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, 2011 Commission file number 1-5805

JPMORGAN CHASE & CO.

(Exact name of registrant as specified in its charter)

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

(212) 270-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

T Yes o No

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

T Yes o No

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

Large accelerated filer T Accelerated filer o.

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

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

o Yes T No

Number of shares of common stock outstanding as of July 31, 2011: 3,899,050,011

FORM 10-Q

TABLE OF CONTENTS

		Page
Part I - Financial information
Item 1	Consolidated Financial Statements – JPMorgan Chase & Co.:
	Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2011 and 2010	98
	Consolidated Balance Sheets (unaudited) at June 30, 2011, and December 31, 2010	99
	Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (unaudited) for the six months ended June 30, 2011 and 2010	100
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2011 and 2010	101
	Notes to Consolidated Financial Statements (unaudited)	102
	Report of Independent Registered Public Accounting Firm	183
	Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and six months ended June 30, 2011 and 2010	184
	Glossary of Terms and Line of Business Metrics	186
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations:
	Consolidated Financial Highlights	3
	Introduction	4
	Executive Overview	6
	Consolidated Results of Operations	11
	Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures	14
	Business Segment Results	17
	International Operations	48
	Balance Sheet Analysis	49
	Off-Balance Sheet Arrangements	52
	Capital Management	57
	Risk Management	61
	Supervision and Regulation	92
	Critical Accounting Estimates Used by the Firm	92
	Accounting and Reporting Developments	96
	Forward-Looking Statements	97
Item 3	Quantitative and Qualitative Disclosures About Market Risk	191
Item 4	Controls and Procedures	191
Part II - Other information
Item 1	Legal Proceedings	192
Item 1A	Risk Factors	192
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	193
Item 3	Defaults Upon Senior Securities	195
Item 5	Other Information	195
Item 6	Exhibits	195

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JPMORGAN CHASE & CO.

CONSOLIDATED FINANCIAL HIGHLIGHTS

(unaudited) (in millions, except per share, headcount and ratio data)																Six months ended June 30,
As of or for the period ended,	2Q11			1Q11			4Q10			3Q10			2Q10			2011			2010
Selected income statement data
Total net revenue	$	26,779		$	25,221		$	26,098		$	23,824		$	25,101		$	52,000		$	52,772
Total noninterest expense	16,842			15,995			16,043			14,398			14,631			32,837			30,755
Pre-provision profit(a)	9,937			9,226			10,055			9,426			10,470			19,163			22,017
Provision for credit losses	1,810			1,169			3,043			3,223			3,363			2,979			10,373
Income before income tax expense	8,127			8,057			7,012			6,203			7,107			16,184			11,644
Income tax expense	2,696			2,502			2,181			1,785			2,312			5,198			3,523
Net income	$	5,431		$	5,555		$	4,831		$	4,418		$	4,795		$	10,986		$	8,121
Per common share data
Net income per share: Basic	$	1.28		$	1.29		$	1.13		$	1.02		$	1.10		$	2.57		$	1.84
Diluted	1.27			1.28			1.12			1.01			1.09			2.55			1.83
Cash dividends declared per share(b)	0.25			0.25			0.05			0.05			0.05			0.50			0.10
Book value per share	44.77			43.34			43.04			42.29			40.99			44.77			40.99
Common shares outstanding
Average: Basic	3,958.4			3,981.6			3,917.0			3,954.3			3,983.5			3,970.0			3,977.0
Diluted	3,983.2			4,014.1			3,935.2			3,971.9			4,005.6			3,998.6			4,000.2
Common shares at period-end	3,910.2			3,986.6			3,910.3			3,925.8			3,975.8			3,910.2			3,975.8
Share price(c)
High	$	47.80		$	48.36		$	43.12		$	41.70		$	48.20		$	48.36		$	48.20
Low	39.24			42.65			36.21			35.16			36.51			39.24			36.51
Close	40.94			46.10			42.42			38.06			36.61			40.94			36.61
Market capitalization	160,083			183,783			165,875			149,418			145,554			160,083			145,554
Selected ratios
Return on common equity (“ROE”)	12		%	13		%	11		%	10		%	12		%	13		%	10		%
Return on tangible common equity (“ROTCE”)	17			18			16			15			17			18			15
Return on assets (“ROA”)	0.99			1.07			0.92			0.86			0.94			1.03			0.80
Overhead ratio	63			63			61			60			58			63			58
Deposits-to-loans ratio	152			145			134			131			127			152			127
Tier 1 capital ratio	12.4			12.3			12.1			11.9			12.1
Total capital ratio	15.7			15.6			15.5			15.4			15.8
Tier 1 leverage ratio	7.0			7.2			7.0			7.1			6.9
Tier 1 common capital ratio(d)	10.1			10.0			9.8			9.5			9.6
Selected balance sheet data (period-end)(e)
Trading assets	$	458,722		$	501,148		$	489,892		$	475,515		$	397,508		$	458,722		$	397,508
Securities	324,741			334,800			316,336			340,168			312,013			324,741			312,013
Loans	689,736			685,996			692,927			690,531			699,483			689,736			699,483
Total assets	2,246,764			2,198,161			2,117,605			2,141,595			2,014,019			2,246,764			2,014,019
Deposits	1,048,685			995,829			930,369			903,138			887,805			1,048,685			887,805
Long-term debt(e)	279,228			269,616			270,653			271,495			260,442			279,228			260,442
Common stockholders’ equity	175,079			172,798			168,306			166,030			162,968			175,079			162,968
Total stockholders' equity	182,879			180,598			176,106			173,830			171,120			182,879			171,120
Headcount	250,095			242,929			239,831			236,810			232,939			250,095			232,939
Credit quality metrics
Allowance for credit losses	$	29,146		$	30,438		$	32,983		$	35,034		$	36,748		$	29,146		$	36,748
Allowance for loan losses to total retained loans	4.16		%	4.40		%	4.71		%	4.97		%	5.15		%	4.16		%	5.15		%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(f)	3.83			4.10			4.46			5.12			5.34			3.83			5.34
Nonperforming assets	$	13,240		$	14,986		$	16,557		$	17,656		$	18,156		$	13,240		$	18,156
Net charge-offs(g)	3,103			3,720			5,104			4,945			5,714			6,823			13,624
Net charge-off rate(g)	1.83		%	2.22		%	2.95		%	2.84		%	3.28		%	2.02		%	3.88		%
Wholesale net charge-off rate	0.14			0.30			0.49			0.49			0.44			0.21			1.14
Consumer net charge-off rate(g)	2.74			3.18			4.12			3.90			4.49			2.96			5.03

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

(b) On March 18, 2011, the Board of Directors increased the Firm's quarterly common stock dividend from $0.05 to $0.25 per share.

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

(d) Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common divided by risk-weighted assets. The Firm uses Tier 1 common capital (“Tier 1 common”) along with the other capital measures to assess and monitor its capital position. For further discussion, see Regulatory capital on pages 57–60 of this Form 10-Q.

(e) Effective January 1, 2011, the long-term portion of advances from Federal Home Loan Banks (“FHLBs”) was reclassified from other borrowed funds to long-term debt. Prior periods have been revised to conform with the current presentation.

(f) Excludes the impact of home lending purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 86–88 of this Form 10-Q.

(g) Net charge-offs and net charge-off rates for the fourth quarter of 2010 include the effect of $632 million of charge-offs related to the estimated net realizable value of the collateral underlying delinquent residential home loans. Because these losses were previously recognized in the provision and allowance for loan losses, this adjustment had no impact on the Firm's net income.

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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 of JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”). See the Glossary of terms on pages 186–189 for definitions of terms used throughout this Form 10-Q. The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. For a discussion of such risks and uncertainties, see Forward-looking Statements on page 97 and Part II, Item 1A, Risk Factors on pages 192–193 of this Form 10-Q, and Part I, Item 1A, Risk Factors on pages 5–12 of JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the U.S. Securities and Exchange Commission (“2010 Annual Report” or “2010 Form 10-K”), to which reference is hereby made.

INTRODUCTION

JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with $2.2 trillion in assets, $182.9 billion in stockholders’ equity and operations in more than 60 countries as of June 30, 2011. The Firm is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.

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

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

Investment Bank

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

Retail Financial Services

Retail Financial Services (“RFS”) serves consumers and businesses through personal service at bank branches and through ATMs, online banking and telephone banking, as well as through auto dealerships and school financial-aid offices. Customers can use more than 5,300 bank branches (third-largest nationally) and more than 16,400 ATMs (second-largest nationally), as well as online and mobile banking around the clock. More than 30,900 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 16,500 auto dealerships and can get student loans certified by more than 1,900 schools and universities nationwide.

Card Services

Card Services (“CS”) is one of the nation’s largest credit card issuers, with over $125 billion in loans and over 65 million open accounts. In the six months ended June 30, 2011, customers used Chase cards to meet $163 billion of their spending needs. Through its merchant acquiring business, Chase Paymentech Solutions, CS is a global leader in payment processing and merchant acquiring.

Commercial Banking

Commercial Banking (“CB”) delivers extensive industry knowledge, local expertise and dedicated service to nearly 25,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from $10 million to $2 billion, and nearly 35,000 real estate investors/owners. CB partners with the Firm’s other businesses to provide comprehensive solutions, including lending, treasury services, investment banking and asset management, to meet its clients’ domestic and international financial needs.

4

Treasury & Securities Services

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

Asset Management

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

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EXECUTIVE OVERVIEW

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

Economic environment

The U.S. economic recovery continued in the second quarter of 2011, though the pace seemed to have slowed, due, in part, to the major disruptions in the global supply chain for the auto industry as a result of the earthquake and tsunami in Japan and the sharp rise in oil prices during the first half of the year. Labor market indicators were weaker than anticipated in the second quarter and the struggling housing and construction sectors remained depressed. However, household spending and business investment in equipment and software continued to expand.

To promote a faster pace of economic recovery, the Federal Reserve maintained its existing policy of reinvesting principal payments from its securities holdings and completed the purchase of $600 billion of longer-term Treasury securities in the second quarter. The Federal Reserve also held the target range for the federal funds rate at zero to one-quarter percent and continued to indicate that economic conditions were likely to warrant a low federal funds rate for an extended period.

Financial performance of JPMorgan Chase

	Three months ended June 30,								Six months ended June 30,
(in millions, except per share data and ratios)	2011			2010			Change		2011			2010			Change
Selected income statement data
Total net revenue	$	26,779		$	25,101		7	%	$	52,000		$	52,772		(1	)%
Total noninterest expense	16,842			14,631			15		32,837			30,755			7
Pre-provision profit	9,937			10,470			(5	)	19,163			22,017			(13	)
Provision for credit losses	1,810			3,363			(46	)	2,979			10,373			(71	)
Net income	5,431			4,795			13		10,986			8,121			35
Diluted earnings per share	1.27			1.09			17		2.55			1.83			39
Return on common equity	12		%	12		%			13		%	10		%
Capital ratios
Tier 1 capital	12.4			12.1
Tier 1 common	10.1			9.6

Business overview

JPMorgan Chase reported second-quarter 2011 net income of $5.4 billion, or $1.27 per share, on net revenue of $26.8 billion. Net income was up 13% compared with net income of $4.8 billion, or $1.09 per share, in the second quarter of 2010. ROE for the quarter was 12%, unchanged from the prior year. Current-quarter results included a $1.0 billion pretax ($0.15 per share after-tax) benefit from a reduction in the allowance for loan losses in Card Services; an $837 million pretax ($0.12 per share after-tax) benefit from securities gains in Corporate; a $1.0 billion pretax ($0.15 per share after-tax) expense for estimated costs of foreclosure-related matters in Retail Financial Services; and $1.3 billion pretax ($0.19 per share after-tax) of additional litigation reserves, predominantly for mortgage-related matters, in Corporate.

The increase in net income for the second quarter of 2011 was driven by higher net revenue and a significantly lower provision for credit losses, largely offset by higher noninterest expense. Net revenue growth resulted from higher levels of principal transactions revenue, investment banking fees and asset management, administration and commissions revenue, partially offset by lower net interest income and lower securities gains. The decrease in the provision for credit losses reflected improvement in the credit environment. The increase in noninterest expense was driven by higher noncompensation expense due to additional litigation reserves, predominantly for mortgage-related matters, and expense for the estimated costs of foreclosure-related matters.

The Firm’s second-quarter results reflected strong earnings and solid client flows in the Investment Bank, record revenue and continued loan growth in Commercial Banking, and solid performance across most other businesses. Retail Banking within Retail Financial Services continued to demonstrate good underlying performance, but RFS overall continued to be negatively affected by high expenses for mortgage-related issues, including a $1.0 billion expense for estimated litigation and other costs of foreclosure-related matters. Results for the second quarter also reflected continued improvement in credit trends across the consumer and wholesale portfolios. With respect to the credit card portfolio, delinquencies and net charge-offs improved, and the Firm reduced loan loss reserves by $1.0 billion as estimated losses declined. With respect to the mortgage portfolio, delinquency and net charge-off trends improved modestly compared with the prior quarter; however, net charge-offs remained high, and credit losses are expected to remain elevated.

6

JPMorgan Chase’s balance sheet remained strong, ending the second quarter with a Basel I Tier 1 Common ratio of 10.1%. This strong and growing capital base enabled the Firm to repurchase $3.5 billion of common stock during the quarter. Total firmwide credit reserves at quarter-end were $29.1 billion, resulting in a firmwide loan loss coverage ratio of 3.83%, excluding purchased credit-impaired loans. Total stockholders’ equity at June 30, 2011, was $182.9 billion.

Net income for the first six months of 2011 was $11.0 billion, or $2.55 per share, compared with $8.1 billion, or $1.83 per share, in the first half of 2010. The increase was driven by a significantly lower provision for credit losses, partially offset by higher noninterest expense and lower net revenue. The lower provision for credit losses reflected an improved credit environment. The modest decline in net revenue for the first six months of the year was driven by lower net interest income, mortgage fees and related income and securities gains, largely offset by higher levels of principal transactions revenue, investment banking fees and asset management, administration and commissions revenue. The increase in noninterest expense compared with the first six months of 2010 was driven by expenses taken for the estimated costs of foreclosure-related matters in RFS and higher compensation expense.

During the first six months of 2011, JPMorgan Chase provided credit to and raised capital of over $990 billion for its clients. The Firm originated mortgages to more than 360,000 people; provided credit cards to approximately 4.6 million people; lent or increased credit to more than 16,800 small businesses; lent to more than 800 not-for-profit and government entities, including states, municipalities, hospitals and universities; extended or increased loan limits to approximately 3,000 middle-market companies; and lent to or raised capital for more than 5,000 other corporations. JPMorgan Chase is the #1 Small Business Administration lender in the U.S. with more loans made than any other lender. In 2009 and 2010, the Firm lent more than $7 billion and $10 billion, respectively, to small businesses, and has committed to lend at least $12 billion in 2011. The Firm remains committed to helping homeowners and preventing foreclosures; since the beginning of 2009, JPMorgan Chase has offered 1,177,000 trial modifications to struggling homeowners.

The discussion that follows highlights the performance of each business segment compared with the prior-year quarter and presents results on a managed basis. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see pages 14–16 of this Form 10-Q.

Investment Bank net income increased from the prior year, reflecting higher net revenue and lower noninterest expense, partially offset by a lower benefit from the provision for credit losses. The increase in net revenue was largely driven by higher investment banking fees and solid client revenue in Fixed Income and Equity Markets. Credit Portfolio revenue was a loss, primarily reflecting the negative net impact of credit-related valuation adjustments, largely offset by net interest income and fees on retained loans. The provision for credit losses was a smaller benefit in the second quarter of 2011 compared with the second quarter of 2010 and reflected a reduction in the allowance for loan losses, largely due to net repayments. Noninterest expense decreased, driven by lower compensation expense. The prior-year results included the impact of the U.K. Bank Payroll Tax.

Retail Financial Services net income decreased compared with the prior year as higher noninterest expense was largely offset by a lower provision for credit losses and higher net revenue. The increase in net revenue was driven by higher mortgage fees and related income, deposit balances, debit card income, deposit-related fees and investment sales revenue, partially offset by lower loan balances due to portfolio runoff. The provision for credit losses decreased, as delinquency trends and net charge-offs modestly improved compared with the prior year. However, the current-quarter provision continued to reflect elevated losses in the mortgage and home equity portfolios. Noninterest expense increased, driven by elevated foreclosure and default-related costs, including $1.0 billion for estimated litigation and other costs of foreclosure-related matters.

Card Services net income increased compared with the second quarter of 2010 driven by a lower provision for credit losses, partially offset by lower net revenue. The decrease in net revenue was driven by a decline in net interest income, reflecting lower average loan balances (including the impact of the Kohl’s portfolio sale), the impact of legislative changes and a decreased level of fees. These decreases were largely offset by lower revenue reversals associated with lower net charge-offs. The provision for credit losses decreased from the prior year, reflecting lower net charge-offs and a $1.0 billion reduction in the allowance for loan losses due to lower estimated losses. Noninterest expense increased, due to higher marketing expense and the inclusion of the Commercial Card business. Sales volume, excluding the Washington Mutual and Commercial Card portfolios, was $83.1 billion, an increase of 10% from the prior year.

Commercial Banking net income decreased, driven by an increase in the provision for credit losses, partially offset by record net revenue. Record net revenue was driven by growth in liability balances, wider loan spreads, higher investment banking revenue and growth in loan balances, partially offset by spread compression on liability products. The provision for credit losses was an expense compared with a benefit in the prior-year. Noninterest expense increased, primarily reflecting higher headcount-related expense. End-of-period loans of $102.7 billion, up 7% compared with the second quarter 2010, have increased for four consecutive quarters. Average liability balances of $162.8 billion have increased 19% from the second quarter 2010.

Treasury & Securities Services net income increased from the prior year, driven by higher net revenue and the credit allocation benefit related to the Global Corporate Bank (“GCB”), partially offset by higher noninterest expense. Worldwide Securities Services net revenue increased, driven by higher market levels, higher net interest income and net inflows of assets under custody. Assets

7

under custody were a record $16.9 trillion, an increase of 14% from the prior year. Treasury Services net revenue was relatively flat as higher trade loan volumes and higher deposit balances were largely offset by the effect of the transfer of the Commercial Card business to CS and lower spreads on deposits. Higher noninterest expense was driven by continued investment in new product platforms, primarily related to international expansion, partially offset by the transfer of the Commercial Card business to CS.

Asset Management net income increased from the prior year, reflecting higher net revenue, predominantly offset by higher noninterest expense. The growth in net revenue was driven by the effect of higher market levels, net inflows to products with higher margins, higher valuations of seed capital investments, higher deposit and loan balances, and higher performance fees. The increase in revenue was partially offset by narrower deposit spreads. Assets under supervision of $1.9 trillion increased 17% from the prior year due to the effect of higher market levels and net inflows to long-term products, partially offset by net outflows from liquidity products. Noninterest expense increased, largely resulting from an increase in headcount and higher performance-based compensation.

Corporate/Private Equity net income decreased compared with the second quarter of 2010. Private equity revenue increased, primarily driven by gains on sales and net increases in investment valuations. Net interest income and securities gains decreased from the prior year. Noninterest expense was higher and included $1.3 billion of additional litigation reserves, predominantly for mortgage-related matters. Noninterest expense in the prior year included $694 million of additional litigation reserves.

2011 Business outlook

The following forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. See Forward-Looking Statements on page 97 and Risk Factors on pages 192–193 of this Form 10-Q.

JPMorgan Chase’s outlook for the second half of 2011 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these linked factors will affect the performance of the Firm and its lines of business.

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

The Firm expects noninterest expense in Mortgage Banking, Auto & Other Consumer Lending to remain, for the remainder of the year, at elevated levels similar to those incurred in the first half of 2011 (excluding the $1.7 billion expense incurred during the first half of 2011 for various estimated costs related to foreclosure delays and potential settlements with federal and state officials). These higher levels of noninterest expense are expected in light of increased servicing costs to enhance the Firm’s mortgage servicing processes, particularly loan modification and foreclosure procedures, and comply with the Consent Orders entered into with the banking regulators. (See Enhancements to Mortgage Servicing on pages 84–85 and Note 23 on pages 172–179 of this Form 10-Q for further information about the Consent Orders.) It is also possible that the Firm will incur additional fees and assessments related to foreclosure delays as well as other costs in connection with the potential settlement of the governmental investigations related to the Firm’s mortgage servicing procedures.

In the Real Estate Portfolios business within RFS, management believes that, based on the current outlook for delinquencies and loss severity, total quarterly net charge-offs could be approximately $1.2 billion. Given current origination and production levels, combined with management’s current estimate of portfolio runoff levels, the residential real estate portfolio is expected to decline by approximately 10% to 15% annually for the foreseeable future. The annual reduction in the residential real estate portfolio is expected to reduce net interest income in each period, including a reduction of approximately $700 million for full-year 2011 from the 2010 level, assuming no changes in interest rates during the year. However, over time, the reduction in net interest income is expected to be more than offset by an improvement in credit costs and lower expenses. As the portfolio continues to run off, management anticipates that approximately $1.0 billion of capital may become available for redeployment each year, subject to the capital requirements associated with the remaining portfolio.

In CS, given current high repayment rates, management expects end-of-period outstandings for the Chase portfolio (excluding the Washington Mutual and Commercial Card portfolios) could be between $115 billion and $120 billion by the end of 2011. Management estimates that the Washington Mutual portfolio could decline to $10 billion by the end of 2011.

Net charge-off rates for both the Chase and Washington Mutual credit card portfolios are anticipated to continue to improve. If current delinquency trends continue, management anticipates the net charge-off rate for the Chase portfolio (excluding the Washington Mutual and Commercial Card portfolios) could be approximately 4.5% for the third quarter of 2011. Recent reserve

8

releases from the credit card allowance for loan losses reflect the continued improvement in the credit cycle. Management anticipates that as credit card net charge-offs begin to stabilize towards a normal through-the-cycle level, releases from the allowance will decline and eventually abate.

Economic data for the first half of 2011 seemed to imply that U.S. economic growth has slowed, and high unemployment rates and the difficult housing market have been persistent. Ongoing weak economic conditions, combined with elevated delinquencies and ongoing discussions regarding mortgage foreclosure-related matters with federal and state officials, continue to result in a high level of uncertainty in the residential real estate portfolio. Further declines in U.S. housing prices and increases in the unemployment rate remain possible; were this to occur, currently anticipated results for both RFS and CS could be adversely affected.

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

In Private Equity, within the Corporate/Private Equity segment, earnings will likely continue to be volatile and be influenced by capital markets activity, market levels, the performance of the broader economy and investment-specific issues. Corporate’s net interest income levels will generally trend with the size and duration of the investment securities portfolio. Corporate net income, excluding Private Equity, and excluding significant litigation expense and significant nonrecurring items, is anticipated to trend toward approximately $300 million per quarter. Furthermore, continued repositioning of the investment securities portfolio in Corporate, changes in the mix of loans within the consumer loan portfolio and other factors, including continued low interest rates, could result in further downward pressure on the Firm’s net interest margin in the third quarter of 2011.

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

Management and the Firm’s Board of Directors continually evaluate ways to deploy the Firm’s strong capital base in order to enhance shareholder value. Such alternatives could include the repurchase of common stock and warrants, increasing the common stock dividend and pursuing alternative investment opportunities. The Firm expects to utilize the authorized $15.0 billion, multi-year common equity repurchase program, of which up to $8.0 billion is approved by the Federal Reserve for 2011, to, at a minimum, repurchase the same amount of shares that it issues for employee stock-based incentive awards. Beyond this, the Firm intends to repurchase its common equity only when the Firm is generating capital in excess of that which is needed to fund its organic growth and when, in management’s judgment, such repurchases provide excellent value to the Firm’s existing shareholders. Management and the Board will continue to assess and make decisions regarding alternatives for deploying capital, as appropriate, over the course of the year. Any planned future dividend increases over the current level, or planned use of the repurchase program over the repurchases approved for 2011, will be reviewed by the Firm with its banking regulators before taking action.

9

Regulatory developments

JPMorgan Chase is subject to regulation under state and federal laws in the U.S., as well as the applicable laws of each of the various other jurisdictions outside the U.S. in which the Firm does business. The Firm is currently experiencing a period of unprecedented change in regulation and such changes could have a significant impact on how the Firm conducts business. The Firm continues to work diligently in assessing and understanding the implications of the regulatory changes it is facing, and is devoting substantial resources to implementing all the new rules and regulations while meeting the needs and expectations of its clients. While the Firm has made a preliminary assessment of the likely impact of certain of the anticipated changes, as more fully described below, the Firm cannot, given the current status of the regulatory developments, quantify the possible effects on its business and operations of all of the significant changes that are underway. See Risk Factors on pages 192–193 of this Form 10-Q for additional information.

In February 2011, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the FDIC issued a final rule changing its methodology for calculating the deposit insurance assessment rate for large banks. The new rule changes the assessment base from insured deposits to average consolidated total assets less average tangible equity, and changes the assessment rate calculation. These changes became effective on April 1, 2011, and, based on the Firm’s understanding of the final rule, are expected to result in an aggregate annualized increase of approximately $500 million in the assessments that the Firm’s bank subsidiaries pay to the FDIC.

In June 2011, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) adopted rules implementing the Durbin Amendment provisions of the Dodd-Frank Act, which limits the amount the Firm may charge for each debit card transaction it processes. Based on the Firm’s current understanding of the final rules, which become effective on October 1, 2011, it is anticipated that such rules will result, absent mitigation, in a decline in aggregate annualized gross revenue for Retail Banking of approximately $1.0 billion, beginning in the fourth quarter of 2011. The Firm is considering various actions it may take to mitigate some of the anticipated decline in revenue over time, though any mitigating actions are not expected to wholly offset the loss of revenue. Accordingly, the final effect of this regulation cannot be determined at this time.

The Firm will also be affected by the requirements of Section 619 of the Dodd-Frank Act, and specifically the provisions prohibiting proprietary trading and restricting the activities involving private equity and hedge funds (the “Volcker Rule”). However, the revenue and net earnings generated by the Firm’s proprietary trading activities represent a de minimis portion of the revenue and net earnings of the IB line of business and of the Firm overall. The Firm ceased some proprietary trading activities during 2010, and is planning to cease its remaining proprietary trading activities within the timeframe mandated by the Volcker Rule. In addition, the application of the Volcker Rule to the Firm’s private equity and hedge fund activities in its AM and IB lines of business, as well as in the Corporate/Private Equity sector, is not expected to have a significant effect on the revenue or net earnings of the Firm or those lines of business. The Firm expects that certain private equity and hedge fund activities or investments expected to be within the scope of the Volcker Rule will be redeemed or liquidated within the timeframe mandated by the Volcker Rule and the Firm is currently assessing alternative means by which either to exit any remaining activities and investments or conform them to the requirements of the Volcker Rule within the timeframe mandated.

While regulators have not yet proposed many of the rules to implement the Volcker Rule, in order to begin planning for its implementation, the Firm has attempted to identify the activities it expects to be affected by the Volcker Rule. In this regard, the Firm defines “proprietary trading” as the trading of securities, derivatives, or futures (or options on any of the foregoing) that is predominantly used to realize gains from short-term movements in prices for the Firm’s own account. The Firm’s proprietary trading activities are typically conducted separately from other business activities and segregated organizationally and physically from client market-making and other client-driven businesses as well as from risk management activities. The Firm’s definition of proprietary trading does not include client market-making, long term investment activities or risk management activities. However, until the remainder of the implementing rules are adopted, the Firm will not know the extent to which the Volcker Rule will affect its ability to engage in these activities.

In June 2011, the Basel Committee and the Financial Stability Board (“FSB”) announced that certain global systemically important banks (“GSIBs”) would be required to maintain additional capital, above the Basel III Tier 1 common equity minimum, in amounts ranging from 1% to 2.5%, depending upon the bank’s systemic importance. Furthermore, in order to provide a disincentive for banks facing the highest required level of Tier 1 common equity to “increase materially their global systemic importance in the future,” an additional 1% charge could be applied. JPMorgan Chase estimates that its Basel III Tier 1 common ratio was approximately 7.6% at the end of the second quarter of 2011. This level is well in excess of that which is required today under existing rules and is greater than the level the Firm expects will be required under the proposed rules for up to five years, including the additional buffer for GSIBs. The Firm expects that its strong capital position and significant earnings power will allow it to actively grow its business and rapidly meet any proposed Basel III requirements as they are phased in. The Firm intends to keep its capital ratios approximately at current levels, subject to regulatory approval, as management does not see a need to manage to higher ratios ahead of time.

10

CONSOLIDATEDRESULTSOF OPERATIONS

The following section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three and six months ended June 30, 2011 and 2010. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 92–95 of this Form 10-Q and pages 149–154 of JPMorgan Chase’s 2010 Annual Report.

Revenue	Three months ended June 30,						Six months ended June 30,
(in millions)	2011		2010		Change		2011		2010		Change
Investment banking fees	$	1,933	$	1,421	36	%	$	3,726	$	2,882	29	%
Principal transactions	3,140		2,090		50		7,885		6,638		19
Lending- and deposit-related fees	1,649		1,586		4		3,195		3,232		(1	)
Asset management, administration and commissions	3,703		3,349		11		7,309		6,614		11
Securities gains	837		1,000		(16	)	939		1,610		(42	)
Mortgage fees and related income	1,103		888		24		616		1,546		(60	)
Credit card income	1,696		1,495		13		3,133		2,856		10
Other income	882		585		51		1,456		997		46
Noninterest revenue	14,943		12,414		20		28,259		26,375		7
Net interest income	11,836		12,687		(7	)	23,741		26,397		(10	)
Total net revenue	$	26,779	$	25,101	7	%	$	52,000	$	52,772	(1	)%

Total net revenue for the second quarter of 2011 was $26.8 billion, an increase of $1.7 billion, or 7%, from the second quarter of 2010. Revenue growth was driven by higher levels of principal transactions revenue, investment banking fees, and asset management, administration and commissions revenue, largely offset by lower net interest income. For the first six months of 2011, total net revenue was $52.0 billion, a modest decline compared with the first six months of 2010, as lower net interest income, mortgage fees and related income, and securities gains more than offset revenue growth from higher levels of principal transactions revenue, investment banking fees, and asset management, administration and commissions revenue.

Investment banking fees increased compared with both the second quarter and first six months of 2010 and were a record for the first six months of 2011. Debt underwriting fees were also a record for the first six months of 2011. Advisory fees, debt underwriting fees and equity underwriting fees were higher in both periods of comparison, as industry-wide M&A and capital-raising volumes increased from their 2010 levels. For additional information on investment banking fees, which are primarily recorded in IB, see IB segment results on pages 19–22 of this Form 10-Q.

Principal transactions revenue increased compared with the second quarter and first six months of 2010, primarily driven by gains on sales and net increases in investment valuations in Corporate/Private Equity, as a result of continued improvement in market conditions related to certain portfolio investments. Trading revenue increased in the second quarter of 2011 compared with the second quarter of 2010 but decreased in the first half of 2011 compared with the first half of 2010. Client revenue in IB remained solid in both periods of comparison, reflecting the strength and depth of the client franchise. For additional information on principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 19–22 and 46–47, respectively, and Note 6 on pages 124–125 of this Form 10-Q.

Lending- and deposit-related fees increased in the second quarter of 2011 compared with the prior year. The increase was primarily driven by the introduction of a new checking account product offering in RFS, and the conversion of some existing checking accounts into the new product offering; partially offset by the impact of nonsufficient fund/overdraft (“NSF/OD”) regulatory and policy changes. For the first six months of 2011, lending- and deposit-related fees declined slightly compared with the prior year, reflecting lower deposit-related fees in RFS associated, in part, with the impact of the aforementioned regulatory and policy changes. These declines were partially offset by higher lending-related fees in IB. For additional information on lending- and deposit-related fees, which are mostly recorded in RFS, CB, TSS and IB, see RFS on pages 23–32, CB on pages 36–38, TSS on pages 39–41 and IB segment results on pages 19–22 of this Form 10-Q.

Asset management, administration and commissions revenue increased from the second quarter and first six months of 2010. The increases reflected higher asset management fees in AM, driven by the effect of higher market levels and net inflows to longer-term products with higher margins. To a lesser extent, higher administration fees in TSS, reflecting the effect of higher market levels and net inflows of assets under custody, also contributed to the increases in revenue. For additional information on these fees and commissions, see the segment discussions for AM on pages 42–45 and TSS on pages 39–41 of this Form 10-Q.

Securities gains decreased from the second quarter and first six months of 2010, resulting primarily from the repositioning of the portfolio in response to changes in the interest rate environment and rebalancing exposures. For additional information on securities gains, which are mostly recorded in the Firm's Corporate segment, see the Corporate/Private Equity segment discussion on pages 46–47 of this Form 10-Q.

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Mortgage fees and related income increased compared with the second quarter of 2010, driven by an increase in production revenue, reflecting wider margins and lower levels of repurchase losses; this increase was largely offset by a decrease in net mortgage servicing revenue due to lower MSR risk management revenue. Mortgage fees and related income decreased compared with the first six months of 2010; the decrease was driven by a $1.1 billion decline in the fair value of the MSR asset that was recognized in the first quarter of 2011 related to a revised cost to service assumption incorporated into the valuation to reflect the estimated impact of higher servicing costs to enhance servicing processes – particularly loan modification and foreclosure procedures, and higher estimated costs to comply with Consent Orders entered into with banking regulators. The decline in the fair value of the MSR asset also resulted from a decrease in interest rates. Partially offsetting the decrease was an increase in production revenue, driven by the impact of higher mortgage origination volumes and wider margins, as well as lower levels of repurchase losses. For additional information on mortgage fees and related income, which is recorded primarily in RFS, see RFS's Mortgage Banking, Auto & Other Consumer Lending discussion on pages 27-29 of this Form 10-Q. For additional information on repurchase losses, see the Mortgage repurchase liability discussion on pages 53-56 and Note 21 on pages 167-171 of this Form 10-Q.

Credit card income increased in both the second quarter and first half of 2011. The increase in the quarter largely reflected higher net interchange income associated with higher customer charge volume on debit and credit cards, as well as lower partner revenue-sharing (a contra-revenue item) due to the impact of the Kohl's portfolio sale. The increase in the first six months of 2011 was driven by higher net interchange income, partially offset by lower revenue from fee-based products. For additional information on credit card income, see the CS and RFS segment results on pages 33–35, and pages 23–32, respectively, of this Form 10-Q.

Other income increased compared with the second quarter and first six months of 2010, driven by valuation adjustments on certain assets and incremental income from recent acquisitions in IB, as well as higher valuations of seed capital investments in AM. Higher auto operating lease income in RFS, resulting from growth in lease volume, also contributed to the increase.

Net interest income decreased in the second quarter and first six months of 2011 compared with the prior year. The declines in both periods were driven by lower yields on securities; lower average loan balances and yields, primarily in CS and RFS, reflecting the expected runoff of credit card balances and residential real estate loans; lower fees on credit card receivables, reflecting the impact of legislative changes; and lower yields on deposits. The decrease was offset partially by lower revenue reversals associated with lower credit card charge-offs, and higher average deposit balances. The Firm's average interest-earning assets were $1.8 trillion in the second quarter of 2011, and the net yield on those assets, on a fully taxable-equivalent (“FTE”) basis, was 2.72%, a decrease of 34 basis points from the second quarter of 2010. For the first six months of 2011, average interest-earning assets were $1.7 trillion, and the net yield on those assets, on an FTE basis, was 2.80%, a decrease of 39 basis points from the first six months of 2010. For further information on the impact of the legislative changes on the Consolidated Statements of Income, see CS discussion on credit card legislation on page 79 of JPMorgan Chase's 2010 Annual Report.

Provision for credit losses	Three months ended June 30,								Six months ended June 30,
(in millions)	2011			2010			Change		2011			2010			Change
Wholesale	$	(117	)	$	(572	)	80	%	$	(503	)	$	(808	)	38	%
Consumer, excluding credit card	1,117			1,714			(35	)	2,446			5,448			(55	)
Credit card	810			2,221			(64	)	1,036			5,733			(82	)
Total consumer	1,927			3,935			(51	)	3,482			11,181			(69	)
Total provision for credit losses	$	1,810		$	3,363		(46	)%	$	2,979		$	10,373		(71	)%

The provision for credit losses decreased significantly compared with the second quarter and first six months of 2010. The credit card provision was down from both prior-year periods, driven primarily by improved delinquency trends and a reduction in the allowance for loan losses as a result of lower estimated losses. The consumer, excluding credit card, provision was also down from both prior-year periods, reflecting improving delinquency and charge-off trends in 2011 across most portfolios and the absence of additions to the allowance for loan losses. The wholesale provision reflected a lower benefit for both the second quarter and first six months of 2011 compared with the prior-year periods. For a more detailed discussion of the loan portfolio and the allowance for credit losses, see the segment discussions for RFS on pages 23–32, CS on pages 33–35, IB on pages 19–22 and CB on pages 36–38, and the Allowance for credit losses section on pages 86–88 of this Form 10-Q.

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Noninterest expense	Three months ended June 30,						Six months ended June 30,
(in millions)	2011		2010		Change		2011		2010		Change
Compensation expense(a)	$	7,569	$	7,616	(1	)%	$	15,832	$	14,892	6	%
Noncompensation expense:
Occupancy	935		883		6		1,913		1,752		9
Technology, communications and equipment	1,217		1,165		4		2,417		2,302		5
Professional and outside services	1,866		1,685		11		3,601		3,260		10
Marketing	744		628		18		1,403		1,211		16
Other (b)(c)	4,299		2,419		78		7,242		6,860		6
Amortization of intangibles	212		235		(10	)	429		478		(10	)
Total noncompensation expense	9,273		7,015		32		17,005		15,863		7
Total noninterest expense	$	16,842	$	14,631	15	%	$	32,837	$	30,755	7	%

(a) The three and six months ended June 30, 2010, included a payroll tax expense related to the United Kingdom (“U.K.”) Bank Payroll Tax on certain compensation awarded from December 9, 2009, to April 5, 2010, to relevant banking employees.

(b) Included litigation expense of $1.9 billion and $3.0 billion for the three and six months ended June 30, 2011, respectively, compared with $792 million and $3.7 billion for the three and six months ended June 30, 2010, respectively.

(c) Included foreclosed property expense of $174 million and $384 million for the three and six months ended June 30, 2011, respectively, compared with $244 million and $547 million for the three and six months ended June 30, 2010, respectively.

Total noninterest expense for the second quarter of 2011 was $16.8 billion, an increase of $2.2 billion, or 15%, compared with the second quarter of 2010. Total noninterest expense for the first six months of 2011 was $32.8 billion, up by $2.1 billion, or 7%, compared with the first six months of 2010. The increases in both periods of comparison were due to higher noncompensation expense, which included elevated levels of litigation expense related to mortgage-related matters and an increase in other expense for foreclosure-related matters. Higher compensation expense also contributed to the increase in noninterest expense for the first half of 2011.

Compensation expense decreased slightly from the second quarter of 2010, as the prior-year results included the impact of the U.K. Bank Payroll Tax in IB. Compensation expense increased from the first six months of 2010, due to higher salary and benefits expense in IB, as well as additions to the sales force and employees engaged in default-related matters associated with the serviced portfolio in RFS, and front office staff in AM; these increases were partially offset by the aforementioned payroll tax in IB in 2010.

The increase in noncompensation expense in the second quarter of 2011 was due to higher litigation expense, which included an addition of $1.3 billion to litigation reserves in Corporate predominantly for mortgage-related matters; and a $1.0 billion expense for estimated litigation and other costs of foreclosure-related matters in RFS. Noncompensation expense for the first six months of 2011 was also affected by these items, together with an additional $650 million expense for estimated litigation and other costs of foreclosure-related matters in RFS in the first quarter of 2011. Litigation expense in the first half of 2011 decreased from the prior year, as the aforementioned charges for mortgage-related matters were lower than those incurred in 2010. For a further discussion of litigation expense, see the Litigation reserve discussion in Note 23 on pages 172–179 of this Form 10-Q.

In addition to the items mentioned above, the following items in noncompensation expense were higher in the second quarter and first six months of 2011: professional services expense, due to Consent Orders and foreclosure-related matters in RFS and continued investments in new product platforms in the businesses; marketing expense in CS; and all other expense, reflecting higher FDIC assessments in 2011 and additional operating expense related to business activities in IB. For a discussion of amortization of intangibles, refer to the Balance Sheet Analysis on pages 49–51, and Note 16 on pages 159–163 of this Form 10-Q.

Income tax expense	Three months ended June 30,						Six months ended June 30,
(in millions, except rate)	2011			2010			2011			2010
Income before income tax expense	$	8,127		$	7,107		$	16,184		$	11,644
Income tax expense	2,696			2,312			5,198			3,523
Effective tax rate	33.2		%	32.5		%	32.1		%	30.3		%

The increase in the effective tax rate during the three and six months ended June 30, 2011, compared with the prior-year periods was primarily the result of higher reported pretax income and changes in the mix of income subject to U.S. federal, state and local taxes, as well as lower tax benefits recognized upon the resolution of tax audits. These factors were partially offset by deferred tax benefits associated with state and local income taxes. For additional information on income taxes, see Critical Accounting Estimates Used by the Firm on pages 92–95 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 U.S. (“U.S. GAAP”); these financial statements appear on pages 98–101 of this Form 10-Q. That presentation, which is referred to as “reported" basis, provides the reader with an understanding of the Firm’s results that can be tracked consistently from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.

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

Tangible common equity (“TCE”), a non-GAAP financial measure, represents common stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related deferred tax liabilities. ROTCE, a non-GAAP financial ratio, measures the Firm’s earnings as a percentage of TCE. In management’s view, these measures are meaningful to the Firm, as well as analysts and investors, in assessing the Firm's use of equity and in facilitating comparisons with competitors.

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

14

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

	Three months ended June 30, 2011
(in millions, except per share and ratios)	Reported Results			Fully tax-equivalent adjustments		Managed basis
Revenue
Investment banking fees	$	1,933		$	—	$	1,933
Principal transactions	3,140			—		3,140
Lending- and deposit-related fees	1,649			—		1,649
Asset management, administration and commissions	3,703			—		3,703
Securities gains	837			—		837
Mortgage fees and related income	1,103			—		1,103
Credit card income	1,696			—		1,696
Other income	882			510		1,392
Noninterest revenue	14,943			510		15,453
Net interest income	11,836			121		11,957
Total net revenue	26,779			631		27,410
Noninterest expense	16,842			—		16,842
Pre-provision profit	9,937			631		10,568
Provision for credit losses	1,810			—		1,810
Income before income tax expense	8,127			631		8,758
Income tax expense	2,696			631		3,327
Net income	$	5,431		$	—	$	5,431
Diluted earnings per share	$	1.27		$	—	$	1.27
Return on assets	0.99		%	NM		0.99		%
Overhead ratio	63			NM		61

	Three months ended June 30, 2010
(in millions, except per share and ratios)	Reported Results			Fully tax-equivalent adjustments		Managed basis
Revenue
Investment banking fees	$	1,421		$	—	$	1,421
Principal transactions	2,090			—		2,090
Lending- and deposit-related fees	1,586			—		1,586
Asset management, administration and commissions	3,349			—		3,349
Securities gains	1,000			—		1,000
Mortgage fees and related income	888			—		888
Credit card income	1,495			—		1,495
Other income	585			416		1,001
Noninterest revenue	12,414			416		12,830
Net interest income	12,687			96		12,783
Total net revenue	25,101			512		25,613
Noninterest expense	14,631			—		14,631
Pre-provision profit	10,470			512		10,982
Provision for credit losses	3,363			—		3,363
Income before income tax expense	7,107			512		7,619
Income tax expense	2,312			512		2,824
Net income	$	4,795		$	—	$	4,795
Diluted earnings per share	$	1.09		$	—	$	1.09
Return on assets	0.94		%	NM		0.94		%
Overhead ratio	58			NM		57

15

	Six months ended June 30, 2011
(in millions, except per share and ratios)	Reported Results			Fully tax-equivalent adjustments		Managed basis
Revenue
Investment banking fees	$	3,726		$	—	$	3,726
Principal transactions	7,885			—		7,885
Lending- and deposit-related fees	3,195			—		3,195
Asset management, administration and commissions	7,309			—		7,309
Securities gains	939			—		939
Mortgage fees and related income	616			—		616
Credit card income	3,133			—		3,133
Other income	1,456			961		2,417
Noninterest revenue	28,259			961		29,220
Net interest income	23,741			240		23,981
Total net revenue	52,000			1,201		53,201
Noninterest expense	32,837			—		32,837
Pre-provision profit	19,163			1,201		20,364
Provision for credit losses	2,979			—		2,979
Income before income tax expense	16,184			1,201		17,385
Income tax expense	5,198			1,201		6,399
Net income	$	10,986		$	—	$	10,986
Diluted earnings per share	$	2.55		$	—	$	2.55
Return on assets	1.03		%	NM		1.03		%
Overhead ratio	63			NM		62

	Six months ended June 30, 2010
(in millions, except per share and ratios)	Reported Results			Fully tax-equivalent adjustments		Managed basis
Revenue
Investment banking fees	$	2,882		$	—	$	2,882
Principal transactions	6,638			—		6,638
Lending- and deposit-related fees	3,232			—		3,232
Asset management, administration and commissions	6,614			—		6,614
Securities gains	1,610			—		1,610
Mortgage fees and related income	1,546			—		1,546
Credit card income	2,856			—		2,856
Other income	997			827		1,824
Noninterest revenue	26,375			827		27,202
Net interest income	26,397			186		26,583
Total net revenue	52,772			1,013		53,785
Noninterest expense	30,755			—		30,755
Pre-provision profit	22,017			1,013		23,030
Provision for credit losses	10,373			—		10,373
Income before income tax expense	11,644			1,013		12,657
Income tax expense	3,523			1,013		4,536
Net income	$	8,121		$	—	$	8,121
Diluted earnings per share	$	1.83		$	—	$	1.83
Return on assets	0.80		%	NM		0.80		%
Overhead ratio	58			NM		57

Average tangible common equity
	Three months ended				Six months ended
(in millions)	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
Common stockholders’ equity	$	174,077	$	159,069	$	171,759	$	157,590
Less: Goodwill	48,834		48,348		48,840		48,445
Less: Certain identifiable intangible assets	3,738		4,265		3,833		4,285
Add: Deferred tax liabilities(a)	2,618		2,564		2,607		2,553
Tangible common equity	$	124,123	$	109,020	$	121,693	$	107,413

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

Other financial measures

The Firm also discloses the allowance for loan losses to total retained loans, excluding home lending PCI loans. For a further discussion of this credit metric, see Allowance for credit losses on pages 86–88 of this Form 10-Q.

16

BUSINESS SEGMENT RESULTS

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

Description of business segment reporting methodology

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

Business segment capital allocation changes

Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, economic risk measures and regulatory capital requirements. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2011, capital allocated to CS was reduced and that of TSS was increased. For further information about these capital changes, see Line of business equity on pages 60–61 of this Form 10-Q.

Segment Results – Managed Basis^(a) 

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

Three months ended June 30,	Total net revenue						Noninterest expense						Pre-provision profit
(in millions, except ratios)	2011		2010		Change		2011		2010		Change		2011		2010		Change
Investment Bank(b)	$	7,314	$	6,332	16	%	$	4,332	$	4,522	(4	)%	$	2,982	$	1,810	65	%
Retail Financial Services	7,976		7,809		2		5,637		4,281		32		2,339		3,528		(34	)
Card Services	3,927		4,217		(7	)	1,622		1,436		13		2,305		2,781		(17	)
Commercial Banking	1,627		1,486		9		563		542		4		1,064		944		13
Treasury & Securities Services	1,932		1,881		3		1,453		1,399		4		479		482		(1	)
Asset Management	2,537		2,068		23		1,794		1,405		28		743		663		12
Corporate/Private Equity(b)	2,097		1,820		15		1,441		1,046		38		656		774		(15	)
Total	$	27,410	$	25,613	7	%	$	16,842	$	14,631	15	%	$	10,568	$	10,982	(4	)%

Three months ended June 30,	Provision for credit losses								Net income						Return on equity
(in millions, except ratios)	2011			2010			Change		2011		2010		Change		2011		2010
Investment Bank(b)	$	(183	)	$	(325	)	44	%	$	2,057	$	1,381	49	%	21	%	14	%
Retail Financial Services	1,128			1,715			(34	)	582		1,042		(44	)	8		15
Card Services	810			2,221			(64	)	911		343		166		28		9
Commercial Banking	54			(235		)	NM		607		693		(12	)	30		35
Treasury & Securities Services	(2		)	(16		)	88		333		292		14		19		18
Asset Management	12			5			140		439		391		12		27		24
Corporate/Private Equity(b)	(9		)	(2		)	(350	)	502		653		(23	)	NM		NM
Total	$	1,810		$	3,363		(46	)%	$	5,431	$	4,795	13	%	12	%	12	%

17

Six months ended June 30,	Total net revenue						Noninterest expense						Pre-provision profit
(in millions, except ratios)	2011		2010		Change		2011		2010		Change		2011		2010		Change
Investment Bank(b)	$	15,547	$	14,651	6	%	$	9,348	$	9,360	—	%	$	6,199	$	5,291	17	%
Retail Financial Services	14,251		15,585		(9	)	10,899		8,523		28		3,352		7,062		(53	)
Card Services	7,909		8,664		(9	)	3,177		2,838		12		4,732		5,826		(19	)
Commercial Banking	3,143		2,902		8		1,126		1,081		4		2,017		1,821		11
Treasury & Securities Services	3,772		3,637		4		2,830		2,724		4		942		913		3
Asset Management	4,943		4,199		18		3,454		2,847		21		1,489		1,352		10
Corporate/Private Equity(b)	3,636		4,147		(12	)	2,003		3,382		(41	)	1,633		765		113
Total	$	53,201	$	53,785	(1	)%	$	32,837	$	30,755	7	%	$	20,364	$	23,030	(12	)%

Six months ended June 30,	Provision for credit losses								Net income						Return on equity
(in millions, except ratios)	2011			2010			Change		2011		2010		Change		2011		2010
Investment Bank(b)	$	(612	)	$	(787	)	22	%	$	4,427	$	3,852	15	%	22	%	19	%
Retail Financial Services	2,454			5,448			(55	)	374		911		(59	)	3		7
Card Services	1,036			5,733			(82	)	2,254		40		NM		35		1
Commercial Banking	101			(21		)	NM		1,153		1,083		6		29		27
Treasury & Securities Services	2			(55		)	NM		649		571		14		19		18
Asset Management	17			40			(58	)	905		783		16		28		24
Corporate/Private Equity(b)	(19		)	15			NM		1,224		881		39		NM		NM
Total	$	2,979		$	10,373		(71	)%	$	10,986	$	8,121	35	%	13	%	10	%

(a) Represents reported results on a tax-equivalent basis.

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

18

INVESTMENT BANK

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

Selected income statement data	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2011			2010			Change		2011			2010			Change
Revenue
Investment banking fees	$	1,922		$	1,405		37	%	$	3,701		$	2,851		30	%
Principal transactions	2,309			2,105			10		5,707			6,036			(5	)
Lending- and deposit-related fees	218			203			7		432			405			7
Asset management, administration and commissions	548			633			(13	)	1,167			1,196			(2	)
All other income(a)	236			86			174		402			135			198
Noninterest revenue	5,233			4,432			18		11,409			10,623			7
Net interest income	2,081			1,900			10		4,138			4,028			3
Total net revenue(b)	7,314			6,332			16		15,547			14,651			6
Provision for credit losses	(183		)	(325		)	44		(612		)	(787		)	22
Noninterest expense
Compensation expense	2,564			2,923			(12	)	5,858			5,851			—
Noncompensation expense	1,768			1,599			11		3,490			3,509			(1	)
Total noninterest expense	4,332			4,522			(4	)	9,348			9,360			—
Income before income tax expense	3,165			2,135			48		6,811			6,078			12
Income tax expense	1,108			754			47		2,384			2,226			7
Net income	$	2,057		$	1,381		49		$	4,427		$	3,852		15
Financial ratios
Return on common equity	21		%	14		%			22		%	19		%
Return on assets	0.98			0.78					1.08			1.12
Overhead ratio	59			71					60			64
Compensation expense as a percentage of total net revenue(c)	35			46					38			40
Revenue by business
Investment banking fees:
Advisory	$	601		$	355		69		$	1,030		$	660		56
Equity underwriting	455			354			29		834			767			9
Debt underwriting	866			696			24		1,837			1,424			29
Total investment banking fees	1,922			1,405			37		3,701			2,851			30
Fixed income markets(d)	4,280			3,563			20		9,518			9,027			5
Equity markets(e)	1,223			1,038			18		2,629			2,500			5
Credit portfolio(a)(f)	(111		)	326			NM		(301		)	273			NM
Total net revenue	$	7,314		$	6,332		16		$	15,547		$	14,651		6

(a) IB manages traditional credit exposures related to Global Corporate Bank (“GCB”) on behalf of IB and TSS. Effective January 1, 2011, IB and TSS share the economics related to the Firm’s GCB clients. IB recognizes this sharing agreement within all other income. The prior-year period reflected the reimbursement from TSS for a portion of the total costs of managing the credit portfolio on behalf of TSS.

(b) Total net revenue included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing and alternative energy investments as well as tax-exempt income from municipal bond investments of $493 million and $401 million for the three months ended June 30, 2011 and 2010, and $931 million and $804 million for the six months ended June 30, 2011 and 2010, respectively.

(c) The compensation expense as a percentage of total net revenue ratio for the second quarter of 2010 and year-to-date of 2010 excluding the payroll tax expense related to the U.K. Bank Payroll Tax on certain compensation awarded from December 9, 2009, to April 5, 2010, to relevant banking employees, which is a non-GAAP financial measure, was 37% and 36%, respectively. IB excludes this tax from the ratio because it enables comparability between periods.

(d) Fixed income markets primarily include revenue related to market-making across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets.

(e) Equities markets primarily include revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services.

(f) Credit portfolio revenue includes net interest income, fees and loan sale activity, as well as gains or losses on securities received as part of a loan restructuring, for IB’s credit portfolio. Credit portfolio revenue also includes the results of risk management related to the Firm's lending and derivative activities. See pages 67–88 of the Credit Risk Management section of this Form 10-Q for further discussion.

19

Quarterly results

Net income was $2.1 billion, up 49% from the prior year, reflecting higher net revenue and lower noninterest expense, partially offset by a lower benefit from the provision for credit losses.

Net revenue was $7.3 billion, compared with $6.3 billion in the prior year. Investment banking fees were up 37% to $1.9 billion, consisting of debt underwriting fees of $866 million (up 24%), equity underwriting fees of $455 million (up 29%), and advisory fees of $601 million (up 69%). Fixed Income and Equity Markets revenue was $5.5 billion, compared with $4.6 billion in the prior year, reflecting solid client revenue. Credit Portfolio revenue was a loss of $111 million, primarily reflecting the negative net impact of credit-related valuation adjustments, largely offset by net interest income and fees on retained loans.

The provision for credit losses was a benefit of $183 million, compared with a benefit of $325 million in the prior year. The current-quarter benefit primarily reflected a reduction in the allowance for loan losses, largely due to net repayments. The ratio of the allowance for loan losses to end-of-period loans retained was 2.10%, compared with 3.98% in the prior year, driven by the improved quality of the loan portfolio. Net charge-offs were $7 million, compared with net charge-offs of $28 million in the prior year.

Noninterest expense was $4.3 billion, down 4% from the prior year. The decrease was driven by lower compensation expense. The prior-year results included the impact of the U.K. Bank Payroll Tax.

Return on equity was 21% on $40.0 billion of average allocated capital.

Year-to-date results

Net income was $4.4 billion, up 15% from the prior year, primarily reflecting higher net revenue, partially offset by a lower benefit from the provision for credit losses.

Net revenue was $15.5 billion, compared with $14.7 billion in the prior year. Investment banking fees were a record, up 30% to $3.7 billion, consisting of record debt underwriting fees of $1.8 billion (up 29%), advisory fees of $1.0 billion (up 56%), and equity underwriting fees of $834 million (up 9%). Fixed Income and Equity Markets revenue was $12.1 billion, compared with $11.5 billion in the prior year, reflecting solid client revenue. Credit Portfolio revenue was a loss of $301 million, primarily reflecting the negative net impact of credit-related valuation adjustments, largely offset by net interest income and fees on retained loans.

The provision for credit losses was a benefit of $612 million, compared with a benefit of $787 million in the prior year. The current-year benefit primarily reflected a reduction in the allowance for loan losses, largely as a result of net repayments and loan sales. Net charge-offs were $130 million, compared with net charge-offs of $725 million in the prior year.

Noninterest expense was $9.3 billion, approximately flat from the prior year. Compensation expense was flat to the prior year, as higher salaries & benefits and performance-based compensation expense was predominantly offset by the absence of the U.K. Bank Payroll Tax in the current period. Noncompensation expense was also approximately flat to the prior year.

Return on equity was 22% on $40.0 billion of average allocated capital.

20

Selected metrics	Three months ended June 30,								Six months ended June 30,
(in millions, except headcount and ratios)	2011			2010			Change		2011			2010			Change
Selected balance sheet data (period-end)
Loans:
Loans retained(a)	$	56,107		$	54,049		4	%	$	56,107		$	54,049		4	%
Loans held-for-sale and loans at fair value	3,466			3,221			8		3,466			3,221			8
Total loans	59,573			57,270			4		59,573			57,270			4
Equity	40,000			40,000			—		40,000			40,000			—
Selected balance sheet data (average)
Total assets	$	841,355		$	710,005		18		$	828,662		$	693,157		20
Trading assets-debt and equity instruments	374,694			296,031			27		371,841			290,091			28
Trading assets-derivative receivables	69,346			65,847			5		68,409			65,998			4
Loans:
Loans retained(a)	54,590			53,351			2		53,983			55,912			(3	)
Loans held-for-sale and loans at fair value	4,154			3,530			18		3,995			3,341			20
Total loans	58,744			56,881			3		57,978			59,253			(2	)
Adjusted assets(b)	628,475			527,520			19		619,805			517,135			20
Equity	40,000			40,000			—		40,000			40,000			—
Headcount	27,716			26,279			5		27,716			26,279			5
Credit data and quality statistics
Net charge-offs	$	7		$	28		(75	)	$	130		$	725		(82	)
Nonperforming assets:
Nonaccrual loans:
Nonaccrual loans retained(a)(c)	1,494			1,926			(22	)	1,494			1,926			(22	)
Nonaccrual loansheld-for-sale and loans at fair value	193			334			(42	)	193			334			(42	)
Total nonperforming loans	1,687			2,260			(25	)	1,687			2,260			(25	)
Derivative receivables	18			315			(94	)	18			315			(94	)
Assets acquired in loan satisfactions	83			151			(45	)	83			151			(45	)
Total nonperforming assets	1,788			2,726			(34	)	1,788			2,726			(34	)
Allowance for credit losses:
Allowance for loan losses	1,178			2,149			(45	)	1,178			2,149			(45	)
Allowance for lending-related commitments	383			564			(32	)	383			564			(32	)
Total allowance for credit losses	1,561			2,713			(42	)	1,561			2,713			(42	)
Net charge-off rate(a)(d)	0.05		%	0.21		%			0.49		%	2.61		%
Allowance for loan losses to period-end loans retained(a)(d)	2.10			3.98					2.10			3.98
Allowance for loan losses to nonaccrual loans retained(a)(c)(d)	79			112					79			112
Nonaccrual loans to period-end loans	2.83			3.95					2.83			3.95
Market risk-average trading and credit portfolio VaR – 95% confidence level
Trading activities:
Fixed income	$	45		$	64		(30	)	$	47		$	66		(29	)
Foreign exchange	9			10			(10	)	10			12			(17	)
Equities	25			20			25		27			22			23
Commodities and other	16			20			(20	)	15			18			(17	)
Diversification (e)	(37		)	(42		)	12		(38		)	(46		)	17
Total trading VaR(f)	58			72			(19	)	61			72			(15	)
Credit portfolio VaR(g)	27			27			—		27			23			17
Diversification (e)	(8		)	(9		)	11		(8		)	(9		)	11
Total trading and credit portfolio VaR	$	77		$	90		(14	)	$	80		$	86		(7	)

(a) Loans retained included credit portfolio loans, leveraged leases and other accrual loans, and excluded loans held-for-sale and loans at fair value.

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

(c) Allowance for loan losses of $377 million and $617 million were held against these nonaccrual loans at June 30, 2011 and 2010, respectively.

(d) Loans held-for-sale and loans at fair value were excluded when calculating the allowance coverage ratio and net charge-off rate.

21

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

(f) Trading VaR includes substantially all trading activities in IB, including the credit spread sensitivities of certain mortgage products and syndicated lending facilities that the Firm intends to distribute; however, particular risk parameters of certain products are not fully captured, for example, correlation risk. Trading VaR does not include the debit valuation adjustments (“DVA”) taken on derivative and structured liabilities to reflect the credit quality of the Firm. See VaR discussion on pages 88-91 and the DVA sensitivity table on page 91 of this Form 10-Q for further details.

(g) Credit portfolio VaR includes the derivative credit valuation adjustments (“CVA”), hedges of the CVA and mark-to-market (“MTM”) hedges of the retained loan portfolio, which are all reported in principal transactions revenue. This VaR does not include the retained loan portfolio, which is not MTM.

According to Dealogic, for the first six months of 2011, the Firm was ranked #1 in Global Investment Banking fees generated based on revenue, and #1 in Global Syndicated Loans; #1 in Global Debt, Equity and Equity-related; and #2 in Global Announced M&A; #2 in Global Long-Term Debt; and #3 in Global Equity and Equity-related, based on volume.

	Six months ended June 30, 2011			Full-year 2010
Market shares and rankings(a)	Market Share		Rankings	Market Share		Rankings
Global investment banking fees(b)	8.8	%	#1	7.6	%	#1
Debt, equity and equity-related
Global	6.9		1	7.2		1
U.S.	11.5		1	11.1		1
Syndicated loans
Global	12.4		1	8.5		2
U.S.	22.8		1	19.2		2
Long-term debt(c)
Global	6.8		2	7.2		2
U.S.	11.5		1	10.9		2
Equity and equity-related
Global(d)	7.2		3	7.3		3
U.S.	11.9		2	13.1		2
Announced M&A(e)
Global	20.5		2	16.4		3
U.S.	33.9		1	23.1		3

(a) Source: Dealogic. Global Investment Banking fees reflects ranking of fees and market share. Remainder of rankings reflects transaction volume rank and market share.

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

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

(d) Equity and equity-related rankings include rights offerings and Chinese A-Shares.

(e) Global announced M&A is based on transaction value at announcement; all other rankings are based on transaction proceeds, with full credit to each book manager/equal if joint. Because of joint assignments, market share of all participants will add up to more than 100%. M&A for year-to-date 2011 and full-year 2010 reflects the removal of any withdrawn transactions. U.S. announced M&A represents any U.S. involvement ranking.

International metrics	Three months ended June 30,						Six months ended June 30,
(in millions)	2011		2010		Change		2011		2010		Change
Total net revenue(a)
Europe/Middle East/Africa	$	2,478	$	1,544	60	%	$	5,070	$	4,419	15	%
Asia/Pacific	762		901		(15	)	1,884		1,889		—
Latin America/Caribbean	337		248		36		664		558		19
North America	3,737		3,639		3		7,929		7,785		2
Total net revenue	$	7,314	$	6,332	16		$	15,547	$	14,651	6
Loans retained (period-end)(b)
Europe/Middle East/Africa	$	15,370	$	12,959	19		$	15,370	$	12,959	19
Asia/Pacific	6,211		5,697		9		6,211		5,697		9
Latin America/Caribbean	2,633		1,763		49		2,633		1,763		49
North America	31,893		33,630		(5	)	31,893		33,630		(5	)
Total loans	$	56,107	$	54,049	4		$	56,107	$	54,049	4

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

(b) Includes retained loans based on the domicile of the customer. Excludes loans held-for-sale and loans at fair value.

22

RETAIL FINANCIAL SERVICES

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

Selected income statement data	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2011			2010			Change		2011			2010			Change
Revenue
Lending- and deposit-related fees	$	823		$	780		6	%	$	1,569		$	1,621		(3	)%
Asset management, administration and commissions	501			433			16		988			885			12
Mortgage fees and related income	1,100			886			24		611			1,541			(60	)
Credit card income	572			480			19		1,109			930			19
Other income	409			413			(1	)	773			767			1
Noninterest revenue	3,405			2,992			14		5,050			5,744			(12	)
Net interest income	4,571			4,817			(5	)	9,201			9,841			(7	)
Total net revenue(a)	7,976			7,809			2		14,251			15,585			(9	)
Provision for credit losses	1,128			1,715			(34	)	2,454			5,448			(55	)
Noninterest expense
Compensation expense	2,030			1,842			10		4,001			3,612			11
Noncompensation expense	3,547			2,369			50		6,778			4,771			42
Amortization of intangibles	60			70			(14	)	120			140			(14	)
Total noninterest expense	5,637			4,281			32		10,899			8,523			28
Income before income tax expense	1,211			1,813			(33	)	898			1,614			(44	)
Income tax expense	629			771			(18	)	524			703			(25	)
Net income	$	582		$	1,042		(44	)	$	374		$	911		(59	)
Financial ratios
Return on common equity	8		%	15		%			3		%	7		%
Overhead ratio	71			55					76			55
Overhead ratio excluding core deposit intangibles(b)	70			54					76			54

(a) Total net revenue included tax-equivalent adjustments associated with tax-exempt loans to municipalities and other qualified entities of $2 million and $5 million for the three months ended June 30, 2011 and 2010, respectively, and $5 million and $10 million for the six months ended June 30, 2011 and 2010, respectively.

(b) RFS uses the overhead ratio (excluding the amortization of core deposit intangibles (“CDI”)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation would result in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would therefore result in an improving overhead ratio over time, all things remaining equal. The non-GAAP ratio excluded Retail Banking's CDI amortization expense related to prior business combination transactions of $60 million and $69 million for the three months ended June 30, 2011 and 2010, respectively, and $120 million and $139 million for the six months ended June 30, 2011 and 2010, respectively.

Quarterly results

Retail Financial Services reported net income of $582 million, compared with $1.0 billion in the prior year.

Net revenue was $8.0 billion, an increase of $167 million, or 2%, compared with the prior year. Net interest income was $4.6 billion, down by $246 million, or 5%, reflecting the impact of lower loan balances due to portfolio runoff, largely offset by an increase in deposit balances. Noninterest revenue was $3.4 billion, up by $413 million, or 14%, driven by higher mortgage fees and related income, debit card income, deposit-related fees and investment sales revenue.

The provision for credit losses was $1.1 billion, a decrease of $587 million from the prior year. While delinquency trends and net charge-offs have improved compared with the prior year, the current-quarter provision continued to reflect elevated losses in the mortgage and home equity portfolios. See Consumer credit portfolio on page 78 of this Form 10-Q for the net charge-off amounts and rates. To date, no charge-offs have been recorded on PCI loans.

Noninterest expense was $5.6 billion, an increase of $1.4 billion, or 32%, from the prior year driven by elevated foreclosure and default-related costs including $1.0 billion for estimated litigation and other costs of foreclosure-related matters.

Year-to-date results

Retail Financial Services reported net income of $374 million, compared with $911 million in the prior year.

Net revenue was $14.3 billion, a decrease of $1.3 billion, or 9%, compared with the prior year. Net interest income was $9.2 billion, down by $640 million, or 7%, reflecting the impact of lower loan balances due to portfolio runoff and narrower loan spreads. Noninterest revenue was $5.1 billion, down by $694 million, or 12%, driven by lower mortgage fees and related income, partially offset by higher debit card income and investment sales revenue.

23

The provision for credit losses was $2.5 billion, a decrease of $3.0 billion from the prior year. While delinquency trends and net charge-offs improved compared with the prior year, the current-year provision continued to reflect elevated losses in the mortgage and home equity portfolios. Additionally, the prior year provision included an addition to the allowance for loan losses of $1.2 billion for the purchased credit-impaired portfolio. See Consumer credit portfolio on page 78 of this Form 10-Q for the net charge-off amounts and rates. To date, no charge-offs have been recorded on PCI loans.

Noninterest expense was $10.9 billion, an increase of $2.4 billion, or 28%, from the prior year driven by elevated foreclosure and default-related costs including $1.7 billion for estimated litigation and other costs of foreclosure-related matters.

Selected metrics	Three months ended June 30,								Six months ended June 30,
(in millions, except headcount and ratios)	2011			2010			Change		2011			2010			Change
Selected balance sheet data (period-end)
Assets	$	349,182		$	375,329		(7	)%	$	349,182		$	375,329		(7	)%
Loans:
Loans retained	301,926			330,329			(9	)	301,926			330,329			(9	)
Loans held-for-sale and loans at fair value(a)	13,558			12,599			8		13,558			12,599			8
Total loans	315,484			342,928			(8	)	315,484			342,928			(8	)
Deposits	379,376			359,974			5		379,376			359,974			5
Equity	28,000			28,000			—		28,000			28,000			—
Selected balance sheet data (average)
Assets	$	352,836		$	381,906		(8	)	$	358,520		$	387,854		(8	)
Loans:
Loans retained	305,131			335,308			(9	)	308,816			339,131			(9	)
Loans held-for-sale and loans at fair value(a)	14,613			14,426			1		16,058			15,734			2
Total loans	319,744			349,734			(9	)	324,874			354,865			(8	)
Deposits	379,848			362,010			5		376,261			359,486			5
Equity	28,000			28,000			—		28,000			28,000			—
Headcount	127,837			116,879			9		127,837			116,879			9
Credit data and quality statistics
Net charge-offs	$	1,223		$	1,761		(31	)	$	2,549		$	4,199		(39	)
Nonaccrual loans:
Nonaccrual loans retained	8,273			10,457			(21	)	8,273			10,457			(21	)
Nonaccrual loans held-for-sale and loans at fair value	142			176			(19	)	142			176			(19	)
Total nonaccrual loans(b)(c)(d)	8,415			10,633			(21	)	8,415			10,633			(21	)
Nonperforming assets(b)(c)(d)	9,406			11,907			(21	)	9,406			11,907			(21	)
Allowance for loan losses	16,358			16,152			1		16,358			16,152			1
Net charge-off rate(e)	1.61		%	2.11		%			1.66		%	2.50		%
Net charge-off rateexcluding PCI loans(e)(f)	2.08			2.75					2.16			3.26
Allowance for loan losses to ending loans retained(e)	5.42			4.89					5.42			4.89
Allowance for loan losses to ending loans retainedexcluding      PCI loans(e)(f)	4.90			5.26					4.90			5.26
Allowance for loan losses to nonaccrual loans retained(b)(e)(f)	138			128					138			128
Nonaccrual loans to total loans	2.67			3.10					2.67			3.10
Nonaccrual loans to total loans excluding PCI loans(b)	3.41			4.00					3.41			4.00

(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 $13.3 billion and $12.2 billion at June 30, 2011 and 2010, respectively. Average balances of these loans totaled $14.5 billion and $12.5 billion for the three months ended June 30, 2011 and 2010, respectively, and $16.0 billion and $13.3 billion for the six months ended June 30, 2011 and 2010, respectively.

(b) Excludes PCI loans that were acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of the individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.

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

(d) At June 30, 2011 and 2010, nonperforming assets excluded: (1)mortgage loans insured by U.S. government agencies of $9.1 billion and $8.9 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $2.4 billion and $1.4 billion, respectively; and (3) student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”), of $558 million and $447 million, respectively, that are 90 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally. For further

24

discussion, see Note 13 on pages 134–148 of this Form 10-Q which summarizes loan delinquency information.

(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 PCI loans 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. An allowance for loan losses of $4.9 billion and $2.8 billion was recorded for these loans at June 30, 2011 and 2010, respectively, which was also excluded from the applicable ratios. To date, no charge-offs have 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)	2011			2010			Change		2011			2010			Change
Noninterest revenue	$	1,887		$	1,684		12	%	$	3,643		$	3,386		8	%
Net interest income	2,707			2,712			—		5,366			5,347			—
Total net revenue	4,594			4,396			5		9,009			8,733			3
Provision for credit losses	42			168			(75	)	161			359			(55	)
Noninterest expense	2,705			2,633			3		5,507			5,210			6
Income before income tax expense	1,847			1,595			16		3,341			3,164			6
Net income	$	1,102		$	914		21		$	1,993		$	1,812		10
Overhead ratio	59		%	60		%			61		%	60		%
Overhead ratio excluding core deposit intangibles(a)	58			58					60			58

(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 would result in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would therefore result in an improving overhead ratio over time, all things remaining equal. The non-GAAP ratio excluded Retail Banking’s CDI amortization expense related to prior business combination transactions of $60 million and $69 million for the three months ended June 30, 2011 and 2010, respectively, and $120 million and $139 million for the six months ended June 30, 2011 and 2010, respectively.

Quarterly results

Retail Banking reported net income of $1.1 billion, an increase of $188 million, or 21%, compared with the prior year. Net revenue was $4.6 billion, up 5% from the prior year. Net interest income was $2.7 billion, flat to the prior year, as the impact from higher deposit balances was offset predominantly by the effect of lower deposit spreads. Noninterest revenue was $1.9 billion, an increase of 12%, driven by higher debit card revenue, deposit-related fees and investment sales revenue. The provision for credit losses was $42 million, compared with $168 million in the prior year. Net charge-offs were $117 million, compared with $168 million in the prior year.Noninterest expense was $2.7 billion, up 3% from the prior year, due to sales force increases and new branch builds.

Year-to-date results

Retail Banking reported net income of $2.0 billion, an increase of $181 million, or 10%, compared with the prior year. Net revenue was $9.0 billion, up 3% from the prior year. Net interest income was $5.4 billion, flat to the prior year, as the impact from higher deposit balances was offset predominantly by the effect of lower deposit spreads. Noninterest revenue was $3.6 billion, an increase of 8%, driven by higher debit card and investment sales revenue. The provision for credit losses was $161 million, compared with $359 million in the prior year. Net charge-offs were $236 million, compared with $359 million in the prior year.Noninterest expense was $5.5 billion, up 6% from the prior year, resulting from sales force increases and new branch builds.

25

Selected metrics	Three months ended June 30,								Six months ended June 30,
(in billions, except ratios and where otherwise noted)	2011			2010			Change		2011			2010			Change
Business metrics
Business banking origination volume (in millions)	$	1,573		$	1,222		29	%	$	2,998		$	2,127		41	%
End-of-period loans owned	17.1			16.6			3		17.1			16.6			3
End-of-period deposits:
Checking	136.3			123.5			10		136.3			123.5			10
Savings	178.1			161.8			10		178.1			161.8			10
Time and other	41.9			50.5			(17	)	41.9			50.5			(17	)
Total end-of-period deposits	356.3			335.8			6		356.3			335.8			6
Average loans owned	$	17.1		$	16.7		2		$	17.0		$	16.8		1
Average deposits:
Checking	$	136.5		$	123.6		10		$	134.3		$	121.7		10
Savings	176.8			162.8			9		174.0			160.7			8
Time and other	43.1			51.4			(16	)	44.0			53.5			(18	)
Total average deposits	356.4			337.8			6		352.3			335.9			5
Deposit margin	2.87		%	3.05		%			2.89		%	3.03		%
Average assets	$	28.3		$	28.4		—		$	28.5		$	28.7		(1	)
Credit data and quality statistics (in millions, except ratios)
Net charge-offs	$	117		$	168		(30	)	$	236		$	359		(34	)
Net charge-off rate	2.74		%	4.04		%			2.80		%	4.31		%
Nonperforming assets	$	784		$	920		(15	)	$	784		$	920		(15	)
Retail branch business metrics
Investment sales volume (in millions)	$	6,334		$	5,756		10		$	12,918		$	11,712		10
Number of:
Branches	5,340			5,159			4		5,340			5,159			4
ATMs	16,443			15,654			5		16,443			15,654			5
Personal bankers	23,308			20,170			16		23,308			20,170			16
Sales specialists	7,630			6,785			12		7,630			6,785			12
Active online customers (in thousands)	18,085			16,584			9		18,085			16,584			9
Checking accounts (in thousands)	26,266			26,351			—		26,266			26,351			—

26

MORTGAGE BANKING, AUTO & OTHER CONSUMER LENDING

Selected income statement data	Three months ended June 30,								Six months ended June 30,
(in millions, except ratio)	2011			2010			Change		2011			2010			Change
Noninterest revenue	$	1,498		$	1,256		19	%	$	1,379		$	2,274		(39	)%
Net interest income	667			792			(16	)	1,482			1,685			(12	)
Total net revenue	2,165			2,048			6		2,861			3,959			(28	)
Provision for credit losses	132			175			(25	)	263			392			(33	)
Noninterest expense	2,561			1,243			106		4,666			2,489			87
Income/(loss) before income tax expense/(benefit)	(528		)	630			NM		(2,068		)	1,078			NM
Net income/(loss)	$	(454	)	$	364		NM		$	(1,391	)	$	621		NM
Overhead ratio	118		%	61		%			163		%	63		%

Quarterly results

Mortgage Banking, Auto & Other Consumer Lending reported a net loss of $454 million, compared with net income of $364 million in the prior year.

Net revenue was $2.2 billion, an increase of $117 million, or 6%, from the prior year. Mortgage Banking net revenue was $1.3 billion, compared with net revenue of $1.2 billion in the prior year. Auto & Other Consumer Lending net revenue was $835 million, down by $15 million.

Mortgage Banking net revenue in the second quarter of 2011 included $1.1 billion for mortgage fees and related income, $124 million of net interest income and $106 million of other noninterest revenue. Mortgage fees and related income comprised $544 million of net production revenue, $533 million of servicing operating revenue and $23 million of MSR risk management revenue. Production revenue, excluding repurchase losses, was $767 million, an increase of $91 million, reflecting wider margins. Total production revenue was reduced by $223 million of repurchase losses, compared with repurchase losses of $667 million in the prior year. Servicing operating revenue declined 6% from the prior year, due to run-off of the servicing portfolio. MSR risk management revenue declined by $288 million from the prior year.

The provision for credit losses, predominantly related to the student and auto loan portfolios, was $132 million, compared with $175 million in the prior year. Auto loan net charge-offs were $19 million, compared with $58 million in the prior year. Student loan and other net charge-offs were $135 million, compared with $150 million in the prior year.

Noninterest expense was $2.6 billion, up by $1.3 billion from the prior year. The increase was driven by $1.0 billion for estimated litigation and other costs of foreclosure-related matters, as well as an increase in default-related expense for the serviced portfolio.

Year-to-date results

Mortgage Banking, Auto & Other Consumer Lending reported a net loss of $1.4 billion, compared with net income of $621 million in the prior year.

Net revenue was $2.9 billion, a decrease of $1.1 billion, or 28%, from the prior year. Mortgage Banking net revenue was $1.3 billion, compared with net revenue of $2.2 billion in the prior year. Auto & Other Consumer Lending net revenue was $1.6 billion, down by $154 million, predominantly as a result of the discontinuation of tax refund anticipation lending.

Mortgage Banking net revenue in the first half of 2011 included $611 million of mortgage fees and related income, $395 million of net interest income and $210 million of other noninterest revenue. Mortgage fees and related income comprised $803 million of net production revenue, $1.0 billion of servicing operating revenue and a $1.2 billion MSR risk management loss. Production revenue, excluding repurchase losses, was $1.4 billion, an increase of $337 million, reflecting higher mortgage origination volumes and wider margins. Total production revenue was reduced by $643 million of repurchase losses, compared with repurchase losses of $1.1 billion in the prior year. Servicing operating revenue declined 4% from the prior year. MSR risk management revenue declined by $1.7 billion from the prior year, reflecting a $1.1 billion decline in the fair value of the MSR asset that was recognized in the first quarter of 2011 related to a revised cost to service assumption incorporated into the valuation to reflect the estimated impact of higher servicing costs to enhance servicing processes – particularly loan modification and foreclosure procedures, and higher estimated costs to comply with Consent Orders entered into with banking regulators. The decline in the fair value of the MSR asset also resulted from a decrease in interest rates.

The provision for credit losses, predominantly related to the student and auto loan portfolios, was $263 million, compared with $392 million in the prior year. Auto loan net charge-offs were $66 million, compared with $160 million in the prior year. Student loan and other net charge-offs were $215 million, compared with $214 million in the prior year.

27

Noninterest expense was $4.7 billion, up by $2.2 billion, or 87%, from the prior year, driven by $1.7 billion recorded for estimated litigation and other costs of foreclosure-related matters, as well as an increase in default-related expense for the serviced portfolio.

Selected metrics	Three months ended June 30,								Six months ended June 30,
(in billions, except ratios and where otherwise noted)	2011			2010			Change		2011			2010			Change
Business metrics
End-of-period loans owned:
Auto	$	46.8		$	47.5		(1	)%	$	46.8		$	47.5		(1	)%
Prime mortgage, including option ARMs(a)	14.3			13.2			8		14.3			13.2			8
Student and other	14.0			15.1			(7	)	14.0			15.1			(7	)
Total end-of-period loans owned	75.1			75.8			(1	)	75.1			75.8			(1	)
Average loans owned:
Auto	$	47.0		$	47.5		(1	)	$	47.3		$	47.2		—
Prime mortgage, including option ARMs(a)	14.1			13.6			4		14.1			13.0			8
Student and other	14.1			16.7			(16	)	14.3			17.6			(19	)
Total average loans owned(b)	75.2			77.8			(3	)	75.7			77.8			(3	)
Credit data and quality statistics (in millions, except ratios)
Net charge-offs/(recoveries):
Auto	$	19		$	58		(67	)	$	66		$	160		(59	)
Prime mortgage, including option ARMs	(2		)	13			NM		2			19			(89	)
Student and other	135			150			(10	)	215			214			—
Total net charge-offs	152			221			(31	)	283			393			(28	)
Net charge-off/(recovery) rate:
Auto	0.16		%	0.49		%			0.28		%	0.68		%
Prime mortgage, including option ARMs	(0.06		)	0.39					0.03			0.30
Student and other	3.84			4.04					3.03			2.80
Total net charge-off rate(b)	0.81			1.17					0.75			1.05
30+ day delinquency rate(c)(d)(e)	1.55			1.43					1.55			1.42
Nonperforming assets (in millions)(f)	$	893		$	1,013		(12	)	$	893		$	1,013		(12	)
Origination volume:
Mortgage origination volume by channel
Retail	$	20.7		$	15.3		35		$	41.7		$	26.7		56
Wholesale(g)	0.1			0.4			(75	)	0.3			0.8			(63	)
Correspondent (g)	10.3			14.7			(30	)	23.8			30.7			(22	)
CNT (negotiated transactions)	2.9			1.8			61		4.4			5.7			(23	)
Total mortgage origination volume	34.0			32.2			6		70.2			63.9			10
Student	$	—		$	0.1		NM		$	0.1		$	1.7		(94	)
Auto	5.4			5.8			(7	)	10.2			12.1			(16	)
Application volume:
Mortgage application volume by channel
Retail	$	33.6		$	27.8		21		$	64.9		$	48.1		35
Wholesale(g)	0.3			0.6			(50	)	0.6			1.4			(57	)
Correspondent(g)	14.9			23.5			(37	)	28.5			41.7			(32	)
Total mortgage application volume	$	48.8		$	51.9		(6	)	$	94.0		$	91.2		3
Average mortgage loans held-for-sale and loans at fair value(h)	$	14.6		$	12.6		16		$	16.1		$	13.5		19
Average assets	124.4			123.2			1		126.4			124.0			2
Repurchase reserve (ending)	3.2			2.0			60		3.2			2.0			60
Third-party mortgage loans serviced (ending)	940.8			1,055.2			(11	)	940.8			1,055.2			(11	)
Third-party mortgage loans serviced (average)	947.0			1,063.7			(11	)	952.9			1,070.1			(11	)
MSR net carrying value (ending)	12.2			11.8			3		12.2			11.8			3
Ratio of MSR net carrying value (ending) to third-party mortgage loans serviced (ending)	1.30		%	1.12		%			1.30		%	1.12		%
Ratio of annualized loan servicing revenue to third-party mortgage loans serviced (average)	0.43			0.45					0.44			0.43
MSR revenue multiple(i)	3.02x			2.49x					2.95x			2.60x

28

	Three months ended June 30,								Six months ended June 30,
Supplemental mortgage fees and related income details (in millions)	2011			2010			Change		2011			2010			Change
Net production revenue:
Production revenue	$	767		$	676		13	%	$	1,446		$	1,109		30	%
Repurchase losses	(223		)	(667		)	67		(643		)	(1,099		)	41
Net production revenue	544			9			NM		803			10			NM
Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue	1,011			1,186			(15	)	2,063			2,293			(10	)
Other changes in MSR asset fair value	(478		)	(620		)	23		(1,041		)	(1,225		)	15
Total operating revenue	533			566			(6	)	1,022			1,068			(4	)
Risk management:
Changes in MSR asset fair value due to inputs or       assumptions in model(j)	(960		)	(3,584		)	73		(1,711		)	(3,680		)	54
Derivative valuation adjustments and other	983			3,895			(75	)	497			4,143			(88	)
Total risk management	23			311			(93	)	(1,214		)	463			NM
Total net mortgage servicing revenue	556			877			(37	)	(192		)	1,531			NM
Mortgage fees and related income	$	1,100		$	886		24		$	611		$	1,541		(60	)

(a) Predominantly represents prime loans repurchased from Government National Mortgage Association (“Ginnie Mae”) pools, which are insured by U.S. government agencies. See further discussion of loans repurchased from Ginnie Mae pools in Mortgage repurchase liability on pages 53–56 of this Form 10-Q.

(b) Total average loans owned included loans held-for-sale of $76 million and $1.9 billion for the three months ended June 30, 2011 and 2010, respectively, and $104 million and $2.4 billion for the six months ended June 30, 2011 and 2010, respectively. These amounts were excluded when calculating the net charge-off rate.

(c) At June 30, 2011 and 2010, total end-of-period loans owned included loans held-for-sale of $221 million and $434 million, respectively. These amounts were excluded when calculating the 30+ day delinquency rate.

(d) At June 30, 2011 and 2010, excluded mortgage loans insured by U.S. government agencies of $10.1 billion and $9.8 billion, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

(e) At June 30, 2011 and 2010, excluded loans that are 30 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $968 million and $988 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

(f) At June 30, 2011 and 2010, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $9.1 billion and $8.9 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $2.4 billion and $1.4 billion, respectively; and (3) student loans insured by U.S. government agencies under the FFELP, of $558 million and $447 million, respectively, that are 90 days or more past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally.

(g) Includes rural housing loans sourced through brokers and correspondents, which are underwritten under Rural Housing Authority guidelines.

(h) 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 $14.5 billion and $12.5 billion for the three months ended June 30, 2011 and 2010, respectively, and $16.0 billion and $13.3 billion for the six months ended June 30, 2011 and 2010, respectively.

(i) Represents the ratio of MSR net carrying value (ending) to third-party mortgage loans serviced (ending) divided by the ratio of annualized loan servicing revenue to third-party mortgage loans serviced (average).

(j) Of the total decrease recognized in the six months ended June 30, 2011, $1.1 billion related to a revised cost to service assumption incorporated into the valuation in the first quarter of 2011 to reflect the estimated impact of higher servicing costs to enhance servicing processes, particularly related to loan modification and foreclosure procedures, and higher estimated costs to comply with Consent Orders entered into with banking regulators. The $1.7 billion change due to changes in inputs and assumptions also included a decrease in the fair value of the MSR asset resulting from a decrease in interest rates. Declining interest rates have the effect of decreasing the fair value of the MSR asset and increasing the fair value of the derivatives used for risk management purposes. For additional information on MSRs, see Note 3 and Note 16 on pages 102–114 and 159–163, respectively, of this Form 10-Q.

29

REAL ESTATE PORTFOLIOS

Selected income statement data	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2011			2010			Change		2011			2010			Change
Noninterest revenue	$	20		$	52		(62	)%	$	28		$	84		(67	)%
Net interest income	1,197			1,313			(9	)	2,353			2,809			(16	)
Total net revenue	1,217			1,365			(11	)	2,381			2,893			(18	)
Provision for credit losses	954			1,372			(30	)	2,030			4,697			(57	)
Noninterest expense	371			405			(8	)	726			824			(12	)
Income/(loss) before income tax expense/(benefit)	(108		)	(412		)	74		(375		)	(2,628		)	86
Net income/(loss)	$	(66	)	$	(236	)	72		$	(228	)	$	(1,522	)	85
Overhead ratio	30		%	30		%			30		%	28		%

Quarterly results

Real Estate Portfolios reported a net loss of $66 million, compared with a net loss of $236 million in the prior year. The improvement was driven by a lower provision for credit losses, partially offset by lower net revenue.

Net revenue was $1.2 billion, down by $148 million, or 11%, from the prior year. The decrease was driven by a decline in net interest income as a result of lower loan balances due to portfolio runoff, partially offset by wider loan spreads.

The provision for credit losses was $954 million, compared with $1.4 billion in the prior year. The current-quarter provision reflected a $418 million reduction in net charge-offs, driven by a modest improvement in delinquency trends.

Noninterest expense was $371 million, down by $34 million, or 8%, from the prior year, reflecting a decrease in foreclosed asset expense.

Year-to-date results

Real Estate Portfolios reported a net loss of $228 million, compared with a net loss of $1.5 billion in the prior year. The improvement was driven by a lower provision for credit losses, partially offset by lower net revenue.

Net revenue was $2.4 billion, down by $512 million, or 18%, from the prior year. The decrease was driven by a decline in net interest income as a result of lower loan balances due to portfolio runoff and narrower loan spreads.

The provision for credit losses was $2.0 billion, compared with $4.7 billion in the prior year. The current-year provision reflected a $1.4 billion reduction in net charge-offs driven by improved delinquency trends. Also, the prior-year provision included an addition to the allowance for loan losses of $1.2 billion for the Washington Mutual PCI portfolios.

Noninterest expense was $726 million, down by $98 million, or 12%, from the prior year, reflecting a decrease in foreclosed asset expense.

30

Selected metrics	Three months ended June 30,						Six months ended June 30,
(in billions)	2011		2010		Change		2011		2010		Change
Loans excluding PCI(a)
End-of-period loans owned:
Home equity	$	82.7	$	94.8	(13	)%	$	82.7	$	94.8	(13	)%
Prime mortgage, including option ARMs	47.0		53.1		(11	)	47.0		53.1		(11	)
Subprime mortgage	10.4		12.6		(17	)	10.4		12.6		(17	)
Other	0.8		1.0		(20	)	0.8		1.0		(20	)
Total end-of-period loans owned	$	140.9	$	161.5	(13	)	$	140.9	$	161.5	(13	)
Average loans owned:
Home equity	$	84.0	$	96.3	(13	)	$	85.5	$	97.9	(13	)
Prime mortgage, including option ARMs	47.6		54.3		(12	)	48.4		55.5		(13	)
Subprime mortgage	10.7		13.1		(18	)	10.9		13.4		(19	)
Other	0.8		1.0		(20	)	0.8		1.0		(20	)
Total average loans owned	$	143.1	$	164.7	(13	)	$	145.6	$	167.8	(13	)
PCI loans(a)
End-of-period loans owned:
Home equity	$	23.5	$	25.5	(8	)	$	23.5	$	25.5	(8	)
Prime mortgage	16.2		18.5		(12	)	16.2		18.5		(12	)
Subprime mortgage	5.2		5.6		(7	)	5.2		5.6		(7	)
Option ARMs	24.1		27.3		(12	)	24.1		27.3		(12	)
Total end-of-period loans owned	$	69.0	$	76.9	(10	)	$	69.0	$	76.9	(10	)
Average loans owned:
Home equity	$	23.7	$	25.7	(8	)	$	23.9	$	26.0	(8	)
Prime mortgage	16.5		18.8		(12	)	16.7		19.1		(13	)
Subprime mortgage	5.2		5.8		(10	)	5.3		5.8		(9	)
Option ARMs	24.4		27.7		(12	)	24.8		28.2		(12	)
Total average loans owned	$	69.8	$	78.0	(11	)	$	70.7	$	79.1	(11	)
Total Real Estate Portfolios
End-of-period loans owned:
Home equity	$	106.2	$	120.3	(12	)	$	106.2	$	120.3	(12	)
Prime mortgage, including option ARMs	87.3		98.9		(12	)	87.3		98.9		(12	)
Subprime mortgage	15.6		18.2		(14	)	15.6		18.2		(14	)
Other	0.8		1.0		(20	)	0.8		1.0		(20	)
Total end-of-period loans owned	$	209.9	$	238.4	(12	)	$	209.9	$	238.4	(12	)
Average loans owned:
Home equity	$	107.7	$	122.0	(12	)	$	109.4	$	123.9	(12	)
Prime mortgage, including option ARMs	88.5		100.8		(12	)	89.9		102.8		(13	)
Subprime mortgage	15.9		18.9		(16	)	16.2		19.2		(16	)
Other	0.8		1.0		(20	)	0.8		1.0		(20	)
Total average loans owned	$	212.9	$	242.7	(12	)	$	216.3	$	246.9	(12	)
Average assets	$	200.1	$	230.3	(13	)	$	203.6	$	235.2	(13	)
Home equity origination volume	0.3		0.3		—		0.5		0.6		(17	)

(a) PCI loans 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. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the underlying loans are contractually past due.

Included within Real Estate Portfolios are PCI loans that the Firm acquired in the Washington Mutual transaction. For PCI loans, the excess of the undiscounted gross cash flows expected to be collected over the carrying value of the loans (the “accretable yield”) is accreted into interest income at a level rate of return over the expected life of the loans.

The net spread between the PCI loans and the related liabilities are expected to be relatively constant over time, except for any basis risk or other residual interest rate risk that remains and for certain changes in the accretable yield percentage (e.g., from extended loan liquidation periods and from prepayments). As of June 30, 2011, the remaining weighted-average life of the PCI loan portfolio is expected to be 6.9 years. For further information, see Note 13, PCI loans, on pages 145–146 of this Form 10-Q. The loan balances are expected to decline more rapidly in the earlier years as the most troubled loans are liquidated, and more slowly thereafter as the remaining troubled borrowers have limited refinancing opportunities. Similarly, default and servicing expense are expected to be higher in the earlier years and decline over time as liquidations slow down.

To date the impact of the PCI loans on Real Estate Portfolios’ net income has been modestly negative. This is due to the current net spread of the portfolio, the provision for loan losses recognized subsequent to its acquisition, and the higher level of default and servicing expense associated with the portfolio. Over time, the Firm expects that this portfolio will contribute positively to net income.

31

Credit data and quality statistics	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2011			2010			Change		2011			2010			Change
Net charge-offs excluding PCI loans(a):
Home equity	$	592		$	796		(26	)%	$	1,312		$	1,922		(32	)%
Prime mortgage, including options ARMs	198			273			(27	)	359			749			(52	)
Subprime mortgage	156			282			(45	)	342			739			(54	)
Other	8			21			(62	)	17			37			(54	)
Total net charge-offs	$	954		$	1,372		(30	)	$	2,030		$	3,447		(41	)
Net charge-off rate excluding PCI loans(a):
Home equity	2.83		%	3.32		%			3.09		%	3.96		%
Prime mortgage, including options ARMs	1.67			2.02					1.50			2.72
Subprime mortgage	5.85			8.63					6.33			11.12
Other	4.01			8.42					4.29			7.46
Total net charge-off rate excluding PCI loans	2.67			3.34					2.81			4.14
Net charge-off rate - reported:
Home equity	2.20		%	2.62		%			2.42		%	3.13		%
Prime mortgage, including options ARMs	0.90			1.09					0.81			1.47
Subprime mortgage	3.94			5.98					4.26			7.76
Other	4.01			8.42					4.29			7.46
Total net charge-off rate - reported	1.80			2.27					1.89			2.82
30+ day delinquency rate excluding PCI loans(b)	5.98		%	6.88		%			5.98		%	6.88		%
Allowance for loan losses	$	14,659		$	14,127		4		$	14,659		$	14,127		4
Nonperforming assets(c)	7,729			9,974			(23	)	7,729			9,974			(23	)
Allowance for loan losses to ending loans retained	6.98		%	5.93		%			6.98		%	5.93		%
Allowance for loan losses to ending loans retained excluding PCI loans(a)	6.90			7.01					6.90			7.01

(a) Excludes the impact of PCI loans 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. An allowance for loan losses of $4.9 billion and $2.8 billion was recorded for these loans at June 30, 2011 and 2010, respectively, which was also excluded from the applicable ratios. To date, no charge-offs have been recorded for these loans.

(b) At June 30, 2011 and 2010, the delinquency rate for PCI loans was 26.20% and 27.91%, respectively.

(c) Excludes PCI loans that were acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of the individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.

32

CARD SERVICES

For a discussion of the business profile of CS, see pages 79–81 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 4 of this Form 10-Q.

Selected income statement data(a)	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2011			2010			Change		2011			2010			Change
Revenue
Credit card income	$	1,123		$	908		24	%	$	2,021		$	1,721		17	%
All other income(b)	(107		)	(47		)	(128	)	(223		)	(102		)	(119	)
Noninterest revenue(c)	1,016			861			18		1,798			1,619			11
Net interest income	2,911			3,356			(13	)	6,111			7,045			(13	)
Total net revenue	3,927			4,217			(7	)	7,909			8,664			(9	)
Provision for credit losses	810			2,221			(64	)	1,036			5,733			(82	)
Noninterest expense
Compensation expense	355			327			9		719			657			9
Noncompensation expense	1,163			986			18		2,248			1,935			16
Amortization of intangibles	104			123			(15	)	210			246			(15	)
Total noninterest expense(d)	1,622			1,436			13		3,177			2,838			12
Income before income tax expense	1,495			560			167		3,696			93			NM
Income tax expense	584			217			169		1,442			53			NM
Net income	$	911		$	343		166		$	2,254		$	40		NM
Financial ratios(a)
Return on common equity	28		%	9		%			35		%	1		%
Overhead ratio	41			34					40			33

(a) Effective January 1, 2011, the commercial card business that was previously in TSS was transferred to CS. There is no material impact on the financial data; prior-year periods were not revised. The commercial card portfolio is excluded from business metrics and supplemental information where noted.

(b) Includes the impact of revenue sharing agreements with other JPMorgan Chase business segments.

(c) Includes Commercial Card noninterest revenue of $75 million and $147 million for the three and six months ended June 30, 2011, respectively.

(d) Includes Commercial Card noninterest expense of $69 million and $144 million for the three and six months ended June 30, 2011, respectively.

Quarterly results

Net income was $911 million, compared with $343 million in the prior year. The improved results were driven by a lower provision for credit losses, partially offset by lower net revenue.

End-of-period loans were $125.5 billion, a decrease of $17.5 billion, or 12%, from the prior year. Average loans were $125.0 billion, a decrease of $21.3 billion, or 15%, from the prior year. The declines in both end-of-period and average loans were consistent with expectations. The end-of-period and average loan totals also reflected the impact of the Firm’s sale of the $3.7 billion Kohl’s portfolio on April 1, 2011.

Net revenue was $3.9 billion, a decrease of $290 million, or 7%, from the prior year. Net interest income was $2.9 billion, down by $445 million, or 13%. The decrease in net interest income was driven by lower average loan balances (including the impact of the Kohl’s portfolio sale), the impact of legislative changes and a decreased level of fees. These decreases were largely offset by lower revenue reversals associated with lower charge-offs. Noninterest revenue was $1.0 billion, an increase of $155 million, or 18%, from the prior year. The increase was driven by lower partner revenue-sharing due to the impact of the Kohl’s portfolio sale, higher net interchange income and the transfer of the Commercial Card business to CS from TSS in the first quarter of 2011. Excluding the impact of the Commercial Card business, noninterest revenue increased 9%.

The provision for credit losses was $810 million, compared with $2.2 billion in the prior year. The current-quarter provision reflected lower net charge-offs and a reduction of $1.0 billion to the allowance for loan losses due to lower estimated losses. The prior-year provision included a reduction of $1.5 billion to the allowance for loan losses. The net charge-off rate was 5.82% (5.81% including loans held-for-sale), down from 10.20% in the prior year. The 30+ day delinquency ratewas 2.98%, down from 4.96% in the prior year. Excluding the Washington Mutual and Commercial Card portfolios, the net charge-off rate¹was 5.28%, down from 9.02% in the prior year; and the 30+ day delinquency rate was 2.73%, down from 4.48% in the prior year.

Noninterest expense was $1.6 billion, an increase of $186 million, or 13%, from the prior year, due to higher marketing expense and the inclusion of the Commercial Card business. Excluding the impact of the Commercial Card business, noninterest expense increased 8%.

33

Year-to-date results

Net income was $2.3 billion, compared with $40 million in the prior year. The improved results were driven by a lower provision for credit losses, partially offset by lower net revenue.

Average loans were $128.8 billion, a decrease of $22.3 billion, or 15%, from the prior year. The decline in average loans was consistent with expectations and also reflected the impact of the Firm’s sale of the $3.7 billion Kohl’s portfolio on April 1, 2011.

Net revenue was $7.9 billion, a decrease of $755 million, or 9%, from the prior year. Net interest income was $6.1 billion, down by $934 million, or 13%. The decrease in net interest income was driven by lower average loan balances (including the impact of the Kohl’s portfolio sale), the impact of legislative changes and a decreased level of fees. These decreases were largely offset by lower revenue reversals associated with lower charge-offs. Noninterest revenue was $1.8 billion, an increase of $179 million, or 11%, from the prior year. The increase was driven by the transfer of the Commercial Card business to CS from TSS in the first quarter of 2011 and higher net interchange income, partially offset by lower revenue from fee-based products. Excluding the impact of the Commercial Card business, noninterest revenue increased 2%.

The provision for credit losses was $1.0 billion, compared with $5.7 billion in the prior year. The current-year provision reflected lower net charge-offs and a reduction of $3.0 billion to the allowance for loan losses due to lower estimated losses. The prior-year provision included a reduction of $2.5 billion to the allowance for loan losses. The net charge-off rate was 6.40% (6.32% including loans held-for-sale), down from 10.99% in the prior year. Excluding the Washington Mutual and Commercial Card portfolios, the net charge-off rate¹ was 5.75%, down from 9.80% in the prior year.

Noninterest expense was $3.2 billion, an increase of $339 million, or 12%, from the prior year, due to the inclusion of the Commercial Card business and higher marketing expense. Excluding the impact of the Commercial Card business, noninterest expense increased 7%.

For further information on the credit card legislative changes, see CS discussion on page 79 of JPMorgan Chase’s 2010 Annual Report.

¹ Includes loans held-for-sale, which are non-GAAP financial measures, to provide more meaningful measures that enable comparability with prior periods.

Selected metrics	Three months ended June 30,								Six months ended June 30,
(in millions, except headcount, ratios and where otherwise noted)	2011			2010			Change		2011			2010			Change
Financial ratios(a)
Percentage of average loans:
Noninterest revenue	3.26		%	2.36		%			2.82		%	2.16		%
Net interest income	9.34			9.20					9.57			9.41
Net revenue	12.60			11.56					12.39			11.57
Provision for credit losses	2.60			6.09					1.62			7.66
Risk adjusted margin(b)	10.00			5.47					10.76			3.91
Noninterest expense	5.20			3.94					4.98			3.79
Pretax income (“ROO”)	4.80			1.54					5.79			0.12
Net income	2.92			0.94					3.53			0.05
Business metrics, excluding Commercial Card(a)
Sales volume (in billions)	$	85.5		$	78.1		9	%	$	163.0		$	147.5		11	%
New accounts opened	2.0			2.7			(26	)	4.6			5.2			(12	)
Open accounts(c)	65.4			88.9			(26	)	65.4			88.9			(26	)
Merchant acquiring business
Bank card volume (in billions)	$	137.3		$	117.1		17		$	263.0		$	225.1		17
Total transactions (in billions)	5.9			5.0			18		11.5			9.7			19
Selected balance sheet data (period-end)(a)
Loans	$	125,523		$	142,994		(12	)	$	125,523		$	142,994		(12	)
Equity	13,000			15,000			(13	)	13,000			15,000			(13	)
Selected balance sheet data (average)(a)
Total assets	$	132,443		$	146,816		(10	)	$	135,262		$	151,864		(11	)
Loans(d)	125,038			146,302			(15	)	128,767			151,020			(15	)
Equity	13,000			15,000			(13	)	13,000			15,000			(13	)
Headcount(e)	21,765			21,529			1		21,765			21,529			1

34

Selected metrics	Three months ended June 30,								Six months ended June 30,
(in millions, except headcount, ratios and where otherwise noted)	2011			2010			Change		2011			2010			Change
Credit quality statistics – retained(a)
Net charge-offs	$	1,810		$	3,721		(51	)%	$	4,036		$	8,233		(51	)%
Net charge-off rate(d)	5.82		%	10.20		%			6.40		%	10.99		%
Delinquency rates
30+ day	2.98		%	4.96		%			2.98		%	4.96		%
90+ day	1.55			2.76					1.55			2.76
Allowance for loan losses	$	8,042		$	14,524		(45	)	$	8,042		$	14,524		(45	)
Allowance for loan losses to period-end loans	6.41		%	10.16		%			6.41		%	10.16		%
Supplemental information(a)(f)(g)
Chase, excluding Washington Mutual portfolio
Loans (period-end)	$	113,766		$	127,379		(11	)	$	113,766		$	127,379		(11	)
Average loans	112,984			129,847			(13	)	116,179			133,495			(13	)
Net interest income(h)	8.60		%	8.47		%			8.85		%	8.67		%
Net revenue(h)	12.01			10.91					11.79			10.91
Risk adjusted margin(b)(h)	8.71			4.21					9.51			3.30
Net charge-offs	$	1,471		$	2,920		(50	)	$	3,277		$	6,486		(49	)
Net charge-off rate(i)	5.22		%	9.02		%			5.69		%	9.80		%
30+ day delinquency rate	2.71			4.48					2.71			4.48
90+ day delinquency rate	1.41			2.47					1.41			2.47
Chase, excluding Washington Mutual and Commercial Card portfolios
Loans (period-end)	$	112,366		$	127,379		(12	)	$	112,366		$	127,379		(12	)
Average loans	111,641			129,847			(14	)	114,874			133,495			(14	)
Net interest income(h)	8.77		%	8.47		%			9.02		%	8.67		%
Net revenue(h)	11.95			10.91					11.73			10.91
Risk adjusted margin(b)(h)	8.61			4.21					9.43			3.30
Net charge-offs	$	1,470		$	2,920		(50	)	$	3,276		$	6,486		(49	)
Net charge-off rate(i)	5.28		%	9.02		%			5.75		%	9.80		%
30+ day delinquency rate(j)	2.73			4.48					2.73			4.48
90+ day delinquency rate(k)	1.42			2.47					1.42			2.47

(a) Effective January 1, 2011, the commercial card business that was previously in TSS was transferred to CS. There is no material impact on the financial data; prior-year periods were not revised. The commercial card portfolio is excluded from business metrics and supplemental information where noted.

(b) Represents total net revenue less provision for credit losses.

(c) Reflects the impact of portfolio sales in the second quarter of 2011.

(d) Total average loans include loans held-for-sale of $276 million and $1.6 billion for the three and six months ended June 30, 2011, respectively. There were no loans held-for-sale for the three and six months ended June 30, 2010. These amounts are excluded when calculating the net charge-off rate. The net charge-off rate including loans held-for-sale, which is a non-GAAP financial measure, was 5.81% and 6.32% for the three and six months ended June 30, 2011, respectively.

(e) Headcount includes 1,274 employees related to the transfer of the commercial card business from TSS to CS in the first quarter of 2011.

(f) Supplemental information is provided for Chase, excluding Washington Mutual and Commercial Card portfolios and including loans held-for-sale, which are non-GAAP financial measures, to provide more meaningful measures that enable comparability with prior periods.

(g) For additional information on loan balances, delinquency rates, and net charge-off rates for the Washington Mutual portfolio, see Consumer credit portfolio on pages 77–86, and Note 13 on pages 134–148 of this Form 10-Q.

(h) As a percentage of average loans.

(i) Total average loans include loans held-for-sale of $276 million and $1.6 billion for the three and six months ended June 30, 2011, respectively, and are included when calculating the net charge-off rate. There were no loans held-for-sale for the three and six months ended June 30, 2010.

(j) At June 30, 2011 and 2010, the 30+ day delinquent loans for Chase, excluding Washington Mutual and Commercial Card portfolios were $3,070 million and $5,703 million, respectively.

(k) At June 30, 2011 and 2010, the 90+ day delinquent loans for Chase, excluding Washington Mutual and Commercial Card portfolios were $1,600 million and $3,144 million, respectively.

35

COMMERCIAL BANKING

For a discussion of the business profile of CB, see pages 82–83 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 4 of this Form 10-Q.

Selected income statement data	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios)	2011			2010			Change		2011			2010			Change
Revenue
Lending- and deposit-related fees	$	281		$	280		—	%	$	545		$	557		(2	)%
Asset management, administration and commissions	34			36			(6	)	69			73			(5	)
All other income(a)	283			230			23		486			416			17
Noninterest revenue	598			546			10		1,100			1,046			5
Net interest income	1,029			940			9		2,043			1,856			10
Total net revenue(b)	1,627			1,486			9		3,143			2,902			8
Provision for credit losses	54			(235		)	NM		101			(21		)	NM
Noninterest expense
Compensation expense	219			196			12		442			402			10
Noncompensation expense	336			337			—		668			661			1
Amortization of intangibles	8			9			(11	)	16			18			(11	)
Total noninterest expense	563			542			4		1,126			1,081			4
Income before income tax expense	1,010			1,179			(14	)	1,916			1,842			4
Income tax expense	403			486			(17	)	763			759			1
Net income	$	607		$	693		(12	)	$	1,153		$	1,083		6
Revenue by product
Lending(c)	$	880		$	649		36		$	1,717		$	1,307		31
Treasury services(c)	556			665			(16	)	1,098			1,303			(16	)
Investment banking	152			115			32		262			220			19
Other	39			57			(32	)	66			72			(8	)
Total Commercial Banking revenue	$	1,627		$	1,486		9		$	3,143		$	2,902		8
IB revenue, gross(d)	442			333			33		751			644			17
Revenue by client segment
Middle Market Banking	$	789		$	767		3		$	1,544		$	1,513		2
Commercial Term Lending	286			237			21		572			466			23
Corporate Client Banking(e)	339			285			19		629			548			15
Real Estate Banking	109			125			(13	)	197			225			(12	)
Other	104			72			44		201			150			34
Total Commercial Banking revenue	$	1,627		$	1,486		9		$	3,143		$	2,902		8
Financial ratios
Return on common equity	30		%	35		%			29		%	27		%
Overhead ratio	35			36					36			37

(a) CB client revenue from investment banking products and commercial card transactions is included in all other income.

(b) Total net revenue included tax-equivalent adjustments from income tax credits related to equity investments in designated community development entities that provide loans to qualified businesses in low-income communities as well as tax-exempt income from municipal bond activity of $67 million and $49 million for the three months ended June 30, 2011 and 2010, respectively, and $132 million and $94 million for the six months ended June 30, 2011 and 2010, respectively.

(c) Effective January 1, 2011, product revenue from commercial card and standby letters of credit transactions is included in lending. For the three and six months ended June 30, 2011, the impact of the change was $114 million and $221 million, respectively. In prior-year periods, it was reported in treasury services.

(d) Represents the total revenue related to investment banking products sold to CB clients.

(e) Corporate Client Banking was known as Mid-Corporate Banking prior to January 1, 2011.

36

Quarterly results

Net income was $607 million, a decrease of $86 million, or 12%, from the prior year. The decrease was driven by an increase in the provision for credit losses, partially offset by higher net revenue.

Net revenue was a record $1.6 billion, up by $141 million, or 9%, from the prior year. Net interest income was $1.0 billion, up by $89 million, or 9%, driven by growth in liability balances, wider loan spreads and higher loan balances, partially offset by spread compression on liability products. Noninterest revenue was $598 million, up $52 million, or 10%, compared with the prior year, driven by higher investment banking revenue.

Revenue from Middle Market Banking was $789 million, an increase of $22 million, or 3%, from the prior year. Revenue from Commercial Term Lending was $286 million, an increase of $49 million, or 21%. Revenue from Corporate Client Banking was $339 million, an increase of $54 million, or 19%. Revenue from Real Estate Banking was $109 million, a decrease of $16 million, or 13%.

The provision for credit losses was $54 million, compared with a benefit of $235 million in the prior year. Net charge-offs were $40 million (0.16% net charge-off rate) and were largely related to commercial real estate; this compared with net charge-offs of $176 million (0.74% net charge-off rate) in the prior year. The allowance for loan losses to end-of-period loans retained was 2.56%, down from 2.82% in the prior year. Nonaccrual loans were $1.6 billion, down by $1.4 billion, or 47%, from the prior year, primarily reflecting commercial real estate repayments and loan sales.

Noninterest expense was $563 million, an increase of $21 million, or 4%, from the prior year, primarily reflecting higher headcount-related expense.

Year-to-date results

Net income was $1.2 billion, an increase of $70 million, or 6%, from the prior year. The increase was driven by higher revenue, largely offset by an increase in the provision for credit losses.

Net revenue was $3.1 billion, up by $241 million, or 8%, compared with the prior year. Net interest income was $2.0 billion, up by $187 million, or 10%, driven by growth in liability balances, wider loan spreads and higher loan balances, partially offset by spread compression on liability products. Noninterest revenue was $1.1 billion, an increase of $54 million, or 5%, from the prior year largely driven by higher investment banking revenue.

Revenue from Middle Market Banking was $1.5 billion, an increase of $31 million, or 2%, from the prior year. Revenue from Commercial Term Lending was $572 million, an increase of $106 million, or 23%. Revenue from Corporate Client Banking was $629 million, an increase of $81 million, or 15%. Revenue from Real Estate Banking was $197 million, a decrease of $28 million, or 12%.

The provision for credit losses was $101 million, compared with a benefit of $21 million in the prior year. Net charge-offs were $71 million (0.14% net charge-off rate) and were largely related to commercial real estate, compared with $405 million (0.85% net charge-off rate) in the prior year.

Noninterest expense was $1.1 billion, an increase of $45 million, or 4% from the prior year largely reflecting higher headcount-related expense.

37

Selected metrics	Three months ended June 30,								Six months ended June 30,
(in millions, except headcount and ratios)	2011			2010			Change		2011			2010			Change
Selected balance sheet data (period-end):
Loans:
Loans retained	$	102,122		$	95,090		7	%	$	102,122		$	95,090		7	%
Loans held-for-sale and loans at fair value	557			446			25		557			446			25
Total loans	102,679			95,536			7		102,679			95,536			7
Equity	8,000			8,000			—		8,000			8,000			—
Selected balance sheet data (average):
Total assets	$	143,560		$	133,309		8		$	141,989		$	133,162		7
Loans:
Loans retained	100,857			95,521			6		99,849			95,917			4
Loans held-for-sale and loans at fair value	1,015			391			160		886			344			158
Total loans	101,872			95,912			6		100,735			96,261			5
Liability balances	162,769			136,770			19		159,503			134,966			18
Equity	8,000			8,000			—		8,000			8,000			—
Average loans by client segment:
Middle Market Banking	$	40,012		$	34,424		16		$	39,114		$	34,173		14
Commercial Term Lending	37,729			35,956			5		37,769			36,006			5
Corporate Client Banking(a)	13,062			11,875			10		12,720			12,065			5
Real Estate Banking	7,467			9,814			(24	)	7,537			10,124			(26	)
Other	3,602			3,843			(6	)	3,595			3,893			(8	)
Total Commercial Banking loans	$	101,872		$	95,912		6		$	100,735		$	96,261		5
Headcount	5,140			4,808			7		5,140			4,808			7
Credit data and quality statistics:
Net charge-offs	$	40		$	176		(77	)	$	71		$	405		(82	)
Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained(b)	1,613			3,036			(47	)	1,613			3,036			(47	)
Nonaccrual loans held-for-sale and loans held at fair value	21			41			(49	)	21			41			(49	)
Total nonaccrual loans	1,634			3,077			(47	)	1,634			3,077			(47	)
Assets acquired in loan satisfactions	197			208			(5	)	197			208			(5	)
Total nonperforming assets	1,831			3,285			(44	)	1,831			3,285			(44	)
Allowance for credit losses:
Allowance for loan losses	2,614			2,686			(3	)	2,614			2,686			(3	)
Allowance for lending-related commitments	187			267			(30	)	187			267			(30	)
Total allowance for credit losses	2,801			2,953			(5	)	2,801			2,953			(5	)
Net charge-off rate	0.16		%	0.74		%			0.14		%	0.85		%
Allowance for loan losses to period-end loansretained	2.56			2.82					2.56			2.82
Allowance for loan losses to nonaccrual loans retained(b)	162			88					162			88
Nonaccrual loans to total period-end loans	1.59			3.22					1.59			3.22

(a) Corporate Client Banking was known as Mid-Corporate Banking prior to January 1, 2011.

(b) Allowance for loan losses of $289 million and $586 million was held against nonaccrual loans retained at June 30, 2011 and 2010, respectively.

38

TREASURY & SECURITIES SERVICES

For a discussion of the business profile of TSS, see pages 84–85 of JPMorgan Chase’s 2010 Annual Report and Introduction on page 5 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)	2011			2010			Change		2011			2010			Change
Revenue
Lending- and deposit-related fees	$	314		$	313		—	%	$	617		$	624		(1	)%
Asset management, administration and commissions	726			705			3		1,421			1,364			4
All other income	143			209			(32	)	282			385			(27	)
Noninterest revenue	1,183			1,227			(4	)	2,320			2,373			(2	)
Net interest income	749			654			15		1,452			1,264			15
Total net revenue	1,932			1,881			3		3,772			3,637			4
Provision for credit losses	(2		)	(16		)	(88	)	2			(55		)	NM
Credit allocation income/(expense)(a)	32			(30		)	NM		59			(60		)	NM
Noninterest expense
Compensation expense	719			697			3		1,434			1,354			6
Noncompensation expense	719			684			5		1,366			1,334			2
Amortization of intangibles	15			18			(17	)	30			36			(17	)
Total noninterest expense	1,453			1,399			4		2,830			2,724			4
Income before income tax expense	513			468			10		999			908			10
Income tax expense	180			176			2		350			337			4
Net income	$	333		$	292		14		$	649		$	571		14
Revenue by business
Treasury Services	$	930		$	926		—		$	1,821		$	1,808		1
Worldwide Securities Services	1,002			955			5		1,951			1,829			7
Total net revenue	$	1,932		$	1,881		3		$	3,772		$	3,637		4
Revenue by geographic region(b)
Europe/Middle East/Africa	691			617			12		1,321			1,186			11
Asia/Pacific	299			233			28		575			452			27
Latin America/Caribbean	80			71			13		156			116			34
North America	862			960			(10	)	1,720			1,883			(9	)
Total net revenue	$	1,932		$	1,881		3		$	3,772		$	3,637		4
Trade finance loans by geographic region (period-end)(b)
Europe/Middle East/Africa	$	6,184		$	2,898		113		$	6,184		$	2,898		113
Asia/Pacific	15,736			9,802			61		15,736			9,802			61
Latin America/Caribbean	4,553			3,008			51		4,553			3,008			51
North America	1,000			693			44		1,000			693			44
Total finance loans	$	27,473		$	16,401		68		$	27,473		$	16,401		68
Financial ratios
Return on common equity	19		%	18		%			19		%	18		%
Overhead ratio	75			74					75			75
Pretax margin ratio	27			25					26			25
Selected balance sheet data (period-end)
Loans (c)	$	34,034		$	24,513		39		$	34,034		$	24,513		39
Equity	7,000			6,500			8		7,000			6,500			8
Selected balance sheet data (average)
Total assets	$	52,688		$	42,868		23		$	50,294		$	40,583		24
Loans (c)	33,069			22,137			49		31,190			20,865			49
Liability balances	302,858			246,690			23		284,392			247,294			15
Equity	7,000			6,500			8		7,000			6,500			8
Headcount	28,230			27,943			1		28,230			27,943			1

(a) IB manages traditional credit exposures related to the GCB on behalf of IB and TSS. Effective January 1, 2011, IB and TSS share the economics related to the Firm’s GCB clients. Included within this allocation are net revenues, provision for credit losses, as well as expenses. The prior-year period reflected a reimbursement to IB for a portion of the total costs of managing the credit portfolio. IB recognizes this credit allocation as a component of all other income.

(b) Revenue and trade finance loans are based on TSS management’s view of the domicile of clients.

(c) Loan balances include trade finance loans, wholesale overdrafts and commercial card. Effective January 1, 2011, the commercial card loan business (of approximately $1.2 billion) that was previously in TSS was transferred to CS. There is no material impact on the financial data; the prior-year period was not revised.

39

Quarterly results

Net income was $333 million, an increase of $41 million, or 14%, from the prior year.

Net revenue was $1.9 billion, an increase of $51 million, or 3%, from the prior year. Excluding the impact of the Commercial Card business, net revenue was up 6%. Worldwide Securities Services net revenue was $1.0 billion, an increase of $47 million, or 5%. The increase was driven by higher market levels, higher net interest income and net inflows of assets under custody. Treasury Services net revenue was $930 million, relatively flat compared with the prior year, as higher trade loan volumes and higher deposit balances were largely offset by the transfer of Commercial Card business to Card Services in the first quarter of 2011 and lower spreads on deposits. Excluding the impact of the Commercial Card business, TS net revenue increased 7%.

TSS generated firmwide net revenue of $2.6 billion, including $1.6 billion by Treasury Services; of that amount, $930 million was recorded in Treasury Services, $556 million in Commercial Banking and $65 million in other lines of business. The remaining $1.0 billion of firmwide net revenue was recorded in Worldwide Securities Services.

Noninterest expense was $1.5 billion, an increase of $54 million, or 4%, from the prior year. The increase was mainly driven by continued investment in new product platforms, primarily related to international expansion, partially offset by the transfer of the Commercial Card business to Card Services. Excluding the impact of the Commercial Card business, TSS noninterest expense increased 9%.

Results for the quarter included a $32 million pretax benefit related to the allocation between IB and TSS associated with credit extended to Global Corporate Bank (GCB) clients. IB manages core credit exposures related to the GCB on behalf of IB and TSS. Effective January 1, 2011, IB and TSS share the economics related to the Firm's GCB clients. Included within this allocation are net revenues and provision for credit losses as well as expenses.

Year-to-date results

Net income was $649 million, an increase of $78 million, or 14%, from the prior year.

Net revenue was $3.8 billion, an increase of $135 million, or 4%, from the prior year. Excluding the impact of the Commercial Card business, net revenue was up 7%. Worldwide Securities Services net revenue was $2.0 billion, an increase of $122 million, or 7%. The increase was driven by higher market levels, net inflows of assets under custody, and higher net interest income. Treasury Services net revenue was $1.8 billion, relatively flat compared with the prior year, as higher trade loan volumes and higher deposit balances were largely offset by the transfer of Commercial Card business to Card Services in the first quarter of 2011 and lower spreads on deposits. Excluding the impact of the Commercial Card business, TS net revenue increased 7%.

TSS generated firmwide net revenue of $5.0 billion, including $3.0 billion by Treasury Services; of that amount, $1.8 billion was recorded in Treasury Services, $1.1 billion in Commercial Banking and $128 million in other lines of business. The remaining $2.0 billion of firmwide net revenue was recorded in Worldwide Securities Services.

Noninterest expense was $2.8 billion, an increase of $106 million, or 4%, from the prior year. The increase was mainly driven by continued investment in new product platforms, primarily related to international expansion, partially offset by the transfer of the Commercial Card business to Card Services. Excluding the impact of the Commercial Card business, TSS noninterest expense increased 9%.

Results for the year-to-date included a $59 million pretax benefit related to the allocation between IB and TSS associated with credit extended to GCB clients.

40

Selected metrics	Three months ended June 30,								Six months ended June 30,
(in millions, except ratios and where otherwise noted)	2011			2010			Change		2011			2010			Change
TSS firmwide disclosures
Treasury Services revenue - reported	$	930		$	926		—	%	$	1,821		$	1,808		1	%
Treasury Services revenue reported in CB(a)	556			665			(16	)	1,098			1,303			(16	)
Treasury Services revenue reported in other lines of business	65			62			5		128			118			8
Treasury Services firmwide revenue(b)	1,551			1,653			(6	)	3,047			3,229			(6	)
Worldwide Securities Services revenue	1,002			955			5		1,951			1,829			7
Treasury & Securities Services firmwide revenue(b)	$	2,553		$	2,608		(2	)	$	4,998		$	5,058		(1	)
Treasury Services firmwide liability balances (average)(c)	375,432			303,224			24		357,436			304,159			18
Treasury & Securities Services firmwide liability balances (average)(c)	465,627			383,460			21		443,894			382,260			16
TSS firmwide financial ratios
Treasury Services firmwide overhead ratio(a)(d)	59		%	54		%			58		%	55		%
Treasury & Securities Services firmwide overhead ratio(a)(d)	67			64					67			65
Firmwide business metrics
Assets under custody (in billions)	$	16,945		$	14,857		14		$	16,945		$	14,857		14
Number of:
U.S.$ ACH transactions originated	959			970			(1	)	1,951			1,919			2
Total U.S.$ clearing volume (in thousands)	32,274			30,531			6		63,245			59,200			7
International electronic funds transfer volume (in thousands)(e)	63,208			58,484			8		124,150			114,238			9
Wholesale check volume	608			526			16		1,140			1,004			14
Wholesale cards issued (in thousands)(f)	23,746			28,066			(15	)	23,746			28,066			(15	)
Credit data and quality statistics
Net charge-offs	$	—		$	—		—		$	—		$	—		—
Nonaccrual loans	3			14			(79	)	3			14			(79	)
Allowance for credit losses:
Allowance for loan losses	74			48			54		74			48			54
Allowance for lending-related commitments	41			68			(40	)	41			68			(40	)
Total allowance for credit losses	115			116			(1	)	115			116			(1	)
Net charge-off rate	—		%	—		%			—		%	—		%
Allowance for loan losses to period-end loans	0.22			0.20					0.22			0.20
Allowance for loan losses to nonaccrual loans	NM			343					NM			343
Nonaccrual loans to period-end loans	0.01			0.06					0.01			0.06

(a) Effective January 1, 2011, certain CB revenues were excluded in the TS firmwide metrics; they are instead directly captured within CB’s lending revenue by product. The impact of this change was $114 million for the three months ended June 30, 2011, and $221 million for the six months ended June 30, 2011. In previous periods, these revenues were included in CB’s treasury services revenue by product.

(b) TSS firmwide revenue includes foreign exchange (“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. The total FX revenue generated was $165 million and $175 million for the three months ended June 30, 2011 and 2010, respectively, and $325 million and $312 million for the six months ended June 30, 2011 and 2010, respectively.

(c) Firmwide liability balances include liability balances recorded in CB.

(d) 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.

(e) International electronic funds transfer includes non-U.S. dollar Automated Clearing House (“ACH”) and clearing volume.

(f) Wholesale cards issued and outstanding include U.S. domestic commercial, stored value, prepaid and government electronic benefit card products. Effective January 1, 2011, the commercial card portfolio was transferred from TSS to CS.

41

ASSET MANAGEMENT

For a discussion of the business profile of AM, see pages 86–88 of JPMorgan Chase’s 2010 Annual Report and Introduction on 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)	2011			2010			Change		2011			2010			Change
Revenue
Asset management, administration and commissions	$	1,818		$	1,522		19	%	$	3,525		$	3,030		16	%
All other income	321			177			81		634			443			43
Noninterest revenue	2,139			1,699			26		4,159			3,473			20
Net interest income	398			369			8		784			726			8
Total net revenue	2,537			2,068			23		4,943			4,199			18
Provision for credit losses	12			5			140		17			40			(58	)
Noninterest expense
Compensation expense	1,068			861			24		2,107			1,771			19
Noncompensation expense	704			527			34		1,303			1,041			25
Amortization of intangibles	22			17			29		44			35			26
Total noninterest expense	1,794			1,405			28		3,454			2,847			21
Income before income tax expense	731			658			11		1,472			1,312			12
Income tax expense	292			267			9		567			529			7
Net income	$	439		$	391		12		$	905		$	783		16
Revenue by client segment
Private Banking	$	1,289		$	1,153		12		$	2,606		$	2,303		13
Institutional	704			455			55		1,253			999			25
Retail	544			460			18		1,084			897			21
Total net revenue	$	2,537		$	2,068		23		$	4,943		$	4,199		18
Financial ratios
Return on common equity	27		%	24		%			28		%	24		%
Overhead ratio	71			68					70			68
Pretax margin ratio	29			32					30			31

Quarterly results

Net income was $439 million, an increase of $48 million, or 12%, from the prior year. These results reflected higher net revenue, predominantly offset by higher noninterest expense.

Net revenue was $2.5 billion, an increase of $469 million, or 23%, from the prior year. Noninterest revenue was $2.1 billion, up by $440 million, or 26%, due to the effect of higher market levels, net inflows to products with higher margins, higher valuations of seed capital investments and higher performance fees. Net interest income was $398 million, up by $29 million, or 8%, due to higher deposit and loan balances, partially offset by narrower deposit spreads.

Revenue from Private Banking was $1.3 billion, up 12% from the prior year. Revenue from Institutional was $704 million, up 55%. Revenue from Retail was $544 million, up 18%.

The provision for credit losses was $12 million, compared with $5 million in the prior year.

Noninterest expense was $1.8 billion, an increase of $389 million, or 28%, from the prior year, largely resulting from an increase in headcount and higher performance-based compensation.

Year-to-date results

Net income was $905 million, an increase of $122 million, or 16%, from the prior year. These results reflected higher net revenue and a lower provision for credit losses, predominantly offset by higher noninterest expense.

Net revenue was $4.9 billion, an increase of $744 million, or 18%, from the prior year. Noninterest revenue was $4.2 billion, up by $686 million, or 20%, due to the effect of higher market levels, net inflows to products with higher margins, higher loan originations and higher valuations of seed capital investments. Net interest income was $784 million, up by $58 million, or 8%, due to higher deposit and loan balances, partially offset by narrower deposit spreads.

Revenue from Private Banking was $2.6 billion, up 13% from the prior year. Revenue from Institutional was $1.3 billion, up 25%. Revenue from Retail was $1.1 billion, up 21%.

42

The provision for credit losses was $17 million, compared with $40 million in the prior year.

Noninterest expense was $3.5 billion, an increase of $607 million, or 21%, from the prior year, largely resulting from an increase in headcount and higher performance-based compensation.

Business metrics	Three months ended June 30,								Six months ended June 30,
(in millions, except headcount, ranking data, and where otherwise noted)	2011			2010			Change		2011			2010			Change
Number of:
Client advisors(a)	2,282			2,083			10	%	2,282			2,083			10	%
Retirement planning services participants (in thousands)	1,613			1,653			(2	)	1,613			1,653			(2	)
JPMorgan Securities brokers	437			403			8		437			403			8
% of customer assets in 4 & 5 Star Funds(b)	50		%	43		%	16		50		%	43		%	16
% of AUM in 1st and 2nd quartiles:(c)
1 year	56		%	58		%	(3	)	56		%	58		%	(3	)
3 years	71		%	67		%	6		71		%	67		%	6
5 years	76		%	78		%	(3	)	76		%	78		%	(3	)
Selected balance sheet data (period-end)
Loans	$	51,747		$	38,744		34		$	51,747		$	38,744		34
Equity	6,500			6,500			—		6,500			6,500			—
Selected balance sheet data (average)
Total assets	$	74,206		$	63,426		17		$	71,577		$	62,978		14
Loans	48,837			37,407			31		46,903			37,007			27
Deposits	97,509			86,453			13		96,386			83,573			15
Equity	6,500			6,500			—		6,500			6,500			—
Headcount	17,963			16,019			12		17,963			16,019			12
Credit data and quality statistics
Net charge-offs	$	33		$	27		22		$	44		$	55		(20	)
Nonaccrual loans	252			309			(18	)	252			309			(18	)
Allowance for credit losses:
Allowance for loan losses	222			250			(11	)	222			250			(11	)
Allowance for lending-related commitments	9			3			200		9			3			200
Total allowance for credit losses	231			253			(9	)	231			253			(9	)
Net charge-off rate	0.27		%	0.29		%			0.19		%	0.30		%
Allowance for loan losses to period-end loans	0.43			0.65					0.43			0.65
Allowance for loan losses to nonaccrual loans	88			81					88			81
Nonaccrual loans to period-end loans	0.49			0.80					0.49			0.80

(a) Effective January 1, 2011, the methodology used to determine client advisors was revised. Prior periods have been revised.

(b) Derived from Morningstar for the U.S., the U.K., Luxembourg, France, Hong Kong and Taiwan; and Nomura for Japan.

(c) Quartile ranking sourced from: Lipper for the U.S. and Taiwan; Morningstar for the U.K., Luxembourg, France and Hong Kong; and Nomura for Japan.

43

Assets under supervision

Assets under supervision were $1.9 trillion, an increase of $284 billion, or 17%, from the prior year. Assets under management were $1.3 trillion, an increase of $181 billion, or 16%. Both increases were due to the effect of higher market levels and net inflows to long-term products, partially offset by net outflows from liquidity products. Custody, brokerage, administration and deposit balances were $582 billion, up by $103 billion, or 22%, due to the effect of higher market levels and custody and brokerage inflows.

ASSETS UNDER SUPERVISION(a) (in billions)
As of the quarter ended June 30,	2011		2010
Assets by asset class
Liquidity	$	476	$	489
Fixed income	319		259
Equities and multi-asset	430		322
Alternatives	117		91
Total assets under management	1,342		1,161
Custody/brokerage/administration/deposits	582		479
Total assets under supervision	$	1,924	$	1,640
Assets by client segment
Private Banking	$	291	$	258
Institutional(b)	708		651
Retail(b)	343		252
Total assets under management	$	1,342	$	1,161
Private Banking	$	776	$	653
Institutional(b)	709		652
Retail(b)	439		335
Total assets under supervision	$	1,924	$	1,640
Mutual fund assets by asset class
Liquidity	$	421	$	440
Fixed income	105		79
Equities and multi-asset	176		133
Alternatives	9		8
Total mutual fund assets	$	711	$	660

(a) Excludes assets under management of American Century Companies, Inc., in which the Firm had a 40% and 42% ownership at June 30, 2011 and 2010, respectively.

(b) In the second quarter of 2011, the client hierarchy used to determine asset classification was revised, and the prior-year periods have been revised.

	Three months ended June 30,						Six months ended June 30,
(in billions)	2011			2010			2011			2010
Assets under management rollforward
Beginning balance	$	1,330		$	1,219		$	1,298		$	1,249
Net asset flows:
Liquidity	(16		)	(29		)	(25		)	(91		)
Fixed income	12			12			28			28
Equities, multi-asset and alternatives	7			1			18			7
Market/performance/other impacts	9			(42		)	23			(32		)
Ending balance, June 30	$	1,342		$	1,161		$	1,342		$	1,161
Assets under supervision rollforward
Beginning balance	$	1,908		$	1,707		$	1,840		$	1,701
Net asset flows	12			(4		)	43			(14		)
Market/performance/other impacts	4			(63		)	41			(47		)
Ending balance, June 30	$	1,924		$	1,640		$	1,924		$	1,640

44

International metrics	Three months ended June 30,						Six months ended June 30,
(in billions, except where otherwise noted)	2011		2010		Change		2011		2010		Change
Total net revenue (in millions)(a)
Europe/Middle East/Africa	$	478	$	381	25	%	$	917	$	766	20	%
Asia/Pacific	257		214		20		503		436		15
Latin America/Caribbean	251		124		102		416		248		68
North America	1,551		1,349		15		3,107		2,749		13
Total net revenue	$	2,537	$	2,068	23		$	4,943	$	4,199	18
Assets under management
Europe/Middle East/Africa	$	298	$	239	25		$	298	$	239	25
Asia/Pacific	119		95		25		119		95		25
Latin America/Caribbean	37		24		54		37		24		54
North America	888		803		11		888		803		11
Total assets under management	$	1,342	$	1,161	16		$	1,342	$	1,161	16
Assets under supervision
Europe/Middle East/Africa	$	353	$	282	25		$	353	$	282	25
Asia/Pacific	161		127		27		161		127		27
Latin America/Caribbean	94		68		38		94		68		38
North America	1,316		1,163		13		1,316		1,163		13
Total assets under supervision	$	1,924	$	1,640	17		$	1,924	$	1,640	17

(a) Regional revenue is based on the domicile of clients.

45

CORPORATE / PRIVATE EQUITY

For a discussion of the business profile of Corporate/Private Equity, see pages 89–90 of JPMorgan Chase’s 2010 Annual Report.

Selected income statement data	Three months ended June 30,								Six months ended June 30,
(in millions, except headcount)	2011			2010			Change		2011			2010			Change
Revenue
Principal transactions	$	745		$	(69	)	NM		$	2,043		$	478		327	%
Securities gains	837			990			(15	)%	939			1,600			(41	)
All other income	265			182			46		343			306			12
Noninterest revenue	1,847			1,103			67		3,325			2,384			39
Net interest income (a)	218			747			(71	)	252			1,823			(86	)
Total net revenue(b)	2,065			1,850			12		3,577			4,207			(15	)
Provision for credit losses	(9		)	(2		)	(350	)	(19		)	15			NM
Noninterest expense
Compensation expense	614			770			(20	)	1,271			1,245			2
Noncompensation expense(c)	2,097			1,468			43		3,240			4,509			(28	)
Subtotal	2,711			2,238			21		4,511			5,754			(22	)
Net expense allocated to other businesses	(1,270		)	(1,192		)	(7	)	(2,508		)	(2,372		)	(6	)
Total noninterest expense	1,441			1,046			38		2,003			3,382			(41	)
Income before income tax expense/(benefit)	633			806			(21	)	1,593			810			97
Income tax expense/(benefit)	131			153			(14	)	369			(71		)	NM
Net income	$	502		$	653		(23	)	$	1,224		$	881		39
Total net revenue
Private equity	$	796		$	48		NM		$	1,495		$	163		NM
Corporate	1,269			1,802			(30	)	2,082			4,044			(49	)
Total net revenue	$	2,065		$	1,850		12		$	3,577		$	4,207		(15	)
Net income
Private equity	$	444		$	11		NM		$	827		$	66		NM
Corporate	58			642			(91	)	397			815			(51	)
Total net income	$	502		$	653		(23	)	$	1,224		$	881		39
Headcount	21,444			19,482			10		21,444			19,482			10

(a) Net interest income in 2011 was lower compared with 2010, primarily driven by lower funding benefits on the securities portfolio.

(b) Total net revenue included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $69 million and $57 million for the three months ended June 30, 2011 and 2010, respectively; and $133 million and $105 million for the six months ended June 30, 2011 and 2010, respectively.

(c) Included litigation expense of $1.3 billion and $1.6 billion for the three and six months ended June 30, 2011, respectively, compared with $694 million and $3.0 billion for the three and six months ended June 30, 2010 , respectively.

Quarterly results

Net income was $502 million, compared with net income of $653 million in the prior year.

Private Equity net income was $444 million, compared with $11 million in the prior year. Net revenue was $796 million, an increase of $748 million, driven primarily by gains on sales and net increases in investment valuations. Noninterest expense was $102 million, an increase of $70 million from the prior year.

Corporate reported net income of $58 million, compared with $642 million in the prior year. Net revenue was $1.3 billion, including $837 million of securities gains. Noninterest expense included $1.3 billion of additional litigation reserves, predominantly for mortgage-related matters. Noninterest expense in the prior year included $694 million of additional litigation reserves.

Year-to-date results

Net income was $1.2 billion, compared with net income of $881 million in the prior year.

Private Equity net income was $827 million, compared with $66 million in the prior year. Net revenue was $1.5 billion, an increase of $1.3 billion, driven primarily by gains on sales and net increases in investment valuations. Noninterest expense was $215 million, an increase of $153 million from the prior year.

Corporate reported net income of $397 million, compared with $815 million in the prior year. Net revenue was $2.1 billion, including $939 million of securities gains. Noninterest expense was $1.8 billion, which included $1.6 billion of additional litigation reserves, predominantly for mortgage related matters. Noninterest expense in the prior year was $3.3 billion which included $3.0 billion of additional litigation reserves.

46

Treasury and Chief Investment Office (“CIO”)
Selected income statement and balance sheet data	Three months ended June 30,						Six months ended June 30,
(in millions)	2011		2010		Change		2011		2010		Change
Securities gains(a)	$	837	$	989	(15	)%	$	939	$	1,599	(41	)%
Investment securities portfolio (average)	335,543		320,578		5		324,492		325,553		—
Investment securities portfolio (ending)	318,237		305,288		4		318,237		305,288		4
Mortgage loans (average)	12,731		8,539		49		12,078		8,352		45
Mortgage loans (ending)	13,243		8,900		49		13,243		8,900		49

(a) Reflects repositioning of the Corporate investment securities portfolio.

For further information on the investment securities portfolio, see Note 3 and Note 11 on pages 102–114 and 128–132, respectively, of this Form 10-Q. For further information on CIO VaR and the Firm's nontrading interest rate-sensitive revenue at risk, see the Market Risk Management section on pages 88–92 of this Form 10-Q.

Private Equity Portfolio
Selected income statement and balance sheet data	Three months ended June 30,							Six months ended June 30,
(in millions)	2011			2010			Change	2011			2010			Change
Private equity gains/(losses)
Realized gains	$	1,219		$	78		NM	$	1,390		$	191		NM
Unrealized gains/(losses)(a)	(726		)	(7		)	NM	(356		)	(82		)	(334	)%
Total direct investments	493			71			NM	1,034			109			NM
Third-party fund investments	323			4			NM	509			102			399
Total private equity gains/(losses)(b)	$	816		$	75		NM	$	1,543		$	211		NM

Private equity portfolio information(c)
Direct investments (in millions)	June 30, 2011		December 31, 2010		Change
Publicly held securities
Carrying value	$	670	$	875	(23	)%
Cost	595		732		(19	)
Quoted public value	721		935		(23	)
Privately held direct securities
Carrying value	5,680		5,882		(3	)
Cost	6,891		6,887		—
Third-party fund investments(d)
Carrying value	2,481		1,980		25
Cost	2,464		2,404		2
Total private equity portfolio
Carrying value	$	8,831	$	8,737	1
Cost	$	9,950	$	10,023	(1	)

(a) Unrealized gains/(losses) contain reversals of unrealized gains and losses that were recognized in prior periods and have now been realized.

(b) Included in principal transactions revenue in the Consolidated Statements of Income.

(c) For more information on the Firm's policies regarding the valuation of the private equity portfolio, see Note 3 on pages 170–187 of JPMorgan Chase's 2010Annual Report.

(d) Unfunded commitments to third-party private equity funds were $876 million and $1.0 billion at June 30, 2011, and December 31, 2010, respectively.

The carrying value of the private equity portfolio at June 30, 2011, and December 31, 2010, was $8.8 billion and $8.7 billion, respectively. The increase in the portfolio during the six months ended June 30, 2011, is primarily due to net increases in investment valuations in the portfolio and incremental new investments, partially offset by sales. The portfolio represented 6.6% and 6.9% of the Firm's stockholders' equity less goodwill at June 30, 2011, and December 31, 2010, respectively.

47

INTERNATIONAL OPERATIONS

During the three and six months ended June 30, 2011, the Firm reported approximately $6.8 billion and $13.6 billion, respectively, of revenue derived from clients, customers and counterparties domiciled outside of North America. Of those amounts, approximately 69% and 68%, respectively, was derived from Europe/Middle East/Africa (“EMEA”); approximately 21% and 23%, respectively, from Asia/Pacific; and approximately 10% and 9%, respectively, from Latin America/Caribbean. During the three and six months ended June 30, 2010, the Firm reported approximately $4.9 billion and $11.7 billion, respectively, of revenue derived from clients, customers and counterparties domiciled outside of North America. Of those amounts, approximately 63% and 67%, respectively, was derived from EMEA; approximately 28% and 25%, respectively, from Asia/Pacific; and approximately 9% and 8%, respectively, from Latin America/Caribbean.

The Firm is committed to further expanding its wholesale business activities outside of the United States, and it intends to add additional client-serving bankers, as well as product and sales support personnel, to address the needs of the Firm's clients located in these regions. With a comprehensive and coordinated international business strategy and growth plan, efforts and investments for growth outside of the United States will be accelerated and prioritized.

Set forth below are certain key metrics related to the Firm's wholesale international operations including, for each of EMEA, Asia Pacific, and Latin America/Caribbean, the number of countries in each such region in which it operates, front-office headcount, number of clients, revenue and selected balance sheet data. For additional information regarding international operations, see International Operations on page 91, and Note 33 on page 290 of JPMorgan Chase's 2010 Annual Report.

	EMEA								Asia/Pacific								Latin America/Caribbean
(in millions, except where otherwise noted)	Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,				Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010		2011		2010		2011		2010		2011		2010		2011		2010
• Revenue	$	4,628	$	3,083	$	9,118	$	7,843	$	1,414	$	1,399	$	3,151	$	2,907	$	668	$	443	$	1,237	$	923
• Countries of operation	34		33		34		33		16		16		16		16		8		8		8		8
•  Total headcount(a)	16,547		15,661		16,547		15,661		20,259		18,065		20,259		18,065		1,260		964		1,260		964
• Front-office headcount	6,140		5,580		6,140		5,580		4,470		4,027		4,470		4,027		528		401		528		401
•  Significant clients(b)	951		915		951		915		475		408		475		408		163		146		163		146
•  Deposits (average)(c)	$	163,150	$	133,464	$	154,901	$	136,821	$	51,604	$	49,708	$	49,510	$	51,844	$	2,356	$	1,372	$	2,228	$	1,352
•  Loans (period-end)(d)	33,496		26,111		33,496		26,111		25,400		17,831		25,400		17,831		21,172		13,577		21,172		13,577
• Assets under management (in billions)	298		239		298		239		119		95		119		95		37		24		37		24
• Assets under supervision (in billions)	353		282		353		282		161		127		161		127		94		68		94		68

Note: Wholesale international operations comprises IB, AM, TSS, CB and CIO/Treasury.

(a) Total headcount includes all employees, including those in service centers, located in the region.

(b) Significant clients are defined as companies with over $1 million in revenue over a trailing twelve month period in the region (excludes private banking clients).

(c) Deposits are based on booking location.

(d) Loans outstanding are based predominantly on the domicile of the borrower and exclude loans held-for-sale and loans carried at fair value.

48

BALANCE SHEET ANALYSIS

Selected Consolidated Balance Sheets data
(in millions)	June 30, 2011			December 31, 2010
Assets
Cash and due from banks	$	30,466		$	27,567
Deposits with banks	169,880			21,673
Federal funds sold and securities purchased under resale agreements	213,362			222,554
Securities borrowed	121,493			123,587
Trading assets:
Debt and equity instruments	381,339			409,411
Derivative receivables	77,383			80,481
Securities	324,741			316,336
Loans	689,736			692,927
Allowance for loan losses	(28,520		)	(32,266		)
Loans, net of allowance for loan losses	661,216			660,661
Accrued interest and accounts receivable	80,292			70,147
Premises and equipment	13,679			13,355
Goodwill	48,882			48,854
Mortgage servicing rights	12,243			13,649
Other intangible assets	3,679			4,039
Other assets	108,109			105,291
Total assets	$	2,246,764		$	2,117,605
Liabilities
Deposits	$	1,048,685		$	930,369
Federal funds purchased and securities loaned or sold under repurchase agreements	254,124			276,644
Commercial paper	51,160			35,363
Other borrowed funds(a)	30,208			34,325
Trading liabilities:
Debt and equity instruments	84,865			76,947
Derivative payables	63,668			69,219
Accounts payable and other liabilities	184,490			170,330
Beneficial interests issued by consolidated VIEs	67,457			77,649
Long-term debt(a)	279,228			270,653
Total liabilities	2,063,885			1,941,499
Stockholders’ equity	182,879			176,106
Total liabilities and stockholders’ equity	$	2,246,764		$	2,117,605

(a) Effective January 1, 2011, $23.0 billion of long-term advances from FHLBs were reclassified from other borrowed funds to long-term debt. The prior-year period has been revised to conform with the current presentation. For additional information, see Note 3 and Note 18 on pages 102–114 and 164, respectively, of this Form 10-Q.

Consolidated Balance Sheets overview

JPMorgan Chase’s assets and liabilities increased from December 31, 2010, predominantly due to an overall growth in wholesale clients’ cash management activities in the first six months of 2011, as well as an increase in deposit inflows toward the end of the second quarter of 2011. The inflows contributed to higher deposits with banks – in particular, balances due from Federal Reserve Banks. In addition to deposits with banks, other factors affecting the increase in total assets included higher accrued interest and accounts receivable offset partially by lower trading assets – debt and equity instruments. In addition to deposits, other factors affecting the increase in total liabilities were higher commercial paper, and accounts payable and other liabilities, offset by lower federal funds purchased and securities loaned or sold under repurchase agreements, and lower beneficial interests issued by consolidated VIEs. The increase in stockholders’ equity primarily reflected net income for the six months ended June 30, 2011, net of repurchases of common stock and the declaration of dividends.

49

The following is a discussion of the significant changes in the specific line captions of the Consolidated Balance Sheets from December 31, 2010. For a description of the specific line captions discussed below, see pages 92–94 of JPMorgan Chase’s 2010 Annual Report.

Deposits with banks; federal funds sold and securities purchased under resale agreements; and securities borrowed

Deposits with banks increased significantly, reflecting a higher level of balances due from Federal Reserve Banks; the increase was predominantly the result of an overall growth in wholesale clients’ cash management activities in the first six months of 2011, as well as an increase in inflows of short-term wholesale deposits from TSS clients toward the end of June 2011. For additional information, see the deposits discussion below. Securities purchased under resale agreements and securities borrowed decreased predominantly in IB, reflecting lower client financing activity.

Trading assets and liabilities – debt and equity instruments

Trading assets – debt and equity instruments decreased based upon client market-making activity in IB. The decrease was primarily due to declines in U.S. government agency mortgage-backed securities and equity securities, partially offset by an increase in non-U.S. government debt securities. For additional information, refer to Note 3 on pages 102–114 of this Form 10-Q.

Trading assets and liabilities – derivative receivables and payables

Derivative receivables and payables decreased, largely due to a reduction in foreign exchange derivatives offset partially by an increase in equity derivatives, from IB’s market-making activity. For additional information, refer to Derivative contracts on pages 73–75, and Note 3 and Note 5 on pages 102–114 and 117–124, respectively, of this Form 10-Q.

Securities

Securities increased, largely due to repositioning of the portfolio in Corporate in response to changes in the interest rate environment. This repositioning increased the levels of non-U.S. government debt and mortgage-backed securities, and reduced the levels of corporate debt and U.S. government agency securities. For additional information related to securities, refer to the discussion in the Corporate/Private Equity segment on pages 46–47, and Note 3 and Note 11 on pages 102–114 and 128–132, respectively, of this Form 10-Q.

Loans and allowance for loan losses

Loans decreased modestly, reflecting continued portfolio runoff in RFS, as well as lower seasonal balances, higher repayment rates, continued runoff of the Washington Mutual portfolio and the sale of the Kohl’s portfolio in CS. These decreases were offset partially by an increase in wholesale loans, reflecting growth in client activity in all of the Firm’s wholesale businesses. The allowance for loan losses decreased, predominantly as a result of lower estimated losses in the credit card loan portfolio, as well as loan sales and net repayments in the wholesale portfolio. For a more detailed discussion of the loan portfolio and the allowance for loan losses, refer to Credit Risk Management on pages 67–88, and Notes 3, 4, 13 and 14 on pages 102–114, 114–116, 134–148 and 149–150, respectively, of this Form 10-Q.

Accrued interest and accounts receivable

Accrued interest and accounts receivable increased, largely from higher receivables from securities transactions pending settlement.

Mortgage servicing rights

MSRs decreased, primarily due to changes to inputs and assumptions in the MSR valuation model. During the first quarter of 2011, the Firm revised its cost to service assumption to reflect the estimated impact of higher servicing costs to enhance servicing processes, particularly loan modification and foreclosure procedures, including costs to comply with Consent Orders entered into with banking regulators, which resulted in a $1.1 billion decrease in the fair value of the MSR asset. Declining interest rates also contributed to the decrease in the fair value of the MSR asset. Other than the increased cost to service assumption and the decrease in interest rates, predominately all of the changes in the fair value of the MSR asset resulted from the largely offsetting impacts of new capitalization and amortization. For additional information on MSRs, see Note 3 and Note 16 on pages 102–114 and 159–163, respectively, of this Form 10-Q.

Other intangible assets

The decrease in other intangible assets was predominantly due to amortization. For additional information on other intangible assets, see Note 16 on pages 159–163 of this Form 10-Q.

Deposits

Deposits increased significantly, predominantly as a result of an overall growth in wholesale clients’ cash management activities during the first six months of 2011 and an increase in inflows toward the end of June 2011 of short-term wholesale deposits from TSS clients. Also contributing to the increase in deposits was growth in the number of clients and higher balances in CB, AM and RFS (the RFS deposits were net of the attrition related to inactive and low-balance Washington Mutual accounts). For more information on deposits, refer to the RFS and AM segment discussions on pages 23–32 and 42–45, respectively; the Liquidity Risk Management discussion on pages 62–66; and Notes 3 and 17 on pages 102–114 and 164, respectively, of this Form 10-Q. For more information on wholesale liability balances, which includes deposits, refer to the CB and TSS segment discussions on pages 36–38 and 39–41, respectively, of this Form 10-Q.

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Federal funds purchased and securities loaned or sold under repurchase agreements

Securities sold under repurchase agreements decreased predominantly in IB, due to lower financing of the Firm’s trading assets, as well as lower client financing balances. For additional information on the Firm’s Liquidity Risk Management, see pages 62–66 of this Form 10-Q.

Commercial paper and other borrowed funds

Commercial paper and other borrowed funds increased, due to growth in the volume of liability balances in sweep accounts related to TSS’s cash management product, and a modest incremental increase in commercial paper issued in wholesale funding markets. For additional information on the Firm’s Liquidity Risk Management and other borrowed funds, see pages 62–66, and Note 18 on page 164 of this Form 10-Q.

Accounts payable and other liabilities

Accounts payable and other liabilities increased, largely due to higher IB Prime Services customer balances and additional litigation reserves, predominantly for mortgage-related matters.

Beneficial interests issued by consolidated VIEs

Beneficial interests decreased, predominantly due to maturities of Firm-sponsored credit card securitization transactions. For additional information on Firm-sponsored VIEs and loan securitization trusts, see Off–Balance Sheet Arrangements below, and Note 15 on pages 151–159 of this Form 10-Q.

Long-term debt

Long-term debt increased, due to net issuances of long-term borrowings. For additional information on the Firm’s long-term debt activities, see the Liquidity Risk Management discussion on pages 62–66 of this Form 10-Q.

Stockholders’ equity

Total stockholders’ equity increased, predominantly due to net income in the first half of 2011; a net increase in accumulated other comprehensive income, reflecting net unrealized gains on AFS securities associated with increased market values on agency MBS and municipal securities, partially offset by the widening of spreads on non-U.S. corporate debt, the realization of gains due to portfolio repositioning, and the net change in the fair values of derivatives used for cash flow-hedging purposes; and net issuances and commitments to issue under the Firm’s employee stock-based compensation plans. The increase was partially offset by repurchases of common stock and the declaration of cash dividends on common and preferred stock.

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OFF–BALANCE SHEET ARRANGEMENTS

JPMorgan Chase is involved with several types of off–balance sheet arrangements, including through special-purpose entities (“SPEs”), which are a type of VIE, and through lending-related financial instruments (e.g., commitments and guarantees). For further discussion, see Off–Balance Sheet Arrangements and Contractual Cash Obligations on pages 95–101of JPMorgan Chase’s 2010 Annual Report.

Special-purpose entities

SPEs are the most common type of VIE, used in securitization transactions in order to isolate certain assets and distribute related cash flows to investors. SPEs continue to be an important part of the financial markets, including the mortgage- and asset-backed securities and commercial paper markets, as they provide market liquidity by facilitating investors’ access to specific portfolios of assets and risks. 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. For further information on the Firm’s involvement with SPEs, see Note 15 on pages 151–159 of this Form 10-Q; and Note 1 on pages 164–165 and Note 15 on pages 244–259 of JPMorgan Chase’s 2010 Annual Report.

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 aggregate amounts of these liquidity commitments, to both consolidated and nonconsolidated SPEs, were $35.7 billion and $34.2 billion at June 30, 2011, and December 31, 2010, 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 commitment or, in certain circumstances, the Firm could facilitate the sale or refinancing of the assets in the SPE in order to provide liquidity.

Special-purpose entities revenue

The following table summarizes certain revenue information related to consolidated and nonconsolidated VIEs with which the Firm has significant involvement. The revenue reported in the table below primarily represents contractual servicing and credit fee income (i.e., income from acting as administrator, structurer or liquidity provider). It does not include 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 securitization entities(a)	Three months ended June 30,				Six months ended June 30,
(in millions)	2011		2010		2011		2010
Multi-seller conduits	$	44	$	60	$	92	$	127
Investor intermediation	10		12		25		25
Other securitization entities(b)	361		544		773		1,088
Total	$	415	$	616	$	890	$	1,240

(a) Includes revenue associated with both consolidated VIEs and significant nonconsolidated VIEs.

(b) Excludes servicing revenue from loans sold to and securitized by third parties.

Off–balance sheet lending-related financial instruments, guarantees and other commitments

JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees expire without being drawn or a default occurring. 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. For further discussion of lending-related commitments and guarantees and the Firm’s accounting for them, see Lending-related commitments on page 75 and Note 21 on pages 167–171 of this Form 10-Q; and Lending-related commitments on page 128 and Note 30 on pages 275–280 of JPMorgan Chase’s 2010 Annual Report.

The following table presents, as of June 30, 2011, the amounts by contractual maturity of off–balance sheet lending-related financial instruments, guarantees and other commitments. The amounts in the table for credit card and home equity lending-related commitments represent the total available credit to borrowers for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products would be used by borrowers at the same time. The Firm can reduce or cancel credit card lines of credit by providing the borrower notice or, in some cases, without notice as permitted by law. The Firm may reduce or close home equity lines of credit when there are significant decreases in the value of the underlying property or when there has been a demonstrable decline in the creditworthiness of the borrower. The accompanying table excludes certain guarantees that do not have a contractual maturity date (e.g., loan sale and securitization-related indemnification obligations). For further information, see discussion of Mortgage repurchase liability and Loan sale and securitization-related indemnifications on

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pages 53–56 and in Note 21 on pages 167–171, respectively, of this Form 10-Q, and Repurchase liability and Loan sale and securitization-related indemnifications on pages 98–101 and in Note 30 on pages 275–280, respectively, of JPMorgan Chase’s 2010 Annual Report.

Off–balance sheet lending-related financial instruments, guarantees and other commitments
	June 30, 2011										Dec 31, 2010
			Expires after 1 year through 3 years		Expires after 3 years through 5 years
By remaining maturity (in millions)	Expires in 1 year or less						Expires after 5 years		Total		Total
Lending-related
Consumer, excluding credit card:
Home equity – senior lien	$	778	$	4,182	$	5,342	$	6,963	$	17,265	$	17,662
Home equity – junior lien	1,615		8,384		9,364		9,223		28,586		30,948
Prime mortgage	1,117		—		—		—		1,117		1,266
Subprime mortgage	—		—		—		—		—		—
Auto	6,532		259		4		—		6,795		5,246
Business banking	9,279		378		73		316		10,046		9,702
Student and other	25		151		165		499		840		579
Total consumer, excluding credit card	19,346		13,354		14,948		17,001		64,649		65,403
Credit card	535,625		—		—		—		535,625		547,227
Total consumer	554,971		13,354		14,948		17,001		600,274		612,630
Wholesale:
Other unfunded commitments to extend credit(a)(b)	62,760		80,905		59,138		7,220		210,023		199,859
Standby letters of credit and other financial guarantees(a)(b)(c)(d)	27,369		39,083		26,546		4,052		97,050		94,837
Unused advised lines of credit	39,841		12,252		186		569		52,848		44,720
Other letters of credit(a)(d)	3,973		1,669		126		—		5,768		6,663
Total wholesale	133,943		133,909		85,996		11,841		365,689		346,079
Total lending-related	$	688,914	$	147,263	$	100,944	$	28,842	$	965,963	$	958,709
Other guarantees and commitments
Securities lending guarantees(e)	$	205,411	$	—	$	—	$	—	$	205,411	$	181,717
Derivatives qualifying as guarantees(f)	3,410		723		43,763		36,193		84,089		87,768
Unsettled reverse repurchase and securities borrowing agreements	59,570		—		—		—		59,570		39,927
Other guarantees and commitments(g)	1,113		232		308		4,524		6,177		6,492

(a) At June 30, 2011, and December 31, 2010, represented the contractual amount net of risk participations totaling $608 million and $542 million, respectively, for Other unfunded commitments to extend credit; $22.3 billion and $22.4 billion, respectively, for Standby letters of credit and other financial guarantees; and $1.4 billion and $1.1 billion, respectively, for Other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.

(b) At June 30, 2011, and December 31, 2010, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other not-for-profit entities of $46.4 billion and $43.4 billion, respectively. These commitments also include liquidity facilities to nonconsolidated municipal bond VIEs; for further information, see Note 15 on pages 151–159 of this Form 10-Q.

(c) At June 30, 2011, and December 31, 2010, included unissued Standby letters of credit commitments of $41.9 billion and $41.6 billion, respectively.

(d) At June 30, 2011, and December 31, 2010, JPMorgan Chase held collateral relating to $39.3 billion and $37.8 billion, respectively, of Standby letters of credit; and $1.7 billion and $2.1 billion, respectively, of collateral related to Other letters of credit.

(e) At June 30, 2011, and December 31, 2010, collateral held by the Firm in support of securities lending indemnification agreements totaled $207.9 billion and $185.0 billion, respectively. Securities lending collateral comprises primarily cash, and securities issued by governments that are members of the Organisation for Economic Co-operation and Development (“OECD”) and U.S. government agencies.

(f) Represents the notional amounts of derivative contracts qualifying as guarantees. For further discussion of guarantees, see Note 5 on pages 117–124 and Note 21 on pages 167–171 of this Form 10-Q.

(g) At June 30, 2011, and December 31, 2010, included unfunded commitments of $876 million and $1.0 billion, respectively, to third-party private equity funds; and $1.5 billion and $1.4 billion, respectively, to other equity investments. These commitments included $815 million and $1.0 billion, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3 on pages 102–114 of this Form 10-Q. In addition, at June 30, 2011, and December 31, 2010, included letters of credit hedged by derivative transactions and managed on a market risk basis of $3.8 billion and $3.8 billion, respectively .

Mortgage repurchase liability

In connection with the Firm’s mortgage loan sale and securitization activities with Fannie Mae and Freddie Mac (the “GSEs”) and other mortgage loan sale and private-label securitization transactions, the Firm has made representations and warranties that the loans sold meet certain requirements. The Firm may be, and has been, required to repurchase loans and/or indemnify the GSEs and other investors for losses due to material breaches of these representations and warranties; however, predominantly all of the

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repurchase demands received by the Firm and the Firm’s losses realized to date are related to loans sold to the GSEs. The primary reasons for repurchase demands from the GSEs relate to alleged misrepresentations primarily arising from: (i) credit quality and/or undisclosed debt of the borrower; (ii) income level and/or employment status of the borrower; and (iii) appraised value of collateral. In substantially all instances where mortgage insurance has been rescinded, this resulted in a violation of representations and warranties made to the GSEs and, therefore, has also been a cause of repurchase demands from the GSEs.

From 2005 to 2008, excluding Washington Mutual, loans sold to the GSEs subject to certain representations and warranties for which the Firm may be liable were approximately $380 billion; this amount represents the principal amount sold and has not been adjusted for subsequent activity, such as borrower repayments of principal or repurchases completed to date. In addition, from 2005 to 2008, Washington Mutual sold approximately $150 billion of loans to the GSEs subject to certain representations and warranties. Subsequent to the Firm’s acquisition of certain assets and liabilities of Washington Mutual from the FDIC in September 2008, the Firm resolved and/or limited certain current and future repurchase demands for loans sold to the GSEs by Washington Mutual, although it remains the Firm’s position that such obligations remain with the FDIC receivership. For additional information regarding loans sold to the GSEs, see Repurchase liability on pages 98–101 of JPMorgan Chase’s 2010 Annual Report.

The Firm also sells loans in securitization transactions with Ginnie Mae; these loans are typically insured or guaranteed by a government agency. The Firm, in its role as servicer, may elect, but is not required, to repurchase delinquent loans securitized by Ginnie Mae, including those that have been sold back to Ginnie Mae subsequent to modification. Amounts due under the terms of these repurchased loans continue to be insured and the reimbursement of insured amounts is proceeding normally. Accordingly, the Firm has not recorded any repurchase liability related to these loans.

From 2005 to 2008, the Firm and certain acquired entities made certain loan level representations and warranties in connection with approximately $450 billion of residential mortgage loans that were sold or deposited into private-label securitizations. Of the $450 billion originally sold or deposited (including $165 billion by Washington Mutual, as to which the Firm maintains that certain of the repurchase obligations remain with the FDIC receivership), approximately $185 billion of principal has been repaid (including $68 billion related to Washington Mutual). Approximately $90 billion of the principal has been liquidated (including $32 billion related to Washington Mutual), with an average loss severity of 58%. The remaining outstanding principal balance of these loans (including Washington Mutual) was, as of June 30, 2011, approximately $175 billion of which $62 billion was 60 days or more past due. The remaining outstanding principal balance of loans related to Washington Mutual was approximately $65 billion of which $23 billion were 60 days or more past due. For additional information regarding loans sold to private investors, see Repurchase liability on pages 98–101 of JPMorgan Chase’s 2010 Annual Report.

To date, loan-level repurchase demands in private-label securitizations have been limited. As a result, the Firm’s repurchase reserve primarily relates to loan sales to the GSEs and is predominantly calculated based on the Firm’s repurchase activity experience with the GSEs. While it is possible that the volume of repurchase demands from other investors in private-label securitizations will increase in the future, the Firm cannot offer a reasonable estimate of those future demands based on historical experience to date. To the extent that repurchase demands are received related to loans that the Firm purchased from third parties that remain viable, the Firm typically will have the right to seek a recovery of related repurchase losses from the related third party. Claims related to private-label securitizations (including claims from insurers that have guaranteed certain obligations of the securitization trusts) have, thus far, generally manifested themselves through securities-related litigation. The Firm does not consider these claims in estimating its repurchase liability; rather, the Firm separately evaluates its exposure to such litigation in establishing its litigation reserves. For additional information regarding litigation, see Note 23 on pages 172–179 of this Form 10-Q.

Estimated Mortgage Repurchase Liability

To estimate the Firm’s repurchase liability arising from breaches of representations and warranties, the Firm considers:

(i) the level of outstanding unresolved repurchase demands,

(ii) estimated probable future repurchase demands considering information about file requests, delinquent and liquidated loans, resolved and unresolved mortgage insurance rescission notices and the Firm's historical experience,

(iii) the potential ability of the Firm to cure the defects identified in the repurchase demands (“cure rate”),

(iv) the estimated severity of loss upon repurchase of the loan or collateral, make-whole settlement, or indemnification,

(v) the Firm’s potential ability to recover its losses from third-party originators, and

(vi) the terms of agreements with certain mortgage insurers and other parties.

Based on these factors, the Firm has recognized a repurchase liability of $3.6 billion and $3.3 billion as of June 30, 2011, and December 31, 2010, respectively. For further discussion of the repurchase demand process and the approach used by the Firm to estimate the repurchase liability, see Repurchase liability on pages 98–101 of JPMorgan Chase’s 2010 Annual Report.

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The following table provides information about outstanding repurchase demands and unresolved mortgage insurance rescission notices, excluding those related to Washington Mutual, at each of the past five quarter-end dates.

Outstanding repurchase demands and unresolved mortgage insurance rescission notices by counterparty type^(a) 

(in millions)	June 30, 2011			March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010
GSEs and other	$	1,826		$	1,321		$	1,251		$	1,333		$	1,562
Mortgage insurers	1,093			1,240			1,121			1,007			1,319
Overlapping population(b)	(145		)	(127		)	(104		)	(109		)	(239		)
Total	$	2,774		$	2,434		$	2,268		$	2,231		$	2,642

(a) Prior periods have been revised to include repurchase demands and mortgage insurance rescission notices related to certain loans sold or deposited into private-label securitizations. The Firm’s outstanding repurchase demands are predominantly from the GSEs.

(b) Because the GSEs may make repurchase demands based on mortgage insurance rescission notices that remain unresolved, certain loans may be subject to both an unresolved mortgage insurance rescission notice and an unresolved repurchase demand.

The following tables show the trend in repurchase demands and mortgage insurance rescission notices received by loan origination vintage, excluding those related to Washington Mutual, for the past five quarters. The Firm expects repurchase demands to remain at elevated levels.

Quarterly mortgage repurchase demands received by loan origination vintage^(a) 

(in millions)	June 30, 2011		March 31, 2011		December 31, 2010		September 30, 2010		June 30, 2010
Pre-2005	$	32	$	15	$	39	$	31	$	37
2005	57		45		73		67		99
2006	363		158		198		213		300
2007	510		381		539		537		539
2008	301		249		254		191		186
Post-2008	89		94		65		46		53
Total repurchase demands received	$	1,352	$	942	$	1,168	$	1,085	$	1,214

(a) Prior periods have been revised to include repurchase demands related to certain loans sold or deposited into private-label securitizations.

Quarterly mortgage insurance rescission notices received by loan origination vintage^(a) 

(in millions)	June 30, 2011		March 31, 2011		December 31, 2010		September 30, 2010		June 30, 2010
Pre-2005	$	3	$	5	$	3	$	5	$	4
2005	24		32		9		7		9
2006	39		65		53		69		48
2007	72		144		142		134		182
2008	31		49		50		43		52
Post-2008	1		1		1		—		—
Total mortgage insurance rescissions received(b)	$	170	$	296	$	258	$	258	$	295

(a) Prior periods have been revised to include mortgage insurance rescission notices related to certain loans sold or deposited into private-label securitizations.

(b) Mortgage insurance rescissions may ultimately result in a repurchase demand from the GSEs on a lagged basis. This table includes mortgage insurance rescission notices for which the GSEs may also have issued a repurchase demand.

Because the Firm has demonstrated an ability to cure certain types of defects more frequently than others (e.g., missing documents), trends in the types of defects identified as well as the Firm’s historical data are considered in estimating the future cure rate. Since the beginning of 2010, the Firm’s overall cure rate, excluding Washington Mutual, has been approximately 50%. Repurchases that have resulted from mortgage insurance rescissions are reflected in the Firm’s overall cure rate. While the actual cure rate may vary from quarter to quarter, the Firm expects that the overall cure rate will remain in the 40–50% range for the foreseeable future.

The Firm has not observed a direct relationship between the type of defect that causes the breach of representations and warranties and the severity of the realized loss. Therefore, the loss severity assumption is estimated using the Firm’s historical experience and projections regarding home price appreciation. Actual loss severities on finalized repurchases and “make-whole” settlements to date, excluding any related to Washington Mutual, currently average approximately 50%, but may vary from quarter to quarter based on the characteristics of the underlying loans and changes in home prices.

When a loan was originated by a third-party correspondent, the Firm typically has the right to seek a recovery of related repurchase losses from the correspondent originator. Correspondent-originated loans comprise approximately 59% of loans underlying outstanding repurchase demands, excluding those related to Washington Mutual. The actual third-party recovery rate may vary from quarter to quarter based upon the underlying mix of correspondents (e.g., active, inactive, out-of-business originators) from which recoveries are being sought.

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The Firm has entered into agreements with two mortgage insurers to resolve their claims on certain portfolios for which the Firm is a servicer. These two agreements cover and have resolved approximately one-third of the Firm's total mortgage insurance rescission risk exposure, both in terms of the unpaid principal balance of serviced loans covered by mortgage insurance and the amount of mortgage insurance coverage. The impact of these agreements is reflected in the repurchase liability and the disclosed outstanding mortgage insurance rescission notices as of June 30, 2011. The Firm has considered its remaining unresolved mortgage insurance rescission risk exposure in estimating the repurchase liability as of June 30, 2011.

Substantially all of the estimates and assumptions underlying the Firm's established methodology for computing its recorded repurchase liability – including the amount of probable future demands from purchasers (which is in part based on the historical experience), the ability of the Firm to cure identified defects, the severity of loss upon repurchase or foreclosure and recoveries from third parties – require application of a significant level of management judgment. Estimating the repurchase liability is further complicated by limited and rapidly changing historical data and uncertainty surrounding numerous external factors, including: (i) economic factors (for example, further declines in home prices and changes in borrower behavior may lead to increases in the number of defaults, the severity of losses, or both), and (ii) the level of future demands, which is dependent, in part, on actions taken by third parties, such as the GSEs and mortgage insurers. While the Firm uses the best information available to it in estimating its repurchase liability, the estimation process is inherently uncertain, imprecise and potentially volatile as additional information is obtained and external factors continue to evolve.

The following table summarizes the change in the repurchase liability for each of the periods presented.

Summary of changes in mortgage repurchase liability

	Three months ended June 30,						Six months ended June 30,
(in millions)	2011			2010			2011			2010
Repurchase liability at beginning of period	$	3,474		$	1,982		$	3,285		$	1,705
Realized losses(a)	(241		)	(317		)	(472		)	(563		)
Provision for repurchase losses	398			667			818			1,190
Repurchase liability at end of period	$	3,631		$	2,332		$	3,631		$	2,332

(a) Includes principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expenses. Make-whole settlements were $126 million and $150 million for the three months ended June 30, 2011 and 2010, respectively, and $241 million and $255 million for the six months ended June 30, 2011 and 2010, respectively.

The following table summarizes the total unpaid principal balance of repurchases during the periods indicated.

Unpaid principal balance of mortgage loan repurchases^(a) 

	Three months ended June 30,				Six months ended June 30,
(in millions)	2011		2010		2011		2010
Ginnie Mae(b)	$	1,228	$	3,230	$	2,713	$	5,240
GSEs and other(c)(d)	247		494		463		815
Total	$	1,475	$	3,724	$	3,176	$	6,055

(a) Excludes mortgage insurers. While the rescission of mortgage insurance may ultimately trigger a repurchase demand, the mortgage insurers themselves do not present repurchase demands to the Firm.

(b) In substantially all cases, these repurchases represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools or packages as permitted by Ginnie Mae guidelines (i.e., they do not result from repurchase demands due to breaches of representations and warranties). The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, the Federal Housing Administration (“FHA”), Rural Housing Administration (“RHA”) and/or the U.S. Department of Veterans Affairs (“VA”).

(c) Predominantly all of the repurchases related to GSEs.

(d) Nonaccrual loans held-for-investment included $378 million and $354 million at June 30, 2011, and December 31, 2010, respectively, of loans repurchased as a result of breaches of representations and warranties.

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CAPITAL MANAGEMENT

The following discussion of JPMorgan Chase’s capital management highlights developments since December 31, 2010, and should be read in conjunction with Capital Management on pages 102–106 of JPMorgan Chase’s 2010Annual Report.

The Firm’s capital management objectives are to hold capital sufficient to:

• Cover all material risks underlying the Firm’s business activities;

• Maintain “well-capitalized” status under regulatory requirements;

• Achieve debt rating targets;

• Retain flexibility to take advantage of future investment opportunities; and

• Build and invest in businesses, even in a highly stressed environment.

Regulatory capital

The Federal Reserve establishes capital requirements, including well-capitalized standards, for the consolidated financial holding company. The Office of the Comptroller of the Currency (“OCC”) establishes similar capital requirements and standards for the Firm’s national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. As of June 30, 2011, and December 31, 2010, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and met all capital requirements to which each was subject.

The following table presents the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase and its significant banking subsidiaries at June 30, 2011, and December 31, 2010. These amounts are determined in accordance with regulations issued by the Federal Reserve and/or OCC.

	JPMorgan Chase & Co.(i)						JPMorgan Chase Bank, N.A.(j)						Chase Bank USA, N.A.(j)						Well-capitalized ratios(j)		Minimum capital ratios(j)
(in millions, except ratios)	June 30, 2011			Dec. 31, 2010			June 30, 2011			Dec. 31, 2010			June 30, 2011			Dec. 31, 2010
Regulatory capital
Tier 1(a)	$	148,880		$	142,450		$	93,498		$	91,764		$	13,299		$	12,966
Total	187,899			182,216			131,537			130,444			16,789			16,659
Tier 1 common(b)	121,209			114,763			92,715			90,981			13,299			12,966
Assets
Risk-weighted(c)(d)	1,198,711			1,174,978			1,003,568			965,897			102,460			116,992
Adjusted average(e)	2,129,510			2,024,515			1,701,794			1,611,486			104,073			117,368
Capital ratios
Tier 1(a)(f)	12.4		%	12.1		%	9.3		%	9.5		%	13.0		%	11.1		%	6.0	%	4.0	%
Total(g)	15.7			15.5			13.1			13.5			16.4			14.2			10.0		8.0
Tier 1 leverage(h)	7.0			7.0			5.5			5.7			12.8			11.0			5.0	(k)	3.0	(l)
Tier 1 common(b)	10.1			9.8			9.2			9.4			13.0			11.1			NA		NA

(a) At June 30, 2011, for JPMorgan Chase and JPMorgan Chase Bank, N.A., trust preferred capital debt securities were $19.7 billion and $600 million, respectively. If these securities were excluded from the calculation at June 30, 2011, Tier 1 capital would be $129.1 billion and $92.9 billion, respectively, and corresponding Tier 1 capital ratios would be 10.8% and 9.3%, respectively. At June 30, 2011, Chase Bank USA, N.A. had no trust preferred capital debt securities.

(b) The Tier 1 common ratio is Tier 1 common divided by RWA. Tier 1 common capital is defined as Tier 1 capital less elements of capital not in the form of common equity, such as perpetual preferred stock, noncontrolling interests in subsidiaries, and trust preferred capital debt securities. Tier 1 common capital, a non-GAAP financial measure, is used by banking regulators, investors and analysts to assess and compare the quality and composition of the Firm’s capital with the capital of other financial services companies. The Firm uses Tier 1 common along with the other capital measures to assess and monitor its capital position.

(c) Risk-weighted assets (“RWA”) consist of on– and off–balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default. On–balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any. Off–balance sheet assets such as lending-related commitments, guarantees, derivatives and other off–balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on–balance sheet credit-equivalent amount, which is then risk-weighted based on the same factors used for on–balance sheet assets. RWA also incorporates a measure for the market risk related to applicable trading assets – debt and equity instruments, and foreign exchange and commodity derivatives. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total RWA.

(d) Included off–balance sheet RWA at June 30, 2011, of $300.8 billion, $287.5 billion and $30 million, and at December 31, 2010, of $282.9 billion, $274.2 billion and $31 million, for JPMorgan Chase, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., respectively.

(e) Adjusted average assets, for purposes of calculating the leverage ratio, include total quarterly average assets adjusted for unrealized gains/(losses) on securities, less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity investments that are subject to deductions from Tier 1 capital.

(f) Tier 1 capital ratio is Tier 1 capital divided by RWA. Tier 1 capital consists of common stockholders’ equity, perpetual preferred stock, noncontrolling interests in subsidiaries and trust preferred capital debt securities, less goodwill and certain other adjustments.

(g) Total capital ratio is Total capital divided by RWA. Total capital is Tier 1 capital plus Tier 2 capital. Tier 2 capital consists of preferred stock not qualifying as Tier 1, subordinated long-term debt and other instruments qualifying as Tier 2, and the aggregate allowance for credit losses up to a certain percentage of RWA.

(h) Tier 1 leverage ratio is Tier 1 capital divided by adjusted quarterly average assets.

(i) Asset and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions.

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(j) As defined by the regulations issued by the Federal Reserve, OCC and FDIC.

(k) Represents requirements for banking subsidiaries pursuant to regulations issued under the FDIC Improvement Act. There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company.

(l) The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4%, depending on factors specified in regulations issued by the Federal Reserve and OCC.

Note: Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities, which have resulted from both nontaxable business combinations and from tax-deductible goodwill. At June 30, 2011, and December 31, 2010, the Firm had deferred tax liabilities resulting from nontaxable business combinations totaling $576 million and $647 million, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $2.1 billion and $1.9 billion, respectively.

A reconciliation of Total stockholders’ equity to Tier 1 common capital, Tier 1 capital and Total qualifying capital is presented in the table below.

Risk-based capital components and assets
(in millions)	June 30, 2011			December 31, 2010
Total stockholders’ equity	$	182,879		$	176,106
Less: Preferred stock	7,800			7,800
Common stockholders’ equity	175,079			168,306
Effect of certain items in accumulated other comprehensive income/(loss) excluded from Tier 1 common equity	(1,359		)	(748		)
Less: Goodwill(a)	46,826			46,915
Fair value DVA on derivative and structured note liabilities related to the Firm’s credit quality	1,339			1,261
Investments in certain subsidiaries and other	995			1,032
Other intangible assets(a)	3,351			3,587
Tier 1 common	121,209			114,763
Preferred stock	7,800			7,800
Qualifying hybrid securities and noncontrolling interests(b)	19,871			19,887
Total Tier 1 capital	148,880			142,450
Long-term debt and other instruments qualifying as Tier 2	23,884			25,018
Qualifying allowance for credit losses	15,221			14,959
Adjustment for investments in certain subsidiaries and other	(86		)	(211		)
Total Tier 2 capital	39,019			39,766
Total qualifying capital	$	187,899		$	182,216
Risk-weighted assets	1,198,711			1,174,978
Total adjusted average assets	$	2,129,510		$	2,024,515

(a) Goodwill and other intangible assets are net of any associated deferred tax liabilities.

(b) Primarily includes trust preferred capital debt securities of certain business trusts.

The Firm’s Tier 1 common capital was $121.2 billion at June 30, 2011, compared with $114.8 billion at December 31, 2010, an increase of $6.4 billion. The increase was predominantly due to net income (adjusted for DVA) of $10.9 billion and net issuances and commitments to issue common stock under the Firm’s employee stock-based compensation plans of $1.1 billion. The increase was partially offset by $3.6 billion of repurchases of common stock and $2.4 billion of dividends on common and preferred stock. The Firm’s Tier 1 capital was $148.9 billion at June 30, 2011, compared with $142.5 billion at December 31, 2010, an increase of $6.4 billion. The increase in Tier 1 capital reflected the increase in Tier 1 common. Additional information regarding the Firm’s capital ratios and the federal regulatory capital standards to which it is subject is presented in Regulatory developments on pages 9–10 and Part II, Item 1A, Risk Factors on pages 192–193 of this Form 10-Q, and Note 29 on pages 273–274 of JPMorgan Chase’s 2010 Annual Report.

Basel II

The minimum risk-based capital requirements adopted by the U.S. federal banking agencies follow the Capital Accord of the Basel Committee on Banking Supervision (“Basel I”). In 2004, the Basel Committee published a revision to the Accord (“Basel II”). The goal of the Basel II Framework is to provide more risk-sensitive regulatory capital calculations and promote enhanced risk management practices among large, internationally active banking organizations. U.S. banking regulators published a final Basel II rule in December 2007, which requires JPMorgan Chase to implement Basel II at the holding company level, as well as at certain of its key U.S. bank subsidiaries.

Prior to full implementation of the new Basel II Framework, JPMorgan Chase is required to complete a qualification period of four consecutive quarters during which it needs to demonstrate that it meets the requirements of the rule to the satisfaction of its primary U.S. banking regulators. JPMorgan Chase is currently in the qualification period and expects to be in compliance with all relevant Basel II rules within the established timelines. In addition, the Firm has adopted, and will continue to adopt, based on various established timelines, Basel II rules in certain non-U.S. jurisdictions, as required.

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Basel III

In addition to the Basel II Framework, on December 16, 2010, the Basel Committee issued the final version of the Capital Accord, commonly referred to as “Basel III”, which revised Basel II by, among other things, narrowing the definition of capital, increasing capital requirements for specific exposures, introducing short-term liquidity coverage and term funding standards, and establishing an international leverage ratio. The Basel Committee also announced higher capital ratio requirements under Basel III, which provide that the common equity requirement will be increased to 7%, comprised of a minimum of 4.5% plus a 2.5% capital conservation buffer.

On June 25, 2011, the Basel Committee announced an agreement to require GSIBs to maintain higher Tier 1 common requirements ranging from 1% to 2.5%. In addition, the Basel Committee stated it intended to require certain GSIBs to maintain an additional Tier 1 common requirement of 1% under certain circumstances, to act as a disincentive for the applicable GSIB from taking actions that would further increase its systemic importance. On July 19, 2011, the Basel Committee published a proposal on the GSIB assessment methodology, which reflects an approach based on five broad categories: size; interconnectedness; lack of substitutability; cross-jurisdictional activity; and complexity.

In addition, the U.S. federal banking agencies have published, for public comment, proposed risk-based capital floors pursuant to the requirements of the Dodd-Frank Act to establish a permanent Basel I floor under Basel II and Basel III capital calculations.

The Firm fully expects to be in compliance with the higher Basel III capital standards when they become effective on January 1, 2019, as well as any additional Dodd-Frank Act capital requirements when they are implemented. The Firm estimates that its Tier 1 common ratio under Basel III rules would be 7.6% as of June 30, 2011. Management considers this estimate, which is a non-GAAP financial measure, as a key measure to assess the Firm’s capital position in conjunction with its capital ratios under Basel I requirements, in order to enable management, investors and analysts to compare the Firm’s capital under the Basel III capital standards with similar estimates provided by other financial services companies.

Estimated Tier 1 common under Basel III rules

The following table presents a comparison of Tier 1 common under Basel I rules to an estimated Tier 1 common (a non-GAAP financial measure) under Basel III rules. Tier 1 common under Basel III includes additional adjustments and deductions not included in Basel I Tier 1 common, such as the inclusion of accumulated other comprehensive income (“AOCI”) related to available-for-sale (“AFS”) securities and defined benefit pension and other postretirement employee benefit plans, and the deduction of the Firm’s defined benefit pension fund assets.

(in millions, except ratios)	June 30, 2011
Tier 1 common under Basel I rules	$	121,209
Adjustments related to AFS securities and defined benefit pension and other postretirement employee benefit plans-related components of AOCI	1,362
Deduction for net defined benefit pension asset	(2,595		)
All other adjustments	(26		)
Estimated Tier 1 common under Basel III rules	$	119,950
Estimated risk-weighted assets under Basel III rules(a)	$	1,569,410
Estimated Tier 1 common ratio under Basel III rules:(b)	7.6		%

(a) Key differences in the calculation of risk-weighted assets between Basel I and Basel III include: (a) Basel III credit risk RWA is based on risk-sensitive approaches which largely rely on the use of internal credit models and parameters whereas, Basel I RWA is based on fixed supervisory risk weights which vary only by counterparty type and asset class; (b) Basel III market risk RWA reflects the new capital requirements related to trading assets and securitizations (released by the Basel Committee in July 2009), which include incremental capital requirements for stress VaR, correlation trading, and re-securitization positions; and (c) Basel III includes RWA for operational risk whereas, Basel I does not.

(b) The Tier 1 common ratio is Tier 1 common divided by RWA.

The Firm’s estimate of its Tier 1 common ratio under Basel III reflects its current understanding of the Basel III rules and the application of such rules to its businesses as currently conducted, and therefore excludes the impact of any changes the Firm may make in the future to its businesses as a result of implementing the Basel III rules. The Firm’s understanding of the Basel III rules are based on information currently published by the Basel Committee and U.S. federal banking agencies. The Firm intends to maintain its strong liquidity position in the future as the short-term liquidity coverage and term funding standards of the Basel III rules are implemented, in 2015 and 2018, respectively. In order to do so the Firm believes it may need to modify the liquidity profile of certain of its assets and liabilities. Implementation of the Basel III rules may also cause the Firm to increase prices on, or alter the types of, products it offers to its customers and clients.

The Basel III revisions governing liquidity and capital requirements are subject to prolonged observation and transition periods. The observation periods for both the liquidity coverage ratio and term funding standards begin in 2011, with implementation in 2015 and 2018, respectively. The transition period for banks to meet the revised Tier 1 common equity requirement will begin in 2013, with implementation on January 1, 2019. The additional capital requirements for GSIBs will be phased-in starting January 1, 2016, with full implementation on January 1, 2019. The Firm will continue to monitor the ongoing rule-making process to assess both the timing and the impact of Basel III on its businesses and financial condition.

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Broker-dealer regulatory capital

JPMorgan Chase’s principal U.S. broker-dealer subsidiaries are J.P. Morgan Securities LLC (“JPMorgan Securities”) and J.P. Morgan Clearing Corp. (“JPMorgan Clearing”). JPMorgan Clearing is a subsidiary of JPMorgan Securities and provides clearing and settlement services. JPMorgan Securities and JPMorgan Clearing are each subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Net Capital Rule”). JPMorgan Securities and JPMorgan Clearing are also registered as futures commission merchants and subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”). Effective June 1, 2011, J.P. Morgan Futures Inc., a registered Futures Commission Merchant and a wholly owned subsidiary of JPMorgan Chase, merged with and into JPMorgan Securities. The merger created a combined Broker-Dealer / Futures Commission Merchant entity that provides capital and operational efficiencies.

JPMorgan Securities and JPMorgan Clearing have elected to compute their minimum net capital requirements in accordance with the “Alternative Net Capital Requirements” of the Net Capital Rule. At June 30, 2011, JPMorgan Securities’ net capital, as defined by the Net Capital Rule, was $11.3 billion, exceeding the minimum requirement by $9.8 billion, and JPMorgan Clearing’s net capital was $7.0 billion, exceeding the minimum requirement by $5.0 billion.

In addition to its minimum net capital requirement, JPMorgan Securities is required to hold tentative net capital in excess of $1.0 billion and is also required to notify the U.S. Securities and Exchange Commission (“SEC”) in the event that tentative net capital is less than $5.0 billion, in accordance with the market and credit risk standards of Appendix E of the Net Capital Rule. As of June 30, 2011, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements.

Economic risk capital

JPMorgan Chase assesses its capital adequacy relative to the risks underlying its business activities, using internal risk-assessment methodologies. The Firm measures economic capital primarily based on four risk factors: credit, market, operational and private equity risk.

Economic risk capital	Quarterly Averages
(in billions)	2Q11		4Q10		2Q10
Credit risk	$	47.6	$	50.9	$	48.1
Market risk	15.4		14.9		15.6
Operational risk	8.5		7.3		7.5
Private equity risk	7.3		6.9		6.0
Economic risk capital	78.8		80.0		77.2
Goodwill	48.8		48.8		48.3
Other(a)	46.5		38.0		33.6
Total common stockholders’ equity	$	174.1	$	166.8	$	159.1

(a) Reflects additional capital required, in the Firm’s view, to meet its regulatory and debt rating objectives.

Line of business equity

Equity for a line of business represents the amount the Firm believes the business would require if it were operating independently, incorporating sufficient capital to address regulatory capital requirements (including Basel III Tier 1 common capital requirements), economic risk measures and capital levels for similarly rated peers. Capital is also allocated to each line of business for, among other things, goodwill and other intangibles associated with acquisitions effected by the line of business. ROE is measured and internal targets for expected returns are established as key measures of a business segment’s performance. Effective January 1, 2011, capital allocated to CS was reduced by $2.0 billion, to $13.0 billion, largely reflecting portfolio runoff and the improving risk profile of the business; capital allocated to TSS was increased by $500 million, to $7.0 billion, reflecting growth in the underlying business. The Firm continues to assess the level of capital required for each line of business, as well as the assumptions and methodologies used to allocate capital to the business segments, and further refinements may be implemented in future periods.

Line of business equity
(in billions)	June 30, 2011			December 31, 2010
Investment Bank		$	40.0		$	40.0
Retail Financial Services		28.0			28.0
Card Services		13.0			15.0
Commercial Banking		8.0			8.0
Treasury & Securities Services		7.0			6.5
Asset Management		6.5			6.5
Corporate/Private Equity		72.6			64.3
Total common stockholders’ equity		$	175.1		$	168.3

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Line of business equity	Quarterly Averages
(in billions)	2Q11		4Q10		2Q10
Investment Bank	$	40.0	$	40.0	$	40.0
Retail Financial Services	28.0		28.0		28.0
Card Services	13.0		15.0		15.0
Commercial Banking	8.0		8.0		8.0
Treasury & Securities Services	7.0		6.5		6.5
Asset Management	6.5		6.5		6.5
Corporate/Private Equity	71.6		62.8		55.1
Total common stockholders’ equity	$	174.1	$	166.8	$	159.1

Capital actions

Dividends

On March 18, 2011, the Board of Directors increased the Firm’s quarterly common stock dividend from $0.05 to $0.25 per share, effective with the dividend paid on April 30, 2011, to shareholders of record on April 6, 2011. The Firm’s common stock dividend policy reflects JPMorgan Chase’s earnings outlook; desired dividend payout ratio; capital objectives; and alternative investment opportunities. The Firm’s current expectation is to return to a payout ratio of approximately 30% of normalized earnings over time. When management and the Board determine that it is appropriate to consider further increasing the common stock dividend, the Firm expects to review those plans with its regulators before taking action. For a further discussion of the Firm’s dividend payments, see Dividends on page 106 of JPMorgan Chase’s 2010Annual Report.

Stock repurchases

On March 18, 2011, the Board of Directors approved a $15.0 billion common equity repurchase program, of which $8.0 billion is authorized for repurchase in 2011. The $15.0 billion repurchase program supersedes a $10.0 billion repurchase program approved in 2007. During the three and six months ended June 30, 2011, the Firm repurchased an aggregate of 80 million and 82 million shares, for $3.5 billion and $3.6 billion, at an average price per share of $43.33 and $43.39, respectively. As of June 30, 2011, $11.4 billion of authorized repurchase capacity remained, of which $4.4 billion of approved capacity remains for use during 2011. For the seven months ended July 31, 2011, the Firm has repurchased an aggregate of 99 million shares for $4.3 billion at an average price per share of $42.91.

Management and the Board will continue to assess and make decisions regarding alternatives for deploying capital, as appropriate, over the course of the year. Any planned use of the repurchase program beyond the repurchases approved for 2011 will be reviewed by the Firm with banking regulators before taking action. For a further discussion of the Firm’s stock repurchase program, see Stock repurchases on page 106 of JPMorgan Chase’s 2010Annual Report.

The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate repurchases in accordance with the repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common stock – for example, during internal trading “black-out periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on pages 193–194 of this Form 10-Q.

RISK MANAGEMENT

Risk is an inherent part of JPMorgan Chase’s business activities. The Firm’s risk management framework and governance structure are intended to provide comprehensive controls and ongoing management of the major risks inherent in its business activities. The Firm employs a holistic approach to risk management to ensure the broad spectrum of risk types are considered in managing its business activities. The Firm’s risk management framework is intended to create a culture of risk awareness and personal responsibility throughout the Firm where collaboration, discussion, escalation and sharing of information is encouraged.

The Firm’s overall risk appetite is established in the context of the Firm’s capital, earnings power, and diversified business model. The Firm employs a formalized risk appetite framework to clearly link risk appetite and return targets, controls and capital management.There are eight major types of risk identified in the business activities of the Firm: liquidity, credit, market, interest rate, operational, legal and reputation, fiduciary, and private equity risk.

For further discussion of these risks, as well as how they are managed by the Firm, see Risk Management on pages 107–109 of JPMorgan Chase’s 2010 Annual Report and the information below.

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LIQUIDITY RISK MANAGEMENT

The following discussion of JPMorgan Chase’s liquidity risk management framework highlights developments since December 31, 2010, and should be read in conjunction with pages 110–115 of JPMorgan Chase’s 2010 Annual Report.

The ability to maintain surplus levels of liquidity through economic cycles is crucial to financial services companies, particularly during periods of adverse conditions. The Firm’s funding strategy is intended to ensure liquidity and diversity of funding sources to meet actual and contingent liabilities through both normal and stress periods.

JPMorgan Chase’s primary sources of liquidity include a diversified deposit base, which was $1,048.7 billion at June 30, 2011, and access to the equity capital markets and long-term unsecured and secured funding sources, including through asset securitizations and borrowings from Federal Home Loan Banks (“FHLBs”). Additionally, JPMorgan Chase maintains significant amounts of highly-liquid unencumbered assets. The Firm actively monitors the availability of funding in the wholesale markets across various geographic regions and in various currencies. The Firm’s ability to generate funding from a broad range of sources in a variety of geographic locations and in a range of tenors is intended to enhance financial flexibility and limit funding concentration risk.

Management considers the Firm’s liquidity position to be strong, based on its liquidity metrics as of June 30, 2011, and believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations. The Firm was able to access the funding markets as needed during the six months ended June 30, 2011.

Governance

The Firm’s governance process is designed to ensure that its liquidity position remains strong. The Asset-Liability Committee reviews and approves the Firm’s liquidity policy and contingency funding plan. Corporate Treasury formulates and is responsible for executing the Firm’s liquidity policy and contingency funding plan as well as measuring, monitoring, reporting and managing the Firm’s liquidity risk profile. JPMorgan Chase centralizes the management of global funding and liquidity risk within Corporate Treasury to maximize liquidity access, minimize funding costs and enhance global identification and coordination of liquidity risk. This centralized approach involves frequent communication with the business segments, disciplined management of liquidity at the parent holding company, comprehensive market-based pricing of all assets and liabilities, continuous balance sheet monitoring, frequent stress testing of liquidity sources, and frequent reporting to and communication with senior management and the Board of Directors regarding the Firm’s liquidity position.

Liquidity monitoring

The Firm employs a variety of metrics to monitor and manage liquidity. One set of analyses used by the Firm relates to the timing of liquidity sources versus liquidity uses (e.g., funding gap analysis and parent holding company funding, as discussed below). A second set of analyses focuses on measurements of the Firm’s reliance on short-term unsecured funding as a percentage of total liabilities, as well as the relationship of short-term unsecured funding to highly-liquid assets, the deposits-to-loans ratio and other balance sheet measures.

The Firm performs regular liquidity stress tests as part of its liquidity monitoring activities. The purpose of the liquidity stress tests is intended to ensure sufficient liquidity for the Firm under both idiosyncratic and systemic market stress conditions. These scenarios measure the Firm’s liquidity position across a full-year horizon by analyzing the net funding gaps resulting from contractual and contingent cash and collateral outflows versus the Firm’s ability to generate additional liquidity by pledging or selling excess collateral and issuing unsecured debt. The scenarios are produced for the parent holding company and major bank subsidiaries as well as the Firm’s major U.S. broker-dealer subsidiaries.

The Firm currently has liquidity in excess of its projected full-year liquidity needs under both the idiosyncratic stress scenario (which evaluates the Firm’s net funding gap after a short-term ratings downgrade to A-2/P-2), as well as under the systemic market stress scenario (which evaluates the Firm’s net funding gap during a period of severe market stress similar to market conditions in 2008 and assumes that the Firm is not uniquely stressed versus its peers).

Parent holding company

Liquidity monitoring of the parent holding company takes into consideration regulatory restrictions that limit the extent to which bank subsidiaries may extend credit to the parent holding company and other nonbank subsidiaries. Excess cash generated by parent holding company issuance activity is used to purchase liquid collateral through reverse repurchase agreements or is placed with both bank and nonbank subsidiaries in the form of deposits and advances to satisfy a portion of subsidiary funding requirements. The Firm’s liquidity management is also intended to ensure that its subsidiaries have the ability to generate replacement funding in the event the parent holding company requires repayment of the aforementioned deposits and advances.

The Firm closely monitors the ability of the parent holding company to meet all of its obligations with liquid sources of cash or cash equivalents for an extended period of time without access to the unsecured funding markets. The Firm targets pre-funding of parent holding company obligations for at least 12 months; however, due to conservative liquidity management actions taken by the Firm in the current environment, the current pre-funding of such obligations is significantly greater than target.

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Global Liquidity Reserve

In addition to the parent holding company, the Firm maintains a significant amount of liquidity – primarily at its bank subsidiaries, but also at its nonbank subsidiaries. The Global Liquidity Reserve represents consolidated sources of available liquidity to the Firm, including cash on deposit at central banks, and cash proceeds reasonably expected to be received in secured financings of highly liquid, unencumbered securities – such as government-issued debt, government- and FDIC-guaranteed corporate debt, U.S. government agency debt, and agency mortgage-backed securities (“MBS”). The liquidity amount estimated to be realized from secured financings is based on management’s current judgment and assessment of the Firm’s ability to quickly raise secured financings. The Global Liquidity Reserve also includes the Firm’s borrowing capacity at various FHLBs, the Federal Reserve Bank discount window and various other central banks from collateral pledged by the Firm to such banks. Although considered as a source of available liquidity, the Firm does not view borrowing capacity at the Federal Reserve Bank discount window and various other central banks as a primary source of funding. As of June 30, 2011, the Global Liquidity Reserve was estimated to be approximately $404 billion, compared with approximately $262 billion at December 31, 2010. The increase in the Global Liquidity Reserve reflected a higher level of balances due from Federal Reserve Banks, predominantly driven by overall growth in wholesale clients’ cash management activities during the first six months of 2011 and an increase in inflows of short-term wholesale deposits from TSS clients toward the end of June 2011.

In addition to the Global Liquidity Reserve, the Firm has significant amounts of other high-quality, marketable securities available to raise liquidity, such as corporate debt and equity securities.

Funding

Sources of funds

A key strength of the Firm is its diversified deposit franchise, through the RFS, CB, TSS and AM lines of business, which provides a stable source of funding and decreases reliance on the wholesale markets. As of June 30, 2011, total deposits for the Firm were $1,048.7 billion, compared with $930.4 billion at December 31, 2010. Average total deposits for the Firm were $979.9 billion and $878.6 billion for the three months ended June 30, 2011 and 2010, respectively, and were $955.3 billion and $878.0 billion for the six months ended June 30, 2011 and 2010, respectively. The Firm typically experiences higher customer deposit inflows at period-ends. A significant portion of the Firm’s deposits are retail deposits (36% and 40% at June 30, 2011, and December 31, 2010, respectively), which are considered particularly stable as they are less sensitive to interest rate changes or market volatility. A significant portion of the Firm’s wholesale deposits are also considered to be stable sources of funding due to the nature of the relationships from which they are generated, particularly customers’ operating service relationships with the Firm. As of June 30, 2011, the Firm's deposits-to-loans ratio was 152%, compared with 134% at December 31, 2010. For further discussions of deposit and liability balance trends, see the discussion of the results for the Firm’s business segments and the Balance Sheet Analysis on pages 17–48 and 49–51, respectively, of this Form 10-Q.

Additional sources of funding include a variety of unsecured and secured short-term and long-term instruments. Short-term unsecured funding sources include federal funds and Eurodollars purchased, certificates of deposit, time deposits, commercial paper and other borrowed funds. Long-term unsecured funding sources include long-term debt, preferred stock and common stock.

The Firm’s short-term secured sources of funding consist of securities loaned or sold under agreements to repurchase and borrowings from the Chicago, Pittsburgh and San Francisco FHLBs. Secured long-term funding sources include asset-backed securitizations, and borrowings from the Chicago, Pittsburgh and San Francisco FHLBs.

Funding markets are evaluated on an ongoing basis to achieve an appropriate global balance of unsecured and secured funding at favorable rates.

Short-term funding

The Firm’s reliance on short-term unsecured funding sources is limited. Short-term unsecured funding sources include federal funds and Eurodollars purchased, which represent overnight funds; certificates of deposit; time deposits; commercial paper, which is generally issued in amounts not less than $100,000 and with maturities of 270 days or less; and other borrowed funds, which consist of demand notes, term federal funds purchased, and various other borrowings that generally have maturities of one year or less.

Total commercial paper liabilities were $51.2 billion as of June 30, 2011, compared with $35.4 billion as of December 31, 2010. However, of those totals, $43.5 billion and $29.2 billion as of June 30, 2011, and December 31, 2010, respectively, originated from deposits that customers chose to sweep into commercial paper liabilities as a cash management product offered by the Firm. Therefore, commercial paper liabilities sourced from wholesale funding markets were $7.7 billion as of June 30, 2011, compared with $6.2 billion as of December 31, 2010; in addition, the average balance of commercial paper liabilities sourced from wholesale funding markets were $7.4 billion and $7.9 billion for the three and six months ended June 30, 2011, respectively.

Securities loaned or sold under agreements to repurchase, generally mature between one day and three months, are secured predominantly by high-quality securities collateral, including government-issued debt, agency debt and agency MBS. The balances of securities loaned or sold under agreements to repurchase, which constitute a significant portion of the federal funds purchased and securities loaned or sold under repurchase agreements, was $252.6 billion as of June 30, 2011, compared with $273.3 billion

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as of December 31, 2010; the average balance was $277.4 billion and $274.3 billion for the three and six months ended June 30, 2011, respectively. At June 30, 2011, the decline in the balance, compared with the balance at December 31, 2010, and the average balances for the three and six months ended June 30, 2011, was driven by lower financing of the Firm's trading assets as well as lower client financing balances. The balances associated with securities loaned or sold under agreements to repurchase fluctuate over time due to customers’ investment and financing activities; the Firm’s demand for financing; the Firm’s matched book activity; the ongoing management of the mix of the Firm’s liabilities, including its secured and unsecured financing (for both the investment and trading portfolios); and other market and portfolio factors. For additional information, see the Balance Sheet Analysis on pages 49–51, Note 12 on page 133 and Note 18 on page 164 of this Form 10-Q.

Total other borrowed funds was $30.2 billion as of June 30, 2011, compared with $34.3 billion as of December 31, 2010; the average balance of other borrowed funds was $36.9 billion and $35.2 billion for the three and six months ended June 30, 2011, respectively. At June 30, 2011, the decline in the balance, compared with the balance at December 31, 2010, and the average balances for the three and six months ended June 30, 2011, was predominantly driven by lower financing of the Firm's trading assets, and maturities of short-term unsecured bank notes and short-term FHLB advances.

Long-term funding and issuance

During the three months ended June 30, 2011, the Firm issued $18.8 billion of long-term debt, including $12.9 billion of senior notes issued in the U.S. market, $1.4 billion of senior notes issued in non-U.S. markets, and $4.5 billion of IB structured notes. In addition, in July 2011, the Firm issued $2.3 billion of senior notes in the U.S. market. During the three months ended June 30, 2010, the Firm issued $7.1 billion of long-term debt, including $1.3 billion of senior notes issued in U.S. markets, $1.5 billion of trust preferred capital debt securities, and $4.3 billion of IB structured notes. During the three months ended June 30, 2011, $11.4 billion of long-term debt matured or was redeemed, including $4.5 billion of IB structured notes. During the three months ended June 30, 2010, $16.2 billion of long-term debt matured or was redeemed, including $5.4 billion of IB structured notes.

During the six months ended June 30, 2011, the Firm issued $31.8 billion of long-term debt, including $19.9 billion of senior notes issued in the U.S. market, $4.1 billion of senior notes issued in non-U.S. markets, and $7.8 billion of IB structured notes. During the six months ended June 30, 2010, the Firm issued $18.0 billion of long-term debt, including $6.9 billion of senior notes issued in U.S. markets, $904 million of senior notes issued in non-U.S. markets, $1.5 billion of trust preferred capital debt securities and $8.7 billion of IB structured notes. During the six months ended June 30, 2011, $29.5 billion of long-term debt matured or was redeemed, including $10.1 billion of IB structured notes. During the six months ended June 30, 2010, $30.3 billion of long-term debt matured or was redeemed, including $12.8 billion of IB structured notes.

In addition to the unsecured long-term funding and issuances discussed above, the Firm securitizes consumer credit card loans, residential mortgages, auto loans and student loans for funding purposes. During the three months ended June 30, 2011, the Firm securitized $1.0 billion of credit card loans, and $3.2 billion of loan securitizations matured or were redeemed, including $3.0 billion of credit card loan securitizations, $39 million of residential mortgage loan securitizations and $77 million of student loan securitizations. During the three months ended June 30, 2010, the Firm did not securitize any loans through consolidated or nonconsolidated securitization trusts for funding purposes, and $6.8 billion of loan securitizations matured or were redeemed, including $6.6 billion of credit card loan securitizations, $47 million of residential mortgage loan securitizations, $72 million of student loan securitizations, and $36 million of auto loan securitizations.

During the six months ended June 30, 2011, the Firm securitized $1.0 billion of credit card loans, and $9.8 billion of loan securitizations matured or were redeemed, including $9.6 billion of credit card loan securitizations, $83 million of residential mortgage loan securitizations and $153 million of student loan securitizations. During the six months ended June 30, 2010, the Firm did not securitize any loans through consolidated or nonconsolidated securitization trusts for funding purposes, and $13.5 billion of loan securitizations matured or were redeemed, including $13.2 billion of credit card loan securitizations, $90 million of residential mortgage loan securitizations, $156 million of student loan securitizations, and $75 million of auto loan securitizations.

In addition, the Firm’s wholesale businesses securitize loans for client-driven transactions and those client-driven loan securitizations are not considered to be a source of funding for the Firm. For the three months ended June 30, 2011 and 2010, $265 million and $352 million, respectively, of client-driven loan securitizations matured or were redeemed. For the six months ended June 30, 2011 and 2010, $277 million and $1.1 billion, respectively, of client-driven loan securitizations matured or were redeemed. For further discussion of loan securitizations, see Note 16 on pages 159–163 in this Form 10-Q.

During the three months ended June 30, 2011, the Firm did not borrow from FHLBs and there were $5 million of maturities. For the three months ended June 30, 2010, the Firm borrowed $1.0 billion from FHLBs, which were more than offset by $5.0 billion of maturities. During the six months ended June 30, 2011, the Firm borrowed $4.0 billion from FHLBs, which were partially offset by $2.5 billion of maturities. For the six months ended June 30, 2010, the Firm borrowed $2.5 billion from FHLBs, which were more than offset by $13.5 billion of maturities.

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Cash flows

Cash and due from banks was $30.5 billion and $32.8 billion at June 30, 2011 and 2010, respectively. These balances increased by $2.9 billion from December 31, 2010 and $6.6 billion from December 31, 2009, respectively. The following discussion highlights the major activities and transactions that affected JPMorgan Chase’s cash flows for the six months ended June 30, 2011 and June 30, 2010, respectively.

Cash flows from operating activities

JPMorgan Chase’s operating assets and liabilities support the Firm’s capital markets and lending activities, including the origination or purchase of loans initially designated as held-for-sale. Operating assets and liabilities can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by client-driven and risk management activities, and market conditions. Management believes cash flows from operations, available cash balances and the Firm’s ability to generate cash through short- and long-term borrowings are sufficient to fund the Firm’s operating liquidity needs.

For the six months ended June 30, 2011, net cash provided by operating activities was $58.7 billion. This resulted from a decrease in trading assets – debt and equity instruments, driven by client market-making activity in IB, primarily due to declines in U.S. government agency mortgage-backed securities and equity securities, partially offset by an increase in non-U.S. government debt securities; a decrease in trading assets – derivative receivables largely due to a reduction in foreign exchange derivatives partially offset by an increase in equity derivatives from IB’s market-making activity; and an increase in accounts payable and other liabilities largely due to higher IB Prime Services customer balances. Partially offsetting these cash proceeds were a decrease in trading liabilities – derivatives payable largely due to the aforementioned reduction of the foreign exchange derivatives partially offset by the increase in equity derivatives; and an increase in accrued interest and accounts receivable largely reflecting higher receivables from securities transactions pending settlement. Net cash generated from operating activities was higher than net income largely as a result of adjustments for noncash items such as the provision for credit losses, depreciation and amortization, and stock-based compensation. Additionally, cash provided by proceeds from sales and paydowns of loans originated or purchased with an initial intent to sell was slightly higher than cash used to acquire such loans, and also reflected a higher level of activity over the prior-year period.

For the six months ended June 30, 2010, net cash provided by operating activities was $45.7 billion, primarily driven by an increase in trading liabilities, reflecting an increase in business activity in markets outside of the U.S., mainly Asia/Pacific, in the first quarter of 2010, partially offset by a decrease in trading assets driven by lower client flows as a result of unfavorable financial markets in the second quarter of 2010. Also, net cash generated from operating activities was higher than net income, largely as a result of adjustments for non-cash items such as the provision for credit losses, stock-based compensation, and depreciation and amortization. Proceeds from sales and paydowns of loans originated or purchased with an initial intent to sell were higher than cash used to acquire such loans.

Cash flows from investing activities

The Firm’s investing activities predominantly include loans originated to be held for investment, the AFS securities portfolio and other short-term interest-earning assets. For the six months ended June 30, 2011, net cash of $145.8 billion was used in investing activities. This resulted from a significant increase in deposits with banks reflecting a higher level of deposit balances at Federal Reserve Banks predominantly the result of an overall growth in wholesale clients' cash management activities in the first six months of 2011, as well as an increase in inflows of short-term wholesale deposits from TSS clients toward the end of June 2011, and an increase in wholesale loans reflecting growth in client activity in all of the Firm’s wholesale businesses. Partially offsetting these cash outflows were a decline in securities purchased under resale agreements, predominantly in IB, reflecting lower client financing activity; a decrease in credit card loans in CS reflecting lower seasonal balances, higher repayment rates, continued runoff of the Washington Mutual portfolio and the sale of the Kohl’s portfolio; and a decrease in loans in RFS reflecting paydowns, portfolio runoff and repayments.

For the six months ended June 30, 2010, net cash of $73.7 billion was provided by investing activities. This resulted from a decrease in deposits with banks largely due to a decline in deposits placed with the Federal Reserve Bank and lower interbank lending as market stress had gradually eased since the end of 2009; a net decrease in the loan portfolio, driven by a decline in credit card loans due to the runoff of the Washington Mutual portfolio and a decrease in lower-yielding promotional loans; continued runoff of the residential real estate portfolios in RFS; and repayments and loan sales in IB and continued low client demand for wholesale loans; and proceeds from sales and maturities of AFS securities used in the Firm’s interest rate risk management activities being higher than cash used to acquire such securities.

Cash flows from financing activities

The Firm’s financing activities primarily reflect cash flows related to taking customer deposits, and issuing long-term debt as well as preferred and common stock. For the six months ended June 30, 2011, net cash provided by financing activities was $89.3 billion. This was largely driven by a significant increase in deposits predominantly as a result of an overall growth in wholesale clients' cash management activities during the first six months of 2011, an increase in inflows of short-term wholesale deposits from TSS clients toward the end of June 2011, and growth in the number of clients and higher balances in CB, AM and RFS (the RFS deposits were net of the attrition related to inactive and low-balance Washington Mutual accounts); an increase in commercial

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paper and other borrowed funds due to growth in the volume of liability balances in sweep accounts related to TSS’s cash management product; and a modest incremental increase in commercial paper issued in wholesale funding markets. Cash was used to reduce securities sold under repurchase agreements, predominantly in IB, due to lower financings of the Firm’s trading assets as well as lower client financing balances; for net repayments of long-term borrowings, including a decline in long-term beneficial interests issued by consolidated VIEs due to maturities of Firm-sponsored credit card securitization transactions; for repurchases of common stock and payments of cash dividends on common and preferred stock.

In the first six months of 2010, net cash used in financing activities was $112.3 billion. This resulted from a decline in deposits associated with wholesale funding activities reflecting the Firm’s lower funding needs; a decline in TSS deposits reflecting the normalization of deposit levels, offset partially by net inflows from existing customers and new business in AM, CB and RFS; net repayment of long-term borrowings, including a decline in long-term beneficial interests issued by consolidated VIEs due to maturities of Firm-sponsored credit card securitization transactions and a decline in long-term advances from FHLBs due to maturities; payments of cash dividends; and repurchases of common stock. Additionally, cash was used as a result of a decline in securities loaned or sold under repurchase agreements largely due to reduced funding requirements associated with lower AFS securities in Corporate and reduced short-term funding requirements in IB.

Credit ratings

The cost and availability of financing are influenced by credit ratings. Reductions in these ratings could have an adverse effect on the Firm’s access to liquidity sources, increase the cost of funds, trigger additional collateral or funding requirements and decrease the number of investors and counterparties willing to lend to the Firm. Additionally, the Firm’s funding requirements for VIEs and other third-party commitments may be adversely affected by a decline in credit ratings. For additional information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see Special-purpose entities on page 52, and Note 5 on pages 117–124, respectively, of this Form 10-Q.

Critical factors in maintaining high credit ratings include a stable and diverse earnings stream, strong capital ratios, strong credit quality and risk management controls, diverse funding sources, and disciplined liquidity monitoring procedures.

The credit ratings of the parent holding company and each of the Firm’s significant banking subsidiaries as of June 30, 2011, were as follows.

	Short-term debt			Senior long-term debt
	Moody’s	S&P	Fitch	Moody’s	S&P	Fitch
JPMorgan Chase & Co.	P-1	A-1	F1+	Aa3	A+	AA-
JPMorgan Chase Bank, N.A.	P-1	A-1+	F1+	Aa1	AA-	AA-
Chase Bank USA, N.A.	P-1	A-1+	F1+	Aa1	AA-	AA-

The senior unsecured ratings from Moody’s, S&P and Fitch on JPMorgan Chase and its principal bank subsidiaries remained unchanged at June 30, 2011, from December 31, 2010. At June 30, 2011, Moody’s outlook was negative, while S&P’s and Fitch’s outlook was stable.

On July 18, 2011, Moody’s placed the long-term debt ratings of the Firm and its subsidiaries under review for possible downgrade. The Firm’s current long-term debt ratings by Moody’s reflect “support uplift” above the Firm’s stand-alone financial strength due to Moody’s assessment of the likelihood of U.S. government support. Moody’s action was directly related to Moody’s placing the U.S. government’s Aaa rating on review for possible downgrade on July 13, 2011. Moody’s indicated that the action did not reflect a change to Moody’s opinion of the Firm’s stand-alone financial strength. The short-term debt ratings of the Firm and its subsidiaries were affirmed and were not affected by the action. Subsequently, on August 3, 2011, Moody’s confirmed the long-term debt ratings of the Firm and its subsidiaries at their current levels and assigned a negative outlook on the ratings. The rating confirmation was directly related to Moody’s confirmation on August 2, 2011, of the Aaa rating assigned to the U.S. government.

If the Firm’s senior long-term debt ratings were downgraded by one notch or two notches, the Firm believes its cost of funds would increase; however, the Firm’s ability to fund itself would not be impacted. JPMorgan Chase’s unsecured debt does not contain requirements that would call for an acceleration of payments, maturities or changes in the structure of the existing debt, provide any limitations on future borrowings or require additional collateral, based on unfavorable changes in the Firm’s credit ratings, financial ratios, earnings, or stock price.

Several rating agencies have announced that they will be evaluating the effects of the financial regulatory reform legislation in order to determine the extent, if any, to which financial institutions, including the Firm, may be negatively impacted. There is no assurance the Firm’s credit ratings will not be downgraded in the future as a result of any such reviews.

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CREDIT PORTFOLIO

For a further discussion on the Firm’s credit risk management framework, see pages 116–118 of JP Morgan Chase’s 2010 Annual Report.

The following table presents JPMorgan Chase’s credit portfolio as of June 30, 2011, and December 31, 2010. Total credit exposure was $1.8 trillion at June 30, 2011, an increase of $711 million from December 31, 2010, reflecting increases in the wholesale portfolio of $37.4 billion offset by decreases in the consumer portfolio of $36.7 billion. During the first six months of 2011, increases in lending-related commitments of $7.3 billion were offset by decreases in loans and derivative receivables of $3.2 billion and $3.1 billion, respectively.

The Firm provided credit to and raised capital of more than $990 billion for it's clients during the first six months of 2011. The Firm also originated mortgages to more than 360,000 people; provided credit cards to approximately 4.6 million people; lent or increased credit to more than 16,800 small businesses; lent to more than 800 not-for-profit and government entities, including states, municipalities, hospitals and universities; extended or increased loan limits to approximately 3,000 middle market companies; and lent to or raised capital for more than 5,000 other corporations. The Firm is the #1 Small Business Administration lender in the U.S. with more loans made than any other lender. In 2009 and 2010, the Firm lent more than $7 billion and $10 billion, respectively, to small businesses, and has committed to lend at least $12 billion in 2011. The Firm remains committed to helping homeowners and preventing foreclosures. Since the beginning of 2009, the Firm has offered 1,177,000 trial modifications to struggling homeowners.

In the table below, reported loans include loans retained (i.e., held-for-investment); loans held-for-sale (which are carried at the lower of cost or fair value, with changes in value recorded in noninterest revenue); and loans accounted for at fair value. For additional information on the Firm’s loans and derivative receivables, including the Firm’s accounting policies, see Note 13 and Note 5 on pages 134–148 and 117–124, respectively, of this Form 10-Q, and Note 14 and Note 6 on pages 220–238 and 191–199, respectively, of JPMorgan Chase’s 2010 Annual Report. Average retained loan balances are used for net charge-off rate calculations.

Total credit portfolio													Three months ended June 30,								Six months ended June 30,
	Credit exposure						Nonperforming(d)(e)(f)						Net charge-offs				Average annual net charge-off rate(g)				Net charge-offs				Average annual net charge-off rate(h)
(in millions, except ratios)	June 30, 2011			Dec 31, 2010			June 30, 2011			Dec 31, 2010			2011		2010		2011		2010		2011		2010		2011		2010
Loans retained	$	684,916		$	685,498		$	11,714		$	14,345		$	3,103	$	5,714	1.83	%	3.28	%	$	6,823	$	13,624	2.02	%	3.88	%
Loans held-for-sale	2,813			5,453			114			341			—		—		—		—		—		—		—		—
Loans at fair value	2,007			1,976			100			155			—		—		—		—		—		—		—		—
Total loans – reported	689,736			692,927			11,928			14,841			3,103		5,714		1.83		3.28		6,823		13,624		2.02		3.88
Derivative receivables	77,383			80,481			22			34			NA		NA		NA		NA		NA		NA		NA		NA
Receivables from customers and interests in purchased receivables(a)	32,678			32,932			—			—			—		—		—		—		—		—		—		—
Total credit-related assets	799,797			806,340			11,950			14,875			3,103		5,714		1.83		3.28		6,823		13,624		2.02		3.88
Lending-related commitments(b)	965,963			958,709			793			1,005			NA		NA		NA		NA		NA		NA		NA		NA
Assets acquired in loan satisfactions
Real estate owned	NA			NA			1,239			1,610			NA		NA		NA		NA		NA		NA		NA		NA
Other	NA			NA			51			72			NA		NA		NA		NA		NA		NA		NA		NA
Totalassets acquired in loan satisfactions	—			NA			1,290			1,682			NA		NA		NA		NA		NA		NA		NA		NA
Total credit portfolio	$	1,765,760		$	1,765,049		$	14,033		$	17,562		$	3,103	$	5,714	1.83	%	3.28	%	$	6,823	$	13,624	2.02	%	3.88	%
Net credit derivative hedges notional(c)	$	(24,006	)	$	(23,108	)	$	(45	)	$	(55	)	NA		NA		NA		NA		NA		NA		NA		NA
Liquid securities and other cash collateral held against derivatives	(16,506		)	(16,486		)	NA			NA			NA		NA		NA		NA		NA		NA		NA		NA

(a) Receivables from customers represents primarily margin loans to prime and retail brokerage customers, which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets. Interests in purchased receivables represents an ownership interest in cash flows of a pool of receivables transferred by a third-party seller into a bankruptcy-remote entity, generally a trust, which are included in other assets on the Consolidated Balance Sheets.

(b) The amounts in nonperforming represent commitments that are risk rated as nonaccrual.

(c) Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage both performing and non-performing credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on pages 74–75 and Note 5 on pages 117–124 of this Form 10-Q.

(d) At June 30, 2011, and December 31, 2010, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $9.1 billion and $9.4 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $2.4 billion and $1.9 billion, respectively; and (3) student loans insured by U.S. government agencies under the FFELP of $558 million and $625 million, respectively, that are 90 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”). Credit card loans are charged-off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a specified event (e.g., bankruptcy of the borrower), whichever is earlier.

(e) Excludes PCI loans acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a

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single asset with a single composite interest rate and an aggregate expectation of cash flows, the past due status of the pools, or that of individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.

(f) At June 30, 2011, and December 31, 2010, total nonaccrual loans represented 1.73% and 2.14% of total loans .

(g) For the three months ended June 30, 2011, and 2010, net charge-off rates were calculated using average retained loans of $680.1 billion and $699.2 billion, respectively. These average retained loans include average PCI loans of $69.9 billion and $78.1 billion, respectively. Excluding these PCI loans, the Firm’s total charge-off rates would have been 2.04% and 3.69%, respectively.

(h) For the six months ended June 30, 2011, and 2010, net charge-off rates were calculated using average retained loans of $680.1 billion and $708.8 billion, respectively. These average retained loans include average PCI loans of $70.7 billion and $79.2 billion, respectively. Excluding these PCI loans, the Firm’s total charge-off rates would have been 2.26% and 4.36%, respectively.

WHOLESALE CREDIT PORTFOLIO

As of June 30, 2011, wholesale exposure (IB, CB, TSS and AM) increased by $37.4 billion from December 31, 2010. The overall increase was primarily driven by increases of $21.2 billion in loans and $19.6 billion in lending-related commitments, partly offset by a decrease of $3.1 billion in derivative receivables. The growth in wholesale credit exposure represented increased client activity across all businesses and all regions. Effective January 1, 2011, the commercial card credit portfolio (composed of approximately $5.3 billion of lending-related commitments and $1.2 billion of loans) that was previously in TSS was transferred to CS.

Wholesale credit portfolio
	Credit exposure						Nonperforming (d)
(in millions)	June 30, 2011			December 31, 2010			June 30, 2011			December 31, 2010
Loans retained	$	244,224		$	222,510		$	3,362		$	5,510
Loans held-for-sale	2,592			3,147			114			341
Loans at fair value	2,007			1,976			100			155
Loans – reported	248,823			227,633			3,576			6,006
Derivative receivables	77,383			80,481			22			34
Receivables from customers and interests in purchased receivables(a)	32,678			32,932			—			—
Total wholesale credit-related assets	358,884			341,046			3,598			6,040
Lending-related commitments(b)	365,689			346,079			793			1,005
Total wholesale credit exposure	$	724,573		$	687,125		$	4,391		$	7,045
Net credit derivative hedges notional(c)	$	(24,006	)	$	(23,108	)	$	(45	)	$	(55	)
Liquid securities and other cash collateral held against derivatives	(16,506		)	(16,486		)	NA			NA

(a) Receivables from customers represents primarily margin loans to prime and retail brokerage customers, which are included in accrued interests and accounts receivable on the Consolidated Balance Sheets. Interests in purchased receivables represent ownership interests in cash flows of a pool of receivables transferred by third-party sellers into bankruptcy-remote entities, generally trusts, which are included in other assets on the Consolidated Balance Sheets.

(b) The amounts in nonperforming represent commitments that are risk rated as nonaccrual.

(c) Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage both performing and nonperforming credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on pages 74–75, and Note 5 on pages 117–124 of this Form 10-Q.

(d) Excludes assets acquired in loan satisfactions.

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The following table presents summaries of the maturity and ratings profiles of the wholesale portfolio as of June 30, 2011, and December 31, 2010. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings as defined by S&P and Moody’s. Also included in this table is the notional value of net credit derivative hedges; the counterparties to these hedges are predominantly investment-grade (“IG”) banks and finance companies.

Wholesale credit exposure – maturity and ratings profile

	Maturity profile(e)												Ratings profile
June 30, 2011	Due in 1 year or less			Due after 1 year through 5 years			Due after 5 years			Total			Investment-grade			Noninvestment-grade		Total			Total % of IG
(in millions, except ratios)													AAA/Aaa to BBB-/Baa3			BB+/Ba1 & below
Loans retained	$	96,278		$	89,230		$	58,716		$	244,224		$	166,513		$	77,711	$	244,224		68	%
Derivative receivables(a)										77,383								77,383
Less: Liquid securities and other cash collateral held against derivatives										(16,506		)						(16,506		)
Total derivative receivables, net of all collateral	9,628			21,991			29,258			60,877			48,145			12,732		60,877			79
Lending-related commitments	133,942			219,906			11,841			365,689			294,258			71,431		365,689			80
Subtotal	239,848			331,127			99,815			670,790			508,916			161,874		670,790			76
Loans held-for-sale and loans at fair value(b)(c)										4,599								4,599
Receivables from customers and interests in purchased receivables(c)										32,678								32,678
Total exposure – net of liquid securities and other cash collateral held against derivatives										$	708,067							$	708,067
Net credit derivative hedges notional(d)	$	(1,862	)	$	(15,525	)	$	(6,619	)	$	(24,006	)	$	(24,071	)	$	65	$	(24,006	)	100	%

	Maturity profile(e)												Ratings profile
December 31, 2010	Due in 1 year or less			Due after 1 year through 5 years			Due after 5 years			Total			Investment-grade			Noninvestment-grade		Total			Total % of IG
(in millions, except ratios)													AAA/Aaa to BBB-/Baa3			BB+/Ba1 & below
Loans retained	$	78,017		$	85,987		$	58,506		$	222,510		$	146,047		$	76,463	$	222,510		66	%
Derivative receivables(a)										80,481								80,481
Less: Liquid securities and other cash collateral held against derivatives										(16,486		)						(16,486		)
Total derivative receivables, net of all collateral	11,499			24,415			28,081			63,995			47,557			16,438		63,995			74
Lending-related commitments	126,389			209,299			10,391			346,079			276,298			69,781		346,079			80
Subtotal	215,905			319,701			96,978			632,584			469,902			162,682		632,584			74
Loans held-for-sale and loans at fair value(b)(c)										5,123								5,123
Receivables from customers and interests in purchased receivables(c)										32,932								32,932
Total exposure – net of liquid securities and other cash collateral held against derivatives										$	670,639							$	670,639
Net credit derivative hedges notional(d)	$	(1,228	)	$	(16,415	)	$	(5,465	)	$	(23,108	)	$	(23,159	)	$	51	$	(23,108	)	100	%

(a) Represents the fair value of derivative receivables as reported on the Consolidated Balance Sheets.

(b) Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans transferred from the retained portfolio.

(c) From a credit risk perspective, maturity and ratings profiles are not meaningful.

(d) Represents the net notional amounts of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP.

(e) The maturity profiles of retained loans and lending-related commitments are based on the remaining contractual maturity. The maturity profiles of derivative receivables are based on the maturity profile of average exposure. For further discussion of average exposure, see Derivative receivables MTM on pages 73–74 of this Form 10-Q.

Receivables from customers of $32.5 billion at both June 30, 2011, and December 31, 2010, primarily representing margin loans to prime and retail brokerage clients and are included in the previous tables. These margin loans are collateralized through a pledge of assets maintained in clients’ brokerage accounts and are subject to daily minimum collateral requirements. In the event that the collateral value decreases, a maintenance margin call is made to the client to provide additional collateral into the account. If additional collateral is not provided by the client, the client’s position may be liquidated by the Firm to meet the minimum collateral requirements.

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Wholesale credit exposure – selected industry exposures

The Firm focuses on the management and diversification of its industry exposures, with particular attention paid to industries with actual or potential credit concerns. Exposures deemed criticized generally represent a ratings profile similar to a rating of “CCC+”/“Caa1” and lower, as defined by S&P and Moody’s, respectively. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, decreased to $18.3 billion at June 30, 2011, from $22.4 billion at December 31, 2010. The decrease was primarily related to net repayments and loan sales.

Below are summaries of the top 25 industry exposures as of June 30, 2011, and December 31, 2010.

											30 days or more past due and accruing loans		Year-to-date net charge-offs/ (recoveries)			Credit derivative hedges(e)			Liquid securities and other cash collateral held against derivative receivables
As of or for the six months ended					Non-investment grade
June 30, 2011	Credit exposure(d)		Investment - grade		Noncriticized		Criticized performing		Criticized nonperforming
(in millions)
Top 25 industries(a)
Banks and finance companies	$	64,642	$	53,888	$	10,324	$	377	$	53	$	22	$	(13	)	$	(2,486	)	$	(8,880	)
Real estate	63,252		35,594		21,039		5,181		1,438		203		191			(68		)	(134		)
Healthcare	39,899		33,274		6,331		254		40		3		5			(659		)	(135		)
State and municipal governments(b)	37,356		36,287		848		196		25		3		—			(191		)	(87		)
Asset managers	34,059		28,319		5,385		355		—		71		—			—			(3,355		)
Oil and gas	29,413		20,772		8,573		67		1		54		—			(106		)	(178		)
Utilities	27,316		22,690		3,854		504		268		—		33			(295		)	(267		)
Consumer products	26,411		16,806		8,978		603		24		5		3			(789		)	(3		)
Retail and consumer services	21,517		13,527		7,446		476		68		13		—			(411		)	(2		)
Technology	14,725		10,235		4,167		323		—		—		4			(183		)	(2		)
Machinery and equipment manufacturing	14,116		8,201		5,751		163		1		2		(1		)	(16		)	(1		)
Metals/mining	13,767		7,311		6,077		371		8		10		(12		)	(466		)	—
Telecom services	13,049		10,058		2,224		765		2		—		3			(778		)	(16		)
Central government	12,842		12,383		443		16		—		—		—			(7,811		)	(322		)
Media	11,636		6,118		4,388		728		402		18		7			(215		)	(2		)
Building materials/construction	11,466		5,742		4,728		988		8		6		(2		)	(317		)	—
Insurance	11,352		8,696		2,302		342		12		7		—			(711		)	(407		)
Holding companies	11,252		8,820		2,380		50		2		16		(2		)	—			(456		)
Chemicals/plastics	11,134		7,331		3,567		235		1		—		—			(38		)	—
Business services	11,132		6,026		4,967		97		42		4		2			—			(9		)
Transportation	10,606		7,247		3,147		171		41		9		1			(101		)	(6		)
Securities firms and exchanges	10,306		8,512		1,741		53		—		—		—			(88		)	(2,241		)
Automotive	9,659		4,775		4,708		175		1		—		(11		)	(829		)	—
Agriculture/paper manufacturing	7,307		4,826		2,285		196		—		4		—			(10		)	(3		)
Aerospace	5,973		4,929		988		56		—		1		—			(162		)	—
All other(c)	163,109		141,251		18,725		2,186		947		618		37			(7,276		)	—
Subtotal	$	687,296	$	523,618	$	145,366	$	14,928	$	3,384	$	1,069	$	245		$	(24,006	)	$	(16,506	)
Loans held-for-sale and loans at fair value	4,599
Receivables from customers and interests in purchased receivables	32,678
Total	$	724,573

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											30 days or more past due and accruing loans		Year-to-date net charge-offs/ (recoveries)			Credit derivative hedges(e)			Liquid securities and other cash collateral held against derivative receivables
As of or for the year ended					Non-investment grade
December 31, 2010	Credit exposure(d)		Investment- grade		Noncriticized		Criticized performing		Criticized nonperforming
(in millions)
Top 25 industries(a)
Banks and finance companies	$	65,867	$	54,839	$	10,428	$	467	$	133	$	26	$	69		$	(3,456	)	$	(9,216	)
Real estate	64,351		34,440		20,569		6,404		2,938		399		862			(76		)	(57		)
Healthcare	41,093		33,752		7,019		291		31		85		4			(768		)	(161		)
State and municipal governments(b)	35,808		34,641		912		231		24		34		3			(186		)	(233		)
Asset managers	29,364		25,533		3,401		427		3		7		—			—			(2,948		)
Oil and gas	26,459		18,465		7,850		143		1		24		—			(87		)	(50		)
Utilities	25,911		20,951		4,101		498		361		3		49			(355		)	(230		)
Consumer products	27,508		16,747		10,379		371		11		217		1			(752		)	(2		)
Retail and consumer services	20,882		12,021		8,316		338		207		8		23			(623		)	(3		)
Technology	14,348		9,355		4,534		399		60		47		50			(158		)	—
Machinery and equipment manufacturing	13,311		7,690		5,372		244		5		8		2			(74		)	(2		)
Metals/mining	11,426		5,260		5,748		362		56		7		35			(296		)	—
Telecom services	10,709		7,582		2,295		821		11		3		(8		)	(820		)	—
Central government	11,173		10,677		496		—		—		—		—			(6,897		)	(42		)
Media	10,967		5,808		3,945		672		542		2		92			(212		)	(3		)
Building materials/construction	12,808		6,557		5,065		1,129		57		9		6			(308		)	—
Insurance	10,918		7,908		2,690		320		—		—		(1		)	(805		)	(567		)
Holding companies	10,504		8,375		2,091		38		—		33		5			—			(362		)
Chemicals/plastics	12,312		8,375		3,656		274		7		—		2			(70		)	—
Business services	11,247		6,351		4,735		115		46		11		15			(5		)	—
Transportation	9,652		6,630		2,739		245		38		—		(16		)	(132		)	—
Securities firms and exchanges	9,415		7,678		1,700		37		—		—		5			(38		)	(2,358		)
Automotive	9,011		3,915		4,822		269		5		—		52			(758		)	—
Agriculture/paper manufacturing	7,368		4,510		2,614		242		2		8		7			(44		)	(2		)
Aerospace	5,732		4,903		732		97		—		—		—			(321		)	—
All other(c)	140,926		122,594		14,924		2,402		1,006		921		470			(5,867		)	(250		)
Subtotal	$	649,070	$	485,557	$	141,133	$	16,836	$	5,544	$	1,852	$	1,727		$	(23,108	)	$	(16,486	)
Loans held-for-sale and loans at fair value	5,123
Receivables from customers and interests in purchased receivables	32,932
Total	$	687,125

(a) All industry rankings are based on exposure at June 30, 2011. The industry rankings presented in the table as of December 31, 2010, are based on the industry rankings of the corresponding exposures at June 30, 2011, not actual rankings of such exposures at December 31, 2010 .

(b) In addition to the credit risk exposure to States and municipal governments at June 30, 2011, and December 31, 2010, noted above, the Firm had $8.6 billion and $14.0 billion, respectively, of trading securities and $11.6 billion and $11.6 billion, respectively, of available-for-sale securities issued by State and municipal governments. For further information, see Note 5 and Note 11 on pages 117–124 and 128–132, respectively, of this Form 10-Q.

(c) For more information on exposures to SPEs within All other, including liquidity facilities to nonconsolidated municipal bond VIEs, see Note 15 on pages 151–159 of this Form 10-Q.

(d) Credit exposure is net of risk participations and excludes the benefit of credit derivative hedges and collateral held against derivative receivables or loans.

(e) Represents the net notional amounts of protection purchased and sold of single-name and portfolio credit derivatives used to manage the credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP.

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The following table presents the geographic distribution of wholesale credit exposure including nonperforming assets and past due loans as of June 30, 2011, and December 31, 2010. The geographic distribution of the wholesale portfolio is determined based predominantly on the domicile of the borrower.

	Credit exposure								Nonperforming
June 30, 2011 (in millions)	Loans		Lending-related commitments		Derivative receivables		Total credit exposure		Nonaccrual loans(a)		Derivatives		Lending-related commitments		Total non- performing		Assets acquired in loan satisfactions		30 days or more past due and accruing loans
Europe/Middle East/Africa	$	33,496	$	61,922	$	35,218	$	130,636	$	44	$	—	$	18	$	62	$	—	$	14
Asia and Pacific	25,400		16,495		10,035		51,930		2		15		—		17		—		19
Latin America/Caribbean	21,172		17,191		5,240		43,603		413		—		17		430		1		178
Other	2,001		7,010		1,820		10,831		7		—		—		7		—		1
Total non-U.S.	82,069		102,618		52,313		237,000		466		15		35		516		1		212
Total U.S.	162,155		263,071		25,070		450,296		2,896		7		758		3,661		287		857
Loans held-for-sale and loans at fair value	4,599		—		—		4,599		214		NA		—		214		NA		—
Receivables from customers and interests in purchased receivables	—		—		—		32,678		NA		NA		NA		NA		NA		—
Total	$	248,823	$	365,689	$	77,383	$	724,573	$	3,576	$	22	$	793	$	4,391	$	288	$	1,069

	Credit exposure								Nonperforming
December 31, 2010 (in millions)	Loans		Lending-related commitments		Derivative receivables		Total credit exposure		Nonaccrual loans(a)		Derivatives		Lending-related commitments		Total non- performing		Assets acquired in loan satisfactions		30 days or more past due and accruing loans
Europe/Middle East/Africa	$	27,934	$	58,418	$	35,196	$	121,548	$	153	$	1	$	23	$	177	$	—	$	127
Asia and Pacific	20,552		15,002		10,991		46,545		579		21		—		600		—		74
Latin America/Caribbean	16,480		12,170		5,634		34,284		649		—		13		662		1		131
Other	1,185		6,149		2,039		9,373		6		—		5		11		—		—
Total non-U.S.	66,151		91,739		53,860		211,750		1,387		22		41		1,450		1		332
Total U.S.	156,359		254,340		26,621		437,320		4,123		12		964		5,099		320		1,520
Loans held-for-sale and loans at fair value	5,123		—		—		5,123		496		NA		—		496		NA		—
Receivables from customers and interests in purchased receivables	—		—		—		32,932		NA		NA		NA		NA		NA		—
Total	$	227,633	$	346,079	$	80,481	$	687,125	$	6,006	$	34	$	1,005	$	7,045	$	321	$	1,852

(a) At June 30, 2011, and December 31, 2010, the Firm held an allowance for loan losses of $731 million and $1.6 billion, respectively, related to nonaccrual retained loans resulting in allowance coverage ratios of 22% and 29%, respectively. Wholesale nonaccrual loans represented 1.44% and 2.64% of total wholesale loans at June 30, 2011, and December 31, 2010, respectively.

Loans

In the normal course of business, the Firm provides loans to a variety of wholesale customers, from large corporate and institutional clients to high-net-worth individuals. For further discussion on loans, including information on credit quality indicators, see Note 13 on pages 134–148 of this Form 10-Q.

Retained wholesale loans were $244.2 billion at June 30, 2011, compared with $222.5 billion at December 31, 2010. The $21.7 billion increase was primarily related toincreased client activity.

The Firm actively manages wholesale credit exposure through sales of loans and lending-related commitments. During the first six months of 2011, the Firm sold $2.8 billion of loans and commitments, recognizing net gains of $16 million. During the first six months of 2010, the Firm sold $4.9 billion of loans and commitments, recognizing net gains of $31 million. These results included gains or losses on sales of nonaccrual loans, if any, as discussed below. These sale activities are not related to the Firm’s securitization activities. For further discussion of securitization activity, see Liquidity Risk Management and Note 15 on pages 62–66 and 151–159 respectively, of this Form 10-Q.

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The following table presents the change in the nonaccrual loan portfolio for the six months ended June 30, 2011 and 2010.

Wholesale nonaccrual loan activity	Six months ended June 30,
(in millions)	2011			2010
Beginning balance	$	6,006		$	6,904
Additions	1,311			4,150
Reductions:
Paydowns and other	1,974			2,857
Gross charge-offs	377			1,162
Returned to performing status	489			113
Sales	901			1,262
Total reductions	3,741			5,394
Net additions/(reductions)	(2,430		)	(1,244		)
Ending balance	$	3,576		$	5,660

Nonaccrual wholesale loans decreased by $2.4 billion from December 31, 2010, primarily reflecting net repayments and loan sales.

The following table presents net charge-offs, which are defined as gross charge-offs less recoveries, for the three and six months ended June 30, 2011 and 2010. The amounts in the table below do not include gains or losses from sales of nonaccrual loans.

Wholesale net charge-offs	Three months ended June 30,						Six months ended June 30,
(in millions, except ratios)	2011			2010			2011			2010
Loans – reported
Average loans retained	$	237,511		$	209,016		$	232,058		$	210,300
Net charge-offs	80			231			245			1,190
Average annual net charge-off ratio	0.14		%	0.44		%	0.21		%	1.14		%

Derivative contracts

In the normal course of business, the Firm uses derivative instruments predominantly for market-making activity. Derivatives enable customers and the Firm to manage exposures to fluctuations in interest rates, currencies and other markets. The Firm also uses derivative instruments to manage its credit exposure. For further discussion of derivative contracts, see Note 5 on page 117–124 of this Form 10-Q.

The following tables summarize the net derivative receivables MTM for the periods presented.

Derivative receivables MTM
(in millions)	June 30, 2011			December 31, 2010
Interest rate	$	32,911		$	32,555
Credit derivatives	6,198			7,725
Foreign exchange	19,898			25,858
Equity	7,084			4,204
Commodity	11,292			10,139
Total, net of cash collateral	77,383			80,481
Liquid securities and other cash collateral held against derivative receivables	(16,506		)	(16,486		)
Total, net of all collateral	$	60,877		$	63,995

Derivative receivables reported on the Consolidated Balance Sheets were $77.4 billion and $80.5 billion at June 30, 2011, and December 31, 2010, respectively. These represent the fair value (i.e., MTM) of the derivative contracts after giving effect to legally enforceable master netting agreements, cash collateral held by the Firm and the CVA. However, in management’s view, the appropriate measure of current credit risk should also reflect additional liquid securities and other cash collateral held by the Firm of $16.5 billion at both June 30, 2011, and December 31, 2010, as shown in the table above. Derivative receivables decreased from December 31, 2010, largely due to a reduction in foreign exchange derivative balances, partially offset by an increase in equity derivatives, from IB’s market-making activity.

73

The Firm also holds additional collateral delivered by clients at the initiation of transactions, as well as collateral related to contracts that have a non-daily call frequency and collateral that the Firm has agreed to return but has not yet settled as of the reporting date. Though this collateral does not reduce the balances noted in the table above, it is available as security against potential exposure that could arise should the MTM of the client’s derivative transactions move in the Firm’s favor. As of June 30, 2011, and December 31, 2010, the Firm held $22.3 billion and $18.0 billion, respectively, of this additional collateral. The derivative receivables MTM, net of all collateral, also do not include other credit enhancements, such as letters of credit. For additional information on the Firm’s use of collateral agreements, see Note 5 on pages 117–124 of this form 10-Q.

The following table summarizes the ratings profile of the Firm’s derivative receivables MTM, net of other liquid securities collateral, for the dates indicated.

Ratings profile of derivative receivables MTM

Rating equivalent	June 30, 2011				December 31, 2010
(in millions, except ratios)	Exposure net of all collateral		% of exposure net of all collateral		Exposure net of all collateral		% of exposure net of all collateral
AAA/Aaa to AA-/Aa3	$	25,067	41	%	$	23,342	36	%
A+/A1 to A-/A3	15,460		25		15,812		25
BBB+/Baa1 to BBB-/Baa3	7,618		13		8,403		13
BB+/Ba1 to B-/B3	10,151		17		13,716		22
CCC+/Caa1 and below	2,581		4		2,722		4
Total	$	60,877	100	%	$	63,995	100	%

As noted above, the Firm uses collateral agreements to mitigate counterparty credit risk. The percentage of the Firm’s derivatives transactions subject to collateral agreements – excluding foreign exchange spot trades, which are not typically covered by collateral agreements due to their short maturity – remained at 88% as of June 30, 2011, unchanged compared with December 31, 2010. The Firm posted $57.9 billion and $58.3 billion of collateral at June 30, 2011, and December 31, 2010, respectively.

Credit derivatives

For a detailed discussion of credit derivatives, including types of derivatives, see Note 5, Credit derivatives, on pages 117–124 of this Form 10-Q, and Credit derivatives on pages 126–127 and Note 6, Credit derivatives, on pages 197–199 of JPMorgan Chase’s 2010 Annual Report.

The following table presents the Firm’s notional amounts of credit derivatives protection purchased and sold as of June 30, 2011, and December 31, 2010, distinguishing between dealer/client activity and credit portfolio activity.

Credit derivative notional amounts
	June 30, 2011										December 31, 2010
	Dealer/client				Credit portfolio						Dealer/client				Credit portfolio
(in millions)	Protection purchased(b)		Protection sold		Protection purchased		Protection sold		Total		Protection purchased(b)		Protection sold		Protection purchased		Protection sold		Total
Credit default swaps	$	2,927,038	$	2,971,981	$	24,205	$	199	$	5,923,423	$	2,661,657	$	2,658,825	$	23,523	$	415	$	5,344,420
Other credit derivatives(a)	61,280		120,733		—		—		182,013		34,250		93,776		—		—		128,026
Total	$	2,988,318	$	3,092,714	$	24,205	$	199	$	6,105,436	$	2,695,907	$	2,752,601	$	23,523	$	415	$	5,472,446

(a) Primarily consists of total return swaps and credit default swap options.

(b) At June 30, 2011, and December 31, 2010, included $2,949 billion and $2,662 billion, respectively, of notional exposure where the Firm has sold protection on the identical underlying reference instruments.

Dealer/client business

Within the dealer/client business, the Firm actively manages credit derivatives by buying and selling credit protection, predominantly on corporate debt obligations, according to client demand. For further information, see Note 5 on pages 117–124 of this Form 10-Q.

At June 30, 2011, the total notional amount of protection purchased and sold increased by $633 billion from December 31, 2010, primarily due to increased activity, particularly in the EMEA region.

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Credit portfolio activities

Use of single-name and portfolio credit derivatives	Notional amount of protection purchased and sold
(in millions)	June 30, 2011		December 31, 2010
Credit derivatives used to manage:
Loans and lending-related commitments	$	5,775	$	6,698
Derivative receivables	18,430		16,825
Total protection purchased	24,205		23,523
Total protection sold	199		415
Credit derivatives hedges notional, net	$	24,006	$	23,108

The credit derivatives used by JPMorgan Chase for credit portfolio management activities do not qualify for hedge accounting under U.S. GAAP; these derivatives are reported at fair value, with gains and losses recognized in principal transactions revenue. In contrast, the loans and lending-related commitments being risk-managed are accounted for on an accrual basis. This asymmetry in accounting treatment, between loans and lending-related commitments and the credit derivatives used in credit portfolio management activities, causes earnings volatility that is not representative, in the Firm’s view, of the true changes in value of the Firm’s overall credit exposure. The MTM value related to the Firm’s credit derivatives used for managing credit exposure, as well as the MTM value related to the CVA (which reflects the credit quality of derivatives counterparty exposure) are included in the gains and losses realized on credit derivatives disclosed in the table below. These results can vary from period to period due to market conditions that affect specific positions in the portfolio.

Gains and losses on CVA and hedges of CVA and lending-related commitments	Three months ended June 30,						Six months ended June 30,
(in millions)	2011			2010			2011			2010
Hedges of lending-related commitments	$	(31	)	$	60		$	(75	)	$	(60	)
CVA and hedges of CVA	(98		)	(289		)	(137		)	(290		)
Net gains/(losses)	$	(129	)	$	(229	)	$	(212	)	$	(350	)

Lending-related commitments

JPMorgan Chase uses lending-related financial instruments, such as commitments and guarantees, to meet the financing needs of its customers. The contractual amounts of these financial instruments represent the maximum possible credit risk should the counterparties draw down on these commitments or the Firm fulfills its obligations under these guarantees, and the counterparties subsequently fails to perform according to the terms of these contracts.

Wholesale lending-related commitments were $365.7 billion at June 30, 2011, compared with $346.1 billion at December 31, 2010, reflecting increased client activity.

In the Firm’s view, the total contractual amount of these wholesale lending-related commitments is not representative of the Firm’s actual credit risk exposure or funding requirements. In determining the amount of credit risk exposure the Firm has to wholesale lending-related commitments, which is used as the basis for allocating credit risk capital to these commitments, the Firm has established a “loan-equivalent” amount for each commitment; this amount represents the portion of the unused commitment or other contingent exposure that is expected, based on average portfolio historical experience, to become drawn upon in an event of a default by an obligor. The loan-equivalent amounts of the Firm’s lending-related commitments were $194.7 billion and $178.9 billion as of June 30, 2011, and December 31, 2010, respectively.

Country exposure

The Firm’s wholesale portfolio includes country risk exposures to both developed and emerging markets. The Firm seeks to diversify its country exposures, including its credit-related lending, derivative, trading and investment activities, whether cross-border or locally funded.

Country exposure under the Firm’s internal risk management approach is reported based on the country where the assets of the obligor, counterparty or guarantor are located or where the majority of the revenue is derived, and includes activity with both government and private-sector entities in a country. Exposure amounts include the fair value of derivative receivables and consider credit derivative protection sold and bought, based on the country of the referenced obligation. Exposure amounts, including resale agreements, are adjusted for collateral received by the Firm, for credit enhancements (e.g., guarantees and letters of credit) provided by third parties and for credit derivative protection purchased (which can be either name-specific or sovereign-referenced).  Exposures supported by a guarantor located outside the country are generally assigned to the country of the enhancement provider.   For trading and investment activities, other short credit or equity trading positions are taken into consideration.

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Several European countries, including Greece, Portugal, Spain, Italy and Ireland, have been subject to credit deterioration due to weaknesses in their economic and fiscal situations. The Firm is closely monitoring its exposures in these countries. As of June 30, 2011, aggregate net exposures to these five countries as measured under the Firm’s internal approach was approximately $14 billion.  Sovereign exposure in all five countries represented approximately 26% of the aggregate net exposure, with the majority of the sovereign exposure in Spain. The Firm’s exposure to corporate clients in all five countries represented approximately 62% of the aggregate net exposure. The Firm’s exposure to the banking sector represented approximately 12%.

The Firm currently believes its exposure to these five countries is modest relative to the Firm’s overall risk exposures and is manageable given the size and types of exposures to each of the countries and the diversification of the aggregate exposure. Net exposure is adjusted for liquid collateral held, of which approximately 90% consists of cash and non-sovereign collateral. In addition, predominately all of the credit derivative protection is purchased from investment-grade counterparties domiciled outside of these countries. 

The Firm continues to conduct business and support client activity in these countries and, therefore, the Firm’s aggregate net exposures and sector distribution may vary over time. In addition, the net exposures may be affected by changes in market conditions, including the effects of interest rates and credit spreads on market valuations.

As part of its ongoing country risk management process, the Firm monitors exposure to emerging market countries, and utilizes country stress tests to measure and manage the risk of extreme loss associated with a sovereign crisis in one or more countries. There is no common definition of emerging markets, but the Firm generally includes in its definition those countries whose sovereign debt ratings are equivalent to “A+” or lower. The table below presents the Firm’s exposure to its top 10 emerging markets countries based on its internal measurement approach. The selection of countries is based solely on the Firm’s largest total exposures by country and does not represent its view of any actual or potentially adverse credit conditions.

Top 10 emerging markets country exposure

June 30, 2011	Cross-border											Total exposure
(in billions)	Lending(a)		Trading(b)			Other(c)		Total		Local(d)
Brazil	$	4.3	$	(0.7	)	$	1.2	$	4.8	$	8.8	$	13.6
India	6.3		4.3			1.5		12.1		1.5		13.6
South Korea	2.8		1.5			1.6		5.9		5.8		11.7
China	5.1		1.3			1.5		7.9		2.3		10.2
Hong Kong	4.0		1.5			2.4		7.9		2.0		9.9
Taiwan	0.7		0.8			0.4		1.9		3.4		5.3
Malaysia	0.5		3.2			0.4		4.1		1.0		5.1
Mexico	1.8		2.3			0.5		4.6		0.1		4.7
United Arab Emirates	2.9		0.5			—		3.4		—		3.4
Chile	1.3		1.5			0.5		3.3		0.1		3.4

December 31, 2010	Cross-border										Total exposure
(in billions)	Lending(a)		Trading(b)		Other(c)		Total		Local(d)
Brazil	$	3.0	$	1.8	$	1.1	$	5.9	$	3.9	$	9.8
South Korea	3.0		1.4		1.5		5.9		3.1		9.0
India	4.2		2.1		1.4		7.7		1.1		8.8
China	3.6		1.1		1.0		5.7		1.2		6.9
Hong Kong	2.5		1.5		1.2		5.2		—		5.2
Mexico	2.1		2.3		0.5		4.9		—		4.9
Malaysia	0.6		2.0		0.3		2.9		0.4		3.3
Taiwan	0.3		0.6		0.4		1.3		1.9		3.2
Thailand	0.3		1.1		0.4		1.8		0.9		2.7
Russia	1.2		1.0		0.3		2.5		—		2.5

(a) Lending includes loans and accrued interests receivable, interests-earning deposits with banks, acceptances, other monetary assets, issued letters of credit net of participations, and undrawn commitments to extend credit.

(b) Trading includes: (1) issuer exposure on cross-border debt and equity instruments, held both in trading and investment accounts and adjusted for the impact of issuer hedges, including credit derivatives; and (2) counterparty exposure on derivative and foreign exchange contracts as well as securities financing trades (resale agreements and securities borrowed).

(c) Other represents mainly local exposure funded cross-border, including capital investments in local entities.

(d) Local exposure is defined as exposure to a country denominated in local currency and booked locally. Any exposure not meeting these criteria is defined as cross-border exposure.

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CONSUMER CREDIT PORTFOLIO

JPMorgan Chase’s consumer portfolio consists primarily of residential mortgages, home equity loans and lines of credit, credit cards, auto loans, student loans and business banking loans. The Firm’s primary focus is on serving the prime consumer credit market. For further information on the consumer loans, see Note 13 on pages 134–148 of this Form 10-Q.

A substantial portion of the consumer loans acquired in the September 2008 Washington Mutual transaction were identified as purchased credit-impaired based on an analysis of high-risk characteristics, including product type, loan-to-value (“LTV”) ratios, FICO scores and delinquency status. These PCI loans are accounted for on a pool basis, and the pools are considered to be performing. For further information on PCI loans see Note 13 on pages 134–148 of this Form 10-Q and Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report.

The credit performance of the consumer portfolio across the entire product spectrum has improved, particularly in credit card, but high unemployment and weak overall economic conditions continued to result in an elevated number of residential real estate loans that charge-off, while weak housing prices continued to negatively affect the severity of loss recognized on residential real estate loans that default. Both early-stage residential real estate delinquencies (30–89 days delinquent) and late-stage delinquencies (150+ days delinquent) have declined in 2011 but remained elevated. The elevated level of the late-stage delinquent loans is due, in part, to loss-mitigation activities currently being undertaken and to elongated foreclosure processing timelines. Losses related to these loans continued to be recognized in accordance with the Firm’s standard charge-off practices, but some delinquent loans that would otherwise have been foreclosed upon remain in the mortgage and home equity loan portfolios. Ongoing weak economic conditions, combined with elevated delinquencies and ongoing discussions regarding mortgage foreclosure-related matters with federal and state officials, continue to result in a high level of uncertainty in the residential real estate portfolio.

The Firm has taken actions since the onset of the economic downturn in 2007 to tighten underwriting and loan qualification standards and to eliminate certain products and loan origination channels, which have resulted in the reduction of credit risk and improved credit performance for recent loan vintages.

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The following table presents managed consumer credit-related information (including RFS, CS and residential real estate loans reported in the Corporate/Private Equity segment) for the dates indicated. For further information about the Firm’s nonaccrual and charge-off accounting policies, see Note 14 on pages 220–238 of JPMorgan Chase’s 2010 Annual Report.

Consumer credit portfolio									Three months ended June 30,								Six months ended June 30,
	Credit exposure				Nonaccrual loans (h)(i)				Net charge-offs				Average annual net charge-off rate(j)				Net charge-offs				Average annual net charge-off rate(j)
(in millions, except ratios)	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010		2011		2010		2011		2010		2011		2010		2011		2010
Consumer, excluding credit card
Loans, excluding PCI loans and loans held-for-sale
Home equity – senior lien(a)	$	22,969	$	24,376	$	481	$	479	$	74	$	70	1.27	%	1.06	%	$	139	$	139	1.18	%	1.05	%
Home equity – junior lien(b)	59,782		64,009		827		784		518		726		3.42		4.16		1,173		1,783		3.83		5.05
Prime mortgage, including option ARMs	74,276		74,539		4,024		4,320		199		290		1.07		1.52		370		775		1.00		2.04
Subprime mortgage	10,441		11,287		2,058		2,210		156		282		5.85		8.63		342		739		6.33		11.12
Auto(c)	46,796		48,367		111		141		19		58		0.16		0.49		66		160		0.28		0.68
Business banking	17,141		16,812		770		832		117		168		2.74		4.04		236		359		2.80		4.31
Student and other	14,770		15,311		79		67		130		168		3.50		4.24		216		246		2.88		3.02
Total loans, excluding PCI loans and loans held-for-sale	246,175		254,701		8,350		8,833		1,213		1,762		1.96		2.66		2,542		4,201		2.05		3.16
Loans – PCI(d)
Home equity	23,535		24,459		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Prime mortgage	16,200		17,322		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Subprime mortgage	5,187		5,398		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Option ARMs	24,072		25,584		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Total loans – PCI	68,994		72,763		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA
Total loans – retained	315,169		327,464		8,350		8,833		1,213		1,762		1.53		2.06		2,542		4,201		1.60		2.44
Loans held-for-sale(e)	221		154		—		—		—		—		—		—		—		—		—		—
Total consumer, excluding credit card loans	315,390		327,618		8,350		8,833		1,213		1,762		1.53		2.06		2,542		4,201		1.60		2.44
Lending-related commitments
Home equity – senior lien(a)(f)	17,265		17,662
Home equity – junior lien(b)(f)	28,586		30,948
Prime mortgage	1,117		1,266
Subprime mortgage	—		—
Auto	6,795		5,246
Business banking	10,046		9,702
Student and other	840		579
Total lending-related commitments	64,649		65,403
Total consumer exposure, excluding credit card	380,039		393,021
Credit Card
Loans retained(g)	125,523		135,524		2		2		1,810		3,721		5.82		10.20		4,036		8,233		6.40		10.99
Loans held-for-sale	—		2,152		—		—		—		—		—		—		—		—		—		—
Total credit card loans	125,523		137,676		2		2		1,810		3,721		5.82		10.20		4,036		8,233		6.40		10.99
Lending-related commitments(f)	535,625		547,227
Total credit card exposure	661,148		684,903
Total consumer credit portfolio	$	1,041,187	$	1,077,924	$	8,352	$	8,835	$	3,023	$	5,483	2.74	%	4.49	%	$	6,578	$	12,434	2.96	%	5.03	%
Memo: Total consumer credit portfolio, excluding PCI	$	972,193	$	1,005,161	$	8,352	$	8,835	$	3,023	$	5,483	3.25	%	5.34	%	$	6,578	$	12,434	3.52	%	5.98	%

(a) Represents loans where JPMorgan Chase holds the first security interest on the property.

(b) Represents loans where JPMorgan Chase holds a security interest that is subordinate in rank to other liens.

(c) At June 30, 2011, and December 31, 2010, excluded operating lease–related assets of $4.2 billion and $3.7 billion , respectively.

(d) Charge-offs are not recorded on PCI loans until actual losses exceed estimated losses that were recorded as purchase accounting adjustments at the time of acquisition. To date, no charge-offs have been recorded for these loans.

(e) Represents prime mortgage loans held-for-sale.

(f) The credit card and home equity lending–related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card commitments and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases, without notice as permitted by law.

(g) Includes billed finance charges and fees net of an allowance for uncollectible amounts.

(h) At June 30, 2011, and December 31, 2010, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $9.1 billion and $9.4 billion,

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respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $558 million and $625 million, respectively, that are 90 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. Under guidance issued by the FFIEC, credit card loans are charged off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a specified event (e.g., bankruptcy of the borrower), whichever is earlier.

(i) Excludes PCI loans that were acquired as part of the Washington Mutual transaction, which are accounted for on a pool basis. Since each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, the past-due status of the pools, or that of individual loans within the pools, is not meaningful. Because the Firm is recognizing interest income on each pool of loans, they are all considered to be performing.

(j) Average consumer loans held-for-sale were $352 million and $1.9 billion, respectively, for the three months ended June 30, 2011 and 2010, and $1.7 billion and $2.4 billion, respectively, for the six months ended June 30, 2011 and 2010. These amounts were excluded when calculating net charge-off rates.

Consumer, excluding credit card

Loan balances declined during the six months ended June 30, 2011, due to paydowns, portfolio run-off and charge-offs. Credit performance has improved across most portfolios but remains under stress. The following discussion relates to the specific loan and lending-related categories. PCI loans are generally excluded from individual loan product discussions and are addressed separately below.

Home equity: Home equity loans at June 30, 2011, were $82.8 billion, compared with $88.4 billion at December 31, 2010. The decrease in this portfolio primarily reflected loan paydowns and charge-offs. Senior lien nonaccrual loans remained relatively flat compared with December 31, 2010, while junior lien nonaccrual loans increased slightly. Early-stage delinquencies modestly improved from December 31, 2010, while net charge-offs improved from the same period of the prior year.

Approximately 20% of the Firm's owned home equity portfolio consists of home equity loans (“HELOANs”) and the remainder consists of home equity lines of credit (“HELOCs”). HELOANs are generally fixed-rate, closed-end, amortizing loans, with terms ranging from 3–30 years. Approximately half of the HELOANs are senior liens and the remainder are junior liens. In general, HELOCs are open-ended, revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period. The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty or where collateral does not support the loan amount. Because the majority of the HELOCs were funded in 2005 or later, a fully-amortizing payment is not required for the most significant portion of the HELOC portfolio until 2015 or after. The Firm regularly evaluates both the near-term and longer-term repricing risks inherent in its HELOC portfolio to ensure that the allowance for credit losses and account management practices are appropriate given the portfolio risk profile.

At June 30, 2011, the Firm estimates that its home equity portfolio contained approximately $4 billion of junior lien loans where the borrower has a first mortgage loan that is either delinquent or has been modified. Such loans are considered to pose a higher risk of default than that of junior lien loans for which the senior lien is neither delinquent nor modified. Of this estimated $4 billion balance, the Firm owns less than 5% and services approximately 30% of the related senior lien loans to these same borrowers; in these cases, the Firm knows whether the senior lien loan is either delinquent or modified. In the other cases where the Firm neither owns nor services the senior lien loan, the Firm estimates the amount of higher-risk junior lien loans. The performance of the Firm's junior lien loans is otherwise materially consistent regardless of whether the Firm owns, services or does not service the senior lien. The increased probability of default associated with these higher-risk junior lien loans was considered in estimating the allowance for loan losses.

Mortgage: Mortgage loans at June 30, 2011, including prime, subprime and loans held-for-sale, were $84.9 billion, compared with $86.0 billion at December 31, 2010. The decrease was primarily due to paydowns, portfolio run-off and charge-offs on delinquent loans, partially offset by prime mortgage originations. Net charge-offs decreased from the same period in the prior year but remained elevated.

Prime mortgages, including option adjustable-rate mortgages (“ARMs”) and loans held-for-sale at June 30, 2011, were $74.5 billion, compared with $74.7 billion at December 31, 2010. Such loans were relatively unchanged from December 31, 2010, as charge-offs on delinquent loans, paydowns, and portfolio run-off of option ARM loans were offset by prime mortgage originations. Excluding loans insured by U.S. government agencies, both early-stage and late-stage delinquencies showed modest improvement during the first half of the year but remained elevated. Nonaccrual loans showed improvement, but also remained elevated as a result of ongoing foreclosure processing delays. Net charge-offs declined year over year but remained high.

Option ARM loans, which are included in the prime mortgage portfolio, were $7.9 billion and $8.1 billion at June 30, 2011, and December 31, 2010, respectively, and represented 11% of the prime mortgage portfolio in both periods. The decrease in option ARM loans resulted from portfolio run-off, partially offset by the repurchase of loans previously securitized as the securitization entities were terminated. The Firm’s option ARM loans, other than those held in the PCI portfolio, are primarily loans with lower LTV ratios and higher borrower FICOs. Accordingly, the Firm expects substantially lower losses on this portfolio when compared with the PCI option ARM pool. As of June 30, 2011, approximately 6% of option ARM borrowers were delinquent, 4% were making interest-only or negatively amortizing payments, and 90% were making amortizing payments. Approximately 84% of borrowers within the portfolio are subject to risk of payment shock due to future payment recast, as a limited number of these loans have been modified. The cumulative amount of unpaid interest added to the unpaid principal balance due to negative

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amortization of option ARMs was not material at either June 30, 2011, or December 31, 2010. The Firm estimates the following balances of option ARM loans will experience a recast that results in a payment increase: $29 million in 2011, $297 million in 2012 and $981 million in 2013. The Firm did not originate option ARMs and new originations of option ARMs were discontinued by Washington Mutual prior to the date of JPMorgan Chase’s acquisition of its banking operations.

Subprime mortgages at June 30, 2011, were $10.4 billion, compared with $11.3 billion at December 31, 2010. The decrease was due to portfolio run-off and charge-offs on delinquent loans. Both early-stage and late-stage delinquencies improved from December 2010. However, delinquencies and nonaccrual loans remained at elevated levels. Net charge-offs improved significantly from the same period in the prior year.

Auto: Auto loans at June 30, 2011, were $46.8 billion, compared with $48.4 billion at December 31, 2010. Loan balances declined due to the impact of increased competition. Delinquent and nonaccrual loans have decreased. Net charge-offs declined from the prior year as a result of lower delinquencies and a decline in loss severity due to a strong used-car market nationwide. The auto loan portfolio reflected a high concentration of prime-quality credits.

Business banking: Business banking loans at June 30, 2011, were $17.1 billion, compared with $16.8 billion at December 31, 2010. The increase was due to growth in new loan origination volumes. These loans primarily include loans that are collateralized, often with personal loan guarantees, and may also include Small Business Administration guarantees. Delinquent loans and nonaccrual loans showed some improvement, but remain elevated. Net charge-offs declined from the prior year.

Student and other: Student and other loans at June 30, 2011, were $14.8 billion, compared with $15.3 billion at December 31, 2010. The decrease was due to paydowns in student loans. Other loans primarily include other secured and unsecured consumer loans. Delinquencies and nonaccrual loans remained elevated, while charge-offs decreased from the prior-year quarter.

Purchased credit-impaired loans: PCI loans at June 30, 2011, were $69.0 billion, compared with $72.8 billion at December 31, 2010. This portfolio represents loans acquired in the Washington Mutual transaction that were recorded at fair value at the time of acquisition.

The Firm regularly updates the amount of principal and interest cash flows expected to be collected for these loans. Probable decreases in expected loan principal cash flows would trigger the recognition of impairment through the provision for loan losses. Probable and significant increases in expected cash flows (e.g., decreased principal credit losses, the net benefit of modifications) would first reverse any previously recorded allowance for loan losses, with any remaining increase in the expected cash flows recognized prospectively in interest income over the remaining estimated lives of the underlying loans.

At both June 30, 2011, and December 31, 2010, the Firm’s allowance for loan losses for the home equity, prime mortgage, subprime mortgage and option ARM PCI pools was $1.6 billion, $1.8 billion, $98 million and $1.5 billion, respectively.

Approximately 36% of the option ARM PCI loans were delinquent, 4% were making interest-only or negatively amortizing payments, and 60% were making amortizing payments. Approximately 34% of current borrowers are subject to risk of payment shock due to future payment recast; substantially all of the remaining loans have been modified into fixed-rate, fully amortizing loans. The cumulative amount of unpaid interest added to the unpaid principal balance of the option ARM PCI pool was $1.2 billion and $1.4 billion at June 30, 2011, and December 31, 2010, respectively. The Firm estimates the following balances of option ARM PCI loans will experience a recast that results in a payment increase: $547 million in 2011, $2.4 billion in 2012 and $501 million in 2013.

The following table provides a summary of lifetime loss estimates included in both the nonaccretable difference and the allowance for loan losses. Principal charge-offs will not be recorded on these pools until the nonaccretable difference has been fully depleted.

	Lifetime loss estimates(a)				LTD liquidation losses(b)
(in billions)	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
Home equity	$	14.7	$	14.7	$	9.7	$	8.8
Prime mortgage	4.9		4.9		1.9		1.5
Subprime mortgage	3.7		3.7		1.4		1.2
Option ARMs	11.6		11.6		5.7		4.9
Total	$	34.9	$	34.9	$	18.7	$	16.4

(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses only plus additional principal losses recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses only was $11.8 billion and $14.1 billion at June 30, 2011, and December 31, 2010, respectively.

(b) Life-to-date (“LTD”) liquidation losses represent realization of loss upon loan resolution.

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Geographic composition and current LTVs of residential real estate loans

The consumer credit portfolio is geographically diverse. California has the greatest concentration of residential real estate loans with 24% of the total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans at both June 30, 2011, and December 31, 2010. Of the total retained residential real estate loan portfolio, excluding mortgage loans insured by U.S. government agencies and PCI loans, $82.7 billion, or 54%, were concentrated in California, New York, Arizona, Florida and Michigan at June 30, 2011, compared with $86.4 billion, or 54%, at December 31, 2010.

The current estimated average LTV ratio for residential real estate loans retained, excluding mortgage loans insured by U.S. government agencies and PCI loans, was 83% at both June 30, 2011 and December 31, 2010. Excluding mortgage loans insured by U.S. government agencies and PCI loans, 24% of the retained portfolio had a current estimated LTV ratio greater than 100%, and 10% of the retained portfolio had a current estimated LTV ratio greater than 125% at both June 30, 2011 and December 31, 2010. The decline in home prices since 2007 has had a significant impact on the collateral value underlying the Firm’s residential real estate loan portfolio. In general, the delinquency rate for loans with high LTV ratios is greater than the delinquency rate for loans in which the borrower has equity in the collateral. While a large portion of the loans with current estimated LTV ratios greater than 100% continue to pay and are current, the continued willingness and ability of these borrowers to pay remains uncertain.

The following table presents the current estimated LTV ratio, as well as the ratio of the carrying value of the underlying loans to the current estimated collateral value, for PCI loans. Because such loans were initially measured at fair value, the ratio of the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratio, which is based on the unpaid principal balance. The estimated collateral values used to calculate these ratios do not represent actual appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as estimates.

LTV ratios and ratios of carrying values to current estimated collateral values – PCI loans

	June 30, 2011		December 31, 2010
(in millions, except ratios)	Unpaid principal balance(a)	Current estimated LTV ratio