted earnings per share which resulted from this repayment.
                 
    Three months ended June 30, 2009
            Effect of TARP
(in millions, except per share)   As reported   redemption
 
Diluted earnings per share
               
 
Net income
  $ 2,721     $  
Less: Preferred stock dividends
    473        
Less: Accelerated amortization from redemption of preferred stock issued to the U.S. Treasury
    1,112       1,112  
 
Net income applicable to common equity
  $ 1,136     $ (1,112 )
Less: Dividends and undistributed earnings allocated to participating securities
    64       (64 )
 
Net income applicable to common stockholders
  $ 1,072     $ (1,048 )
 
 
Total weighted average diluted shares outstanding
    3,824.1       3,824.1  
 
Net income per share
  $ 0.28     $ (0.27 )
 
BUSINESS SEGMENT RESULTS
The Firm is managed on a line-of-business basis. The business segment financial results presented reflect the current organization of JPMorgan Chase. There are six major reportable business segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services and Asset Management, as well as a Corporate/Private Equity segment. The business segments are determined based on the products and services provided, or the type of customer served, and reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on a managed basis.
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results allocates income and expense using market-based methodologies. For a further discussion of those methodologies, see Business Segment Results — Description of business segment reporting methodology on pages 40-41 of JPMorgan Chase’s 2008 Annual Report. The Firm continues to assess the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.

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Segment Results — Managed Basis(a)(b)
The following table summarizes the business segment results for the periods indicated.
                                                                                         
Three months ended                                                                           Return
June 30,   Total net revenue     Noninterest expense     Net income (loss)     on equity  
(in millions, except ratios)   2009   2008   Change     2009   2008   Change     2009   2008   Change     2009   2008  
 
Investment Bank(c)
  $ 7,301     $ 5,500       33 %   $ 4,067     $ 4,734       (14 )%   $ 1,471     $ 394       273 %     18 %     7 %
Retail Financial Services
    7,970       5,110       56       4,079       2,680       52       15       503       (97 )           12  
Card Services
    4,868       3,775       29       1,333       1,185       12       (672 )     250     NM       (18 )     7  
Commercial Banking
    1,453       1,106       31       535       476       12       368       355       4       18       20  
Treasury & Securities Services
    1,900       2,019       (6 )     1,288       1,317       (2 )     379       425       (11 )     30       49  
Asset Management
    1,982       2,064       (4 )     1,354       1,400       (3 )     352       395       (11 )     20       31  
Corporate/Private Equity(c)
    2,235       104     NM       864       385       124       808       (319 )   NM     NM     NM
                                                 
Total
  $ 27,709     $ 19,678       41 %   $ 13,520     $ 12,177       11 %   $ 2,721     $ 2,003       36 %     3 %     6 %
 
 
Six months ended                                                                           Return
June 30,   Total net revenue     Noninterest expense     Net income (loss)     on equity  
(in millions, except ratios)   2009   2008   Change     2009   2008   Change     2009   2008   Change     2009   2008  
 
Investment Bank(c)
  $ 15,672     $ 8,541       83 %   $ 8,841     $ 7,287       21 %   $ 3,077     $ 307     NM       19 %     3 %
Retail Financial Services
    16,805       9,873       70       8,250       5,252       57       489       192       155 %     4       2  
Card Services
    9,997       7,679       30       2,679       2,457       9       (1,219 )     859     NM       (16 )     12  
Commercial Banking
    2,855       2,173       31       1,088       961       13       706       647       9       18       19  
Treasury & Securities Services
    3,721       3,932       (5 )     2,607       2,545       2       687       828       (17 )     28       48  
Asset Management
    3,685       3,965       (7 )     2,652       2,723       (3 )     576       751       (23 )     17       30  
Corporate/Private Equity(c)
    1,896       1,413       34       776       (117 )   NM       546       792       (31 )   NM     NM  
                                                 
Total
  $ 54,631     $ 37,576       45 %   $ 26,893     $ 21,108       27 %   $ 4,862     $ 4,376       11 %     4 %     7 %
 
(a)   Represents reported results on a tax-equivalent basis and excludes the impact of credit card securitizations.
 
(b)   On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual Bank. On May 30, 2008, the Bear Stearns merger was consummated. Each of these transactions was accounted for as a purchase, and their respective results of operations are included in the Firm’s results from each respective transaction date. For additional information on these transactions, see Note 2 on pages 123-127 of JPMorgan Chase’s 2008 Annual Report and Note 2 on pages 96-99 of this Form 10-Q.
 
(c)   In the second quarter of 2009, IB began reporting credit reimbursement from TSS as a component of total net revenue, whereas TSS continues to report its credit reimbursement to IB as a separate line item on its income statement (not part of total net revenue). Corporate/Private Equity includes an adjustment to offset IB’s inclusion of the credit reimbursement in total net revenue. Prior periods have been revised for IB and Corporate/Private Equity to reflect this presentation.

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INVESTMENT BANK
For a discussion of the business profile of IB, see pages 42-44 of JPMorgan Chase’s 2008 Annual Report and page 5 of this Form 10-Q.
                                                 
Selected income statement data   Three months ended June 30,   Six months ended June 30,
(in millions, except ratios)   2009   2008   Change   2009   2008   Change
 
Revenue
                                               
Investment banking fees
  $ 2,239     $ 1,735       29 %   $ 3,619     $ 2,941       23 %
Principal transactions
    1,841       838       120       5,356       40     NM
Lending & deposit—related fees
    167       105       59       305       207       47  
Asset management, administration and commissions
    717       709       1       1,409       1,453       (3 )
All other income(a)
    (108 )     (196 )     45       (164 )     (232 )     29  
                     
Noninterest revenue
    4,856       3,191       52       10,525       4,409       139  
Net interest income(b)
    2,445       2,309       6       5,147       4,132       25  
                     
Total net revenue(c)
    7,301       5,500       33       15,672       8,541       83  
 
Provision for credit losses
    871       398       119       2,081       1,016       105  
 
Noninterest expense
                                               
Compensation expense
    2,677       3,132       (15 )     6,007       4,373       37  
Noncompensation expense
    1,390       1,602       (13 )     2,834       2,914       (3 )
                     
Total noninterest expense
    4,067       4,734       (14 )     8,841       7,287       21  
                     
Income (loss) before income tax expense (benefit)
    2,363       368     NM     4,750       238     NM
Income tax expense (benefit)
    892       (26 )   NM     1,673       (69 )   NM
                     
Net income (loss)
  $ 1,471     $ 394       273     $ 3,077     $ 307     NM
                     
 
                                               
Financial ratios
                                               
ROE
    18 %     7 %             19 %     3 %        
ROA
    0.83       0.19               0.86       0.08          
Overhead ratio
    56       86               56       85          
Compensation expense as a % of total net revenue
    37       57               38       51          
                     
 
                                               
Revenue by business
                                               
Investment banking fees:
                                               
Advisory
  $ 393     $ 370       6     $ 872     $ 853       2  
Equity underwriting
    1,103       542       104       1,411       901       57  
Debt underwriting
    743       823       (10 )     1,336       1,187       13  
                     
Total investment banking fees
    2,239       1,735       29       3,619       2,941       23  
Fixed income markets
    4,929       2,347       110       9,818       2,813       249  
Equity markets
    708       1,079       (34 )     2,481       2,055       21  
Credit portfolio
    (575 )     339     NM     (246 )     732     NM
                     
Total net revenue
  $ 7,301     $ 5,500       33     $ 15,672     $ 8,541       83  
                     
 
                                               
Revenue by region
                                               
Americas
  $ 4,177     $ 3,185       31     $ 8,977     $ 3,741       140  
Europe/Middle East/Africa
    2,235       1,519       47       4,830       3,167       53  
Asia/Pacific
    889       796       12       1,865       1,633       14  
                     
Total net revenue
  $ 7,301     $ 5,500       33     $ 15,672     $ 8,541       83  
 
(a)   TSS was charged a credit reimbursement related to certain exposures managed within IB credit portfolio on behalf of clients shared with TSS. IB recognizes this credit reimbursement in its credit portfolio business in All other income. Prior periods have been revised to conform with the current presentation.
 
(b)   The increase in net interest income is due primarily to higher spreads across several fixed income trading businesses as well as the addition of the Bear Stearns Prime Services business.
 
(c)   Total net revenue included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing and alternative energy investments, as well as tax-exempt income from municipal bond investments of $334 million and $404 million for the quarters ended June 30, 2009 and 2008, respectively, and $699 million and $693 million for year-to-date 2009 and 2008, respectively.

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Quarterly results
Net income was $1.5 billion, an increase of $1.1 billion from the prior year. The results reflected higher net revenue and lower noninterest expense, partially offset by a higher provision for credit losses.
Net revenue was $7.3 billion, an increase of $1.8 billion from the prior year. Investment banking fees were up 29% to a record $2.2 billion and comprised the following: advisory fees, up 6% to $393 million; equity underwriting fees, up by $561 million to a record $1.1 billion; and debt underwriting fees, down 10% to $743 million. Fixed Income Markets revenue was a record $4.9 billion, up by $2.6 billion from the prior year, driven by strong results across all products, as well as the absence of net markdowns related to leveraged lending funded and unfunded commitments and mortgage-related exposures. The current period had modest gains on those exposures, compared with losses totaling $1.1 billion in the prior year. Fixed Income Markets revenue was offset partially by losses of $773 million from the tightening of the Firm’s credit spread on certain structured liabilities. Equity Markets revenue was $708 million, down by $371 million, or 34%, reflecting weak trading results and losses of $326 million from the tightening of the Firm’s credit spread on certain structured liabilities, offset by strong client revenue, particularly in prime services. Credit Portfolio revenue was a loss of $575 million, down by $914 million, reflecting mark-to-market losses on hedges of retained loans, partially offset by the net impact of credit spreads on derivative assets and liabilities and net interest income on loans.
The provision for credit losses was $871 million, compared with $398 million in the prior year, due to higher charge-offs, as well as a higher allowance reflecting continued deterioration in the credit environment. Net charge-offs were $433 million, while the increase to the allowance for loan losses was $438 million. The resulting allowance for loan losses to end-of-period loans retained was 7.91%, compared with 3.44% in the prior year. Nonperforming loans were $3.5 billion, up by $3.2 billion from the prior year and $1.7 billion from the prior quarter.
Noninterest expense was $4.1 billion, compared with $4.7 billion in the prior year.
Return on equity was 18% on $33.0 billion of average allocated capital, compared with 7% on $23.3 billion of average allocated capital in the prior year.
Year-to-date results
Net income was a record $3.1 billion, an increase of $2.8 billion from the prior year. The results reflected higher net revenue, partially offset by a higher noninterest expense and a higher provision for credit losses.
Net revenue was a record $15.7 billion, an increase of $7.1 billion from the prior year. Investment banking fees were up 23% to $3.6 billion and comprised the following: advisory fees, up 2% to $872 million; equity underwriting fees, up 57% to a record $1.4 billion; and debt underwriting fees, up 13% to $1.3 billion. Fixed Income Markets revenue was a record $9.8 billion, up by $7.0 billion from the prior year, driven by strong results across all products, as well as lower net markdowns related to leveraged lending funded and unfunded commitments and mortgage-related exposures. Fixed Income Markets revenue was offset partially by losses of $351 million from the tightening of the Firm’s credit spread on certain structured liabilities. Equity Markets revenue was $2.5 billion, up by $426 million, or 21%, reflecting strong trading results and client revenue, particularly in prime services, partially offset by losses of $110 million from the tightening of the Firm’s credit spread on certain structured liabilities. Credit Portfolio revenue was a loss of $246 million, down by $978 million, reflecting mark-to-market losses on hedges of retained loans, partially offset by the net impact of credit spreads on derivative assets and liabilities and net interest income on loans.
The provision for credit losses was $2.1 billion, compared with $1.0 billion in the prior year, due primarily to a higher allowance reflecting continued deterioration in the credit environment. Net charge-offs were $469 million, compared with net charge-offs of $5 million in the prior year while the increase to the allowance for loan losses was $1.6 billion, compared with $1.0 billion in the prior year.
Noninterest expense was $8.8 billion, compared with $7.3 billion in the prior year driven by higher performance-based compensation expense.
Return on Equity was 19% on $33.0 billion of average allocated capital, compared with 3% on $22.7 billion of average allocated capital in the prior year.

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Selected metrics   Three months ended June 30,   Six months ended June 30,
(in millions, except headcount and ratios)   2009   2008   Change   2009   2008   Change
 
Selected balance sheet data (period-end)
                                               
Loans:
                                               
Loans retained(a)
  $ 64,500     $ 70,690       (9 )%   $ 64,500     $ 70,690       (9 )%
Loans held-for-sale and loans at fair value
    6,814       19,699       (65 )     6,814       19,699       (65 )
 
Total loans
    71,314       90,389       (21 )     71,314       90,389       (21 )
Equity
    33,000       26,000       27       33,000       26,000       27  
 
Selected balance sheet data (average)
                                               
Total assets
  $ 710,825     $ 814,860       (13 )   $ 721,934     $ 785,344       (8 )
Trading assets-debt and equity instruments
    265,336       367,184       (28 )     269,146       368,320       (27 )
Trading assets-derivative receivables
    100,536       99,395       1       112,711       94,814       19  
Loans:
                                               
Loans retained(a)
    68,224       76,239       (11 )     69,128       75,173       (8 )
Loans held-for-sale and loans at fair value
    8,934       20,440       (56 )     10,658       20,026       (47 )
                     
Total loans
    77,158       96,679       (20 )     79,786       95,199       (16 )
Adjusted assets(b)
    531,632       676,777       (21 )     560,239       669,598       (16 )
Equity
    33,000       23,319       42       33,000       22,659       46  
 
Headcount
    25,783       37,057       (30 )     25,783       37,057       (30 )
 
Credit data and quality statistics
                                               
Net charge-offs (recoveries)
  $ 433     $ (8 )   NM   $ 469     $ 5     NM
Nonperforming assets:
                                               
Loans(c)
    3,519       313     NM     3,519       313     NM
Derivative receivables
    704       76     NM     704       76     NM
Assets acquired in loan satisfactions
    311       101       208       311       101       208  
                     
Total nonperforming assets
    4,534       490     NM     4,534       490     NM
Allowance for credit losses:
                                               
Allowance for loan losses
    5,101       2,429       110       5,101       2,429       110  
Allowance for lending-related commitments
    351       469       (25 )     351       469       (25 )
                     
Total allowance for credit losses
    5,452       2,898       88       5,452       2,898       88  
 
Net charge-off (recovery) rate(a)(d)
    2.55 %     (0.04 )%             1.37 %     0.01 %        
Allowance for loan losses to period-end
loans(a)(d)
    7.91       3.44               7.91       3.44          
Allowance for loan losses to average loans(a)(d)
    7.48       3.19 (i)             7.38       3.23 (i)        
Allowance for loan losses to nonperforming loans(c)
    150       843               150       843          
Nonperforming loans to period-end loans
    4.93       0.35               4.93       0.35          
Nonperforming loans to average loans
    4.56       0.32               4.41       0.33          
Market risk-average trading and credit portfolio VaR - 99% confidence level(e)
                                               
Trading activities:
                                               
Fixed income
  $ 249     $ 155       61 %   $ 234     $ 137       71 %
Foreign exchange
    26       26             33       30       10  
Equities
    77       30       157       119       31       284  
Commodities and other
    34       31       10       31       29       7  
Diversification(f)
    (136 )     (92 )     (48 )     (148 )     (91 )     (63 )
                     
Total trading VaR(g)
    250       150       67       269       136       98  
Credit portfolio VaR(h)
    133       35       280       157       33       376  
Diversification(f)
    (116 )     (36 )     (222 )     (125 )     (34 )     (268 )
                     
Total trading and credit portfolio VaR
  $ 267     $ 149       79     $ 301     $ 135       123  
 
(a)   Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and excluded loans held-for-sale and loans accounted for at fair value.
 
(b)   Adjusted assets, a non-GAAP financial measure, equals total assets minus: (1) securities purchased under resale agreements and securities borrowed less securities sold, not yet purchased; (2) assets of variable interest entities (“VIEs”) consolidated under FIN 46R; (3) cash and securities segregated and on deposit for regulatory and other purposes; (4) goodwill and intangibles; (5) securities received as collateral; and (6) investments purchased under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. The amount of adjusted assets is presented to assist the reader in comparing IB’s asset and capital levels to other investment banks in the securities industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a company’s capital adequacy. IB believes an adjusted asset amount that excludes the assets discussed above, which were considered to have a low risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry.

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(c)   Nonperforming loans included loans held-for-sale and loans at fair value of $112 million and $25 million at June 30, 2009 and 2008, respectively, which were excluded from the allowance coverage ratios. Nonperforming loans excluded distressed loans held-for-sale that were purchased as part of IB’s proprietary activities. Allowance for loan losses of $1.6 billion and $71 million was held against these nonperforming loans at June 30, 2009 and 2008, respectively.
 
(d)   Loans held-for-sale and loans at fair value were excluded when calculating the allowance coverage ratio and net charge-off (recovery) rate.
 
(e)   Results for second quarter of 2008 include one month of the combined Firm’s results and two months of heritage JPMorgan Chase & Co. results. For a more complete description of value-at-risk, see pages 80-86 of this Form 10-Q.
 
(f)   Average VaRs were less than the sum of the VaRs of their market risk components, which was due to risk offsets resulting from portfolio diversification. The diversification effect reflected the fact that the risks were not perfectly correlated. The risk of a portfolio of positions is usually less than the sum of the risks of the positions themselves.
 
(g)   Trading VaR includes predominantly all trading activities in IB. Trading VaR does not include VaR related to held-for-sale funded loans and unfunded commitments, nor the debit valuation adjustments (“DVA”) taken on derivative and structured liabilities to reflect the credit quality of the Firm. See the DVA Sensitivity table on page 85 of this Form 10-Q for further details. Trading VaR also does not include the MSR portfolio or VaR related to other corporate functions, such as Corporate/Private Equity. Beginning in the fourth quarter of 2008, trading VaR includes the estimated credit spread sensitivity of certain mortgage products.
 
(h)   Included VaR on derivative credit valuation adjustments (“CVA”), hedges of the CVA and mark-to-market hedges of the retained loan portfolio, which were all reported in principal transactions revenue. This VaR does not include the retained loan portfolio.
 
(i)   Excluding the impact of a loan originated in March 2008 to Bear Stearns, the adjusted ratio would be 3.46% and 3.40% for the quarter ended June 30, 2008, and the six months ended June 30, 2008, respectively. The average balance of the loan extended to Bear Stearns was $6.0 billion for the quarter ended June 30, 2008, and $3.8 billion for year-to-date 2008.
According to Thomson Reuters, for the first six months of 2009, the Firm was ranked #1 in Global Debt, Equity and Equity-Related; #1 in Global Equity and Equity-Related; #1 in Global Syndicated Loans; #1 in Global Long-Term Debt and #3 in Global Announced M&A based on volume.
According to Dealogic, the Firm was ranked #1 in Investment Banking fees generated for the first six months of 2009, based upon revenue.
                         
    Six months ended June 30, 2009   Full Year 2008
Market shares and rankings(a)   Market Share   Rankings   Market Share   Rankings
 
Global debt, equity and equity-related
    11 %   #1     10 %   #1
Global syndicated loans
    10     #1     12     #1
Global long-term debt(b)
    9     #1     9     #3
Global equity and equity-related(c)
    16     #1     10     #1
Global announced M&A(d)
    32     #3     27     #2
U.S. debt, equity and equity-related
    15     #1     15     #2
U.S. syndicated loans
    25     #1     25     #1
U.S. long-term debt(b)
    15     #1     15     #2
U.S. equity and equity-related(c)
    17     #1     11     #1
U.S. announced M&A(d)
    48     #3     33     #2
 
(a)   Source: Thomson Reuters. Full-year 2008 results are pro forma for the Bear Stearns merger.
 
(b)   Includes asset-backed securities, mortgage-backed securities and municipal securities.
 
(c)   Includes rights offerings; U.S.-domiciled equity and equity-related transactions.
 
(d)   Global announced M&A is based on rank value; all other rankings are based on proceeds, with full credit to each book manager/equal if joint. Because of joint assignments, market share of all participants will add up to more than 100%. Global and U.S. announced M&A market share and rankings for 2008 include transactions withdrawn since December 31, 2008. U.S. announced M&A represents any U.S. involvement ranking.

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RETAIL FINANCIAL SERVICES
For a discussion of the business profile of RFS, see pages 45-50 of JPMorgan Chase’s 2008 Annual Report and page 5 of this Form 10-Q.
                                                 
Selected income statement data   Three months ended June 30,   Six months ended June 30,
(in millions, except ratios)   2009   2008   Change   2009   2008   Change
 
Revenue
                                               
Lending & deposit-related fees
  $ 1,003     $ 497       102 %   $ 1,951     $ 958       104 %
Asset management, administration and commissions
    425       375       13       860       752       14  
Mortgage fees and related income
    807       696       16       2,440       1,221       100  
Credit card income
    411       194       112       778       368       111  
Other income
    294       198       48       508       350       45  
                     
Noninterest revenue
    2,940       1,960       50       6,537       3,649       79  
Net interest income
    5,030       3,150       60       10,268       6,224       65  
                     
Total net revenue
    7,970       5,110       56       16,805       9,873       70  
 
Provision for credit losses
    3,846       1,585       143       7,723       4,273       81  
 
Noninterest expense
                                               
Compensation expense
    1,631       1,184       38       3,262       2,344       39  
Noncompensation expense
    2,365       1,396       69       4,822       2,708       78  
Amortization of intangibles
    83       100       (17 )     166       200       (17 )
                     
Total noninterest expense
    4,079       2,680       52       8,250       5,252       57  
                     
Income (loss) before income tax expense
    45       845       (95 )     832       348       139  
Income tax expense (benefit)
    30       342       (91 )     343       156       120  
                     
Net income (loss)
  $ 15     $ 503       (97 )   $ 489     $ 192       155  
                     
 
Financial ratios
                                               
ROE
    %     12 %             4 %     2 %        
Overhead ratio
    51       52               49       53          
Overhead ratio excluding core deposit intangibles(a)
    50       51               48       51          
 
(a)   Retail Financial Services uses the overhead ratio (excluding the amortization of core deposit intangibles (“CDI”)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation results in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would result in an improving overhead ratio over time, all things remaining equal. This non-GAAP ratio excludes Retail Banking’s core deposit intangible amortization expense, related to the 2006 Bank of New York transaction and the 2004 Bank One merger, of $82 million and $99 million for the quarters ended June 30, 2009 and 2008, respectively, and $165 million and $198 million for year-to-date June 30, 2009 and 2008, respectively.
Quarterly results
Net income was $15 million, a decrease of $488 million, or 97%, from the prior year. A higher provision for credit losses and higher noninterest expense were offset partially by higher net revenue, reflecting the impact of the Washington Mutual transaction.
Net revenue was $8.0 billion, an increase of $2.9 billion, or 56%, from the prior year. Net interest income was $5.0 billion, up by $1.9 billion, or 60%, reflecting the impact of the Washington Mutual transaction, wider loan spreads, wider deposit spreads and higher deposit balances offset partially by lower loan balances in the heritage Chase portfolio. Noninterest revenue was $2.9 billion, up by $980 million, or 50%, driven by the impact of the Washington Mutual transaction and higher deposit-related fees.
The provision for credit losses was $3.8 billion, an increase of $2.3 billion from the prior year. Weak economic conditions and housing price declines continued to drive higher estimated losses for the home equity and mortgage loan portfolios. The provision included a $1.2 billion addition to the allowance for loan losses, compared with an addition of $600 million in the prior year. Home equity net charge-offs were $1.3 billion (3.67% net charge-off rate; 4.61% excluding purchased credit-impaired loans), compared with $511 million (2.16% net charge-off rate) in the prior year. Subprime mortgage net charge-offs were $410 million (7.91% net charge-off rate; 11.50% excluding purchased credit-impaired loans), compared with $192 million (4.98% net charge-off rate) in the prior year. Prime mortgage net charge-offs were $481 million (2.30% net charge-off rate; 3.07% excluding purchased credit-impaired loans), compared with $104 million (1.08% net charge-off rate) in the prior year.

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Noninterest expense was $4.1 billion, an increase of $1.4 billion, or 52%, reflecting the impact of the Washington Mutual transaction, higher servicing expense and higher FDIC insurance premiums.
Year-to-date results
Net income was $489 million, an increase of $297 million, or 155%, from the prior year, as the impact of the Washington Mutual transaction was offset partially by a higher provision for credit losses and higher noninterest expense.
Net revenue was $16.8 billion, an increase of $6.9 billion, or 70%, from the prior year. Net interest income was $10.3 billion, up by $4.0 billion, or 65%, due to the impact of the Washington Mutual transaction, wider deposit spreads, wider loan spreads, and higher deposit balances. Noninterest revenue was $6.5 billion, up by $2.9 billion, or 79%, driven by the impact of the Washington Mutual transaction, higher mortgage fees and related income and higher deposit-related fees.
The provision for credit losses was $7.7 billion, an increase of $3.5 billion from the prior year. Weak economic conditions and housing price declines continued to drive higher estimated losses for the home equity and mortgage loan portfolios. The provision included $2.9 billion in additions to the allowance for loan losses, compared with additions of $2.4 billion in the prior year. Home equity net charge-offs were $2.4 billion (3.41% net charge-off rate; 4.27% excluding purchased credit-impaired loans), compared with $958 million (2.03% net charge-off rate) in the prior year. Subprime mortgage net charge-offs were $774 million (7.36% net charge-off rate; 10.69% excluding purchased credit-impaired loans), compared with $341 million (4.40% net charge-off rate) in the prior year. Prime mortgage net charge-offs were $793 million (1.88% net charge-off rate; 2.50% excluding purchased credit-impaired loans), compared with $154 million (0.83% net charge-off rate) in the prior year.
Noninterest expense was $8.3 billion, an increase of $3.0 billion, or 57%, from the prior year, reflecting the impact of the Washington Mutual transaction, higher servicing expense and higher FDIC insurance premiums.
                                                 
Selected metrics   Three months ended June 30,   Six months ended June 30,
(in millions, except headcount and ratios)   2009   2008   Change   2009   2008   Change
 
Selected balance sheet data (period-end)
                                               
Assets
  $ 399,916     $ 265,845       50 %   $ 399,916     $ 265,845       50 %
Loans:
                                               
Loans retained
    353,934       223,047       59       353,934       223,047       59  
Loans held-for-sale and loans at fair value(a)
    13,192       16,282       (19 )     13,192       16,282       (19 )
                     
Total loans
    367,126       239,329       53       367,126       239,329       53  
Deposits
    371,241       223,121       66       371,241       223,121       66  
Equity
    25,000       17,000       47       25,000       17,000       47  
 
Selected balance sheet data (average)
                                               
Assets
  $ 410,228     $ 267,808       53     $ 416,813     $ 263,911       58  
Loans:
                                               
Loans retained
    359,372       221,132       63       363,127       217,859       67  
Loans held-for-sale and loans at fair value(a)
    19,043       20,492       (7 )     17,792       19,167       (7 )
                     
Total loans
    378,415       241,624       57       380,919       237,026       61  
Deposits
    377,259       226,487       67       373,788       226,021       65  
Equity
    25,000       17,000       47       25,000       17,000       47  
 
Headcount
    103,733       69,550       49       103,733       69,550       49  
 
Credit data and quality statistics
                                               
Net charge-offs
  $ 2,649     $ 1,025       158     $ 4,825     $ 1,850       161  
Nonperforming loans(b)(c)(d)
    8,995       4,574       97       8,995       4,574       97  
Nonperforming assets(b)(c)(d)
    10,554       5,333       98       10,554       5,333       98  
Allowance for loan losses
    11,832       5,062       134       11,832       5,062       134  
 
Net charge-off rate(e)
    2.96 %     1.86 %             2.68 %     1.71 %        
Net charge-off rate excluding purchased credit-impaired loans(e)(f)
    3.89       1.86               3.53       1.71          
Allowance for loan losses to ending loans(e)
    3.34       2.27               3.34       2.27          
Allowance for loan losses to ending loans excluding purchased credit-impaired
loans(e)(f)
    4.41       2.27               4.41       2.27          
Allowance for loan losses to nonperforming loans(b)(e)
    135       115               135       115          
Nonperforming loans to total loans
    2.45       1.91               2.45       1.91          
Nonperforming loans to total loans excluding purchased credit-impaired loans(b)
    3.19       1.91               3.19       1.91          
 

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(a)   Loans at fair value consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. These loans totaled $11.3 billion and $14.1 billion at June 30, 2009 and 2008, respectively. Average balances of these loans totaled $16.2 billion and $16.9 billion for the quarters ended June 30, 2009 and 2008, respectively, and $14.9 billion and $15.2 billion for year-to-date June 30, 2009 and 2008, respectively.
 
(b)   Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction. These loans are accounted for on a pool basis and the pools are considered to be performing under SOP 03-3.
 
(c)   Nonperforming loans and assets included loans held-for-sale and loans accounted for at fair value of $203 million and $180 million at June 30, 2009 and 2008, respectively. Certain of these loans are classified as trading assets on the Consolidated Balance Sheets.
 
(d)   Nonperforming loans and assets excluded: (1) loans eligible for repurchase, as well as loans repurchased from Government National Mortgage Association (“GNMA”) pools that are insured by U.S. government agencies, of $4.7 billion and $1.9 billion at June 30, 2009 and 2008, respectively; and (2) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program, of $473 million and $394 million at June 30, 2009 and 2008, respectively. These amounts for GNMA and student loans are excluded, as reimbursement is proceeding normally.
 
(e)   Loans held-for-sale and loans accounted for at fair value were excluded when calculating the allowance coverage ratio and the net charge-off rate.
 
(f)   Excludes the impact of purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction. These loans were accounted for at fair value on the acquisition date, which incorporated management’s estimate, as of that date, of credit losses over the remaining life of the portfolio. No allowance for loan losses has been recorded for these loans.
RETAIL BANKING
                                                 
Selected income statement data   Three months ended June 30,   Six months ended June 30,
(in millions, except ratios)   2009   2008   Change   2009   2008   Change
 
Noninterest revenue
  $ 1,803     $ 1,062       70 %   $ 3,521     $ 2,028       74 %
Net interest income
    2,719       1,671       63       5,333       3,216       66  
                     
Total net revenue
    4,522       2,733       65       8,854       5,244       69  
Provision for credit losses
    361       62       482       686       111     NM
Noninterest expense
    2,557       1,557       64       5,137       3,119       65  
                     
Income before income tax expense
    1,604       1,114       44       3,031       2,014       50  
Net income
  $ 970     $ 674       44     $ 1,833     $ 1,219       50  
                     
Overhead ratio
    57 %     57 %             58 %     59 %        
Overhead ratio excluding core deposit intangibles(a)
    55       53               56       56          
 
(a)   Retail Banking uses the overhead ratio (excluding the amortization of CDI), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation results in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would result in an improving overhead ratio over time, all things remaining equal. This non-GAAP ratio excludes Retail Banking’s CDI amortization expense related to the 2006 Bank of New York transaction and the 2004 Bank One merger of $82 million and $99 million for the quarters ended June 30, 2009 and 2008, respectively, and $165 million and $198 million for year-to-date 2009 and 2008, respectively.
Quarterly results
Retail Banking reported net income of $970 million, up by $296 million, or 44%, from the prior year.
Net revenue was $4.5 billion, up by $1.8 billion, or 65%, reflecting the impact of the Washington Mutual transaction, wider deposit spreads, higher deposit balances and higher deposit-related fees.
The provision for credit losses was $361 million, compared with $62 million in the prior year, reflecting higher estimated losses and an increase in the allowance for loan losses for Business Banking loans.
Noninterest expense was $2.6 billion, up by $1.0 billion, or 64%, due to the impact of the Washington Mutual transaction and higher FDIC insurance premiums.
Year-to-date results
Retail Banking reported net income of $1.8 billion, up by $614 million, or 50%, from the prior year.
Net revenue was $8.9 billion, up by $3.6 billion, or 69%, from the prior year, reflecting the impact of the Washington Mutual transaction, wider deposit spreads, higher deposit balances and higher deposit-related fees.
The provision for credit losses was $686 million, compared with $111 million in the prior year, reflecting higher estimated losses and an increase in the allowance for loan losses for Business Banking loans.
Noninterest expense was $5.1 billion, up by $2.0 billion, or 65%, from the prior year, due to the impact of the Washington Mutual transaction and higher FDIC insurance premiums.

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Selected metrics   Three months ended June 30,   Six months ended June 30,
(in billions, except ratios and where otherwise noted)   2009   2008   Change   2009   2008   Change
 
Business metrics
 
Selected ending balances
 
 
Business banking origination volume
  $ 0.6     $ 1.7       (65 )%   $ 1.1     $ 3.5       (69 )%
End-of-period loans owned
    17.8       16.5       8       17.8       16.5       8  
End-of-period deposits:
                                               
Checking
  $ 114.1     $ 69.1       65     $ 114.1     $ 69.1       65  
Savings
    150.4       105.8       42       150.4       105.8       42  
Time and other
    78.9       37.0       113       78.9       37.0       113  
                     
Total end-of-period deposits
    343.4       211.9       62       343.4       211.9       62  
Average loans owned
  $ 18.0     $ 16.2       11     $ 18.2     $ 16.0       14  
Average deposits:
                                               
Checking
  $ 114.2     $ 68.4       67     $ 111.8     $ 67.3       66  
Savings
    151.2       105.9       43       149.6       103.1       45  
Time and other
    82.7       39.6       109       85.6       43.6       96  
                     
Total average deposits
    348.1       213.9       63       347.0       214.0       62  
Deposit margin
    2.92 %     2.88 %             2.89 %     2.76 %        
Average assets
  $ 29.1     $ 25.7       13     $ 29.6     $ 25.5       16  
                     
Credit data and quality statistics
(in millions, except ratio)
                                               
Net charge-offs
  $ 211     $ 61       246     $ 386     $ 110       251  
Net charge-off rate
    4.70 %     1.51 %             4.28 %     1.38 %        
Nonperforming assets
  $ 686     $ 337       104     $ 686     $ 337       104  
 
                                                 
    Three months ended June 30,   Six months ended June 30,
Retail branch business metrics   2009   2008   Change   2009   2008   Change
 
Investment sales volume (in millions)
  $ 5,292     $ 5,211       2 %   $ 9,690     $ 9,295       4 %
 
                                               
Number of:
                                               
Branches
    5,203       3,157       65       5,203       3,157       65  
ATMs
    14,144       9,310       52       14,144       9,310       52  
Personal bankers
    15,959       9,995       60       15,959       9,995       60  
Sales specialists
    5,485       4,116       33       5,485       4,116       33  
Active online customers (in thousands)
    13,930       7,180       94       13,930       7,180       94  
Checking accounts (in thousands)
    25,252       11,336       123       25,252       11,336       123  
 
CONSUMER LENDING
                                                 
Selected income statement data   Three months ended June 30,   Six months ended June 30,
(in millions, except ratio)   2009   2008   Change   2009   2008   Change
 
Noninterest revenue
  $ 1,137     $ 898       27 %   $ 3,016     $ 1,621       86 %
Net interest income
    2,311       1,479       56       4,935       3,008       64  
                     
Total net revenue
    3,448       2,377       45       7,951       4,629       72  
Provision for credit losses
    3,485       1,523       129       7,037       4,162       69  
Noninterest expense
    1,522       1,123       36       3,113       2,133       46  
                     
Income (loss) before income tax expense
    (1,559 )     (269 )     (480 )     (2,199 )     (1,666 )     (32 )
                     
Net income (loss)
  $ (955 )   $ (171 )     (458 )   $ (1,344 )   $ (1,027 )     (31 )
Overhead ratio
    44 %     47 %             39 %     46 %        
 

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Quarterly results
Consumer Lending reported a net loss of $955 million, compared with a net loss of $171 million in the prior year.
Net revenue was $3.4 billion, up by $1.1 billion, or 45%, from the prior year. The increase was driven by the impact of the Washington Mutual transaction and wider loan spreads, largely offset by lower loan balances in the heritage Chase portfolio. Mortgage fees and related income increased due to higher net mortgage servicing revenue, partially offset by a decline in mortgage production revenue. Mortgage production revenue was $284 million, down $110 million from the prior year, as an increase in reserves for the repurchase of previously-sold loans and markdowns on the mortgage warehouse were offset partially by wider margins on new originations. Net mortgage servicing revenue (which includes loan servicing revenue, other changes in fair value and MSR risk management results) was $523 million, an increase of $221 million from the prior year. Loan servicing revenue, net of other changes in fair value of the MSR asset, was up $191 million, reflecting a 70% growth in third-party loans serviced. MSR risk management results were $81 million, compared with $51 million in the prior year.
The provision for credit losses was $3.5 billion, compared with $1.5 billion in the prior year, reflecting weakness in the home equity, mortgage and student loan portfolios (see Retail Financial Services discussion of the provision for credit losses, above, for further detail).
Noninterest expense was $1.5 billion, up by $399 million, or 36%, from the prior year, reflecting higher servicing expense due to increased delinquencies and defaults and the impact of the Washington Mutual transaction.
Year-to-date results
Consumer Lending reported a net loss of $1.3 billion, compared with a net loss of $1.0 billion in the prior year.
Net revenue was $8.0 billion, up by $3.3 billion, or 72%, from the prior year. The increase was driven by the impact of the Washington Mutual transaction, higher mortgage fees and related income, and wider loan spreads offset partially by lower loan balances in the heritage Chase portfolio. Mortgage fees and related income increased due to higher net mortgage servicing revenue. Mortgage production revenue was $765 million, down $5 million from the prior year, as an increase in reserves for the repurchase of previously-sold loans and markdowns on the mortgage warehouse were largely offset by wider margins on new originations. Net mortgage servicing revenue (which includes loan servicing revenue, other changes in fair value and MSR risk management results) was $1.7 billion, an increase of $1.2 billion from the prior year. Loan servicing revenue, net of other changes in fair value of the MSR, was up $172 million, reflecting a 70% growth in third-party loans serviced. MSR risk management results were $1.1 billion, compared with $32 million in the prior year, reflecting the positive impact of a decrease in estimated future mortgage prepayments and positive hedging results.
The provision for credit losses was $7.0 billion, compared with $4.2 billion in the prior year, reflecting weakness in the home equity, mortgage and student loan portfolios (see Retail Financial Services discussion of the provision for credit losses, above, for further detail).
Noninterest expense was $3.1 billion, up by $980 million, or 46%, from the prior year, reflecting higher servicing expense due to increased delinquencies and defaults and the impact of the Washington Mutual transaction.

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Selected metrics   Three months ended June 30,   Six months ended June 30,
(in billions)   2009   2008   Change   2009   2008   Change
 
Business metrics
                                               
Selected ending balances
                                               
Loans excluding purchased credit-impaired loans(a)
                                               
End-of-period loans owned:
                                               
Home equity
  $ 108.2     $ 95.1       14 %   $ 108.2     $ 95.1       14 %
Prime mortgage
    62.1       40.1       55       62.1       40.1       55  
Subprime mortgage
    13.8       14.8       (7 )     13.8       14.8       (7 )
Option ARMs
    9.0           NM     9.0           NM
Student loans
    15.6       13.0       20       15.6       13.0       20  
Auto loans
    42.9       44.9       (4 )     42.9       44.9       (4 )
Other
    1.0       0.9       11       1.0       0.9       11  
                     
Total end-of-period loans
  $ 252.6     $ 208.8       21     $ 252.6     $ 208.8       21  
                     
Average loans owned:
                                               
Home equity
  $ 110.1     $ 95.1       16     $ 111.7     $ 95.0       18  
Prime mortgage
    63.3       39.3       61       64.4       37.7       71  
Subprime mortgage
    14.3       15.5       (8 )     14.6       15.6       (6 )
Option ARMs
    9.1           NM     9.0           NM
Student loans
    16.7       12.7       31       16.8       12.4       35  
Auto loans
    43.1       44.9       (4 )     42.8       44.1       (3 )
Other
    1.0       1.0             1.3       1.1       18  
                     
Total average loans
  $ 257.6     $ 208.5       24     $ 260.6     $ 205.9       27  
                     
Purchased credit-impaired loans(a)
                                               
End-of-period loans owned:
                                               
Home equity
  $ 27.7     $     NM   $ 27.7     $     NM
Prime mortgage
    20.8           NM     20.8           NM
Subprime mortgage
    6.4           NM     6.4           NM
Option ARMs
    30.5           NM     30.5           NM
                     
Total end-of-period loans
  $ 85.4     $     NM   $ 85.4     $     NM
                     
Average loans owned:
                                               
Home equity
  $ 28.0     $     NM   $ 28.2     $     NM
Prime mortgage
    21.0           NM     21.3           NM
Subprime mortgage
    6.5           NM     6.6           NM
Option ARMs
    31.0           NM     31.2           NM
                     
Total average loans
  $ 86.5     $     NM   $ 87.3     $     NM
                     
Total consumer lending portfolio
                                               
End-of-period loans owned:
                                               
Home equity
  $ 135.9     $ 95.1       43     $ 135.9     $ 95.1       43  
Prime mortgage
    82.9       40.1       107       82.9       40.1       107  
Subprime mortgage
    20.2       14.8       36       20.2       14.8       36  
Option ARMs
    39.5           NM     39.5           NM
Student loans
    15.6       13.0       20       15.6       13.0       20  
Auto loans
    42.9       44.9       (4 )     42.9       44.9       (4 )
Other
    1.0       0.9       11       1.0       0.9       11  
                     
Total end-of-period loans
  $ 338.0     $ 208.8       62     $ 338.0     $ 208.8       62  
                     
Average loans owned:
                                               
Home equity
  $ 138.1     $ 95.1       45     $ 139.9     $ 95.0       47  
Prime mortgage
    84.3       39.3       115       85.7       37.7       127  
Subprime mortgage
    20.8       15.5       34       21.2       15.6       36  
Option ARMs
    40.1           NM     40.2           NM
Student loans
    16.7       12.7       31       16.8       12.4       35  
Auto loans
    43.1       44.9       (4 )     42.8       44.1       (3 )
Other
    1.0       1.0             1.3       1.1       18  
                     
Total average loans owned(b)
  $ 344.1     $ 208.5       65     $ 347.9     $ 205.9       69  
 
(a)   Purchased credit-impaired loans accounted for under SOP 03-3 represent loans acquired in the Washington Mutual transaction for which a deterioration in credit quality occurred between the origination date and JPMorgan Chase’s acquisition date. Under SOP 03-3, these loans were initially recorded at fair value and accrete interest income over the estimated life of the loan when cash flows are reasonably estimable, even if the underlying loans are contractually past due.
 
(b)   Total average loans owned include loans held-for-sale of $2.8 billion and $3.6 billion for the quarters ended June 30, 2009 and 2008, respectively, and $2.9 billion and $4.0 billion for year-to-date 2009 and 2008, respectively.

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Credit data and quality statistics   Three months ended June 30,   Six months ended June 30,
(in millions, except ratios)   2009   2008   Change   2009   2008   Change
 
Net charge-offs excluding purchased credit-impaired loans(a):
                                               
Home equity
  $ 1,265     $ 511       148 %   $ 2,363     $ 958       147 %
Prime mortgage
    481       104       363       793       154       415  
Subprime mortgage
    410       192       114       774       341       127  
Option ARMs
    15           NM     19           NM
Auto loans
    146       119       23       320       237       35  
Other
    121       38       218       170       50       240  
                     
Total net charge-offs
  $ 2,438     $ 964       153     $ 4,439     $ 1,740       155  
                     
Net charge-off rate excluding purchased credit-impaired loans(a):
                                               
Home equity
    4.61 %     2.16 %             4.27 %     2.03 %        
Prime mortgage
    3.07       1.08               2.50       0.83          
Subprime mortgage
    11.50       4.98               10.69       4.40          
Option ARMs
    0.66                     0.43                
Auto loans
    1.36       1.07               1.51       1.08          
Other
    3.15       1.44               2.18       1.01          
Total net charge-off rate excluding purchased credit-impaired loans(b)
    3.84       1.89               3.47       1.73          
                     
Net charge-off rate — reported:
                                               
Home equity
    3.67 %     2.16 %             3.41 %     2.03 %        
Prime mortgage
    2.30       1.08               1.88       0.83          
Subprime mortgage
    7.91       4.98               7.36       4.40          
Option ARMs
    0.15                     0.10                
Auto loans
    1.36       1.07               1.51       1.08          
Other
    3.15       1.44               2.18       1.01          
Total net charge-off rate — reported(b)
    2.87       1.89               2.59       1.73          
                     
30+ day delinquency rate excluding
purchased credit-impaired loans(c)(d)(e)
    5.22 %     3.88 %             5.22 %     3.88 %        
Nonperforming assets(f)(g)
  $ 9,868     $ 4,996       98     $ 9,868     $ 4,996       98  
Allowance for loan losses to ending loans
    3.23 %     2.33 %             3.23 %     2.33 %        
Allowance for loan losses to ending loans excluding purchased credit-impaired loans(a)
    4.34       2.33               4.34       2.33          
 
(a)   Excludes the impact of purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction. These loans were accounted for at fair value on the acquisition date, which incorporated management’s estimate, as of that date, of credit losses over the remaining life of the portfolio. No allowance for loan losses and no charge-offs have been recorded for these loans.
 
(b)   Average loans held-for-sale of $2.8 billion and $3.6 billion for the quarters ended June 30, 2009 and 2008, respectively, and $2.9 billion and $4.0 billion for year-to-date 2009 and 2008, respectively, were excluded when calculating the net charge-off rate.
 
(c)   Excluded loans eligible for repurchase, as well as loans repurchased from GNMA pools that are insured by U.S. government agencies, of $4.6 billion and $1.5 billion at June 30, 2009 and 2008, respectively. These amounts are excluded, as reimbursement is proceeding normally.
 
(d)   Excluded loans that are 30 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program, of $854 million and $735 million at June 30, 2009 and 2008, respectively. These amounts are excluded, as reimbursement is proceeding normally.
 
(e)   The delinquency rate for purchased credit-impaired loans accounted for under SOP 03-3 was 23.37% at June 30, 2009. There were no purchased credit-impaired loans at June 30, 2008.
 
(f)   Nonperforming assets excluded: (1) loans eligible for repurchase, as well as loans repurchased from GNMA pools that are insured by U.S. government agencies, of $4.7 billion and $1.9 billion at June 30, 2009 and 2008, respectively; and (2) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program, of $473 million and $394 million at June 30, 2009 and 2008, respectively. These amounts for GNMA and student loans are excluded, as reimbursement is proceeding normally.
 
(g)   Excludes purchased credit-impaired loans accounted for under SOP 03-3 that were acquired as part of the Washington Mutual transaction. These loans are accounted for on a pool basis, and the pools are considered to be performing under SOP 03-3.

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Consumer Lending (continued)   Three months ended June 30,   Six months ended June 30,
(in billions, except where otherwise noted)   2009   2008   Change   2009   2008   Change
 
Origination volume:
                                               
Mortgage origination volume by channel
                                               
Retail
  $ 14.7     $ 12.5       18 %   $ 28.3     $ 25.1       13 %
Wholesale
    2.4       9.1       (74 )     5.0       19.7       (75 )
Correspondent
    20.2       17.0       19       37.2       29.0       28  
CNT (negotiated transactions)
    3.8       17.5       (78 )     8.3       29.4       (72 )
                     
Total mortgage origination volume
    41.1       56.1       (27 )     78.8       103.2       (24 )
                     
Home equity
    0.6       5.3       (89 )     1.5       12.0       (88 )
Student loans
    0.4       1.3       (69 )     2.1       3.3       (36 )
Auto loans
    5.3       5.6       (5 )     10.9       12.8       (15 )
Average mortgage loans held-for-sale and loans at fair value(a)
    16.7       17.4       (4 )     15.3       15.6       (2 )
Average assets
    381.1       242.1       57       387.2       238.4       62  
Third-party mortgage loans serviced (ending)
    1,117.5       659.1       70       1,117.5       659.1       70  
MSR net carrying value (ending)
    14.6       10.9       34       14.6       10.9       34  
                     
 
Supplemental mortgage fees and related income details
(in millions)
                                               
Production revenue
  $ 284     $ 394       (28 )   $ 765     $ 770       (1 )
                     
Net mortgage servicing revenue:
                                               
Loan servicing revenue
    1,279       645       98       2,501       1,238       102  
Changes in MSR asset fair value:
                                               
Due to inputs or assumptions in model
    3,831       1,519       152       5,141       887       480  
Other changes in fair value
    (837 )     (394 )     (112 )     (1,910 )     (819 )     (133 )
                     
Total changes in MSR asset fair value
    2,994       1,125       166       3,231       68     NM
Derivative valuation adjustments and other
    (3,750 )     (1,468 )     (155 )     (4,057 )     (855 )     (375 )
                     
Total net mortgage servicing revenue
    523       302       73       1,675       451       271  
                     
Mortgage fees and related income
    807       696       16       2,440       1,221       100  
 
(a)   Loans at fair value consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. Average balances of these loans totaled $16.2 billion and $16.9 billion for the quarters ended June 30, 2009 and 2008, respectively, and $14.9 billion and $15.2 billion for year-to-date 2009 and 2008, respectively.

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CARD SERVICES
For a discussion of the business profile of CS, see pages 51-53 of JPMorgan Chase’s 2008 Annual Report and page 5 of this Form 10-Q.
JPMorgan Chase uses the concept of “managed basis” to evaluate the credit performance of its credit card loans, both loans on the balance sheet and loans that have been securitized. For further information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 15–18 of this Form 10-Q. Managed results exclude the impact of credit card securitizations on total net revenue, the provision for credit losses, net charge-offs and loan receivables. Securitization does not change reported net income; however, it does affect the classification of items on the Consolidated Statements of Income and Consolidated Balance Sheets.
                                                 
Selected income statement data — managed basis   Three months ended June 30,   Six months ended June 30,
(in millions, except ratios)   2009   2008   Change   2009   2008   Change
 
Revenue
                                               
Credit card income
  $ 921     $ 673       37 %   $ 1,765     $ 1,273       39 %
All other income
    (364 )     91     NM     (561 )     210     NM
                     
Noninterest revenue
    557       764       (27 )     1,204       1,483       (19 )
Net interest income
    4,311       3,011       43       8,793       6,196       42  
                     
Total net revenue
    4,868       3,775       29       9,997       7,679       30  
 
                                               
Provision for credit losses
    4,603       2,194       110       9,256       3,864       140  
 
                                               
Noninterest expense
                                               
Compensation expense
    329       258       28       686       525       31  
Noncompensation expense
    873       763       14       1,723       1,604       7  
Amortization of intangibles
    131       164       (20 )     270       328       (18 )
                     
Total noninterest expense
    1,333       1,185       12       2,679       2,457       9  
                     
 
                                               
Income (loss) before income tax expense
    (1,068 )     396     NM     (1,938 )     1,358     NM
Income tax expense (benefit)
    (396 )     146     NM     (719 )     499     NM
                     
Net income (loss)
  $ (672 )   $ 250     NM   $ (1,219 )   $ 859     NM
                     
 
                                               
Memo: Net securitization income (loss)
  $ (268 )   $ 36     NM   $ (448 )   $ 106     NM
 
                                               
Financial ratios
                                               
ROE
    (18 )%     7 %             (16 )%     12 %        
Overhead ratio
    27       31               27       32          
 
Quarterly results
Net loss was $672 million, a decline of $922 million from the prior year. The decrease was driven by a higher provision for credit losses, partially offset by higher net revenue.
End-of-period managed loans were $171.5 billion, an increase of $16.1 billion, or 10%, from the prior year. Average managed loans were $174.1 billion, an increase of $21.3 billion, or 14%, from the prior year. The increases from the prior year in both end-of-period and average managed loans were predominantly due to the impact of the Washington Mutual transaction, partially offset by lower charge volume and a higher level of charge-offs. Excluding the impact of the Washington Mutual transaction, end-of-period and average managed loans were $148.4 billion and $149.7 billion, respectively.
Managed net revenue was $4.9 billion, an increase of $1.1 billion, or 29%, from the prior year. Net interest income was $4.3 billion, up by $1.3 billion, or 43%, from the prior year, driven by the impact of the Washington Mutual transaction and wider loan spreads. These benefits were offset partially by higher revenue reversals associated with higher charge-offs and a decreased level of fees. Noninterest revenue was $557 million, a decrease of $207 million, or 27%, from the prior year. The decline was driven by an increase in the credit enhancement for securitization trusts combined with lower securitization income, partially offset by higher merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint venture.
The managed provision for credit losses was $4.6 billion, an increase of $2.4 billion from the prior year, reflecting a higher level of charge-offs due to continued deterioration in the credit environment. The managed net charge-off rate for the quarter was 10.03%, up from 4.98% in the prior year. The 30-day managed delinquency rate was 5.86%, up from 3.46% in the prior year. Excluding Washington Mutual, the managed net charge-off rate for the second quarter was 8.97% and the 30-day delinquency rate was 5.27%.

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Noninterest expense was $1.3 billion, an increase of $148 million, or 12%, from the prior year, due to the dissolution of the Chase Paymentech Solutions joint venture and the impact of the Washington Mutual transaction.
Year-to-date results
Net loss was $1.2 billion, a decline of $2.1 billion from the prior year. The decrease was driven by a higher provision for credit losses, partially offset by higher net revenue.
Average managed loans were $178.7 billion, an increase of $25.5 billion, or 17%, from the prior year. The increase from the prior year was predominantly due to the impact of the Washington Mutual transaction. Excluding the impact of the Washington Mutual transaction, average managed loans were $152.7 billion.
Managed net revenue was $10.0 billion, an increase of $2.3 billion, or 30%, from the prior year. Net interest income was $8.8 billion, up by $2.6 billion, or 42%, from the prior year, driven by the impact of the Washington Mutual transaction and wider loan spreads. These benefits were offset partially by higher revenue reversals associated with higher charge-offs and a decreased level of fees. Noninterest revenue was $1.2 billion, a decrease of $279 million, or 19%, from the prior year. The decline was driven by lower securitization income combined with an increase in the credit enhancement for securitization trusts, partially offset by higher merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint venture and the impact of the Washington Mutual transaction.
The managed provision for credit losses was $9.3 billion, an increase of $5.4 billion from the prior year. The provision reflected a higher level of charge-offs, due to continued deterioration in the credit environment, and an increase of $1.1 billion in the allowance for loan losses. The managed net charge-off rate was 8.85%, up from 4.68% in the prior year. Excluding Washington Mutual, the managed net charge-off rate was 7.90%.
Noninterest expense was $2.7 billion, an increase of $222 million, or 9%, from the prior year, due to the impact of the Washington Mutual transaction and the dissolution of the Chase Paymentech Solutions joint venture, partially offset by lower marketing expense.
                                                 
Selected metrics   Three months ended June 30,   Six months ended June 30,
(in millions, except headcount, ratios and where otherwise noted)   2009   2008   Change   2009   2008   Change
 
Financial metrics
                                               
% of average managed outstandings:
                                               
Net interest income
    9.93 %     7.92 %             9.92 %     8.13 %        
Provision for credit losses
    10.60       5.77               10.44       5.07          
Noninterest revenue
    1.28       2.01               1.36       1.95          
Risk adjusted margin(a)
    0.61       4.16               0.84       5.01          
Noninterest expense
    3.07       3.12               3.02       3.23          
Pretax income (loss) (ROO)(b)
    (2.46 )     1.04               (2.19 )     1.78          
Net income (loss)
    (1.55 )     0.66               (1.38 )     1.13          
 
                                               
Business metrics
                                               
Charge volume (in billions)
  $ 82.8     $ 93.6       (12 )%   $ 158.8     $ 179.0       (11 )%
Net accounts opened (in millions)
    2.4       3.6       (33 )     4.6       7.0       (34 )
Credit cards issued (in millions)
    151.9       157.6       (4 )     151.9       157.6       (4 )
Number of registered internet customers (in millions)
    30.5       28.0       9       30.5       28.0       9  
Merchant acquiring business(c)
                                               
Bank card volume (in billions)
  $ 101.4     $ 199.3       (49 )   $ 195.8     $ 381.7       (49 )
Total transactions (in billions)
    4.5       5.6       (20 )     8.6       10.8       (20 )
 
                                               
Selected balance sheet data (period-end)
                                               
Loans:
                                               
Loans on balance sheets
  $ 85,736     $ 76,278       12     $ 85,736     $ 76,278       12  
Securitized loans
    85,790       79,120       8       85,790       79,120       8  
                     
Managed loans
  $ 171,526     $ 155,398       10     $ 171,526     $ 155,398       10  
                     
Equity
  $ 15,000     $ 14,100       6     $ 15,000     $ 14,100       6  
 
                                               
Selected balance sheet data (average)
                                               
Managed assets
  $ 193,310     $ 161,601       20     $ 197,234     $ 160,601       23  
Loans:
                                               
Loans on balance sheets
  $ 89,692     $ 75,630       19     $ 93,715     $ 77,537       21  
Securitized loans
    84,417       77,195       9       85,015       75,652       12  
                     
Managed average loans
  $ 174,109     $ 152,825       14     $ 178,730     $ 153,189       17  
                     
Equity
  $ 15,000     $ 14,100       6     $ 15,000     $ 14,100       6  
 
Headcount
    22,897       19,570       17       22,897       19,570       17  
 

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Selected metrics   Three months ended June 30,   Six months ended June 30,
(in millions, except ratios and where otherwise noted)   2009   2008   Change   2009   2008   Change
 
Managed credit quality statistics
                                               
Net charge-offs
  $ 4,353     $ 1,894       130 %   $ 7,846     $ 3,564       120 %
Net charge-off rate(d)
    10.03 %     4.98 %             8.85 %     4.68 %        
Managed delinquency rates
                                               
30+ day(d)
    5.86 %     3.46 %             5.86 %     3.46 %        
90+ day(d)
    3.25       1.76               3.25       1.76          
 
                                               
Allowance for loan losses(e)
  $ 8,839     $ 3,705       139     $ 8,839     $ 3,705       139  
Allowance for loan losses to period-end loans(e)(f)
    10.31 %     4.86 %             10.31 %     4.86 %        
 
                                               
Key stats — Washington Mutual only(g)
                                               
Managed loans
  $ 23,093                     $ 23,093                  
Managed average loans
    24,418                       25,990                  
Net interest income(h)
    17.90 %                     17.14 %                
Risk adjusted margin(a)(h)
    (3.89 )                     0.49                  
Net charge-off rate(i)
    19.17                       16.75                  
30+ day delinquency rate(i)
    11.98                       11.98                  
90+ day delinquency rate(i)
    6.85                       6.85                  
 
                                               
Key stats — excluding Washington Mutual
                                               
Managed loans
  $ 148,433     $ 155,398       (4 )   $ 148,433     $ 155,398       (4 )
Managed average loans
    149,691       152,825       (2 )     152,740       153,189        
Net interest income(h)
    8.63 %     7.92 %             8.69 %     8.13 %        
Risk adjusted margin(a)(h)
    1.34       4.16               0.89       5.01          
Net charge-off rate
    8.97       4.98               7.90       4.68          
30+ day delinquency rate
    5.27       3.46               5.27       3.46          
90+ day delinquency rate
    2.90       1.76               2.90       1.76          
 
 
(a)   Represents total net revenue less provision for credit losses.
 
(b)   Pretax return on average managed outstandings.
 
(c)   The Chase Paymentech Solutions joint venture was dissolved effective November 1, 2008. JPMorgan Chase retained approximately 51% of the business and operates the business under the name Chase Paymentech Solutions. For the three and six months ended June 30, 2008, the data presented represents activity for the Chase Paymentech Solutions joint venture, and for the three and six months ended June 30, 2009, the data presented represents activity for Chase Paymentech Solutions.
 
(d)   Results for 2009 reflect the impact of purchase accounting adjustments related to the Washington Mutual transaction and the consolidation of the Washington Mutual Master Trust.
 
(e)   Based on loans on balance sheets (“reported basis”).
 
(f)   Includes $5.0 billion of loans at June 30, 2009, from the Washington Mutual Master Trust, which were consolidated onto the Card Services balance sheet at fair value during the second quarter of 2009. No allowance for loan losses was recorded for these loans as of June 30, 2009. Excluding these loans, the allowance for loan losses to period-end loans was 10.95%.
 
(g)   Statistics are only presented for periods after September 25, 2008, the date of the Washington Mutual transaction.
 
(h)   As a percentage of average managed outstandings.
 
(i)   Excludes the impact of purchase accounting adjustments related to the Washington Mutual transaction and the consolidation of the Washington Mutual Master Trust.

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Reconciliation from reported basis to managed basis
The financial information presented below reconciles reported basis and managed basis to disclose the effect of securitizations.
                                                 
    Three months ended June 30,   Six months ended June 30,
(in millions)   2009   2008   Change   2009   2008   Change
 
Income statement data(a)
                                               
Credit card income
                                               
Reported
  $ 1,215     $ 1,516       (20 )%   $ 2,599     $ 3,053       (15 )%
Securitization adjustments
    (294 )     (843 )     65       (834 )     (1,780 )     53  
                     
Managed credit card income
  $ 921     $ 673       37     $ 1,765     $ 1,273       39  
                     
 
                                               
Net interest income
                                               
Reported
  $ 2,353     $ 1,338       76     $ 4,831     $ 2,905       66  
Securitization adjustments
    1,958       1,673       17       3,962       3,291       20  
                     
Managed net interest income
  $ 4,311     $ 3,011       43     $ 8,793     $ 6,196       42  
                     
 
                                               
Total net revenue
                                               
Reported
  $ 3,204     $ 2,945       9     $ 6,869     $ 6,168       11  
Securitization adjustments
    1,664       830       100       3,128       1,511       107  
                     
Managed total net revenue
  $ 4,868     $ 3,775       29     $ 9,997     $ 7,679       30  
                     
 
                                               
Provision for credit losses
                                               
Reported
  $ 2,939     $ 1,364       115     $ 6,128     $ 2,353       160  
Securitization adjustments
    1,664       830       100       3,128       1,511       107  
                     
Managed provision for credit losses
  $ 4,603     $ 2,194       110     $ 9,256     $ 3,864       140  
                     
 
                                               
Balance sheet — average balances(a)
                                               
Total average assets
                                               
Reported
  $ 111,722     $ 87,021       28     $ 115,052     $ 87,517       31  
Securitization adjustments
    81,588       74,580       9       82,182       73,084       12  
                     
Managed average assets
  $ 193,310     $ 161,601       20     $ 197,234     $ 160,601       23  
                     
 
                                               
Credit quality statistics(a)
                                               
Net charge-offs
                                               
Reported
  $ 2,689     $ 1,064       153     $ 4,718     $ 2,053       130  
Securitization adjustments
    1,664       830       100       3,128       1,511       107  
                     
Managed net charge-offs
  $ 4,353     $ 1,894       130     $ 7,846     $ 3,564       120  
 
 
(a)   JPMorgan Chase uses the concept of “managed basis” to evaluate the credit performance and overall performance of the underlying credit card loans, both sold and not sold; as the same borrower is continuing to use the credit card for ongoing charges, a borrower’s credit performance will affect both the receivables sold under SFAS 140 and those not sold. Thus, in its disclosures regarding managed receivables, JPMorgan Chase treats the sold receivables as if they were still on the balance sheet in order to disclose the credit performance (such as net charge-off rates) of the entire managed credit card portfolio. Managed results exclude the impact of credit card securitizations on total net revenue, the provision for credit losses, net charge-offs and loan receivables. Securitization does not change reported net income versus managed earnings; however, it does affect the classification of items on the Consolidated Statements of Income and Consolidated Balance Sheets. For further information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 15–18 of this Form 10-Q.

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COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 54–55 of JPMorgan Chase’s 2008 Annual Report and page 6 of this Form 10-Q.
                                                 
Selected income statement data   Three months ended June 30,   Six months ended June 30,
(in millions, except ratios)   2009   2008   Change   2009   2008   Change
 
Revenue
                                               
Lending & deposit–related fees
  $ 270     $ 207       30 %   $ 533     $ 400       33 %
Asset management, administration and commissions
    36       26       38       70       52       35  
All other income(a)
    152       150       1       277       265       5  
                     
Noninterest revenue
    458       383       20       880       717       23  
Net interest income
    995       723       38       1,975       1,456       36  
                     
Total net revenue
    1,453       1,106       31       2,855       2,173       31  
 
                                               
Provision for credit losses
    312       47     NM     605       148       309  
 
                                               
Noninterest expense
                                               
Compensation expense
    197       173       14       397       351       13  
Noncompensation expense
    327       290       13       669       584       15  
Amortization of intangibles
    11       13       (15 )     22       26       (15 )
                     
Total noninterest expense
    535       476       12       1,088       961       13  
                     
Income before income tax expense
    606       583       4       1,162       1,064       9  
Income tax expense
    238       228       4       456       417       9  
                     
Net income
  $ 368     $ 355       4     $ 706     $ 647       9  
                     
 
                                               
Revenue by product:
                                               
Lending
  $ 684     $ 376       82     $ 1,349     $ 755       79  
Treasury services
    679       630       8       1,325       1,246       6  
Investment banking
    114       91       25       187       159       18  
Other
    (24 )     9     NM     (6 )     13     NM
                     
Total Commercial Banking revenue
  $ 1,453     $ 1,106       31     $ 2,855     $ 2,173       31  
 
                                               
IB revenue, gross(b)
  $ 328     $ 270       21     $ 534     $ 473       13  
 
                                               
Revenue by business:
                                               
Middle Market Banking
  $ 772     $ 708       9     $ 1,524     $ 1,414       8  
Commercial Term Lending(c)
    224           NM     452           NM
Mid-Corporate Banking
    305       235       30       547       442       24  
Real Estate Banking(c)
    120       94       28       240       191       26  
Other(c)
    32       69       (54 )     92       126       (27 )
                     
Total Commercial Banking revenue
  $ 1,453     $ 1,106       31     $ 2,855     $ 2,173       31  
                     
 
                                               
Financial ratios
                                               
ROE
    18 %     20 %             18 %     19 %        
Overhead ratio
    37       43               38       44          
 
 
(a)   Revenue from investment banking products sold to CB clients and commercial card revenue is included in all other income.
 
(b)   Represents the total revenue related to investment banking products sold to CB clients.
 
(c)   Results for 2009 include total net revenue on net assets acquired in the Washington Mutual transaction.

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Quarterly results
Net income was $368 million, an increase of $13 million, or 4%, from the prior year. Higher net revenue, reflecting the impact of the Washington Mutual transaction, was predominantly offset by a higher provision for credit losses and higher noninterest expense.
Net revenue was $1.5 billion, an increase of $347 million, or 31%, from the prior year. Net interest income was $995 million, up by $272 million, or 38%, driven by the impact of the Washington Mutual transaction. Excluding Washington Mutual, net interest income was flat compared with the prior year, as wider loan spreads, a shift to higher-spread liability products and overall growth in liability balances were offset predominantly by spread compression on liability products and lower loan balances. Noninterest revenue was $458 million, an increase of $75 million, or 20%, reflecting the second straight quarter of record levels of lending- and deposit-related fees.
Revenue from Middle Market Banking was $772 million, an increase of $64 million, or 9%, from the prior year. Revenue from Commercial Term Lending (a new business resulting from the Washington Mutual transaction) was $224 million. Record revenue from Mid-Corporate Banking was $305 million, an increase of $70 million, or 30%, from the prior year. Revenue from Real Estate Banking was $120 million, an increase of $26 million, or 28%, from the prior year, due to the impact of the Washington Mutual transaction.
The provision for credit losses was $312 million, compared with $47 million in the prior year, reflecting continued deterioration in the credit environment. The allowance for loan losses to end-of-period loans retained was 2.87%, up from 2.59% in the prior year. Nonperforming loans were $2.1 billion, up by $1.6 billion from the prior year, reflecting the impact of the Washington Mutual transaction and higher levels of such loans in each business segment. Net charge-offs were $181 million (0.67% net charge-off rate), compared with $49 million (0.28% net charge-off rate) in the prior year.
Noninterest expense was $535 million, an increase of $59 million, or 12%, from the prior year, due to the impact of the Washington Mutual transaction and higher FDIC insurance premiums offset partially by lower headcount-related expense.
Year-to-date results
Net income was $706 million, an increase of $59 million, or 9%, from the prior year, as higher net revenue, reflecting the impact of the Washington Mutual transaction, was predominantly offset by a higher provision for credit losses and higher noninterest expense.
Net revenue was $2.9 billion, an increase of $682 million, or 31%, from the prior year. Net interest income of $2.0 billion increased by $519 million, or 36%, driven by the impact of the Washington Mutual transaction. Noninterest revenue was $880 million, an increase of $163 million, or 23%, from the prior year, reflecting the second straight quarter of record lending- and deposit-related fees and higher investment banking fees.
Revenue from Middle Market Banking was $1.5 billion, an increase of $110 million, or 8%, from the prior year. Revenue from Commercial Term Lending (a new business resulting from the Washington Mutual transaction) was $452 million. Mid-Corporate Banking revenue was $547 million, an increase of $105 million, or 24%. Real Estate Banking revenue was $240 million, an increase of $49 million, or 26%, due to the impact of the Washington Mutual transaction.
The provision for credit losses was $605 million, compared with $148 million in the prior year, reflecting deterioration in the credit environment. The allowance for loan losses to end-of-period loans retained was 2.87%, up from 2.59% in the prior year. Nonperforming loans were $2.1 billion, an increase of $1.6 billion from the prior year reflecting the impact of the Washington Mutual transaction and continuing credit deterioration across all business segments. Net charge-offs were $315 million (0.57% net charge-off rate), compared with $130 million (0.38% net charge-off rate) in the prior year.
Noninterest expense was $1.1 billion, an increase of $127 million, or 13%, from the prior year, due to the impact of the Washington Mutual transaction and higher FDIC insurance premiums, offset partially by lower headcount-related expense.

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Selected metrics   Three months ended June 30,   Six months ended June 30,
(in millions, except headcount and ratios)   2009   2008   Change   2009   2008   Change
 
Selected balance sheet data (period-end):
                                               
Loans:
                                               
Loans retained
  $ 105,556     $ 71,105       48 %   $ 105,556     $ 71,105       48 %
Loans held-for-sale and loans at fair value
    296       306       (3 )     296       306       (3 )
                     
Total loans
    105,852       71,411       48       105,852       71,411       48  
Equity
    8,000       7,000       14       8,000       7,000       14  
 
                                               
Selected balance sheet data (average):
                                               
Total assets
  $ 137,283     $ 103,469       33     $ 140,771     $ 102,724       37  
Loans:
                                               
Loans retained
    108,750       70,682       54       111,146       69,096       61  
Loans held-for-sale and loans at fair value
    288       379       (24 )     292       450       (35 )
                     
Total loans
    109,038       71,061       53       111,438       69,546       60  
Liability balances(a)
    105,829       99,404       6       110,377       99,441       11  
Equity
    8,000       7,000       14       8,000       7,000       14  
 
                                               
Average loans by business:
                                               
Middle Market Banking
  $ 38,193     $ 42,879       (11 )   $ 39,453     $ 41,495       (5 )
Commercial Term Lending(b)
    36,963           NM     36,889           NM
Mid-Corporate Banking
    17,012       15,357       11       17,710       15,253       16  
Real Estate Banking(b)
    12,347       7,500       65       12,803       7,479       71  
Other(b)
    4,523       5,325       (15 )     4,583       5,319       (14 )
                     
Total Commercial Banking loans
  $ 109,038     $ 71,061       53     $ 111,438     $ 69,546       60  
 
                                               
Headcount
    4,228       4,028       5       4,228       4,028       5  
 
                                               
Credit data and quality statistics:
                                               
Net charge-offs
  $ 181     $ 49       269     $ 315     $ 130       142  
Nonperforming loans(c)
    2,111       486       334       2,111       486       334  
Nonperforming assets
    2,255       510       342       2,255       510       342  
Allowance for credit losses:
                                               
Allowance for loan losses
    3,034       1,843       65       3,034       1,843       65  
Allowance for lending-related commitments
    272       170       60       272       170       60  
                     
Total allowance for credit losses
    3,306       2,013       64       3,306       2,013       64  
Net charge-off rate(d)
    0.67 %     0.28 %             0.57 %     0.38 %        
Allowance for loan losses to period-end loans(d)
    2.87       2.59               2.87       2.59          
Allowance for loan losses to average loans(d)
    2.79       2.61               2.73       2.67          
Allowance for loan losses to nonperforming loans(c)
     145        401                145        401          
Nonperforming loans to period-end loans
    1.99       0.68               1.99       0.68          
Nonperforming loans to average loans
    1.94       0.68               1.89       0.70          
 
 
(a)   Liability balances include deposits and deposits swept to on-balance sheet liabilities such as commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements.
 
(b)   Results for 2009 include loans acquired in the Washington Mutual transaction.
 
(c)   Nonperforming loans included loans held-for-sale and loans at fair value of $21 million and $26 million at June 30, 2009 and 2008, respectively. These amounts are excluded when calculating the allowance for loan losses to nonperforming loans ratio. Allowance for loan losses of $460 million and $85 million were held against nonperforming loans at June 30, 2009 and 2008, respectively.
 
(d)   Loans held-for-sale and loans accounted for at fair value were excluded when calculating the allowance coverage ratios and the net charge-off rate.

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TREASURY & SECURITIES SERVICES
For a discussion of the business profile of TSS, see pages 56–57 of JPMorgan Chase’s 2008 Annual Report and page 6 of this Form 10-Q.
                                                 
Selected income statement data   Three months ended June 30,   Six months ended June 30,
(in millions, except headcount and ratios)   2009   2008   Change   2009   2008   Change
 
Revenue
                                               
Lending & deposit-related fees
  $ 314     $ 283       11 %   $ 639     $ 552       16 %
Asset management, administration and commissions
    710       846       (16 )     1,336       1,666       (20 )
All other income
    221       228       (3 )     418       428       (2 )
                     
Noninterest revenue
    1,245       1,357       (8 )     2,393       2,646       (10 )
Net interest income
    655       662       (1 )     1,328       1,286       3  
                     
Total net revenue
    1,900       2,019       (6 )     3,721       3,932       (5 )
 
                                               
Provision for credit losses
    (5 )     7     NM     (11 )     19     NM
Credit reimbursement to IB(a)
    (30 )     (30 )           (60 )     (60 )      
 
                                               
Noninterest expense
                                               
Compensation expense
    618       669       (8 )     1,247       1,310       (5 )
Noncompensation expense
    650       632       3       1,321       1,203       10  
Amortization of intangibles
    20       16       25       39       32       22  
                     
Total noninterest expense
    1,288       1,317       (2 )     2,607       2,545       2  
                     
Income before income tax expense
    587       665       (12 )     1,065       1,308       (19 )
Income tax expense
    208       240       (13 )     378       480       (21 )
                     
Net income
  $ 379     $ 425       (11 )   $ 687     $ 828       (17 )
                     
 
                                               
Revenue by business
                                               
Treasury Services(b)
  $ 934     $ 905       3     $ 1,865     $ 1,765       6  
Worldwide Securities Services(b)
    966       1,114       (13 )     1,856       2,167       (14 )
                     
Total net revenue
  $ 1,900     $ 2,019       (6 )   $ 3,721     $ 3,932       (5 )
 
                                               
Financial ratios
                                               
ROE
    30 %     49 %             28 %     48 %        
Overhead ratio
    68       65               70       65          
Pretax margin ratio(c)
    31       33               29       33          
 
                                               
Selected balance sheet data (period-end)
                                               
Loans
  $ 17,929     $ 26,348       (32 )   $ 17,929     $ 26,348       (32 )
Equity
    5,000       3,500       43       5,000       3,500       43  
 
                                               
Selected balance sheet data (average)
                                               
Total assets
  $ 35,520     $ 56,192       (37 )   $ 37,092     $ 56,698       (35 )
Loans(d)
    17,524       23,822       (26 )     18,825       23,454       (20 )
Liability balances(e)
    234,163       268,293       (13 )     255,208       261,331       (2 )
Equity
    5,000       3,500       43       5,000       3,500       43  
 
                                               
Headcount
    27,252       27,232             27,252       27,232        
 
 
(a)   The Investment Bank credit portfolio group manages certain exposures on behalf of clients shared with TSS. TSS reimburses IB for a portion of the total cost of managing the credit portfolio. IB recognizes this credit reimbursement as a component of noninterest revenue.
 
(b)   Reflects an internal reorganization for escrow products from Worldwide Securities Services to Treasury Services revenue of $46 million and $52 million for the three months ended June 30, 2009 and 2008, respectively, and $91 million and $99 million for the six months ended June 30, 2009 and 2008, respectively.
 
(c)   Pretax margin represents income before income tax expense divided by total net revenue, which is a measure of pretax performance and another basis by which management evaluates its performance and that of its competitors.
 
(d)   Loan balances include wholesale overdrafts, commercial card and trade finance loans.
 
(e)   Liability balances include deposits and deposits swept to on–balance sheet liabilities such as commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements.

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Quarterly results
Net income was $379 million, a decrease of $46 million, or 11%, from the prior year, driven by lower net revenue offset partially by lower noninterest expense.
Net revenue was $1.9 billion, a decrease of $119 million, or 6%, from the prior year. Worldwide Securities Services net revenue was $966 million, a decrease of $148 million, or 13%, from the prior year. The decrease was driven by the effect of market depreciation on assets under custody and lower securities lending balances, primarily as a result of declines in asset valuations and demand. Treasury Services net revenue was $934 million, an increase of $29 million, or 3%, reflecting growth across cash management products and higher trade revenue driven by wider spreads, partially offset by spread compression on deposit products. TSS firmwide net revenue, which includes net revenue recorded in other lines of business, was $2.6 billion, a decrease of $79 million, or 3%, compared with the prior year, primarily due to declines in Worldwide Securities Services. Treasury Services firmwide net revenue grew to $1.7 billion, an increase of $69 million, or 4%, from the prior year.
The provision for credit losses was a benefit of $5 million, compared with an expense of $7 million in the prior year.
Noninterest expense was $1.3 billion, a decrease of $29 million, reflecting lower headcount-related expense, partially offset by higher FDIC insurance premiums.
Year-to-date results
Net income was $687 million, a decrease of $141 million, or 17%, from the prior year, driven by lower net revenue offset partially by lower noninterest expense.
Net revenue was $3.7 billion, a decrease of $211 million, or 5%, from the prior year. Worldwide Securities Services net revenue was $1.9 billion, a decrease of $311 million, or 14%, from the prior year. The decrease was driven by the effect of market depreciation on assets under custody and lower securities lending balances, primarily as a result of declines in asset valuations and demand. Treasury Services net revenue was $1.9 billion, an increase of $100 million, or 6%, reflecting growth across cash management products and higher trade revenue driven by wider spreads, partially offset by spread compression on deposit products. TSS firmwide net revenue, which includes net revenue recorded in other lines of business, was $5.2 billion, a decrease of $148 million, or 3%, compared with the prior year; primarily due to declines in Worldwide Securities Services. Treasury Services firmwide net revenue grew to $3.3 billion, an increase of $163 million, or 5%, from the prior year.
The provision for credit losses was a benefit of $11 million, compared with an expense of $19 million in the prior year.
Noninterest expense was $2.6 billion, an increase of $62 million, reflecting higher FDIC insurance premiums, partially offset by lower headcount-related expense.
TSS firmwide metrics
TSS firmwide metrics include revenue recorded in the CB, Retail Banking and AM lines of business and excludes foreign exchange (“FX”) revenue recorded in IB for TSS-related FX activity. In order to capture the firmwide impact of TS and TSS products and revenue, management reviews firmwide metrics – such as liability balances, revenue and overhead ratios – in assessing financial performance for TSS. Firmwide metrics are necessary in order to understand the aggregate TSS business.

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Selected metrics   Three months ended June 30,   Six months ended June 30,
(in millions, except ratios and where otherwise noted)   2009   2008   Change   2009   2008   Change
 
TSS firmwide disclosures
                                               
Treasury Services revenue — reported(a)
  $ 934     $ 905       3 %   $ 1,865     $ 1,765       6 %
Treasury Services revenue reported in Commercial Banking
    679       630       8       1,325       1,246       6  
Treasury Services revenue reported in other lines of business
    63       72       (13 )     125       141       (11 )
                     
 
                                               
Treasury Services firmwide revenue(a)(b)
    1,676       1,607       4       3,315       3,152       5  
Worldwide Securities Services revenue(a)
    966       1,114       (13 )     1,856       2,167       (14 )
                     
Treasury & Securities Services firmwide revenue(b)
  $ 2,642     $ 2,721       (3 )   $ 5,171     $ 5,319       (3 )
 
                                               
Treasury Services firmwide liability balances (average)(c)(d)
  $ 258,312     $ 252,625       2     $ 273,892     $ 247,897       10  
Treasury & Securities Services firmwide liability balances (average)(c)
    339,992       367,670       (8 )     365,584       360,758       1  
 
                                               
TSS firmwide financial ratios
                                               
Treasury Services firmwide overhead ratio(e)
    51 %     53 %             52 %     53 %        
Treasury & Securities Services firmwide overhead ratio(e)
    59       58               61       58          
 
                                               
Firmwide business metrics
                                               
Assets under custody (in billions)
  $ 13,748     $ 15,476       (11 )   $ 13,748     $ 15,476       (11 )
 
                                               
Number of:
                                               
U.S.$ ACH transactions originated (in millions)
    978       993       (2 )     1,956       1,997       (2 )
Total U.S.$ clearing volume
(in thousands)
    28,193       29,063       (3 )     55,379       57,119       (3 )
International electronic funds transfer volume (in thousands)(f)
    47,096       41,432       14       91,461       81,471       12  
Wholesale check volume (in millions)
    572       618       (7 )     1,140       1,241       (8 )
Wholesale cards issued (in thousands)(g)
    23,744       19,917       19       23,744       19,917       19  
 
                                               
Credit data and quality statistics
                                               
Net charge-offs (recoveries)
  $ 17     $ (2 )   NM     $ 19     $ (2 )   NM  
Nonperforming loans
    14           NM       14           NM  
Allowance for credit losses:
                                               
Allowance for loan losses
    15       40       (63 )     15       40       (63 )
Allowance for lending-related commitments
    92       33       179       92       33       179  
                     
Total allowance for credit losses
    107       73       47       107       73       47  
 
                                               
Net charge-off (recovery) rate
    0.39 %     (0.03 )%             0.20 %     (0.02 )%        
Allowance for loan losses to period-end loans
    0.08       0.15               0.08       0.15          
Allowance for loan losses to average loans
    0.09       0.17               0.08       0.17          
Allowance for loan losses to nonperforming loans
    107     NM               107     NM          
Nonperforming loans to period-end loans
    0.08                     0.08                
Nonperforming loans to average loans
    0.08                     0.07                
 
(a)   Reflects an internal reorganization for escrow products, from Worldwide Securities Services to Treasury Services revenue, of $46 million and $52 million for the three months ended June 30, 2009 and 2008, respectively, and $91 million and $99 million for the six months ended June 30, 2009 and 2008, respectively.
 
(b)   TSS firmwide FX revenue includes FX revenue recorded in TSS and FX revenue associated with TSS customers who are FX customers of IB. However, some of the FX revenue associated with TSS customers who are FX customers of IB is not included in TS and TSS firmwide revenue. These amounts were $191 million and $222 million, for the three months ended June 30, 2009 and 2008, respectively, and $345 million and $413 million for the six months ended June 30, 2009 and 2008, respectively.

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(c)   Firmwide liability balances include liability balances recorded in Commercial Banking.
 
(d)   Reflects an internal reorganization for escrow products, from Worldwide Securities Services to Treasury Services liability balances, of $14.9 billion and $21.9 billion for the three months ended June 30, 2009 and 2008, respectively, and $16.5 billion and $21.7 billion for the six months ended June 30, 2009 and 2008, respectively.
 
(e)   Overhead ratios have been calculated based on firmwide revenue and TSS and TS expense, respectively, including those allocated to certain other lines of business. FX revenue and expense recorded in IB for TSS-related FX activity are not included in this ratio.
 
(f)   International electronic funds transfer includes non-U.S. dollar ACH and clearing volume.
 
(g)   Wholesale cards issued include domestic commercial, stored value, prepaid and government electronic benefit card products.
ASSET MANAGEMENT
For a discussion of the business profile of AM, see pages 58-60 of JPMorgan Chase’s 2008 Annual Report and on page 6 of this Form 10-Q.
                                                 
Selected income statement data   Three months ended June 30,   Six months ended June 30,
(in millions, except ratios)   2009   2008   Change   2009   2008   Change
 
Revenue
                                               
Asset management, administration and commissions
  $ 1,315     $ 1,573       (16 )%   $ 2,546     $ 3,104       (18 )%
All other income
    253       130       95       322       189       70  
                     
Noninterest revenue
    1,568       1,703       (8 )     2,868       3,293       (13 )
Net interest income
    414       361       15       817       672       22  
                     
Total net revenue
    1,982       2,064       (4 )     3,685       3,965       (7 )
 
                                               
Provision for credit losses
    59       17       247       92       33       179  
 
                                               
Noninterest expense
                                               
Compensation expense
    810       886       (9 )     1,610       1,711       (6 )
Noncompensation expense
    525       494       6       1,004       971       3  
Amortization of intangibles
    19       20       (5 )     38       41       (7 )
                     
Total noninterest expense
    1,354       1,400       (3 )     2,652       2,723       (3 )
                     
Income before income tax expense
    569       647       (12 )     941       1,209       (22 )
Income tax expense
    217       252       (14 )     365       458       (20 )
                     
Net income
  $ 352     $ 395       (11 )   $ 576     $ 751       (23 )
                     
 
                                               
Revenue by client segment
                                               
Private Bank(a)
  $ 640     $ 708       (10 )   $ 1,223     $ 1,304       (6 )
Institutional
    487       472       3       947       962       (2 )
Retail
    411       490       (16 )     664       956       (31 )
Private Wealth Management(a)
    334       356       (6 )     646       705       (8 )
Bear Stearns Private Client Services
    110       38       189       205       38       439  
                     
Total net revenue
  $ 1,982     $ 2,064       (4 )   $ 3,685     $ 3,965       (7 )
                     
Financial ratios
                                               
ROE
    20 %     31 %             17 %     30 %        
Overhead ratio
    68       68               72       69          
Pretax margin ratio(b)
    29       31               26       30          
 
(a)   In the third quarter of 2008, certain clients were transferred from Private Bank to Private Wealth Management. Prior periods have been revised to conform to this change.
 
(b)   Pretax margin represents income before income tax expense divided by total net revenue, which is a measure of pretax performance and another basis by which management evaluates its performance and that of its competitors.

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Quarterly results
Net income was $352 million, a decrease of $43 million, or 11%, from the prior year, due to lower net revenue and higher provision for credit losses offset partially by lower noninterest expense
Net revenue was $2.0 billion, a decrease of $82 million, or 4%, from the prior year. Noninterest revenue was $1.6 billion, a decrease of $135 million, or 8%, due to the effect of lower market levels and lower placement fees; these effects were offset partially by higher valuations of seed capital investments. Net interest income was $414 million, up by $53 million, or 15%, from the prior year, predominantly due to wider loan and deposit spreads and higher deposit balances.
Private Bank revenue decreased by 10% to $640 million due to the effect of lower market levels and lower placement fees, largely offset by wider loan and deposit spreads. Institutional revenue increased by 3% to $487 million, due to higher valuations of seed capital investments, largely offset by the effect of lower market levels. Retail revenue decreased by 16% to $411 million, due to the effect of lower market levels and net equity outflows, partially offset by higher valuations of seed capital investments. Private Wealth Management revenue decreased by 6% to $334 million, due to the effect of lower market levels and narrower deposit spreads. Bear Stearns Private Client Services contributed $110 million to revenue.
The provision for credit losses was $59 million, an increase of $42 million from the prior year, reflecting continued deterioration in the credit environment.
Noninterest expense was $1.4 billion, a decrease of $46 million, or 3%, from the prior year, due to lower performance-based compensation and lower headcount-related expense, largely offset by the impact of the Bear Stearns merger and higher FDIC insurance premiums.
Year-to-date results
Net income was $576 million, a decrease of $175 million, or 23%, from the prior year, due to lower net revenue and higher provision for credit losses offset partially by lower noninterest expense.
Net revenue was $3.7 billion, a decrease of $280 million, or 7%, from the prior year. Noninterest revenue was $2.9 billion, a decrease of $425 million, or 13%, due to the effect of lower market levels, lower performance fees and lower placement fees; these effects were offset partially by higher valuations of seed capital investments. Net interest income was $817 million, up by $145 million, or 22%, from the prior year, predominantly due to wider deposit and loan spreads and higher deposit balances.
Private Bank revenue decreased 6% to $1.2 billion due to the effect of lower market levels and lower placement fees, predominantly offset by wider deposit and loan spreads. Institutional revenue decreased 2% to $947 million due to the effect of lower market levels offset by higher valuations of seed capital investments. Retail revenue decreased by 31% to $664 million due to the effect of lower market levels and net equity outflows, partially offset by higher valuations of seed capital investments. Private Wealth Management revenue decreased 8% to $646 million due to the effect of lower market levels and net equity outflows. Bear Stearns Private Client Services contributed $205 million to revenue.
The provision for credit losses was $92 million, an increase of $59 million from the prior year, reflecting continued deterioration in the credit environment.
Noninterest expense was $2.7 billion, a decrease of $71 million, or 3%, from the prior year due to lower performance-based compensation and lower headcount-related expense, largely offset by the impact of the Bear Stearns merger and higher FDIC insurance premiums.

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Business metrics        
(in millions, except headcount, ratios and   Three months ended June 30,   Six months ended June 30,
ranking data, and where otherwise noted)   2009   2008   Change   2009   2008   Change
 
Number of:
                                               
Client advisors(a)
    1,785       1,801       (1 )%     1,785       1,801       (1 )%
Retirement planning services participants
    1,595,000       1,505,000       6       1,595,000       1,505,000       6  
Bear Stearns brokers
    362       326       11       362       326       11  
 
                                               
% of customer assets in 4 & 5 Star Funds(b)
    45 %     40 %     13       45 %     40 %     13  
% of AUM in 1st and 2nd quartiles:(c)
                                               
1 year
    62 %     51 %     22       62 %     51 %     22  
3 years
    69 %     70 %     (1 )     69 %     70 %     (1 )
5 years
    80 %     76 %     5       80 %     76 %     5  
 
                                               
Selected balance sheet data (period-end)
                                               
Loans
  $ 35,474     $ 41,536       (15 )   $ 35,474     $ 41,536       (15 )
Equity
    7,000       5,200       35       7,000       5,200       35  
 
                                               
Selected balance sheet data (average)
                                               
Total assets
  $ 59,334     $ 65,015       (9 )   $ 58,783     $ 62,651       (6 )
Loans
    34,292       39,264       (13 )     34,438       37,946       (9 )
Deposits
    75,355       69,975       8       78,534       69,079       14  
Equity
    7,000       5,066       38       7,000       5,033       39  
 
                                               
Headcount
    14,840       15,840       (6 )     14,840       15,840       (6 )
 
                                               
Credit data and quality statistics
                                               
Net charge-offs (recoveries)
  $ 46     $ 2     NM   $ 65     $     NM
Nonperforming loans
    313       68       360       313       68       360  
Allowance for loan losses
    226       147       54       226       147       54  
Allowance for lending-related commitments
    4       5       (20 )     4       5       (20 )
 
                                               
Net charge-off (recovery) rate
    0.54 %     0.02 %             0.38 %     %        
Allowance for loan losses to period-end loans
    0.64       0.35               0.64       0.35          
Allowance for loan losses to average loans
    0.66       0.37               0.66       0.39          
Allowance for loan losses to nonperforming loans
    72       216               72       216          
Nonperforming loans to period-end loans
    0.88       0.16               0.88       0.16          
Nonperforming loans to average loans
    0.91       0.17               0.91       0.18          
 
(a)   Prior periods have been restated to conform with current methodologies.
 
(b)   Derived from the following rating services: Morningstar for the United States; Micropal for the United Kingdom, Luxembourg, Hong Kong and Taiwan; and Nomura for Japan.
 
(c)   Derived from the following rating services: Lipper for the United States and Taiwan; Micropal for the United Kingdom, Luxembourg and Hong Kong; and Nomura for Japan.

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Assets under supervision
Assets under supervision were $1.5 trillion, a decrease of $68 billion, or 4%, from the prior year. Assets under management were $1.2 trillion, a decrease of $14 billion, or 1%, from the prior year. The decreases were due to the effect of lower market levels and outflows from non-liquidity products, predominantly offset by liquidity product inflows. Custody, brokerage, administration and deposit balances were $372 billion, down $54 billion, due to the effect of lower market levels on brokerage and custody balances, partially offset by brokerage inflows in the Private Bank.
                 
ASSETS UNDER SUPERVISION(a) (in billions)        
As of June 30,   2009   2008
 
Assets by asset class
               
 
               
Liquidity
  $ 617     $ 478  
Fixed income
    194       199  
Equities & balanced
    264       378  
Alternatives
    96       130  
 
Total assets under management
    1,171       1,185  
Custody/brokerage/administration/deposits
    372       426  
 
Total assets under supervision
  $ 1,543     $ 1,611  
 
 
               
Assets by client segment
               
 
               
Institutional
  $ 697     $ 645  
Private Bank(b)
    179       181  
Retail
    216       276  
Private Wealth Management(b)
    67       75  
Bear Stearns Private Client Services
    12       8  
 
Total assets under management
  $ 1,171     $ 1,185  
 
 
               
Institutional
  $ 697     $ 646  
Private Bank(b)
    390       415  
Retail
    289       357  
Private Wealth Management(b)
    123       133  
Bear Stearns Private Client Services
    44       60  
 
Total assets under supervision
  $ 1,543     $ 1,611  
 
 
               
Assets by geographic region
               
 
               
U.S./Canada
  $ 814     $ 771  
International
    357       414  
 
Total assets under management
  $ 1,171     $ 1,185  
 
U.S./Canada
  $ 1,103     $ 1,093  
International
    440       518  
 
Total assets under supervision
  $ 1,543     $ 1,611  
 
 
               
Mutual fund assets by asset class
               
Liquidity
  $ 569     $ 416  
Fixed income
    48       47  
Equities
    111       171  
Alternatives
    9       8  
 
Total mutual fund assets
  $ 737     $ 642  
 
(a)   Excludes assets under management of American Century Companies, Inc., in which the Firm had a 42% and 43% ownership at June 30, 2009 and 2008, respectively.
 
(b)   In the third quarter of 2008, certain clients were transferred from Private Bank to Private Wealth Management. Prior periods have been revised to conform to this change.

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    Three months ended June 30,   Six months ended June 30,
    2009   2008   2009   2008
 
Assets under management rollforward                
Beginning balance
  $ 1,115     $ 1,187     $ 1,133     $ 1,193  
Net asset flows:
                               
Liquidity
    (7 )     1       12       69  
Fixed income
    8       (1 )     9       (1 )
Equities, balanced and alternatives
    2       (3 )     (3 )     (24 )
Market/performance/other impacts(a)
    53       1       20       (52 )
 
Total assets under management
  $ 1,171     $ 1,185     $ 1,171     $ 1,185  
 
 
                               
Assets under supervision rollforward
                               
 
Beginning balance
  $ 1,464     $ 1,569     $ 1,496     $ 1,572  
Net asset flows
    (9 )     (5 )     16       47  
Market/performance/other impacts(a)
    88       47       31       (8 )
 
Total assets under supervision
  $ 1,543     $ 1,611     $ 1,543     $ 1,611  
 
(a)   Second quarter 2008 reflects $15 billion for assets under management and $68 billion for assets under supervision from the Bear Stearns merger on May 30, 2008.
CORPORATE / PRIVATE EQUITY
For a discussion of the business profile of Corporate/Private Equity, see pages 61-63 of JPMorgan Chase’s 2008 Annual Report.
                                                 
Selected income statement data   Three months ended June 30,   Six months ended June 30,
(in millions, except headcount)   2009   2008   Change   2009   2008   Change
 
Revenue
                                               
Principal transactions
  $ 1,243     $ (97 )   NM   $ (250 )   $ (92 )     (172 )%
Securities gains
    366       656       (44 )%     580       698       (17 )
All other income(a)
    (209 )     (378 )     45       (228 )     1,263     NM
                     
Noninterest revenue
    1,400       181     NM     102       1,869       (95 )
Net interest income (expense)
    865       (47 )   NM     1,854       (396 )   NM
                     
Total net revenue
    2,265       134     NM     1,956       1,473       33  
 
                                               
Provision for credit losses
    9       37       (76 )     9       37       (76 )
 
                                               
Noninterest expense
                                               
Compensation expense
    655       611       7       1,296       1,250       4  
Noncompensation expense(b)
    1,319       689       91       1,664       605       175  
Merger costs
    143       155       (8 )     348       155       125  
                     
Subtotal
    2,117       1,455       45       3,308       2,010       65  
Net expense allocated to other businesses
    (1,253 )     (1,070 )     (17 )     (2,532 )     (2,127 )     (19 )
                     
Total noninterest expense
    864       385       124       776       (117 )   NM
                     
Income (loss) before income tax expense
    1,392       (288 )     NM       1,171       1,553       (25 )
Income tax expense
    584       31     NM     625       761       (18 )
                     
Net income (loss)
  $ 808     $ (319 )   NM   $ 546     $ 792       (31 )
                     
 
                                               
Total net revenue
                                               
Private equity
  $ (1 )   $ 197     NM   $ (450 )   $ 360     NM
Corporate
    2,266       (63 )   NM     2,406       1,113       116  
                     
Total net revenue
  $ 2,265     $ 134     NM   $ 1,956     $ 1,473       33  
                     
 
                                               
Net income (loss)
                                               
Private equity
  $ (27 )   $ 99     NM   $ (307 )   $ 156     NM
Corporate
    993       122     NM     1,245       1,176       6  
Merger-related items(c)
    (158 )     (540 )     71       (392 )     (540 )     27  
                     
Total net income (loss)
  $ 808     $ (319 )   NM   $ 546     $ 792       (31 )
                     
Headcount
    21,522       22,317       (4 )     21,522       22,317       (4 )
 
(a)   Included $423 million representing the Firm’s share of Bear Stearns’ losses from April 8, to May 30, 2008, in the second quarter of 2008, and proceeds of $1.5 billion from the sale of Visa shares in its initial public offering in the first quarter of 2008.
 
(b)   Second quarter of 2009 included an accrual of $675 million for the FDIC special assessment. First quarter of 2008 included a release of credit card litigation reserves.
 
(c)   Included merger costs related to the Washington Mutual transaction, as well as items related to the Bear Stearns merger.

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Quarterly results
Net income was $808 million, compared with a net loss of $319 million in the prior year.
Private Equity reported a net loss of $27 million, compared with net income of $99 million in the prior year. Net revenue was negative $1 million, a decrease of $198 million, reflecting Private Equity losses of $20 million, compared with gains of $220 million in the prior year. Noninterest expense was $42 million, a decrease of $2 million.
Net income for Corporate was $993 million, compared with net income of $122 million in the prior year. These results reflect higher levels of trading gains and investment securities income and a gain of $150 million (after tax) from the sale of MasterCard shares, partially offset by an accrual of $419 million (after tax) for the FDIC special assessment.
Year-to-date results
Net income was $546 million, compared with $792 million in the prior year.
Net loss for Private Equity was $307 million, compared with net income of $156 million in the prior year. Net revenue was negative $450 million, a decrease of $810 million, reflecting Private Equity losses of $482 million, compared with gains of $409 million. Noninterest expense was $31 million, a decrease of $88 million.
Net income for Corporate was $1.2 billion, unchanged from the prior year. Current year results reflect higher levels of trading gains and investment securities income and a gain of $150 million (after tax) from the sale of MasterCard shares, partially offset by an accrual of $419 million (after tax) for the FDIC special assessment. Prior year results included proceeds from the sale of Visa shares in its initial public offering.
Merger-related items were a net loss of $392 million, compared with a net loss of $540 million in the prior year. Bear Stearns net merger-related costs were $178 million, compared with $540 million. The prior year included a net loss of $423 million, which represented JPMorgan Chase’s 49.4% ownership in Bear Stearns’ losses from April 8 to May 30, 2008. Washington Mutual net merger-related costs were $214 million.
                                                 
Selected income statement and balance sheet data   Three months ended June 30,   Six months ended June 30,
(in millions)   2009   2008   Change   2009   2008   Change
 
Treasury
                                               
Securities gains(a)
  $ 374     $ 656       (43 )%   $ 588     $ 698       (16 )%
Investment securities portfolio (average)(b)
    336,263       100,481       235       301,219       91,821       228  
Investment securities portfolio (ending)(b)
    326,414       106,604       206       326,414       106,604       206  
Mortgage loans (average)
    7,228       7,004       3       7,219       6,867       5  
Mortgage loans (ending)
    7,368       7,150       3       7,368       7,150       3  
 
                                               
Private equity
                                               
Realized gains
  $ 25     $ 540       (95 )   $ 40     $ 1,653       (98 )
Unrealized gains (losses)(c)
    16       (326 )   NM     (393 )     (1,207 )     67  
                     
Total direct investments
    41       214       (81 )     (353 )     446     NM
Third-party fund investments
    (61 )     6     NM     (129 )     (37 )     (249 )
                     
Total private equity gains (losses)(d)
  $ (20 )   $ 220     NM   $ (482 )   $ 409     NM
 
                         
Private equity portfolio information(e)            
Direct investments            
(in millions)   June 30, 2009   December 31, 2008   Change
 
Publicly held securities
                       
Carrying value
  $ 431     $ 483       (11 )%
Cost
    778       792       (2 )
Quoted public value
    477       543       (12 )
 
                       
Privately held direct securities
                       
Carrying value
    4,709       5,564       (15 )
Cost
    5,627       6,296       (11 )
 
                       
Third-party fund investments(f)
                       
Carrying value
    1,420       805       76  
Cost
    2,055       1,169       76  
         
Total private equity portfolio — Carrying value
  $ 6,560     $ 6,852       (4 )
Total private equity portfolio — Cost
  $ 8,460     $ 8,257       2  
 
(a)   Included a $668 million gain on the sale of MasterCard shares in the second quarter of 2008. All periods reflect repositioning of the Corporate investment securities portfolio, and exclude gains/losses on securities used to manage risk associated with MSRs.

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(b)   For further discussion, see “Securities” on page 49 of this Form 10-Q.
 
(c)   Unrealized gains (losses) contain reversals of unrealized gains and losses that were recognized in prior periods and have now been realized.
 
(d)   Included in principal transactions revenue in the Consolidated Statements of Income.
 
(e)   For more information on the Firm’s policies regarding the valuation of the private equity portfolio, see Note 3 on pages 99–114 of this Form 10-Q.
 
(f)   Unfunded commitments to third-party private equity funds were $1.5 billion and $1.4 billion at June 30, 2009, and December 31, 2008, respectively.
The carrying value of the private equity portfolio at June 30, 2009, was $6.6 billion, down from $6.9 billion at December 31, 2008. The portfolio represented 6.2% of the Firm’s stockholders’ equity less goodwill at June 30, 2009, up from 5.8% at December 31, 2008.
BALANCE SHEET ANALYSIS
                 
Selected balance sheet data (in millions)   June 30, 2009       December 31, 2008
 
Assets
               
Cash and due from banks
  $ 25,133     $ 26,895  
Deposits with banks
    61,882       138,139  
Federal funds sold and securities purchased under resale agreements
    159,170       203,115  
Securities borrowed
    129,263       124,000  
Trading assets:
               
Debt and equity instruments
    298,135       347,357  
Derivative receivables
    97,491       162,626  
Securities
    345,563       205,943  
Loans
    680,601       744,898  
Allowance for loan losses
    (29,072 )     (23,164 )
 
Loans, net of allowance for loan losses
    651,529       721,734  
Accrued interest and accounts receivable
    61,302       60,987  
Goodwill
    48,288       48,027  
Other intangible assets
    19,682       14,984  
Other assets
    129,204       121,245  
 
Total assets
  $ 2,026,642     $ 2,175,052  
 
 
               
Liabilities
               
Deposits
  $ 866,477     $ 1,009,277  
Federal funds purchased and securities loaned or sold under repurchase agreements
    300,931       192,546  
Commercial paper and other borrowed funds
    116,681       170,245  
Trading liabilities:
               
Debt and equity instruments
    56,021       45,274  
Derivative payables
    67,197       121,604  
Accounts payable and other liabilities
    171,685       187,978  
Beneficial interests issued by consolidated VIEs
    20,945       10,561  
Long-term debt and trust preferred capital debt securities
    271,939       270,683  
 
Total liabilities
    1,871,876       2,008,168  
Stockholders’ equity
    154,766       166,884  
 
Total liabilities and stockholders’ equity
  $ 2,026,642     $ 2,175,052  
 
Consolidated Balance Sheets overview
The following is a discussion of the significant changes in the Consolidated Balance Sheets from December 31, 2008.
Deposits with banks; federal funds sold and securities purchased under resale agreements; securities borrowed; federal funds purchased and securities loaned or sold under repurchase agreements
The Firm utilizes deposits with banks, federal funds sold and securities purchased under resale agreements, securities borrowed, and federal funds purchased and securities loaned or sold under repurchase agreements as part of its liquidity management activities to manage the Firm’s cash positions and risk-based capital requirements and to support the Firm’s trading and risk management activities. In particular, the Firm uses securities purchased under resale agreements and securities borrowed to provide funding or liquidity to clients by purchasing and borrowing clients’ securities for the short-term. Federal funds purchased and securities loaned or sold under repurchase agreements are used as short-term funding sources for the Firm and to make securities available to clients for their short-term purposes. The decrease in deposits with banks primarily reflected lower demand for interbank lending and lower deposits with the Federal Reserve Bank relative to the elevated levels at the end of 2008. The decrease in securities purchased under resale agreements was largely due to a lower volume of excess funds available for short-term investments. The increase in securities sold under

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repurchase agreements was partly attributable to favorable pricing and the financing of the increase in the AFS securities portfolio. For additional information on the Firm’s Liquidity Risk Management, see pages 58-62 of this Form 10-Q.
Trading assets and liabilities — debt and equity instruments
The Firm uses debt and equity trading instruments for both market-making and proprietary risk-taking activities. These instruments consist predominantly of fixed-income securities, including government and corporate debt; equity securities, including convertible securities; loans, including prime mortgage and other loans warehoused by RFS and IB for sale or securitization purposes and accounted for at fair value under SFAS 159; and physical commodities inventories. The decrease in trading assets - debt and equity instruments reflected continued balance sheet management during the period as well as the effect of the challenging capital markets environment. For additional information, refer to Note 3 and Note 5 on pages 99-114 and 116-124, respectively, of this Form 10-Q.
Trading assets and liabilities — derivative receivables and payables
Derivative instruments enable end-users to transform or mitigate exposure to credit or market risks. The value of a derivative is derived from its reference to an underlying variable or combination of variables such as interest rate, credit, foreign exchange, equity or commodity prices or indices. JPMorgan Chase makes markets in derivatives for customers and also uses derivatives to hedge or manage risks of market exposures and to make investments. The majority of the Firm’s derivatives are entered into for market-making purposes. The decrease in derivative receivables and payables was primarily related to tightening credit spreads, the increase in interest rates, and volatile FX rates reflected in credit, interest rate, and foreign exchange derivatives, respectively. For additional information, refer to derivative contracts, on pages 68-70, Note 3 and Note 5 on pages 99-114 and 116-124, respectively, of this Form 10-Q.
Securities
Almost all of the securities portfolio is classified as AFS and is used predominantly to manage the Firm’s exposure to interest rate movements, as well as to make strategic longer-term investments. The Firm purchased a significant amount of residential mortgage-backed securities, a majority of which are guaranteed by the U.S. Federal Government, to position the Firm for the declining interest rate environment. The increase in securities was partially offset by sales of higher coupon instruments as part of this positioning as well as prepayments and maturities. For additional information related to securities, refer to the Corporate/Private Equity segment on pages 46-48, Note 3 and Note 11 on pages 99-114 and 129-134, respectively, of this Form 10-Q.
Loans and allowance for loan losses
The Firm provides loans to a variety of customers, from large corporate and institutional clients to individual consumers. Loans decreased largely as a result of declines across all the lines of business, reflecting lower customer demand in the wholesale businesses, the seasonal decline in credit card receivables, credit card securitization activities, and paydowns and charge-offs across all major loan portfolios.
Both the consumer and wholesale components of the allowance for loan losses increased, as weak economic conditions and housing price declines continued to drive an increase in estimated losses for most of the Firm’s loan portfolios. For a more detailed discussion of the loan portfolio and the allowance for loan losses, refer to Credit Risk Management on pages 62-80, and Notes 3, 4, 13 and 14 on pages 99-114, 114-116, 135-138 and 139, respectively, of this Form 10-Q.
Accrued interest and accounts receivable; accounts payable and other liabilities
The Firm’s accrued interest and accounts receivable consist of accrued interest receivables from interest-earning assets; receivables from customers (primarily from activities related to IB’s Prime Services business); receivables from brokers, dealers and clearing organizations; and receivables from failed securities sales. The Firm’s accounts payable and other liabilities consist of accounts payable to customers (primarily from activities related to IB’s Prime Services business), payables to brokers, dealers and clearing organizations; payables from failed securities purchases; accrued expense, including for interest-bearing liabilities; and all other liabilities, including obligations to return securities received as collateral. The decrease in accounts payable and other liabilities partly reflected lower customer payables in IB’s Prime Services business and slight declines in accounts payable and payables related to unsettled trades.
Goodwill
Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts assigned to assets acquired and liabilities assumed. The increase in goodwill was largely due to purchase accounting adjustments related to the Bear Stearns merger as well as an acquisition of a commodities business by IB. For additional information, see Note 17 on pages 153-156 of this Form 10-Q.

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Other intangible assets
The Firm’s other intangible assets consist of MSRs, purchased credit card relationships, other credit card-related intangibles, core deposit intangibles, and other intangibles. MSRs increased due to markups in the fair value of the MSR asset due primarily to market interest rate and other changes impacting the Firm’s estimate of future prepayments, as well as sales in RFS of originated loans for which servicing rights were retained. These increases were offset partially by servicing portfolio run-off. The decrease in the other intangible assets primarily reflects amortization expense associated with credit card-related intangibles, core deposit intangibles, and other intangibles. For additional information on MSRs and other intangible assets, see Note 17 on pages 153-156 of this Form 10-Q.
Deposits
The Firm’s deposits represent a liability to customers, both retail and wholesale, related to non-brokerage funds held on their behalf. Deposits are classified by location (U.S. and non-U.S.), whether they are interest- or noninterest-bearing, and by type (i.e., demand, money market, savings, time or negotiable order of withdrawal accounts). Deposits help provide a stable and consistent source of funding for the Firm. Wholesale deposits declined in TSS from the elevated levels at December 31, 2008, reflecting the continued normalization of deposit levels following the strong inflows as a result of the heightened volatility and credit concerns affecting the markets during the latter part of 2008. For more information on deposits, refer to the RFS, TSS and AM segment discussions on pages 24-31, 39-42 and 42-46, respectively; the Liquidity Risk Management discussion on pages 58-62; and Note 18 on page 156 of this Form 10-Q. For more information on wholesale liability balances, including deposits, refer to the CB and TSS segment discussions on pages 36-38 and 39-42, respectively, of this Form 10-Q.
Commercial paper and other borrowed funds
The Firm utilizes commercial paper and other borrowed funds as part of its liquidity management activities to meet short-term funding needs, and in connection with a TSS liquidity management product whereby excess client funds, are transferred into commercial paper overnight sweep accounts. The decrease in other borrowed funds was predominantly due to the absence of borrowings from the Federal Reserve under the Term Auction Facility program and lower advances from Federal Home Loan Banks. For additional information on the Firm’s Liquidity Risk Management and other borrowed funds, see pages 58-62, and Note 19 on page 156 of this Form 10-Q.
Beneficial interests issued by consolidated VIEs
JPMorgan Chase utilizes VIEs to assist clients in accessing the financial markets in a cost-efficient manner and to issue guaranteed capital debt securities. The Firm consolidates the VIEs if the Firm will absorb a majority of the expected losses of the VIEs, receive the majority of the expected residual returns of the VIEs, or both. Included in the caption “beneficial interests issued by consolidated VIEs” are the interest-bearing beneficial interest liabilities issued by the consolidated VIEs. During the second quarter of 2009, the Firm consolidated a multi-seller conduit and a credit card loan securitization trust (Washington Mutual Master Trust). As a result the beneficial interests issued by consolidated VIEs increased. For additional information on the Firm-sponsored VIEs and loan securitization trusts, see Off-Balance Sheet Arrangements and Contractual Cash Obligations on pages 51-53, and Note 15 and Note 16 on pages 139-147 and pages 148-153 respectively, of this Form 10-Q.
Long-term debt and trust preferred capital debt securities
The Firm utilizes long-term debt and trust preferred capital debt securities to provide cost-effective and diversified sources of funds and as critical components of the Firm’s liquidity and capital management. Long-term debt increased slightly, predominantly due to new issuances. The Firm also issued €2.0 billion ($2.6 billion) and $5.5 billion of non-FDIC guaranteed debt in the European and U.S. markets, respectively. Issuing non-FDIC guaranteed debt was a prerequisite to be eligible to redeem the $25.0 billion of Series K preferred stock. For additional information on the Firm’s long-term debt activities, see the Liquidity Risk Management discussion on pages 58-62 of this Form
10-Q.
Stockholders’ equity
The decrease in total stockholders’ equity was largely due to the redemption of the $25.0 billion Series K preferred stock issued to the U.S. Treasury pursuant to TARP and the declaration of cash dividends on preferred and common stock. The decrease was offset partially by the $5.8 billion of common equity raised to satisfy a supervisory condition requiring the Firm to demonstrate it could access the equity capital markets in order to be eligible to redeem the Series K preferred stock; net issuances under the Firm’s employee stock-based compensation plans; net income for the first six months of 2009; and net unrealized gains recorded within accumulated other comprehensive income related to AFS securities. For a further discussion, see the Capital Management section on pages 53-57, Note 20 on page 157 and Note 22 on page 159 of this Form 10-Q.

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OFF—BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
JPMorgan Chase has several types of off—balance sheet arrangements, including arrangements with special-purpose entities (“SPEs”) and the issuance of lending-related financial instruments (e.g., commitments and guarantees). For further discussion of contractual cash obligations, see Off—Balance Sheet Arrangements and Contractual Cash Obligations on page 68 of JPMorgan Chase’s 2008 Annual Report.
Special-purpose entities
The basic SPE structure involves a company selling assets to the SPE. The SPE funds the purchase of those assets by issuing securities to investors in the form of commercial paper, short-term asset-backed notes, medium-term asset-backed notes and other forms of interest. SPEs are generally structured to insulate investors from claims on the SPE’s assets by creditors of other entities, including the creditors of the seller of the assets.
JPMorgan Chase uses SPEs as a source of liquidity for itself and its clients by securitizing financial assets, and by creating investment products for clients. The Firm is involved with SPEs through multi-seller conduits and investor intermediation activities, and as a result of its loan securitizations through qualifying special-purpose entities (“QSPEs”). For a detailed discussion of all SPEs with which the Firm is involved, and the related accounting, see Note 1 on page 122, Note 16 on pages 168-176 and Note 17 on pages 177-186 of JPMorgan Chase’s 2008 Annual Report.
During the quarter ended June 30, 2009, the overall performance of the Firm’s credit card securitization trusts declined primarily due to the increase in credit losses incurred on the underlying credit card receivables. As a result, the Firm took certain actions related to both the Chase Issuance Trust (the “Trust”) and the Washington Mutual Master Trust (the “WMM Trust”). These actions and their impact on the Firm’s Consolidated Balance Sheets and results of operations are further discussed in Note 15 on pages 139-147 of this Form 10-Q.
The Firm does not currently expect to take any additional actions that would require it to consolidate any of the Firm’s remaining nonconsolidated securitization QSPEs or SPEs through December 31, 2009. Upon the Firm’s adoption of SFAS 166 and 167 effective January 1, 2010, the Firm will be required to evaluate all sponsored securitization QSPEs and other SPEs for consolidation. For additional information about the potential impact of SFAS 166 and 167, see Accounting and Reporting Developments on pages 90-91 of this Form 10-Q.
The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees.
Certain mortgage loans that were sold to off-balance sheet SPEs in which the Firm continues to service the loans are modified. These modifications have been made in conjunction with the U.S. Treasury’s “Making Home Affordable Plan” as well as to a lesser extent the American Securitization Forum’s “Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans”. See Consumer Credit Portfolio on pages 72-73 for more details on the loan modifications.
Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.
For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the short-term credit rating of JPMorgan Chase Bank, N.A., were downgraded below specific levels, primarily “P-1”, “A-1” and “F1” for Moody’s, Standard & Poor’s and Fitch, respectively. The amount of these liquidity commitments was $44.0 billion and $61.0 billion at June 30, 2009, and December 31, 2008, respectively. Alternatively, if JPMorgan Chase Bank, N.A., were downgraded, the Firm could be replaced by another liquidity provider in lieu of providing funding under the liquidity commitments; or, in certain circumstances, the Firm could facilitate the sale or refinancing of the assets in the SPE in order to provide liquidity. The Firm’s commitments to SPEs are included in other unfunded commitments to extend credit and asset purchase agreements, as shown in the Off-balance sheet lending-related financial instruments and guarantees table on page 53 of this Form 10-Q.

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Special-purpose entities revenue
The following table summarizes certain revenue information related to consolidated and nonconsolidated VIEs and QSPEs with which the Firm has significant involvement. The revenue reported in the table below predominantly represents contractual servicing and credit fee income (i.e., income from acting as administrator, structurer or liquidity provider). It does not include mark-to-market gains and losses from changes in the fair value of trading positions (such as derivative transactions) entered into with VIEs. Those gains and losses are recorded in principal transactions revenue.
                                 
Revenue from VIEs and QSPEs   Three months ended June 30,   Six months ended June 30,
(in millions)   2009   2008   2009   2008
 
VIEs(a)
                               
Multi-seller conduits
  $ 136     $ 67     $ 256     $ 124  
Investor intermediation
    20       8       40       5  
 
Total VIEs
    156       75       296       129  
QSPEs(b)
    587       357       1,210       682  
 
Total
  $ 743     $ 432     $ 1,506     $ 811  
 
(a)   Includes revenue associated with consolidated VIEs and significant nonconsolidated VIEs.
 
(b)   Excludes servicing revenue from loans sold to and securitized by third parties. The prior-period amount has been revised to conform to the current-period presentation.
Off—balance sheet lending-related financial instruments and guarantees
JPMorgan Chase utilizes lending-related financial instruments (e.g., commitments) and guarantees to meet customer financing needs. The contractual amount of these financial instruments represents the maximum possible credit risk should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and the counterparty subsequently fail to perform according to the terms of the contract. These commitments and guarantees historically expire without being drawn, and an even higher proportion expire without a default. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements. Further, certain commitments, primarily related to consumer financings, are cancelable, upon notice, at the option of the Firm. For further discussion of lending-related commitments and guarantees and the Firm’s accounting for them, see Note 5 and Note 24 on pages 116-124 and 160-163, respectively, of this Form 10-Q, and Credit Risk Management on page 90 and Note 32 and Note 33 on pages 202-210 of JPMorgan Chase’s 2008 Annual Report.
The following table presents the contractual amounts of off-balance sheet lending-related financial instruments and guarantees for the periods indicated. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law. Asset purchase agreements are agreements to the Firm’s administered multi-seller, asset-backed commercial paper conduits. It includes asset purchase agreements to other third-party entities of $95 million at June 30, 2009, and $96 million at December 31, 2008. It excludes $9.8 billion at June 30, 2009, related to the consolidation of a multi-seller conduit in accordance with FIN 46R, as the underlying assets are reported in the Firm’s consolidated balance sheet. The maturity is based upon the weighted-average life of the underlying assets in the SPE, which are based upon the remainder of each conduit transaction’s committed liquidity plus either the expected weighted average life of the assets should the committed liquidity expire without renewal, or the expected time to sell the underlying assets in the securitization market.

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<
                                                 
    June 30, 2009   Dec. 31, 2008
            Due after   Due after            
            1 year   3 years            
By remaining maturity   Due in 1   through   through   Due after        
(in millions)   year or less   3 years   5 years   5 years   Total   Total
 
Lending-related
                                               
Consumer:
                                               
Credit card
  $ 607,949     $     $     $     $ 607,949     $ 623,702  
Home equity
    854       3,501       11,943       54,344       70,642       95,743  
Other
    19,001       475       157       1,058       20,691       22,062  
 
Total consumer
  $ 627,804     $ 3,976     $ 12,100     $ 55,402     $ 699,282     $ 741,507  
 
Wholesale:
                                               
Other unfunded commitments to extend credit(a)(b)
    62,012       82,704       34,964       5,320       185,000       189,563  
Asset purchase agreements
    9,962       16,607       3,155       286       30,010       53,729  
Standby letters of credit and other financial guarantees(a)(c)(d)
    25,103       41,398       20,285       2,667       89,453       95,352