CORP Q3 2012

10-Q 1 corpq32012.htm FORM 10-Q CORP Q3 2012

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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	Commission file
September 30, 2012	number 1-5805

JPMorgan Chase & Co.

(Exact name of registrant as specified in its charter)



Delaware	13-2624428
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

270 Park Avenue, New York, New York	10017
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 270-6000

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

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 October 31, 2012: 3,801,401,625

FORM 10-Q

TABLE OF CONTENTS



Part I - Financial information		Page
Item 1	Consolidated Financial Statements – JPMorgan Chase & Co.:
	Consolidated statements of income (unaudited) for the three and nine months ended September 30, 2012 and 2011	112
	Consolidated statements of comprehensive income (unaudited) for the three and nine months ended September 30, 2012 and 2011	113
	Consolidated balance sheets (unaudited) at September 30, 2012, and December 31, 2011	114
	Consolidated statements of changes in stockholders’ equity (unaudited) for the nine months ended September 30, 2012 and 2011	115
	Consolidated statements of cash flows (unaudited) for the nine months ended September 30, 2012 and 2011	116
	Notes to Consolidated Financial Statements (unaudited)	117
	Report of Independent Registered Public Accounting Firm	210
	Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three and nine months ended September 30, 2012 and 2011	211
	Glossary of Terms and Line of Business Metrics	213
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	12
	Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures	15
	Business Segment Results	17
	International Operations	52
	Balance Sheet Analysis	53
	Off-Balance Sheet Arrangements	55
	Capital Management	59
	Risk Management	63
	Supervision and Regulation	106
	Critical Accounting Estimates Used by the Firm	107
	Accounting and Reporting Developments	110
	Forward-Looking Statements	111
Item 3	Quantitative and Qualitative Disclosures About Market Risk	220
Item 4	Controls and Procedures	220
Part II - Other information
Item 1	Legal Proceedings	220
Item 1A	Risk Factors	220
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	222
Item 3	Defaults Upon Senior Securities	224
Item 4	Mine Safety Disclosure	224
Item 5	Other Information	224
Item 6	Exhibits	224

JPMorgan Chase & Co.

Consolidated financial highlights



(unaudited) (in millions, except per share, headcount and ratio data)																Nine months ended September 30,
As of or for the period ended,	3Q12			2Q12			1Q12			4Q11			3Q11			2012			2011
Selected income statement data
Total net revenue	$	25,146		$	22,180		$	26,052		$	21,471		$	23,763		$	73,378		$	75,763
Total noninterest expense	15,371			14,966			18,345			14,540			15,534			48,682			48,371
Pre-provision profit	9,775			7,214			7,707			6,931			8,229			24,696			27,392
Provision for credit losses	1,789			214			726			2,184			2,411			2,729			5,390
Income before income tax expense	7,986			7,000			6,981			4,747			5,818			21,967			22,002
Income tax expense	2,278			2,040			2,057			1,019			1,556			6,375			6,754
Net income	$	5,708		$	4,960		$	4,924		$	3,728		$	4,262		$	15,592		$	15,248
Per common share data
Net income per share: Basic	$	1.41		$	1.22		$	1.20		$	0.90		$	1.02		$	3.82		$	3.60
Diluted	1.40			1.21			1.19			0.90			1.02			3.81			3.57
Cash dividends declared per share^(a)	0.30			0.30			0.30			0.25			0.25			0.90			0.75
Book value per share	50.17			48.40			47.48			46.59			45.93			50.17			45.93
Tangible book value per share^(b)	37.53			35.71			34.79			33.69			33.05			37.53			33.05
Common shares outstanding
Average: Basic	3,803.3			3,808.9			3,818.8			3,801.9			3,859.6			3,810.4			3,933.2
Diluted	3,813.9			3,820.5			3,833.4			3,811.7			3,872.2			3,822.6			3,956.5
Common shares at period-end	3,799.6			3,796.8			3,822.0			3,772.7			3,798.9			3,799.6			3,798.9
Share price^(c)
High	$	42.09		$	46.35		$	46.49		$	37.54		$	42.55		$	46.49		$	48.36
Low	33.10			30.83			34.01			27.85			28.53			30.83			28.53
Close	40.48			35.73			45.98			33.25			30.12			40.48			30.12
Market capitalization	153,806			135,661			175,737			125,442			114,422			153,806			114,422
Selected ratios
Return on common equity (“ROE”)	12		%	11		%	11		%	8		%	9		%	11		%	11		%
Return on tangible common equity (“ROTCE”)^(b)	16			15			15			11			13			15			16
Return on assets (“ROA”)	1.01			0.88			0.88			0.65			0.76			0.92			0.94
Return on risk-weighted assets^(d)	1.74			1.52			1.57			1.21			1.40			1.61			1.70
Overhead ratio	61			67			70			68			65			66			64
Deposits-to-loans ratio	158			153			157			156			157			158			157
Tier 1 capital ratio	11.9			11.3			11.9			12.3			12.1			11.9			12.1
Total capital ratio	14.7			14.0			14.9			15.4			15.3			14.7			15.3
Tier 1 leverage ratio	7.1			6.7			7.1			6.8			6.8			7.1			6.8
Tier 1 common capital ratio^(e)	10.4			9.9			9.8			10.1			9.9			10.4			9.9
Selected balance sheet data (period-end)
Trading assets	$	447,053		$	417,324		$	455,633		$	443,963		$	461,531		$	447,053		$	461,531
Securities	365,901			354,595			381,742			364,793			339,349			365,901			339,349
Loans	721,947			727,571			720,967			723,720			696,853			721,947			696,853
Total assets	2,321,284			2,290,146			2,320,164			2,265,792			2,289,240			2,321,284			2,289,240
Deposits	1,139,611			1,115,886			1,128,512			1,127,806			1,092,708			1,139,611			1,092,708
Long-term debt	241,140			239,539			255,831			256,775			273,688			241,140			273,688
Common stockholders’ equity	190,635			183,772			181,469			175,773			174,487			190,635			174,487
Total stockholders’ equity	199,693			191,572			189,269			183,573			182,287			199,693			182,287
Headcount	259,547			262,882			261,453			260,157			256,663			259,547			256,663
Credit quality metrics
Allowance for credit losses	$	23,576		$	24,555		$	26,621		$	28,282		$	29,036		$	23,576		$	29,036
Allowance for loan losses to total retained loans	3.18		%	3.29		%	3.63		%	3.84		%	4.09		%	3.18		%	4.09		%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans^(f)	2.61			2.74			3.11			3.35			3.74			2.61			3.74
Nonperforming assets	$	12,481		$	11,397		$	11,953		$	11,315		$	12,468		$	12,481		$	12,468
Net charge-offs	2,770			2,278			2,387			2,907			2,507			7,435			9,330
Net charge-off rate	1.53		%	1.27		%	1.35		%	1.64		%	1.44		%	1.39		%	1.83		%


(a)	On March 13, 2012, the Board of Directors increased the Firm’s quarterly stock dividend from $0.25 to $0.30 per share.

(b)

Tangible book value per share and ROTCE are non-GAAP financial ratios. ROTCE measures the Firm’s earnings as a percentage of tangible common equity. Tangible book value per share represents the Firm’s tangible common equity divided by period-end common shares. For further discussion of these ratios, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 15–16 of this Form 10-Q.


(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)	Return on Basel I risk-weighted assets is the annualized earnings of the Firm divided by its average risk-weighted assets.


(e)	Basel I Tier 1 common capital ratio (“Tier 1 common ratio”) is Tier 1 common capital (“Tier 1 common”) divided by risk-weighted assets. The Firm uses Tier 1 common capital along with the other capital measures to assess and monitor its capital position. For further discussion of Tier 1 common capital ratio, see Regulatory capital on pages 59–61 of this Form 10-Q.


(f)	Excludes the impact of residential real estate purchased credit-impaired (“PCI”) loans. For further discussion, see Allowance for credit losses on pages 93–95 of this Form 10-Q.



INTRODUCTION

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. See the Glossary of terms on pages 213–216 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. These statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause JPMorgan Chase’s actual results to differ materially from those risks and uncertainties, see Forward-looking Statements on page 111 and Part II, Item 1A: Risk Factors, on pages 220–222 of this Form 10-Q; Part II, Item 1A: Risk Factors, on pages 175–175A of the Firm’s Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2012; Part II, Item 1A: Risk Factors, on pages 219–222 of the Firm’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012; and Part I, Item 1A, Risk Factors, on pages 7–17 of JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the U.S. Securities and Exchange Commission (“2011 Annual Report” or “2011 Form 10-K”), to which reference is hereby made.

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 operations worldwide; the Firm has $2.3 trillion in assets and $199.7 billion in stockholders’ equity as of September 30, 2012. The Firm is a leader in investment banking, financial services for consumers and small businesses, 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 U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national bank that is the Firm’s credit card–issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J.P. Morgan Securities plc (formerly J.P. Morgan Securities Ltd.), a subsidiary of JPMorgan Chase Bank, N.A.

JPMorgan Chase’s activities at the end of the third quarter 2012 were organized, for management reporting purposes, into six major business segments. In addition, there is a Corporate/Private Equity segment. 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 & Auto 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 and mobile banking and telephone banking. RFS is organized into Consumer & Business Banking and Mortgage Banking (including Mortgage Production and Servicing, and Real Estate Portfolios). Consumer & Business Banking offers deposit and investment products and services to consumers and lending, deposit and cash management, and payment solutions to small businesses. Mortgage Production and Servicing includes mortgage origination and servicing activities. Real Estate Portfolios comprises residential mortgages and home equity loans, including the PCI portfolio acquired in the Washington Mutual transaction. Customers can use nearly 5,600 bank branches (second largest nationally) and nearly 18,500 ATMs (largest nationally), as well as online and mobile banking around the clock. More than 32,800 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. As one of the largest mortgage originators in the U.S., Chase helps customers buy or refinance homes resulting in more than $150 billion of mortgage originations annually. Chase also services approximately 8 million mortgages and home equity loans.

Card Services & Auto

Card Services & Auto (“Card”) is one of the nation’s largest credit card issuers, with over $124 billion in credit card loans. Customers have nearly 64 million open credit card accounts (excluding the commercial card portfolio), and used Chase credit cards to meet over $279 billion of their spending needs in the nine months ended September 30, 2012. Consumers can obtain loans through more than 17,400 auto dealerships. Chase customers also can obtain student loans for attendance at eligible schools and universities nationwide. Through its Merchant Services business, Chase Paymentech Solutions, Card 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 U.S. and U.S. multinational clients, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from $10 million to $2 billion. In addition, CB provides financing to real estate investors and owners. Partnering with the Firm’s other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.

Treasury & Securities Services

Treasury & Securities Services (“TSS”) is a global leader in transaction, investment and information services. TSS is one of the world’s largest cash management providers and a leading global custodian. Treasury Services (“TS”) provides cash management, trade, wholesale card and liquidity products and services to small- and mid-sized companies, multinational corporations, financial institutions and government entities. TS partners with IB, CB, RFS and Asset Management businesses to serve clients firmwide. Certain TS revenue is included in other segments’ results. Worldwide Securities Services (“WSS”) 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 $2.0 trillion as of September 30, 2012, 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.

In addition to the six major reportable business segments outlined above, the following is a description of Corporate/Private Equity.

Corporate/Private Equity

The Corporate/Private Equity sector comprises Private Equity, Treasury, Chief Investment Office (“CIO”), and Other Corporate, which includes corporate staff units and expense that is centrally managed. Treasury and CIO manage capital and liquidity of the Firm. The corporate staff units include Central Technology and Operations, Audit, Executive, Finance, Human Resources, Corporate Marketing, Internet & Mobile, Legal & Compliance, Global Real Estate, General Services, Risk Management, and Corporate Responsibility & Public Policy. Other centrally managed expense includes the Firm’s occupancy and pension-related expense that are subject to allocation to the businesses.

Business segment changes

On July 27, 2012, the Firm announced that it will be reorganizing its business segments to reflect the manner in which the segments will be managed. The reorganization of the business segments is expected to be effective beginning in the fourth quarter of 2012. As a result, Retail Financial Services and Card Services & Auto businesses will be combined to form the Consumer & Community Banking segment. The Investment Bank and Treasury & Securities Services businesses will be combined to form the Corporate & Investment Bank segment. Asset Management and Commercial Banking will remain unchanged. In addition, Corporate/Private Equity will not be significantly affected.



EXECUTIVE OVERVIEW

This executive overview of the 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 global economy continued to expand in the third quarter of 2012, but reflected regional differences.

The U.S. economy grew at a modest pace. The U.S. unemployment rate declined to 7.8% at the end of the third quarter as U.S. labor market conditions continued to improve at a slow pace. The U.S. housing sector continued to show signs of improvement: excess inventories were reduced, prices began to rise and affordability improved in most areas of the country as household incomes stabilized and mortgage rates declined. During the third quarter, homebuilder confidence improved to the highest level in six years and housing starts increased to the highest level in four years. The multifamily and rental sector continued to benefit from robust demand. Business fixed investment remained solid; although slower in recent months as nonresidential construction declined, investments in equipment and software remained strong.

The Board of Governors of the Federal Reserve System (the “Federal Reserve”) maintained the target range for the

federal funds rate at zero to one quarter percent and guided that economic conditions are likely to warrant exceptionally low levels for the federal funds rate, at least through late 2015. Additionally, the Federal Reserve announced a new asset purchase program that would be open-ended and is intended to speed up the pace of the U.S. economic recovery and produce sustained improvement in the labor market.

Asia’s developing economies continued to expand, although growth was significantly slower than earlier in the year, reducing global inflationary pressures.

During the third quarter of 2012, the European Central Bank (“ECB”) announced a new government bond-buying program referred to as the Outright Monetary Transactions (“OMT”) plan. The plan includes the ECB’s conditional pledge to purchase “unlimited” amounts of the government bonds of the region’s troubled nations and is intended shore up confidence in the Euro. With the announcement of the OMT plan and other actions by the ECB, concerns over the European monetary union have recently receded.

The U.S. economy is likely to be affected by the continuing uncertainty about Europe’s financial crisis, the Federal Reserve’s monetary policy, and the fiscal debate over taxes and spending that is expected to occur later in 2012, among other factors.



Financial performance of JPMorgan Chase
	Three months ended September 30,								Nine months ended September 30,
(in millions, except per share data and ratios)	2012			2011			Change		2012			2011			Change
Selected income statement data
Total net revenue	$	25,146		$	23,763		6	%	$	73,378		$	75,763		(3	)%
Total noninterest expense	15,371			15,534			(1	)	48,682			48,371			1
Pre-provision profit	9,775			8,229			19		24,696			27,392			(10	)
Provision for credit losses	1,789			2,411			(26	)	2,729			5,390			(49	)
Net income	5,708			4,262			34		15,592			15,248			2
Diluted earnings per share	1.40			1.02			37	%	3.81			3.57			7	%
Return on common equity	12		%	9		%			11		%	11		%
Capital ratios
Tier 1 capital	11.9			12.1
Tier 1 common	10.4			9.9

Business Overview

JPMorgan Chase reported record third-quarter 2012 net income of $5.7 billion, or a record $1.40 per share, on net revenue of $25.1 billion. Net income increased by $1.4 billion, or 34%, compared with net income of $4.3 billion, or $1.02 per share, in the third quarter of 2011. ROE for the quarter was 12%, compared with 9% for the prior-year quarter. Results in the third quarter of 2012 included the following significant items: $900 million pretax benefit ($0.14 per share after-tax increase in earnings) from a reduction in the allowance for loan losses in Real Estate

Portfolios; $825 million pretax incremental charge-offs ($0.13 per share after-tax decrease in earnings) due to regulatory guidance on certain residential loans in Real Estate Portfolios; $888 million pretax benefit ($0.14 per share after-tax increase in earnings) due to extinguishment gains on redeemed trust preferred capital debt securities in Corporate; $684 million pretax expense ($0.11 per share after-tax decrease in earnings) for additional litigation reserves in Corporate. The tax rate used for each of the above significant items is 38%; for additional information, see the discussion at the end of this section on pages 8–9.

The increase in net income from the third quarter of 2011 was driven by higher net revenue, a lower provision for credit losses and lower noninterest expense. The increase in net revenue as compared with the prior year was due to higher mortgage fees and related income, higher principal transactions revenue, and higher investment banking fees. Net interest income decreased compared with the prior year, reflecting the impact of low interest rates, as well as lower average trading balances, faster prepayment of mortgage-backed securities, limited reinvestment opportunities and the run off of higher-yielding loans, partially offset by lower deposit costs.

Results in the third quarter of 2012 reflected positive credit trends for the consumer real estate and credit card portfolios. The provision for credit losses was $1.8 billion, down $622 million, or 26%, from the prior year. The total consumer provision for credit losses was $1.9 billion, down $432 million from the prior year. The decrease in the consumer provision reflected a $900 million reduction of the allowance for loan losses related to the mortgage portfolio due to improved delinquency trends and lower estimated losses. Consumer net charge-offs were $2.8 billion, compared with $2.7 billion in the prior year, resulting in net charge-off rates of 3.10% and 2.84%, respectively. The increase in consumer net charge-offs was primarily due to incremental charge-offs of $825 million for certain residential real estate loans recorded in accordance with regulatory guidance requiring loans discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) to be charged off to the net realizable value of the collateral and to be considered nonaccrual, regardless of their delinquency status. The wholesale provision for credit losses was a benefit of $63 million compared with an expense of $127 million in the prior year. Wholesale net recoveries were $34 million, compared with net recoveries of $151 million in the prior year, resulting in net recovery rates of 0.05% and 0.24%, respectively. The Firm’s allowance for loan losses to end-of-period loans retained was 2.61%, compared with 3.74% in the prior year.

The Firm’s nonperforming assets totaled $12.5 billion at September 30, 2012, up from the prior-quarter level of $11.4 billion and flat compared with the prior-year level of $12.5 billion. The current quarter included $1.7 billion of Chapter 7 loans which were reported as nonaccrual as discussed above. The current quarter nonaccrual loans also reflected the effect of regulatory guidance implemented in the first quarter of 2012, as a result of which the Firm began reporting performing junior liens that are subordinate to senior liens that are 90 days or more past due, as nonaccrual loans. Such junior liens were $1.3 billion in the current quarter and $1.5 billion in the prior quarter.

Loans increased $25.1 billion from the third quarter of 2011; this increase was due to a $42.8 billion increase in the wholesale loan portfolio across the lines of business, partially offset by a $17.7 billion decrease in the consumer

loan portfolio, reflecting net runoff, primarily in the real estate portfolios.

Noninterest expense was $15.4 billion, down $163 million, or 1%, compared with the prior year. The current quarter included pretax expense of $790 million for additional litigation reserves. The prior year included pretax expense of $1.3 billion for additional litigation reserves.

The Firm’s results reflected continued momentum in all of its businesses. The Investment Bank reported favorable Fixed Income Markets results and maintained its #1 ranking for Global Investment Banking fees. Consumer & Business Banking average deposits were up 9% and Business Banking loan balances grew for the eighth consecutive quarter to a record $19 billion, up 8% compared with the prior year. Mortgage Banking originations were $47 billion, up 29%, compared with the prior year. Credit Card sales volume, excluding Commercial Card, was up 11% compared with the prior year. Commercial Banking reported record revenue and grew loan balances for the ninth consecutive quarter to a record $124 billion, up 15% compared with the prior year. Treasury & Securities Services assets under custody rose to a record $18.2 trillion, up 12% compared with the prior year. Asset Management reported positive net long-term product flows for the fourteenth consecutive quarter and record loan balances of $75 billion.

Net income for the first nine months of 2012 was $15.6 billion, or $3.81 per share, compared with $15.2 billion, or $3.57 per share, for the first nine months of 2011. The increase was driven by a lower provision for credit losses, partially offset by lower net revenue. The decline in net revenue for the first nine months of the year was driven by lower principal transactions revenue, reflecting losses from the synthetic credit portfolio, and lower investment banking fees, predominantly offset by higher mortgage fees and related income. The lower provision for credit losses reflected an improved consumer credit environment. Noninterest expense was flat compared with the first nine months of 2011.

The Firm strengthened its balance sheet, ending the third quarter with Basel I Tier 1 common capital of $135 billion, or 10.4%, compared with $120 billion, or 9.9%, in the third quarter of 2011. The Firm estimated that its Basel III Tier 1 common ratio was approximately 8.4% at September 30, 2012, taking into account the impact of final Basel 2.5 rules and the Federal Reserve’s Notice of Proposed Rulemaking (“NPR”). (The Basel I and III Tier 1 common ratios are non-GAAP financial measures, which the Firm uses along with the other capital measures, to assess and monitor its capital position. For further discussion of the Tier 1 common capital ratios, see Regulatory capital on pages 59–61 of this Form 10-Q.)

JPMorgan Chase serves clients, consumers, companies, and communities around the globe. The Firm provided credit and raised capital of over $1.3 trillion for commercial and consumer clients during the first nine months of 2012. This

included more than $15 billion of credit provided for U.S. small businesses, an increase of 21% compared with the same period last year; and $52 billion of capital raised and credit provided so far this year for more than 1,300 nonprofit and government entities, including states, municipalities, hospitals and universities.

Investment Bank net income decreased from the prior year, reflecting higher noninterest expense and lower net revenue, largely offset by a benefit from the provision for credit losses compared with a provision for credit losses in the prior year. Net revenue included a $211 million loss from debit valuation adjustments (“DVA”) on certain structured and derivative liabilities resulting from the tightening of the Firm’s credit spreads, compared with a gain of $1.9 billion in the prior year. Excluding the impact of DVA, Fixed Income and Equity Markets combined revenue was up 24% compared with the prior year, driven by solid client revenue and broad-based strength across the Fixed Income businesses. The portion of the synthetic credit portfolio transferred from CIO in Corporate to IB on July 2, 2012, experienced a modest loss, which was included in Fixed Income Markets revenue. Investment banking fees were up 38% compared with the prior year primarily due to stronger results in debt underwriting. Noninterest expense increased compared with the prior year, driven by higher compensation expense, partially offset by lower noncompensation expense.

Retail Financial Services net income increased compared with the prior year, reflecting an increase in net revenue and a lower provision for credit losses, partially offset by increased noninterest expense. Net revenue increased as higher noninterest revenue was driven by higher mortgage fees and related income, partially offset by lower debit card revenue; while net interest income declined driven by lower deposit margins and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. The provision for credit losses declined compared with the prior year. The current-quarter provision reflected a $900 million reduction in the allowance for loan losses. Current-quarter total net charge-offs were $1.5 billion, including $825 million of incremental charge-offs of Chapter 7 loans. Noninterest expense increased from the prior year as a result of higher mortgage production expense and higher servicing expense, as well as investments in sales force and new branch builds.

Card Services & Auto net income increased compared with the prior year as lower noninterest expense and lower provision for credit losses was partially offset by lower net revenue. The provision for credit losses was $1.2 billion, compared with $1.3 billion in the prior year. The current-quarter provision reflected lower net charge-offs and a small reduction in the allowance for loan losses. The prior-year provision included a $370 million reduction in the allowance for loan losses. Noninterest expense declined compared with the prior year, driven by lower marketing expense.

Commercial Banking net income increased compared with the prior year, reflecting an increase in net revenue and lower provision for credit losses, partially offset by higher expense. Net revenue was a record reflecting growth in loan and liability balances and increased investment banking revenue, partially offset by spread compression on loan products. Noninterest expense increased compared with the prior year, reflecting higher headcount-related expense.

Treasury & Securities Services net income increased compared with the prior year, reflecting higher net revenue. Treasury Services net revenue increased compared with the prior year, driven by higher deposit balances and higher trade finance loan volumes. Worldwide Securities Services net revenue increased compared with the prior year, driven by higher deposit balances.

Asset Management net income increased compared with the prior year, reflecting higher net revenue, lower noninterest expense and lower provision for credit losses. Net revenue increased as higher valuations of seed capital investments and the impact of net product inflows were offset by the absence of a prior-year gain on the sale of an investment and lower loan-related revenue. Net interest income increased primarily due to higher deposit and loan balances. Noninterest expense decreased from the prior year, due to the absence of non-client-related litigation expense, partially offset by higher performance-based compensation.

Corporate/Private Equity reported net income, compared with a net loss in the prior year. Private Equity reported a lower net loss, compared with the prior year. Net revenue was a lower loss compared with the prior year, due to lower net valuation losses on both private and public investments. Treasury and CIO reported net income, compared with a net loss in the prior year. Net revenue increased compared with the prior year. The current-quarter revenue reflected $888 million of pretax extinguishment gains related to the redemption of trust preferred capital debt securities. Principal transactions in CIO included $449 million of losses on the index credit derivative positions that had been retained by it following the transfer of the synthetic credit portfolio to IB on July 2, 2012, reflecting credit spread tightening during the quarter. By the end of the third quarter of 2012, CIO effectively closed out these positions. Net interest income was negative, reflecting the impact of lower portfolio yields and higher deposit balances across the Firm. Net revenue also included securities gains of $459 million from sales of available-for-sale (“AFS”) investment securities during the current quarter. Other Corporate reported a lower net loss, compared with the prior year. The third quarter included pretax expense of $684 million for additional litigation reserves. The prior year included pretax expense of $1.0 billion for additional litigation reserves , predominantly for mortgage-related matters.

Note: The Firm uses a single U.S.-based, blended marginal tax rate of 38% (“the marginal rate”) to report the estimated

after-tax effects of each significant item affecting net income. This rate represents the weighted-average marginal tax rate for the U.S. consolidated tax group. The Firm uses this single marginal rate to reflect the tax effects of all significant items because (a) it simplifies the presentation and analysis for management and investors; (b) it has proved to be a reasonable estimate of the marginal tax effects; and (c) often there is uncertainty at the time a significant item is disclosed regarding its ultimate tax outcome.

2012 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 111 and Risk Factors on pages 220–222 of this Form 10-Q.

JPMorgan Chase’s outlook for the remainder of 2012 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 Consumer & Business Banking business within RFS, the Firm estimates that, given the current low interest rate environment, continued deposit spread compression could negatively affect annual net income by over $400 million. It is possible that this decline may be offset by deposit balance growth, although the exact extent of any such deposit growth cannot be determined at this time.

In the Mortgage Production and Servicing business within RFS, management expects to continue to incur elevated default- and foreclosure-related costs, including additional costs associated with the Firm’s mortgage servicing processes, particularly its loan modification and foreclosure procedures. (See Mortgage servicing-related matters on pages 89–91 and Note 16 on pages 184–187 of this Form 10-Q.) In addition, management believes that the high production margins experienced in the third quarter of 2012 will not be sustainable over time. Management also expects there will be continued elevated levels of repurchases of mortgages previously sold, predominantly to U.S. government-sponsored entities (“GSEs”). However, based on current trends and estimates, management believes that the existing mortgage repurchase liability is sufficient to cover such losses.

For Real Estate Portfolios within RFS, management believes that total quarterly net charge-offs may be approximately $600 million, subject to economic uncertainty. If positive credit trends in the residential real estate portfolio continue or accelerate and economic uncertainty does not increase, the related allowance for loan losses may be reduced over

time. Given management’s current estimate of net portfolio runoff levels, the residential real estate portfolio is expected to decline by approximately 10% to 12% in 2012 from year-end 2011 levels. This reduction in the residential real estate portfolio can be expected to reduce annual net interest income by approximately $500 million. However, over time, the reduction in net interest income should be offset by an improvement in credit costs and lower expenses.

In Card Services & Auto, the Firm expects that further reductions in the allowance for loan losses for the credit card portfolio may be at or near an end, given the current stage of the credit cycle within the credit card business.

The currently anticipated results for RFS and Card described above could be affected by adverse economic conditions, including further declines in U.S. housing prices or increases in the unemployment rate. Management continues to closely monitor the portfolios in these businesses in light of current economic uncertainty.

In Private Equity, within the Corporate/Private Equity segment, earnings will likely continue to be volatile and influenced by capital markets activity, market levels, the performance of the broader economy and investment-specific issues.

For Treasury and CIO, within the Corporate/Private Equity segment, management currently believes that the segment may generate a net loss of approximately $300 million for the fourth quarter of 2012 (which may vary positively or negatively by approximately $100 million) driven by the implied yield curve and management decisions related to the positioning of the investment securities portfolio.

For Other Corporate, within the Corporate/Private Equity segment, management expects quarterly net income, excluding material litigation expense and significant nonrecurring items, if any, to be approximately $100 million, but this is likely to vary each quarter.

The Firm’s net yield on interest-earning assets is expected to be under continued modest pressure in the fourth quarter of 2012, reflecting the continued low interest rate environment. The Firm’s total noninterest expense for the second half of 2012, excluding Corporate litigation expense and compensation expense for IB, is expected to be comparable to the level for the first half of 2012. This anticipated level of noninterest expense includes elevated costs in Mortgage Banking as a result of higher production costs associated with strong origination volumes and elevated default-related servicing costs, including costs associated with the Consent Orders entered into with the banking regulators relating to the Firm’s residential mortgage servicing and higher costs across the Firm associated with compliance, legal fees and FDIC assessments. See Mortgage servicing-related matters on pages 89–91 of this Form 10-Q for a discussion of the Consent Orders.

CIO synthetic credit portfolio update

On August 9, 2012, the Firm restated its previously-filed interim financial statements for the quarterly period ended March 31, 2012. The restatement related to valuations of certain positions in the synthetic credit portfolio of the Firm’s CIO. The restatement had the effect of reducing the Firm’s reported net income for the three months ended March 31, 2012, by $459 million. The restatement had no impact on any of the Firm’s Consolidated Financial Statements as of June 30, 2012, and December 31, 2011, or for the three and six months ended June 30, 2012 and 2011. For more information about the restatement and the related valuation matter, please see our second quarter report on Form 10-Q filed on August 9, 2012.

Management also determined that a material weakness existed in the Firm’s internal control over financial reporting at March 31, 2012. Management has taken steps to remediate the material weakness, including enhancing management supervision of valuation matters. These remedial steps were substantially implemented by June 30, 2012; however, in accordance with the Firm’s internal control compliance program, the material weakness designation could not be closed until the remedial processes were operational for a period of time and successfully tested. The testing was successfully completed during the third quarter of 2012 and the control deficiency was closed at September 30, 2012. For additional information concerning the remedial changes in, and related testing of, the Firm’s internal control over financial reporting, see Part I, Item 4: Controls and Procedures on page 220 of this Form 10-Q.

On July 2, 2012, the majority of the synthetic credit portfolio was transferred from the CIO to the Firm’s IB, which has the expertise, trading platforms and market franchise to manage these positions to maximize their economic value. An aggregate position of approximately $12 billion notional was retained in CIO. Losses incurred by CIO on the portfolio retained by CIO were $449 million (recorded in principal transactions revenue) during the third quarter of 2012, reflecting credit spread tightening. By the end of the third quarter of 2012, CIO effectively closed out the index credit derivative positions that had been retained by it following the transfer. IB continues to actively manage and reduce the risks in the remaining synthetic credit portfolio that was transferred to it on July 2, 2012; this portion of the portfolio experienced a modest loss during the third quarter of 2012, which was included in Fixed Income Markets Revenue for IB (and also recorded in the principal transactions revenue line item of the income statement).

On July 13, 2012, management summarized its observations arising out of its internal review of CIO-related matters. That review, which is being overseen by an independent Review Committee of the Board of Directors, is expected to be concluded early in the first quarter of 2013, along with the Review Committee’s own independent work.

The reported trading losses have resulted in litigation

against the Firm, as well as heightened regulatory scrutiny, and may lead to additional regulatory or legal proceedings. Such regulatory and legal proceedings may expose the Firm to fines, penalties, judgments or losses, harm the Firm’s reputation or otherwise cause a decline in investor confidence. For a description of the regulatory and legal developments relating to the CIO matters described above, see Note 23 on pages 196–206 of this Form 10-Q.

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 supervision, 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.

In June 2011, the Basel Committee announced an agreement to require global systemically important banks (“GSIBs”) to maintain Tier 1 common requirements above the 7% minimum in amounts ranging from an additional 1% to an additional 2.5%. In November 2012, the Financial Stability Board (“FSB”) designated the Firm, as well as three other banks, as GSIBs and indicated that it would require such designated institutions to hold the additional 2.5% of Tier 1 common in accordance with these requirements. For additional information see Regulatory capital on pages 59–61 of this Form 10-Q.

The Firm expects heightened scrutiny by its regulators of its compliance with new and existing regulations, including those issued under the Unfair and Deceptive Acts or Practices laws, the Bank Secrecy Act, the Real Estate Settlement Procedures Act ("RESPA"), The Truth in Lending Act, and the laws administered by the Office of Foreign Assets Control, among others. The Firm is also under scrutiny by its supervisors with respect to its controls and operational processes, such as those relating to model development, review, governance and approvals. The Firm expects that it will more frequently be the subject of more formal enforcement actions, rather than informal supervisory actions or criticisms. While the Firm has made a preliminary assessment of the likely impact of this heightened regulatory scrutiny and anticipated changes in law, given the current status of regulatory and supervisory developments, the Firm cannot quantify the possible effects on its business and operations of all the significant changes that are currently underway.

Comprehensive Capital Analysis and Review (“CCAR”) update

In August 2012, the Firm resubmitted its capital plan to the Federal Reserve under the 2012 CCAR process. The resubmitted capital plan related to the repurchase of up to $3.0 billion of common equity in the first quarter of 2013.

The Firm's resubmission provided for the continued payment of its current quarterly common stock dividend. On November 5, 2012, the Federal Reserve informed the Firm that it had completed its review and that it did not object to the Firm's resubmitted capital plan.

The timing and exact amount of common stock and warrant purchases under the repurchase program will be consistent with the Firm's capital plan and will depend on various factors, including market conditions; the Firm's capital position; internal capital generation; the amount of equity issued under the Firm's employee stock-based plans; organic and other investment opportunities; and legal and regulatory considerations affecting the amount and timing of repurchase activity. The repurchase program does not include specific price targets, may be executed through open market purchases or privately negotiated transactions, including utilizing Rule 10b5-1 programs, and may be suspended at any time.

Management expects to submit its capital plan for the last three quarters of 2013 and the first quarter of 2014 to the Federal Reserve under the Federal Reserve's 2013 CCAR process, pursuant to the Federal Reserve's schedule. Management expects to receive further details from the Federal Reserve related to the 2013 CCAR process by mid-November 2012.

Subsequent events – Hurricane Sandy

On October 29, 2012, the mid-Atlantic and Northeast regions of the U.S. were affected by Hurricane Sandy, which caused major flooding and wind damage and resulted in major disruptions to individuals and businesses and significant damage to homes and communities in the affected regions. Despite the damage and disruption to many of its branches and facilities, the Firm has been assisting its customers, clients and borrowers in the affected areas. The Firm has continued to dispense cash via ATMs and branches, loan money, provide liquidity to customers, and settle trades, and has waived a number of checking account and loan fees, including late payment fees. The potential financial impact from Hurricane Sandy on the Firm will be dependent upon a number of factors, such as the amount of credit extended to affected persons and businesses, the extent of damage, and the borrower's financial condition, including the amount of insurance proceeds and governmental assistance available to them. The Firm is in the early stages of quantifying the potential impact from Hurricane Sandy on its financial results of operations.



CONSOLIDATED RESULTS OF OPERATIONS

The following section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis for the three and nine months ended September 30, 2012 and 2011. 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 107–109 of this Form 10-Q and pages 168–172 of JPMorgan Chase’s 2011 Annual Report.



Revenue
	Three months ended September 30,						Nine months ended September 30,
(in millions)	2012		2011		Change		2012		2011		Change
Investment banking fees	$	1,443	$	1,052	37	%	$	4,081	$	4,778	(15	)%
Principal transactions	2,047		1,370		49		4,342		9,255		(53	)
Lending- and deposit-related fees	1,562		1,643		(5	)	4,625		4,838		(4	)
Asset management, administration and commissions	3,336		3,448		(3	)	10,189		10,757		(5	)
Securities gains	458		607		(25	)	2,008		1,546		30
Mortgage fees and related income	2,377		1,380		72		6,652		1,996		233
Credit card income	1,428		1,666		(14	)	4,156		4,799		(13	)
Other income	1,519		780		95		3,537		2,236		58
Noninterest revenue	14,170		11,946		19		39,590		40,205		(2	)
Net interest income	10,976		11,817		(7	)	33,788		35,558		(5	)
Total net revenue	$	25,146	$	23,763	6	%	$	73,378	$	75,763	(3	)%

Total net revenue for the third quarter of 2012 was $25.1 billion, up by $1.4 billion, or 6%, from the third quarter of 2011. The increase in the third quarter of 2012 was due to higher mortgage fees and related income, principal transactions revenue, and other income, partially offset by lower net interest income. For the first nine months of 2012, total net revenue was $73.4 billion, down by $2.4 billion, or 3%, from the first nine months of 2011. The decrease in the first nine months of 2012 was predominantly driven by lower principal transactions revenue and net interest income, partially offset by higher mortgage fees and related income.

Investment banking fees for the third quarter of 2012 increased significantly compared with the prior year, reflecting higher revenue across products, particularly debt underwriting. For the first nine months of 2012, investment banking fees decreased, largely driven by lower revenue across products, primarily due to lower industry-wide volumes. For additional information on investment banking fees, which are primarily recorded in IB, see IB segment results pages 19–23 of this Form 10-Q.

Principal transactions revenue increased in the third quarter of 2012 compared with the prior year. The increase primarily reflected lower net valuation losses on both private and public investments in Corporate/Private Equity. The third quarter of 2012 included a DVA loss on certain structured and derivative liabilities of $211 million, compared with a gain of $1.9 billion in the prior year. Excluding DVA, principal transactions revenue in IB increased significantly, driven by solid client revenue and broad-based strength across the Fixed Income businesses. The third quarter of 2012 also included $449 million of losses recorded in CIO on the index credit derivative positions retained by CIO; the portfolio that was transferred

to IB effective on July 2, 2012, experienced a modest loss.

For the first nine months of 2012, principal transactions revenue decreased, reflecting $5.8 billion of losses incurred by CIO for the six months ended June 30, 2012 and $449 million of losses incurred by CIO for the three months ended September 30, 2012, and an additional modest loss incurred by the IB from the synthetic credit portfolio, and to a lesser extent, lower private equity gains in Corporate/Private Equity. The decrease for the nine-month period was partially offset by a $663 million gain recognized in Other Corporate for the expected recovery on a Bear Stearns-related subordinated loan; and higher market-making revenue in IB, driven by solid client revenue (including a DVA loss of $363 million resulting from the tightening of the Firm’s credit spreads, compared with a gain of $2.0 billion in 2011). For additional information on principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 19–23 and 49–51, respectively, and Note 6 on pages 144–145 of this Form 10-Q.

Lending- and deposit-related fees decreased modestly in the third quarter and first nine months of 2012. The decrease was in both lending and deposit fees, and was spread across the wholesale and consumer businesses of the Firm. For additional information on lending- and deposit-related fees, which are mostly recorded in RFS, CB, TSS and IB, see RFS on pages 24–33, CB on pages 38–40, TSS on pages 41–44 and IB segment results on pages 19–23 of this Form 10-Q.

Asset management, administration and commissions revenue decreased in the third quarter and first nine months of 2012. The decrease for both periods was largely driven by lower brokerage commissions in IB. The first nine months of 2012 also reflected lower asset management fees in AM, in particular, performance fees, which were offset by higher investment service fees in RFS, as a result

of growth in branch sales of investment products. For additional information on these fees and commissions, see the segment discussions for IB on pages 19–23, RFS on pages 24–33, AM on pages 45–48 and TSS on pages 41–44 of this Form 10-Q.

Securities gains for both the three and nine months ended September 30, 2012, compared with the prior year periods, reflected the results of repositioning of the CIO AFS portfolio. For additional information on securities gains see the Corporate/Private Equity segment discussion on pages 49–51 of this Form 10-Q.

Mortgage fees and related income increased significantly compared with both the third quarter and first nine months of 2011. The increase resulted from higher production revenue, reflecting wider margins driven by favorable market conditions, and higher volumes due to historically low interest rates and the Home Affordable Refinance Programs (“HARP”), as well as higher net mortgage servicing revenue. The increase in net mortgage servicing revenue for the first nine months of 2012 also included a favorable swing in the mortgage servicing rights (“MSR”) risk management results (reflecting a gain of $577 million in 2012 compared with a loss of $1.2 billion in 2011). For additional information on mortgage fees and related income, which is recorded predominantly in RFS, see RFS’s Mortgage Production and Servicing discussion on pages 28–30, and Note 16 on pages 184–187 of this Form 10-Q. For additional information on repurchase losses, see the Mortgage repurchase liability discussion on pages 55–58 and Note 21 on pages 192–196 of this Form 10-Q.

Credit card income decreased in both the third quarter and first nine months of 2012. The decrease for both periods was driven by lower debit card revenue, reflecting the impact of the Durbin Amendment, and to a lesser extent, higher amortization of direct loan origination costs. The decrease in credit card income was offset partially by

higher net interchange income associated with growth in credit card transaction volume, and higher merchant servicing revenue. For additional information on credit card income, see the Card and RFS segment results on pages 34–37, and pages 24–33, respectively, of this Form 10-Q.

Other income increased compared with the third quarter of 2011, driven by an $888 million extinguishment gain in Corporate/Private Equity related to the redemption of trust preferred capital debt securities (“TruPS”). The extinguishment gain was related to adjustments applied to the cost basis of the TruPS during the period they were in a qualified hedge accounting relationship. Other income increased in the first nine months of 2012, predominantly due to a $1.1 billion benefit recognized in the first quarter of 2012 from the Washington Mutual bankruptcy settlement and the aforementioned extinguishment gain; these were offset partially by the absence of a prior-year gain on the sale of an investment in AM.

Net interest income decreased in both the third quarter and first nine months of 2012 compared with the prior year. The declines in both periods reflected the impact of lower average trading asset balances, faster prepayment of mortgage-backed securities, limited reinvestment opportunities, the runoff of higher-yielding loans, and the impact of lower interest rates across the Firm’s interest-earning assets. The decrease in net interest income was offset partially by lower deposit and other borrowing costs. The Firm’s average interest-earning assets were $1.8 trillion for the third quarter of 2012, and the net yield on those assets, on a fully taxable-equivalent (“FTE”) basis, was 2.43%, a decrease of 23 basis points from the third quarter of 2011. For the first nine months of 2012, average interest-earning assets were $1.8 trillion, and the net yield on those assets, on a FTE basis, was 2.51%, a decrease of 24 basis points from the first nine months of 2011.



Provision for credit losses
	Three months ended September 30,							Nine months ended September 30,
(in millions)	2012			2011		Change		2012		2011			Change
Wholesale	$	(63	)	$	127	NM%		$	69	$	(376	)	NM%
Consumer, excluding credit card	736			1,285		(43	)	313		3,731			(92	)
Credit card	1,116			999		12		2,347		2,035			15
Total consumer	1,852			2,284		(19	)	2,660		5,766			(54	)
Total provision for credit losses	$	1,789		$	2,411	(26	)%	$	2,729	$	5,390		(49	)%

The provision for credit losses decreased compared with the third quarter and first nine months of 2011. The decrease for both periods was driven by a lower provision for consumer, excluding credit card loans, which reflected a reduction in the allowance for loan losses, due primarily to lower estimated losses in the non-PCI residential real estate portfolio as delinquency trends improved, partially offset by the impact of incremental charge-offs of Chapter 7 loans, including $825 million of residential real estate loans and $55 million of auto loans. The increase in the provision for

credit card loans for both periods was due to a smaller reduction in the allowance for loan losses in 2012 compared with the prior year, partially offset by lower net charge-offs in 2012. The level of the wholesale provision in 2012 reflected stable credit trends. For a more detailed discussion of the loan portfolio and the allowance for credit losses, see the segment discussions for RFS on pages 24–33, Card on pages 34–37, IB on pages 19–23 and CB on pages 38–40, and the Allowance For Credit Losses section on pages 93–95 of this Form 10-Q.



Noninterest expense
	Three months ended September 30,						Nine months ended September 30,
(in millions)	2012		2011		Change		2012		2011		Change
Compensation expense	$	7,503	$	6,908	9	%	$	23,543	$	22,740	4	%
Noncompensation expense:
Occupancy	973		935		4		3,014		2,848		6
Technology, communications and equipment	1,312		1,248		5		3,865		3,665		5
Professional and outside services	1,759		1,860		(5	)	5,411		5,461		(1	)
Marketing	607		926		(34	)	1,929		2,329		(17	)
Other^(a)	3,035		3,445		(12	)	10,354		10,687		(3	)
Amortization of intangibles	182		212		(14	)	566		641		(12	)
Total noncompensation expense	7,868		8,626		(9	)	25,139		25,631		(2	)
Total noninterest expense	$	15,371	$	15,534	(1	)%	$	48,682	$	48,371	1	%


(a)	Included litigation expense of $790 million and $1.3 billion for the three months ended September 30, 2012 and 2011, respectively, and $3.8 billion and $4.3 billion for the nine months ended September 30, 2012 and 2011, respectively.

Total noninterest expense for the third quarter of 2012 was $15.4 billion, down by $163 million, or 1%, compared with the third quarter of 2011. The decrease in the third quarter of 2012 was driven by lower noncompensation expense, in particular, litigation and marketing expense, partially offset by higher compensation expense. Total noninterest expense for the first nine months of 2012 was $48.7 billion, up by $311 million, or 1%, compared with the first nine months of 2011. The increase in the first nine months of 2012 was due to higher compensation expense offset partially by lower noncompensation expense.

Compensation expense increased from the third quarter of 2011, predominantly due to investments in the businesses, including the sales force and new branch builds in RFS, and higher compensation expense in IB. The increase for the nine months of 2012 was predominantly due to the aforementioned investments in the businesses, partially offset by lower compensation expense in IB.

The decrease in noncompensation expense in the third quarter of 2012 was due to lower litigation expense in Corporate and AM, as well as lower marketing expense in Card. The decrease in noncompensation expense was offset partially by higher foreclosure-related expense in RFS. Noncompensation expense for the first nine months of 2012 decreased due to a net decline in the Firm’s overall litigation expense (although Corporate had a higher level of expense) compared with the prior year; lower foreclosure-related expense in RFS; and lower marketing expense in Card. The decrease in noncompensation expense was offset partially by continued investments in the businesses, expense related to a non-core product that is being exited in Card, higher regulatory deposit insurance assessments, and higher servicing expense in RFS (excluding foreclosure-related matters). For a further discussion of litigation expense, see Note 23 on pages 196–206 of this Form 10-Q. For a discussion of amortization of intangibles, refer to the Balance Sheet Analysis on pages 53–54, and Note 16 on pages 184–187 of this Form 10-Q.



Income tax expense
(in millions, except rate)	Three months ended September 30,						Nine months ended September 30,
(in millions, except rate)	2012			2011			2012			2011
Income before income tax expense	$	7,986		$	5,818		$	21,967		$	22,002
Income tax expense	2,278			1,556			6,375			6,754
Effective tax rate	28.5		%	26.7		%	29.0		%	30.7		%

The increase in the effective tax rate during the third quarter of 2012 was largely the result of higher reported pretax income in combination with changes in the mix of income and expenses subject to U.S. federal and state and local taxes. The third quarter of 2012 included tax benefits associated with the resolution of tax audits; the prior year included tax benefits associated with the disposition of certain investments. The decrease in the effective tax rate during the nine months ended September 30, 2012, was

largely the result of the impact of increased tax-exempt income and business tax credits. The current and prior periods include 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 107–109 of this Form 10-Q.

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

The Firm prepares its consolidated financial statements using accounting principles generally accepted in the U.S. (“U.S. GAAP”); these financial statements appear on pages 112–116 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 investments that receive tax credits and tax-exempt securities is presented in the managed results on a basis comparable to taxable

investments and securities. 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.

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

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



	Three months ended September 30,
	2012								2011
(in millions, except ratios)	Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis			Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis
Other income	$	1,519		$	517	$	2,036		$	780		$	472	$	1,252
Total noninterest revenue	14,170			517		14,687			11,946			472		12,418
Net interest income	10,976			200		11,176			11,817			133		11,950
Total net revenue	25,146			717		25,863			23,763			605		24,368
Pre-provision profit	9,775			717		10,492			8,229			605		8,834
Income before income tax expense	7,986			717		8,703			5,818			605		6,423
Income tax expense	$	2,278		$	717	$	2,995		$	1,556		$	605	$	2,161
Overhead ratio	61		%	NM		59		%	65		%	NM		64		%



	Nine months ended September 30,
	2012								2011
(in millions, except ratios)	Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis			Reported results			Fully taxable-equivalent adjustments^(a)		Managed basis
Other income	$	3,537		$	1,568	$	5,105		$	2,236		$	1,433	$	3,669
Total noninterest revenue	39,590			1,568		41,158			40,205			1,433		41,638
Net interest income	33,788			566		34,354			35,558			373		35,931
Total net revenue	73,378			2,134		75,512			75,763			1,806		77,569
Pre-provision profit	24,696			2,134		26,830			27,392			1,806		29,198
Income before income tax expense	21,967			2,134		24,101			22,002			1,806		23,808
Income tax expense	$	6,375		$	2,134	$	8,509		$	6,754		$	1,806	$	8,560
Overhead ratio	66		%	NM		64		%	64		%	NM		62		%


(a)	Predominantly recognized in IB and CB business segments and Corporate/Private Equity.

Tangible common equity (“TCE”), ROTCE, tangible book value per share (“TBVS”), and Tier 1 common under Basel I and III rules are each non-GAAP financial measures. TCE represents the Firm’s 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 measures the Firm’s earnings as a percentage of TCE. TBVS represents the Firm’s

tangible common equity divided by period-end common shares. Tier 1 common under Basel I and III rules are used by management, along with other capital measures, to assess and monitor the Firm’s capital position. TCE, ROTCE, and TBVS are meaningful to the Firm, as well as analysts and investors, in assessing the Firm’s use of equity. For additional information on Tier 1 common under Basel I and III, see Regulatory capital on pages 59–61 of this Form

10-Q. In addition, all of the aforementioned measures are useful to the Firm, as well as analysts and investors, in facilitating comparisons with competitors.



Average tangible common equity
	Three months ended September 30,				Nine months ended September 30,
(in millions)	2012		2011		2012		2011
Common stockholders’ equity	$	186,590	$	174,454	$	181,791	$	172,667
Less: Goodwill	48,158		48,631		48,178		48,770
Less: Certain identifiable intangible assets	2,729		3,545		2,928		3,736
Add: Deferred tax liabilities^(a)	2,765		2,639		2,741		2,617
Tangible common equity	$	138,468	$	124,917	$	133,426	$	122,778


(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.

Core net interest income

In addition to reviewing JPMorgan Chase’s net interest income on a managed basis, management also reviews core net interest income to assess the performance of its core lending, investing (including asset-liability management) and deposit-raising activities, excluding the impact of IB’s market-based activities. The table below presents an analysis of core net interest income, core average interest-earning assets, and the core net interest yield on core average interest-earning assets, on a managed basis. Each

of these amounts is a non-GAAP financial measure due to the exclusion of IB’s market-based net interest income and the related assets. Management believes the exclusion of IB’s market-based activities provides investors and analysts a more meaningful measure to analyze non-market-related business trends of the Firm and can be used as a comparable measure to other financial institutions primarily focused on core lending, investing and deposit-raising activities.



Core net interest income data^(a)
	Three months ended September 30,								Nine months ended September 30,
(in millions, except rates)	2012			2011			Change		2012			2011			Change
Net interest income – managed basis^(b)(c)	$	11,176		$	11,950		(6	)%	$	34,354		$	35,931		(4	)%
Impact of market-based net interest income	1,386			1,866			(26	)	4,300			5,529			(22	)
Core net interest income^(b)	$	9,790		$	10,084		(3	)	$	30,054		$	30,402		(1	)

Average interest-earning assets	$	1,829,780		$	1,784,395		3		$	1,831,633		$	1,745,661		5
Impact of market-based earning assets	497,469			512,215			(3	)	497,832			525,500			(5	)
Core average interest-earning assets	$	1,332,311		$	1,272,180		5	%	$	1,333,801		$	1,220,161		9	%
Net interest yield on interest-earning assets – managed basis	2.43		%	2.66		%			2.51		%	2.75		%
Net interest yield on market-basedactivity	1.11			1.45					1.15			1.41
Core net interest yield on core average interest-earning assets	2.92		%	3.14		%			3.01		%	3.33		%


(a)	Includes core lending, investing and deposit-raising activities on a managed basis, across RFS, Card, CB, TSS, AM and Corporate/Private Equity, as well as IB loans.


(b)	Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.


(c)	For a reconciliation of net interest income on a reported and managed basis, see reconciliation from the Firm’s reported U.S. GAAP results to managed basis on page 15.

Quarterly and year-to-date results

Core net interest income decreased by $294 million to $9.8 billion and by $348 million to $30.1 billion for the three and nine months ended September 30, 2012, respectively. Core average interest-earning assets increased by $60.1 billion to $1,332.3 billion and by $113.6 billion to $1,333.8 billion for the three and nine months ended September 30, 2012, respectively. The decline in net interest income for both periods reflected the impact of faster prepayment of mortgage-backed securities, limited reinvestment opportunities, the runoff of higher-yielding loans, as well as the impact of lower interest rates across the Firm’s interest-earning assets. The decrease in net interest income was offset partially by lower deposit and other borrowing costs. The increase in average interest-

earning assets was driven by increased levels of loans, higher deposits with banks and other short-term investments, and an increase in investment securities. The core net interest yield decreased by 22 basis points to 2.92% and by 32 basis points to 3.01% for the three and nine months ended September 30, 2012, respectively. The decrease in yield was primarily driven by higher financing costs associated with mortgage-backed securities, runoff of higher-yielding loans as well as lower customer loan rates, and was slightly offset by lower customer deposit rates.

Other financial measures

The Firm also discloses the allowance for loan losses to total retained loans, excluding residential real estate PCI loans. For a further discussion of this credit metric, see Allowance for Credit Losses on pages 93–95 of this Form 10-Q.



BUSINESS SEGMENT RESULTS

The Firm is managed on a line-of-business basis. The business segment financial results presented reflect the current organization of JPMorgan Chase. There are six major reportable business segments: the Investment Bank, Retail Financial Services, Card Services & Auto, Commercial Banking, Treasury & Securities Services and Asset Management. In addition, there is 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 the lines of business are presented on a managed basis. For a definition of managed basis, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures, on pages 15–16 of this Form 10-Q.

The reorganization of the business segments announced on July 27, 2012 is expected to be effective beginning in the fourth quarter of 2012. For further discussion, see Business segment changes on page 5 of this Form 10-Q.

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 79–80 of JPMorgan Chase’s 2011 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, regulatory capital requirements (under Basel III) and economic risk measures. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2012, the Firm revised the capital allocated to certain businesses, reflecting additional refinement of each segment’s estimated Basel III Tier 1 common capital requirements and balance sheet trends. For further information about these capital changes, see Line of business equity on page 62 of this Form 10-Q.

Segment Results – Managed Basis

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



Three months ended September 30,	Total net revenue							Noninterest expense						Pre-provision profit/(loss)
(in millions)	2012		2011			Change		2012		2011		Change		2012			2011			Change
Investment Bank^(a)	$	6,277	$	6,369		(1	)%	$	3,907	$	3,799	3	%	$	2,370		$	2,570		(8	)%
Retail Financial Services	8,013		7,535			6		5,039		4,565		10		2,974			2,970			—
Card Services & Auto	4,723		4,775			(1	)	1,920		2,115		(9	)	2,803			2,660			5
Commercial Banking	1,732		1,588			9		601		573		5		1,131			1,015			11
Treasury & Securities Services	2,029		1,908			6		1,443		1,470		(2	)	586			438			34
Asset Management	2,459		2,316			6		1,731		1,796		(4	)	728			520			40
Corporate/Private Equity^(a)	630		(123		)	NM		730		1,216		(40	)	(100		)	(1,339		)	93
Total	$	25,863	$	24,368		6	%	$	15,371	$	15,534	(1	)%	$	10,492		$	8,834		19	%



Three months ended September 30,	Provision for credit losses								Net income/(loss)
(in millions)	2012			2011			Change		2012		2011			Change
Investment Bank^(a)	$	(48	)	$	54		NM%		$	1,572	$	1,636		(4	)%
Retail Financial Services	631			1,027			(39	)	1,408		1,161			21
Card Services & Auto	1,231			1,264			(3	)	954		849			12
Commercial Banking	(16		)	67			NM		690		571			21
Treasury & Securities Services	(12		)	(20		)	40		420		305			38
Asset Management	14			26			(46	)	443		385			15
Corporate/Private Equity^(a)	(11		)	(7		)	(57	)	221		(645		)	NM
Total	$	1,789		$	2,411		(26	)%	$	5,708	$	4,262		34	%



Nine months ended September 30,	Total net revenue							Noninterest expense						Pre-provision profit/(loss)
(in millions)	2012			2011		Change		2012		2011		Change		2012			2011		Change
Investment Bank^(a)	$	20,364		$	21,916	(7	)%	$	12,447	$	13,147	(5	)%	$	7,917		$	8,769	(10	)%
Retail Financial Services	23,597			20,143		17		14,774		14,736		—		8,823			5,407		63
Card Services & Auto	13,962			14,327		(3	)	6,045		6,020		—		7,917			8,307		(5	)
Commercial Banking	5,080			4,731		7		1,790		1,699		5		3,290			3,032		9
Treasury & Securities Services	6,195			5,680		9		4,407		4,300		2		1,788			1,380		30
Asset Management	7,193			7,259		(1	)	5,161		5,250		(2	)	2,032			2,009		1
Corporate/Private Equity^(a)	(879		)	3,513		NM		4,058		3,219		26		(4,937		)	294		NM
Total	$	75,512		$	77,569	(3	)%	$	48,682	$	48,371	1	%	$	26,830		$	29,198	(8	)%



Nine months ended September 30,	Provision for credit losses								Net income/(loss)
(in millions)	2012			2011			Change		2012			2011		Change
Investment Bank^(a)	$	(32	)	$	(558	)	94	%	$	5,167		$	6,063	(15	)%
Retail Financial Services	(20		)	3,220			NM		5,428			1,145		374
Card Services & Auto	2,703			2,561			6		3,167			3,493		(9	)
Commercial Banking	44			168			(74	)	1,954			1,724		13
Treasury & Securities Services	(2		)	(18		)	89		1,234			954		29
Asset Management	67			43			56		1,220			1,290		(5	)
Corporate/Private Equity^(a)	(31		)	(26		)	(19	)	(2,578		)	579		NM
Total	$	2,729		$	5,390		(49	)%	$	15,592		$	15,248	2	%


(a)	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 item on its income statement (not within total net revenue).



INVESTMENT BANK

For a discussion of the business profile of IB, see pages 81–84 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 4 of this Form 10-Q.

IB provides several non-GAAP financial measures which exclude the impact of DVA: net revenue, net income, compensation ratio, and return on common equity. The ratio for the allowance for loan losses to end-of-period loans is calculated excluding the impact of consolidated Firm-administered multi-seller conduits, to provide a more meaningful assessment of IB’s allowance coverage ratio. These measures are used by management to assess the underlying performance of the business and for comparability with peers.



Selected income statement data
	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Revenue
Investment banking fees	$	1,429		$	1,039		38	%	$	4,049		$	4,740		(15	)%
Principal transactions^(a)	2,260			2,253			—		8,533			7,960			7
Asset management, administration and commissions	474			563			(16	)	1,538			1,730			(11	)
All other income^(b)	307			438			(30	)	810			1,272			(36	)
Noninterest revenue	4,470			4,293			4		14,930			15,702			(5	)
Net interest income	1,807			2,076			(13	)	5,434			6,214			(13	)
Total net revenue^(c)	6,277			6,369			(1	)	20,364			21,916			(7	)

Provision for credit losses	(48		)	54			NM		(32		)	(558		)	94

Noninterest expense
Compensation expense	2,069			1,850			12		6,981			7,708			(9	)
Noncompensation expense	1,838			1,949			(6	)	5,466			5,439			—
Total noninterest expense	3,907			3,799			3		12,447			13,147			(5	)
Income before income tax expense	2,418			2,516			(4	)	7,949			9,327			(15	)
Income tax expense	846			880			(4	)	2,782			3,264			(15	)
Net income	$	1,572		$	1,636		(4	)%	$	5,167		$	6,063		(15	)%
Financial ratios
Return on common equity^(d)	16		%	16		%			17		%	20		%
Return on assets	0.80			0.81					0.88			0.99
Overhead ratio	62			60					61			60
Compensation expense as a percentage of total net revenue^(e)	33			29					34			35


(a)	Principal transactions included DVA related to derivatives and structured liabilities measured at fair value. DVA gains/(losses) were $(211) million and $1.9 billion for the three months ended September 30, 2012 and 2011, and $(363) million and $2.0 billion for the nine months ended September 30, 2012 and 2011, respectively.


(b)	All other income included lending- and deposit-related fees. In addition, IB manages traditional credit exposures related to Global Corporate Bank (“GCB”) on behalf of IB and TSS, and IB and TSS share the economics related to the Firm’s GCB clients. IB recognizes this sharing agreement also within all other income.

(c)

Total net revenue included tax-equivalent adjustments, predominantly due to income tax credits related to affordable housing and alternative energy investments as well as tax-exempt income from municipal bond investments of $492 million and $440 million for the three months ended September 30, 2012 and 2011, and $1.5 billion and $1.4 billion for the nine months ended September 30, 2012 and 2011, respectively.


(d)	Return on common equity excluding DVA, a non-GAAP financial measure, was 17% and 5% for the three months ended September 30, 2012 and 2011, and 18% and 16% for the nine months ended September 30, 2012 and 2011, respectively.


(e)	Compensation expense as a percentage of total net revenue excluding DVA, a non-GAAP financial measure, was 32% and 41% for the three months ended September 30, 2012 and 2011 respectively, and 34% and 39% for the nine months ended September 30, 2012 and 2011 respectively.

The following table provides IB’s total net revenue by business.



	Three months ended September 30,						Nine months ended September 30,
(in millions)	2012		2011		Change		2012		2011		Change
Revenue by business
Investment banking fees:
Advisory	$	389	$	365	7	%	$	1,026	$	1,395	(26	)%
Equity underwriting	235		178		32		761		1,012		(25	)
Debt underwriting	805		496		62		2,262		2,333		(3	)
Total investment banking fees	1,429		1,039		38		4,049		4,740		(15	)
Fixed income markets^(a)	3,685		3,328		11		12,083		12,846		(6	)
Equity markets^(b)	1,073		1,424		(25	)	3,610		4,053		(11	)
Credit portfolio^(c)(d)	90		578		(84	)	622		277		125
Total net revenue	$	6,277	$	6,369	(1	)%	$	20,364	$	21,916	(7	)%

(a)

Fixed income markets primarily includes revenue related to market-making across global fixed income markets, including foreign exchange, interest rate, credit and commodities markets. Included DVA gains/(losses) of $(41) million and $529 million for the three months ended September 30, 2012 and 2011, and $(152) million and $688 million for the nine months ended September 30, 2012 and 2011, respectively.


(b)	Equity markets primarily includes revenue related to market-making across global equity products, including cash instruments, derivatives, convertibles and Prime Services. Included DVA gains of $29 million and $377 million for the three months ended September 30, 2012 and 2011, and $99 million and $383 million for the nine months ended September 30, 2012 and 2011, respectively.

(c)

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. Included DVA gains/(losses) of $(199) million and $979 million for the three months ended September 30, 2012 and 2011, and $(310) million and $933 million for the nine months ended September 30, 2012 and 2011, respectively. See pages 72–81 of the Credit Risk Management section of this Form 10-Q for further discussion.


(d)	IB manages traditional credit exposures related to GCB on behalf of IB and TSS, and IB and TSS share the economics related to the Firm’s GCB clients. IB recognizes this sharing agreement also within Credit Portfolio.

Quarterly results

Net income was $1.6 billion, down 4% from the prior year. These results reflected higher noninterest expense and lower net revenue, largely offset by a benefit from the provision for credit losses compared with a provision for credit losses in the prior year.

Net revenue was $6.3 billion, compared with $6.4 billion in the prior year. Net revenue included a $211 million loss from DVA on certain structured and derivative liabilities resulting from the tightening of the Firm’s credit spreads compared with a gain of $1.9 billion in the prior year. Excluding the impact of DVA, net income was $1.7 billion, up $1.2 billion from the prior year, and net revenue was $6.5 billion, up $2.0 billion from the prior year.

Investment banking fees were $1.4 billion (up 38%), which consisted of debt underwriting fees of $805 million (up 62%), equity underwriting fees of $235 million (up 32%), and advisory fees of $389 million (up 7%). Combined Fixed Income and Equity Markets revenue was $4.8 billion, flat compared with the prior year. The portion of the synthetic credit portfolio transferred from CIO in Corporate to IB on July 2, 2012, experienced a modest loss, which was included in Fixed Income Markets revenue. Credit Portfolio reported net revenue of $90 million.

Excluding the impact of DVA, Fixed Income and Equity Markets combined revenue was $4.8 billion, up 24% from the prior year, driven by solid client revenue and broad-based strength across the Fixed Income businesses. Excluding the impact of DVA, Credit Portfolio net revenue was $289 million, driven by net interest income on retained

loans and fees on lending-related commitments.

The provision for credit losses was a benefit of $48 million, compared with a provision for credit losses in the prior year of $54 million. The ratio of the allowance for loan losses to end-of-period loans retained was 2.06%, compared with 2.30% in the prior year. Excluding the impact of the consolidation of Firm-administered multi-seller conduits the ratio of the allowance for loan losses to end-of-period loans retained was 3.29%, compared with 3.60% in the prior year.

Noninterest expense was $3.9 billion, up 3% from the prior year, driven by higher compensation expense, partially offset by lower noncompensation expense. The compensation ratio for the current quarter was 32%, excluding the impact of DVA.

Year-to-date results

Net income was $5.2 billion, down 15% from the prior year, reflecting lower net revenue, predominantly offset by lower noninterest expense, and a lower net benefit for credit losses compared to the prior year.

Net revenue was $20.4 billion, compared with $21.9 billion in the prior year. Investment banking fees were $4.0 billion (down 15%), consisting of debt underwriting fees of $2.3 billion (down 3%), advisory fees of $1.0 billion (down 26%), and equity underwriting fees of $761 million (down 25%) . Combined Fixed Income and Equity Markets revenue was $15.7 billion down 7% from the prior year. Credit Portfolio reported revenue of $622 million. Net revenue included a $363 million loss from DVA on certain structured and derivative liabilities resulting from the tightening of the

Firm’s credit spreads; this was composed of a loss of $152 million in Fixed Income Markets, a loss of $310 million in Credit Portfolio, partially offset by a gain of $99 million in Equity Markets. Excluding the impact of DVA, net revenue was $20.7 billion and net income was $5.4 billion.

Excluding the impact of DVA, Fixed Income and Equity Markets combined revenue was $15.7 billion, approximately flat from prior year, reflecting solid client revenue. Excluding the impact of DVA, Credit Portfolio net revenue was $932 million primarily reflecting net interest income on retained loans and fees on lending-related commitments.

The provision for credit losses was a benefit of $32 million, compared with a benefit of $558 million in the prior year. Net recoveries were $61 million, compared with net recoveries of $38 million in the prior year.

Noninterest expense was $12.4 billion, down 5% from the prior year, driven primarily by lower compensation expense. The ratio of compensation to net revenue was 34%, excluding DVA. Noncompensation expense remained flat compared to prior year.



Selected metrics
	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(in millions, except headcount)	2012		2011		Change		2012		2011		Change
Selected balance sheet data (period-end)
Total assets	$	838,753	$	824,733	2	%	$	838,753	$	824,733	2	%
Loans:
Loans retained^(a)	67,383		58,163		16		67,383		58,163		16
Loans held-for-sale and loans at fair value	3,803		2,311		65		3,803		2,311		65
Total loans	71,186		60,474		18		71,186		60,474		18
Equity	40,000		40,000		—		40,000		40,000		—
Selected balance sheet data (average)
Total assets	$	778,475	$	803,667	(3	)	$	786,860	$	820,239	(4	)
Trading assets-debt and equity instruments	295,546		329,984		(10	)	304,307		357,735		(15	)
Trading assets-derivative receivables	74,818		79,044		(5	)	75,334		71,993		5
Loans:
Loans retained^(a)	70,569		57,265		23		69,377		55,089		26
Loans held-for-sale and loans at fair value	2,712		2,431		12		2,878		3,468		(17	)
Total loans	73,281		59,696		23		72,255		58,557		23
Adjusted assets^(b)	553,187		597,513		(7	)	557,687		612,292		(9	)
Equity	40,000		40,000		—		40,000		40,000		—

Headcount	25,884		26,615		(3	)%	25,884		26,615		(3	)%


(a)	Loans retained includes credit portfolio loans, leveraged leases and other held-for-investment loans.

(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.



Selected metrics
	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Credit data and quality statistics
Net (recoveries)/charge-offs	$	(16	)	$	(168	)	90	%	$	(61	)	$	(38	)	(61	)%
Nonperforming assets:
Nonaccrual loans:
Nonaccrual loans retained^(a)	581			1,274			(54	)	581			1,274			(54	)
Nonaccrual loansheld-for-sale and loans at fair value	213			150			42		213			150			42
Total nonaccrual loans	794			1,424			(44	)	794			1,424			(44	)
Derivative receivables^(b)	282			281			—		282			281			—
Assets acquired in loan satisfactions	77			77			—		77			77			—
Total nonperforming assets	1,153			1,782			(35	)	1,153			1,782			(35	)
Allowance for credit losses:
Allowance for loan losses	1,385			1,337			4		1,385			1,337			4
Allowance for lending-related commitments	535			444			20		535			444			20
Total allowance for credit losses	1,920			1,781			8		1,920			1,781			8
Net (recovery)/charge-off rate	(0.09		)%	(1.16		)%			(0.12		)%	(0.09		)%
Allowance for loan losses to period-end loans retained	2.06			2.30					2.06			2.30
Allowance for loan losses to nonaccrual loans retained^(a)	238			105					238			105
Nonaccrual loans to period-end loans	1.12			2.35					1.12			2.35
Market risk-average Total IB trading VaR by risk type and Credit portfolio VaR – 95% confidence level
IB VaR by risk type:
Fixed income^(c)	$	118		$	48		146		$	81		$	47		72
Foreign exchange	10			10			—		10			10			—
Equities	19			19			—		19			24			(21	)
Commodities and other	13			15			(13	)	16			15			7
Diversification benefit to IB trading VaR^(d)	(48		)	(39		)	(23	)	(46		)	(38		)	(21	)
IB trading VaR^(e)	112			53			111		80			58			38
Credit portfolio VaR^(f)	22			38			(42	)	26			30			(13	)
Diversification benefit to IB trading and credit portfolio VaR^(d)	(12		)	(21		)	43		(13		)	(11		)	(18	)
Total IB trading and credit portfolio VaR^(c)	$	122		$	70		74	%	$	93		$	77		21	%


(a)	Allowance for loan losses of $177 million and $320 million was held against these nonaccrual loans at September 30, 2012 and 2011, respectively.


(b)	Prior to the first quarter of 2012, reported amounts had only included defaulted derivatives; effective in the first quarter of 2012, reported amounts in all periods include both defaulted derivatives as well as derivatives that have been risk rated as nonperforming.

(c)

On July 2, 2012, CIO transferred its synthetic credit portfolio, other than a portion aggregating to approximately $12 billion of notional, to IB. During the third quarter of 2012, the Firm applied a new value-at-risk (“VaR”) model to calculate VaR for the synthetic credit portfolio. The Firm believes this new model, which was applied to both the portion of the synthetic credit portfolio held by IB, as well as the portion that was retained by CIO, more appropriately captures the risk of the portfolio. This new VaR model resulted in a reduction to the average fixed income and average total trading and credit portfolio VaR of $26 million and $28 million, respectively, for the three months ended September 30, 2012.


(d)	Average VaR and period-end VaR was less than the sum of the VaR of the components described above, due to portfolio diversification. The diversification effect reflects the fact that the risks were not perfectly correlated.

(e)

Trading VaR includes substantially all market-making and client-driven activities as well as certain risk management 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 DVA on derivative and structured liabilities to reflect the credit quality of the Firm. See VaR discussion on pages 96–99 and the DVA sensitivity table on page 100 of this Form 10-Q for further details.


(f)	Credit portfolio VaR includes the derivative credit valuation adjustments (“CVA”), hedges of the CVA and the fair value of 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 reported at fair value.



Market shares and rankings^(a)
	Nine months ended September 30, 2012		Full-year 2011
	Market Share	Rankings	Market Share	Rankings
Global investment banking fees^(b)	7.7%	#1	8.1%	#1
Debt, equity and equity-related
Global	7.2	1	6.7	1
U.S.	11.2	1	11.1	1
Syndicated loans
Global	9.8	1	10.8	1
U.S.	18.0	1	21.2	1
Long-term debt^(c)
Global	7.1	1	6.7	1
U.S.	11.3	1	11.2	1
Equity and equity-related
Global^(d)	7.8	4	6.8	3
U.S.	10.5	4	12.5	1
Announced M&A^(e)
Global	19.8	2	18.3	2
U.S.	21.0	2	26.7	2

(a)

Source: Dealogic. Global Investment Banking fees reflects ranking of fees and market share. Remainder of rankings reflects transaction volume and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit to each book manager/equal if joint.


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


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


(d)	Global Equity and equity-related ranking includes rights offerings and Chinese A-Shares.


(e)	Announced M&A reflects the removal of any withdrawn transactions. U.S. announced M&A represents any U.S. involvement ranking.

According to Dealogic, the Firm was ranked #1 in Global Investment Banking Fees generated during the first nine months of 2012, based on revenue; #1 in Global Debt, Equity and Equity-related; #1 in Global Syndicated Loans; #1 in Global Long-Term Debt; #4 in Global Equity and Equity-related; and #2 in Global Announced M&A, based on volume.



International metrics	Three months ended September 30,						Nine months ended September 30,
(in millions)	2012		2011		Change		2012		2011		Change
Total net revenue^(a)
Europe/Middle East/Africa	$	1,766	$	1,995	(11	)%	$	6,272	$	7,065	(11	)%
Asia/Pacific	675		948		(29	)	2,095		2,832		(26	)
Latin America/Caribbean	313		175		79		956		839		14
North America	3,523		3,251		8		11,041		11,180		(1	)
Total net revenue	$	6,277	$	6,369	(1	)	$	20,364	$	21,916	(7	)
Loans retained (period-end)^(b)
Europe/Middle East/Africa	$	16,656	$	15,361	8		$	16,656	$	15,361	8
Asia/Pacific	8,451		6,892		23		8,451		6,892		23
Latin America/Caribbean	3,970		3,222		23		3,970		3,222		23
North America	38,306		32,688		17		38,306		32,688		17
Total loans	$	67,383	$	58,163	16	%	$	67,383	$	58,163	16	%


(a)	Regional revenue is 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 client.



RETAIL FINANCIAL SERVICES

For a discussion of the business profile of RFS, see pages 85–93 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 4 of this Form 10-Q.



Selected income statement data	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Revenue
Lending- and deposit-related fees	$	791		$	833		(5	)%	$	2,316		$	2,382		(3	)%
Asset management, administration and commissions	501			513			(2	)	1,550			1,497			4
Mortgage fees and related income	2,376			1,380			72		6,649			1,991			234
Credit card income	344			611			(44	)	1,003			1,720			(42	)
Other income	129			136			(5	)	381			378			1
Noninterest revenue	4,141			3,473			19		11,899			7,968			49
Net interest income	3,872			4,062			(5	)	11,698			12,175			(4	)
Total net revenue	8,013			7,535			6		23,597			20,143			17

Provision for credit losses	631			1,027			(39	)	(20		)	3,220			NM

Noninterest expense
Compensation expense	2,324			2,101			11		6,927			5,914			17
Noncompensation expense	2,664			2,404			11		7,695			8,642			(11	)
Amortization of intangibles	51			60			(15	)	152			180			(16	)
Total noninterest expense	5,039			4,565			10		14,774			14,736			—
Income before income tax expense	2,343			1,943			21		8,843			2,187			304
Income tax expense	935			782			20		3,415			1,042			228
Net income	$	1,408		$	1,161		21	%	$	5,428		$	1,145		374	%
Financial ratios
Return on common equity	21		%	18		%			27		%	6		%
Overhead ratio	63			61					63			73
Overhead ratio excluding core deposit intangibles^(a)	62			60					62			72

(a)

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. This non-GAAP ratio excluded Consumer & Business Banking’s CDI amortization expense related to prior business combination transactions of $51 million and $60 million for the three months ended September 30, 2012 and 2011, respectively, and $152 million and $180 million for the nine months ended September 30, 2012 and 2011, respectively.

Quarterly results

Retail Financial Services reported net income of $1.4 billion, compared with $1.2 billion in the prior year.

Net revenue was $8.0 billion, an increase of $478 million, or 6%, compared with the prior year. Net interest income was $3.9 billion, down $190 million, or 5%, driven by lower deposit margins and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. Noninterest revenue was $4.1 billion, an increase of $668 million, or 19%, driven by higher mortgage fees and related income, partially offset by lower debit card revenue.

The provision for credit losses was $631 million, compared with $1.0 billion in the prior year. The current-quarter provision reflected a $900 million reduction in the allowance for loan losses. Current-quarter total net charge-offs were $1.5 billion, including $825 million of incremental charge-offs of Chapter 7 loans. Excluding these incremental charge-offs, net charge-offs during the quarter would have been $706 million compared with $1.0 billion in the prior year. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 82–92 of this Form 10-Q.

Noninterest expense was $5.0 billion, an increase of $474 million, or 10%, from the prior year.

Year-to-date results

Retail Financial Services reported net income of $5.4 billion, compared with net income of $1.1 billion in the prior year.

Net revenue was $23.6 billion, an increase of $3.5 billion, or 17%, compared with the prior year. Net interest income was $11.7 billion, down $477 million, or 4%, driven by lower deposit margins and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. Noninterest revenue was $11.9 billion, an increase of $3.9 billion, driven by higher mortgage fees and related income, partially offset by lower debit card revenue.

The provision for credit losses was a benefit of $20 million compared with a provision expense of $3.2 billion in the prior year. The current-year provision reflected a $3.3 billion reduction in the allowance for loan losses due to improved mortgage delinquency trends. Current-year total net charge-offs were $3.2 billion, including $825 million of incremental charge-offs of Chapter 7 loans. Excluding these incremental charge-offs, net charge-offs during the year

would have been $2.4 billion compared with $3.3 billion in the prior year. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 82–92 of this Form 10-Q.

Noninterest expense was $14.8 billion, flat from the prior year.



Selected metrics	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(in millions, except headcount)	2012		2011		Change		2012		2011		Change
Selected balance sheet data (period-end)
Total assets	$	259,238	$	276,799	(6	)%	$	259,238	$	276,799	(6	)%
Loans:
Loans retained	217,212		235,572		(8	)	217,212		235,572		(8	)
Loans held-for-sale and loans at fair value^(a)	15,250		13,153		16		15,250		13,153		16
Total loans	232,462		248,725		(7	)	232,462		248,725		(7	)
Deposits	420,075		388,735		8		420,075		388,735		8
Equity	26,500		25,000		6		26,500		25,000		6
Selected balance sheet data (average)
Total assets	$	264,007	$	283,443	(7	)	$	268,147	$	289,486	(7	)
Loans:
Loans retained	220,106		238,273		(8	)	225,122		244,204		(8	)
Loans held-for-sale and loans at fair value^(a)	17,879		16,608		8		17,068		16,243		5
Total loans	237,985		254,881		(7	)	242,190		260,447		(7	)
Deposits	414,608		382,202		8		407,833		377,678		8
Equity	26,500		25,000		6		26,500		25,000		6

Headcount	132,067		128,992		2	%	132,067		128,992		2	%


(a)	Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets.



Selected metrics	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Credit data and quality statistics
Net charge-offs^(a)	$	1,531		$	1,027		49	%	$	3,230		$	3,295		(2	)%
Nonaccrual loans:
Nonaccrual loans retained	9,154			7,579			21		9,154			7,579			21
Nonaccrual loans held-for-sale and loans at fair value	89			132			(33	)	89			132			(33	)
Total nonaccrual loans ^(b)(c)(d)(e)	9,243			7,711			20		9,243			7,711			20
Nonperforming assets^(b)(c)(d)(e)	9,901			8,576			15		9,901			8,576			15
Allowance for loan losses	11,997			15,479			(22	)%	11,997			15,479			(22	)%
Net charge-off rate^(a)(f)	2.77		%	1.71		%			1.92		%	1.80		%
Net charge-off rateexcluding PCI loans^(a)(f)	3.85			2.39					2.67			2.53
Allowance for loan losses to ending loans retained	5.52			6.57					5.52			6.57
Allowance for loan losses to ending loans retainedexcluding PCI loans^(g)	4.03			6.26					4.03			6.26
Allowance for loan losses to nonaccrual loans retained^(b)(e)(g)	69			139					69			139
Nonaccrual loans to total loans^(e)	3.98			3.10					3.98			3.10
Nonaccrual loans to total loans excluding PCI loans^(b)(e)	5.40			4.25					5.40			4.25

(a)

Net charge-offs and net charge-off rates for the three and nine months ended September 30, 2012, included $825 million of incremental charge-offs of Chapter 7 loans. Excluding these incremental charge-offs, net charge-offs for the third quarter of 2012 would have been $706 million and the net charge-off rate for the same period excluding these incremental charge-offs and purchased credit-impaired loans would have been 1.77%.


(b)	Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI 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 September 30, 2012 and 2011, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $11.0 billion and $9.5 billion, respectively, that are 90 or more days past due; and (2) real estate owned insured by U.S. government agencies of $1.5 billion and $2.4 billion, respectively. These amounts were excluded from nonaccrual loans as reimbursement of insured amounts is proceeding normally. For further discussion, see Note 13 on pages 154–175 of this Form 10-Q, which summarizes loan delinquency information.


(e)	At September 30, 2012, included $1.7 billion of Chapter 7 loans as well as $1.3 billion of performing junior liens that are subordinate to senior liens that are 90 days or more past due. See Consumer Credit Portfolio on pages 82–92 of this Form 10-Q for further details.


(f)	Loans held-for-sale and loans accounted for at fair value were excluded when calculating the net charge-off rate.


(g)	An allowance for loan losses of $5.7 billion and $4.9 billion was recorded for PCI loans at September 30, 2012 and 2011, respectively; these amounts were also excluded from the applicable ratios.

Consumer & Business Banking



Selected income statement data
	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Noninterest revenue	$	1,653		$	1,952		(15	)%	$	4,884		$	5,598		(13	)%
Net interest income	2,685			2,730			(2	)	8,040			8,095			(1	)
Total net revenue	4,338			4,682			(7	)	12,924			13,693			(6	)

Provision for credit losses	107			126			(15	)	201			287			(30	)

Noninterest expense	2,916			2,842			3		8,524			8,354			2
Income before income tax expense	1,315			1,714			(23	)	4,199			5,052			(17	)
Net income	$	785		$	1,023		(23	)%	$	2,505		$	3,014		(17	)%
Overhead ratio	67		%	61		%			66		%	61		%
Overhead ratio excluding core deposit intangibles^(a)	66			59					65			60


(a)	Consumer & Business Banking uses the overhead ratio (excluding the amortization of CDI), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. See footnote (a) to the selected income statement data table on page 24 of this Form 10-Q for further details.

Quarterly results

Consumer & Business Banking reported net income of $785 million, a decrease of $238 million, or 23%, compared with the prior year.

Net revenue was $4.3 billion, down 7% from the prior year. Net interest income was $2.7 billion, down 2% compared with the prior year, driven by the impact of lower deposit margin, predominantly offset by higher deposit balances. Noninterest revenue was $1.7 billion, a decrease of 15%, driven by lower debit card revenue, reflecting the impact of the Durbin Amendment.

The provision for credit losses was $107 million, compared with $126 million in the prior year. Net charge-offs were $107 million, compared with $126 million in the prior year.

Noninterest expense was $2.9 billion, up 3% from the prior year, driven by investments in sales force and new branch builds.

Year-to-date results

Consumer & Business Banking reported net income of $2.5 billion, a decrease of $509 million, or 17%, compared with the prior year.

Net revenue was $12.9 billion, down 6% from the prior year. Net interest income was $8.0 billion, relatively flat compared with the prior year, driven by the impact of lower deposit margins, predominantly offset by higher deposit balances. Noninterest revenue was $4.9 billion, a decrease of 13%, driven by lower debit card revenue, reflecting the impact of the Durbin Amendment.

The provision for credit losses was $201 million, compared with $287 million in the prior year. Net charge-offs were $301 million, compared with $362 million in the prior year.

Noninterest expense was $8.5 billion, up 2% from the prior year, due to investments in sales force and new branch builds.



Selected metrics
(in millions, except ratios and where otherwise noted)	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except ratios and where otherwise noted)	2012			2011			Change		2012			2011			Change
Business metrics
Business banking origination volume	$	1,685		$	1,440		17	%	$	5,012		$	4,438		13	%
End-of-period loans	18,568			17,272			8		18,568			17,272			8
End-of-period deposits:
Checking	159,527			142,064			12		159,527			142,064			12
Savings	208,272			186,733			12		208,272			186,733			12
Time and other	32,781			39,017			(16	)	32,781			39,017			(16	)
Total end-of-period deposits	400,580			367,814			9		400,580			367,814			9
Average loans	18,279			17,172			6		17,961			17,039			5
Average deposits:
Checking	153,982			137,033			12		151,067			135,200			12
Savings	206,298			184,590			12		202,076			180,240			12
Time and other	33,470			40,588			(18	)	34,891			42,876			(19	)
Total average deposits	393,750			362,211			9		388,034			358,316			8
Deposit margin	2.56		%	2.82		%			2.62		%	2.85		%
Average assets	$	30,625		$	30,074		2		$	30,585		$	29,513		4
Credit data and quality statistics
Net charge-offs	$	107		$	126		(15	)	$	301		$	362		(17	)
Net charge-off rate	2.33		%	2.91		%			2.24		%	2.85		%
Allowance for loan losses	$	698		$	800		(13	)	$	698		$	800		(13	)
Nonperforming assets	532			773			(31	)	532			773			(31	)
Retail branch business metrics
Investment sales volume	$	6,280		$	5,102		23		$	19,049		$	18,020		6
Client investment assets	154,637			132,255			17		154,637			132,255			17
% managed accounts	28		%	23		%			28		%	23		%
Number of:
Branches	5,596			5,396			4		5,596			5,396			4
Chase Private Client branch locations	960			139			NM		960			139			NM
ATMs	18,485			16,708			11		18,485			16,708			11
Personal bankers	23,622			24,205			(2	)	23,622			24,205			(2	)
Sales specialists	6,205			5,639			10		6,205			5,639			10
Client advisors	3,034			3,177			(5	)	3,034			3,177			(5	)
Active online customers (in thousands)	18,225			17,326			5		18,225			17,326			5
Active mobile customers (in thousands)	9,799			7,234			35		9,799			7,234			35
Chase Private Clients	75,766			11,711			NM		75,766			11,711			NM
Checking accounts (in thousands)	27,669			26,541			4	%	27,669			26,541			4	%

Mortgage Production and Servicing



Selected income statement data
	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Mortgage fees and related income	$	2,376		$	1,380		72	%	$	6,649		$	1,991		234	%
Other noninterest revenue	103			118			(13	)	336			328			2
Net interest income	190			204			(7	)	561			599			(6	)
Total net revenue	2,669			1,702			57		7,546			2,918			159

Provision for credit losses	4			2			100		5			4			25

Noninterest expense	1,737			1,360			28		5,033			5,293			(5	)
Income/(loss) before income tax expense/(benefit)	928			340			173		2,508			(2,379		)	NM
Net income/(loss)	$	563		$	205		175		$	1,628		$	(1,574	)	NM
Overhead ratio	65		%	80		%			67		%	181		%

Functional results
Production
Production revenue	$	1,582		$	1,090		45		$	4,376		$	2,536		73
Production-related net interest & other income	196			213			(8	)	582			630			(8	)
Production-related revenue, excluding repurchase losses	1,778			1,303			36		4,958			3,166			57
Production expense	678			496			37		1,871			1,377			36
Income, excluding repurchase losses	1,100			807			36		3,087			1,789			73
Repurchase losses	(13		)	(314		)	96		(325		)	(957		)	66
Income before income tax expense	1,087			493			120		2,762			832			232
Servicing
Loan servicing revenue	946			1,039			(9	)	2,989			3,102			(4	)
Servicing-related net interest & other income	98			115			(15	)	318			300			6
Servicing-related revenue	1,044			1,154			(10	)	3,307			3,402			(3	)
MSR asset modeled amortization	(290		)	(457		)	37		(968		)	(1,498		)	35
Default servicing expense^(a)	819			585			40		2,414			3,112			(22	)
Core servicing expense^(a)	244			281			(13	)	753			808			(7	)
Income/(loss), excluding MSR risk management	(309		)	(169		)	(83	)	(828		)	(2,016		)	59
MSR risk management, including related net interest income/(expense)	150			16			NM		574			(1,195		)	NM
Income/(loss) before income tax expense/(benefit)	(159		)	(153		)	(4	)	(254		)	(3,211		)	92
Net income/(loss)	$	563		$	205		175	%	$	1,628		$	(1,574	)	NM


(a)	Default and core servicing expense include an aggregate of approximately $300 million and $1.7 billion for foreclosure-related matters for the nine months ended September 30, 2012 and 2011, respectively.



Selected income statement data
	Three months ended September 30,								Nine months ended September 30,
(in millions)	2012			2011			Change		2012			2011			Change
Supplemental mortgage fees and related income details
Net production revenue:
Production revenue	$	1,582		$	1,090		45	%	$	4,376		$	2,536		73	%
Repurchase losses	(13		)	(314		)	96		(325		)	(957		)	66
Net production revenue	1,569			776			102		4,051			1,579			157
Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue	946			1,039			(9	)	2,989			3,102			(4	)
Changes in MSR asset fair value due to modeled amortization	(290		)	(457		)	37		(968		)	(1,498		)	35
Total operating revenue	656			582			13		2,021			1,604			26
Risk management:
Changes in MSR asset fair value due to market interest rates	(323		)	(4,574		)	93		(872		)	(5,127		)	83
Other changes in MSR asset fair value due to inputs or assumptions in model^(a)	(5		)	—			NM		23			(1,158		)	NM
Derivative valuation adjustments and other	479			4,596			(90	)	1,426			5,093			(72	)
Total risk management	151			22			NM		577			(1,192		)	NM
Total net mortgage servicing revenue	807			604			34		2,598			412			NM
Mortgage fees and related income	$	2,376		$	1,380		72	%	$	6,649		$	1,991		234	%


(a)	Represents the aggregate impact of changes in model inputs and assumptions such as costs to service, home prices, mortgage spreads, ancillary income, and assumptions used to derive prepayment speeds, as well as changes to the valuation models themselves.

Quarterly results

Mortgage Production and Servicing reported net income of $563 million, an increase of $358 million compared with the prior year.

Mortgage production reported record pretax income of $1.1 billion, an increase of $594 million from the prior year. Mortgage production-related revenue, excluding repurchase losses, was a record $1.8 billion, an increase of $475 million, or 36%, from the prior year. These results reflected wider margins, driven by favorable market conditions, and higher volumes due to historically low interest rates and the Home Affordable Refinance Programs (“HARP”). Production expense was $678 million, an increase of $182 million, or 37%, reflecting higher volumes. Repurchase losses were $13 million, compared with $314 million in the prior year. The current-quarter reflected a $218 million reduction in the repurchase liability. For further information, see Mortgage repurchase liability on pages 55–58 of this Form 10-Q.

Mortgage servicing reported pretax loss of $159 million, compared with a pretax loss of $153 million in the prior year. Mortgage servicing revenue, including mortgage servicing rights (“MSR”) asset amortization, was $754 million, an increase of $57 million, or 8%, from the prior year due to lower MSR asset amortization, largely offset by lower servicing-related revenue. MSR risk management income was $150 million, compared with $16 million in the prior year. Servicing expense was $1.1 billion, an increase of $197 million, or 23%, from the prior year. The current quarter includes approximately $100 million of incremental expense for foreclosure-related matters. See Note 16 on pages 184–187 of this Form 10-Q for further information regarding changes in value of the MSR asset and related hedges.

Year-to-date results

Mortgage Production and Servicing reported net income of $1.6 billion, compared with a net loss of $1.6 billion in the prior year.

Mortgage production reported pretax income of $2.8 billion, an increase of $1.9 billion from the prior year. Mortgage production-related revenue, excluding repurchase losses, was $5.0 billion, an increase of $1.8 billion, or 57%, from the prior year, reflecting wider margins and higher volumes, due to historically low interest rates and the expansion of HARP. Production expense was $1.9 billion, an increase of $494 million, or 36%, reflecting higher volumes. Repurchase losses were $325 million, compared with $957 million in the prior year. For further information, see Mortgage repurchase liability on pages 55–58 of this Form 10-Q.

Mortgage servicing reported a pretax loss of $254 million, compared with a pretax loss of $3.2 billion in the prior year. Mortgage servicing revenue, including MSR amortization, was $2.3 billion, an increase of $435 million, or 23%, from the prior year. This increase reflected reduced amortization as a result of a lower MSR asset value. Servicing expense was $3.2 billion, a decrease of $753 million, or 19%, from the prior year. The current-year servicing expense included approximately $300 million for foreclosure-related matters compared with approximately $1.7 billion in the prior year. MSR risk management income was $574 million, compared with a loss of $1.2 billion in the prior year. The prior year MSR risk management loss included a $1.1 billion decrease in the fair value of the MSR asset for the estimated impact of increased servicing costs. See Note 16 on pages 184–187 of this Form 10-Q for further information regarding changes in value of the MSR asset and related hedges.



Selected metrics
	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(in millions)	2012		2011		Change		2012		2011		Change
Selected balance sheet data
End-of-period loans:
Prime mortgage, including option ARMs^(a)	$	17,153	$	14,800	16	%	$	17,153	$	14,800	16	%
Loans held-for-sale and loans at fair value^(b)	15,250		13,153		16		15,250		13,153		16
Average loans:
Prime mortgage, including option ARMs^(a)	17,381		14,451		20		17,366		14,192		22
Loans held-for-sale and loans at fair value^(b)	17,879		16,608		8		17,068		16,243		5
Average assets	59,769		59,677		—		59,722		59,695		—
Repurchase liability (ending)	2,779		3,213		(14	)%	2,779		3,213		(14	)%


(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 55–58 of this Form 10-Q.


(b)	Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets.



Selected metrics
	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except ratios and where otherwise noted)	2012			2011			Change		2012			2011			Change
Credit data and quality statistics
Net charge-offs:
Prime mortgage, including option ARMs	$	4		$	2		100	%	$	5		$	4		25	%
Net charge-off rate:
Prime mortgage, including option ARMs	0.09		%	0.06		%			0.04		%	0.04		%
30+ day delinquency rate^(a)	3.10			3.35					3.10			3.35
Nonperforming assets^(b)	$	700		$	691		1		$	700		$	691		1
Business metrics (in billions)
Origination volume by channel
Retail	$	25.5		$	22.4		14		$	75.0		$	64.1		17
Wholesale^(c)	—			0.1			NM		0.2			0.4			(50	)
Correspondent^(c)	20.1			13.4			50		50.8			37.2			37
CNT (negotiated transactions)	1.7			0.9			89		3.6			5.3			(32	)
Total origination volume	$	47.3		$	36.8		29		$	129.6		$	107.0		21
Application volume by channel
Retail	$	44.7		$	37.7		19		$	127.8		$	102.6		25
Wholesale^(c)	0.2			0.2			—		0.5			0.8			(38	)
Correspondent^(c)	28.3			20.2			40		71.7			48.7			47
Total application volume	$	73.2		$	58.1		26		$	200.0		$	152.1		31
Third-party mortgage loans serviced (ending)	$	811.4		$	924.5		(12	)	$	811.4		$	924.5		(12	)
Third-party mortgage loans serviced (average)	825.7			931.4			(11	)	861.7			945.7			(9	)
MSR net carrying value (ending)	7.1			7.8			(9	)%	7.1			7.8			(9	)%
Ratio of MSR net carrying value (ending) to third-party mortgage loans serviced (ending)	0.88		%	0.84		%			0.88		%	0.84		%
Ratio of annualized loan servicing-related revenue to third-party mortgage loans serviced (average)	0.46			0.44					0.46			0.44
MSR revenue multiple^(d)	1.91x			1.91x					1.91x			1.91x


(a)	At September 30, 2012 and 2011, excluded mortgage loans insured by U.S. government agencies of $12.1 billion and $10.5 billion, respectively, that are 30 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally. For further discussion, see Note 13 on pages 154–175 of this Form 10-Q which summarizes loan delinquency information.

(b)


(c)	Includes rural housing loans sourced through brokers and correspondents, which are underwritten and closed with pre-funding loan approval from the U.S. Department of Agriculture Rural Development, which acts as the guarantor in the transaction.


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

Real Estate Portfolios



Selected income statement data
	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Noninterest revenue	$	9		$	23		(61	)%	$	30		$	51		(41	)%
Net interest income	997			1,128			(12	)	3,097			3,481			(11	)
Total net revenue	1,006			1,151			(13	)	3,127			3,532			(11	)

Provision for credit losses	520			899			(42	)	(226		)	2,929			NM

Noninterest expense	386			363			6		1,217			1,089			12
Income/(loss) before income tax expense/(benefit)	100			(111		)	NM		2,136			(486		)	NM
Net income/(loss)	$	60		$	(67	)	NM		$	1,295		$	(295	)	NM
Overhead ratio	38		%	32		%			39		%	31		%

Quarterly results

Real Estate Portfolios reported net income of $60 million, compared with a net loss of $67 million in the prior year. The increase was driven by a lower provision for credit losses.

Net revenue was $1.0 billion, a decrease of $145 million, or 13%, from the prior year. The decrease was driven by a decline in net interest income, resulting from lower loan balances due to portfolio runoff.

The provision for credit losses was $520 million, compared with $899 million in the prior year. The current-quarter provision reflected a $900 million reduction in the allowance for loan losses due to improved delinquency trends and lower estimated losses, primarily in the home equity portfolio. Net charge-offs totaled $1.4 billion, including $825 million of incremental charge-offs of Chapter 7 loans. Excluding these incremental charge-offs, net charge-offs during the quarter would have been $595 million, compared with $899 million in the prior year. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 82–92 of this Form 10-Q.

Nonaccrual loans were $8.1 billion, compared with $6.3 billion in the prior year. Excluding the impact of certain regulatory guidance, nonaccrual loans would have been $5.1 billion in the third quarter, down from $6.3 billion in the prior year. For more information on the reporting of Chapter 7 loans and performing junior liens that are subordinate to senior liens that are 90 days or more past due as nonaccrual, see Consumer Credit Portfolio on pages 82–92 of this Form 10-Q.

Noninterest expense was $386 million, up by $23 million, or 6%, from the prior year due to an increase in servicing costs.

Year-to-date results

Real Estate Portfolios reported net income of $1.3 billion, compared with a net loss of $295 million in the prior year. The increase was largely driven by a benefit from the provision for credit losses, reflecting an improvement in credit trends.

Net revenue was $3.1 billion, down $405 million, or 11%, from the prior year. The decrease was driven by a decline in net interest income, resulting from lower loan balances due to portfolio runoff.

The provision for credit losses was a benefit of $226 million, compared with a provision expense of $2.9 billion in the prior year. The current-year provision benefit reflected a $3.15 billion reduction in the allowance for loan losses due to improved delinquency trends. Current-year net charge-offs totaled $2.9 billion, including $825 million of incremental charge-offs of Chapter 7 loans. Excluding these incremental charge-offs, net charge-offs during the period would have been $2.1 billion compared with $2.9 billion in the prior year. For more information, including net charge-off amounts and rates, see Consumer Credit Portfolio on pages 82–92 of this Form 10-Q.

Noninterest expense was $1.2 billion, up by $128 million, or 12%, from the prior year due to an increase in servicing costs.

PCI Loans

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 September 30, 2012, the remaining weighted-average life of the PCI loan portfolio is expected to be 8.1 years. The loan balances are expected to

decline more rapidly over the next three to four 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 negative. This is largely due

to 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.

For further information, see Note 13, PCI loans, on pages 172–173 of this Form 10-Q.



Selected metrics
	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(in millions)	2012		2011		Change		2012		2011		Change
Loans excluding PCI
End-of-period loans owned:
Home equity	$	69,686	$	80,278	(13	)%	$	69,686	$	80,278	(13	)%
Prime mortgage, including option ARMs	41,404		45,439		(9	)	41,404		45,439		(9	)
Subprime mortgage	8,552		10,045		(15	)	8,552		10,045		(15	)
Other	653		741		(12	)	653		741		(12	)
Total end-of-period loans owned	$	120,295	$	136,503	(12	)	$	120,295	$	136,503	(12	)
Average loans owned:
Home equity	$	71,620	$	81,568	(12	)	$	74,087	$	84,160	(12	)
Prime mortgage, including option ARMs	41,628		46,165		(10	)	42,620		47,672		(11	)
Subprime mortgage	8,774		10,268		(15	)	9,126		10,671		(14	)
Other	665		753		(12	)	686		789		(13	)
Total average loans owned	$	122,687	$	138,754	(12	)	$	126,519	$	143,292	(12	)
PCI loans
End-of-period loans owned:
Home equity	$	21,432	$	23,105	(7	)	$	21,432	$	23,105	(7	)
Prime mortgage	14,038		15,626		(10	)	14,038		15,626		(10	)
Subprime mortgage	4,702		5,072		(7	)	4,702		5,072		(7	)
Option ARMs	21,024		23,325		(10	)	21,024		23,325		(10	)
Total end-of-period loans owned	$	61,196	$	67,128	(9	)	$	61,196	$	67,128	(9	)
Average loans owned:
Home equity	$	21,620	$	23,301	(7	)	$	22,060	$	23,730	(7	)
Prime mortgage	14,185		15,909		(11	)	14,582		16,443		(11	)
Subprime mortgage	4,717		5,128		(8	)	4,818		5,219		(8	)
Option ARMs	21,237		23,666		(10	)	21,816		24,394		(11	)
Total average loans owned	$	61,759	$	68,004	(9	)	$	63,276	$	69,786	(9	)
Total Real Estate Portfolios
End-of-period loans owned:
Home equity	$	91,118	$	103,383	(12	)	$	91,118	$	103,383	(12	)
Prime mortgage, including option ARMs	76,466		84,390		(9	)	76,466		84,390		(9	)
Subprime mortgage	13,254		15,117		(12	)	13,254		15,117		(12	)
Other	653		741		(12	)	653		741		(12	)
Total end-of-period loans owned	$	181,491	$	203,631	(11	)	$	181,491	$	203,631	(11	)
Average loans owned:
Home equity	$	93,240	$	104,869	(11	)	$	96,147	$	107,890	(11	)
Prime mortgage, including option ARMs	77,050		85,740		(10	)	79,018		88,509		(11	)
Subprime mortgage	13,491		15,396		(12	)	13,944		15,890		(12	)
Other	665		753		(12	)	686		789		(13	)
Total average loans owned	$	184,446	$	206,758	(11	)	$	189,795	$	213,078	(11	)
Average assets	$	173,613	$	193,692	(10	)	$	177,840	$	200,278	(11	)
Home equity origination volume	375		294		28	%	1,047		850		23	%



Credit data and quality statistics
	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Net charge-offs excluding PCI loans:^(a)
Home equity	$	1,120		$	581		93	%	$	2,128		$	1,893		12	%
Prime mortgage, including option ARMs	143			172			(17	)	388			531			(27	)
Subprime mortgage	152			141			8		394			483			(18	)
Other	5			5			—		14			22			(36	)
Total net charge-offs	$	1,420		$	899		58		$	2,924		$	2,929		—
Net charge-off rate excluding PCI loans:^(a)
Home equity	6.22		%	2.82		%			3.84		%	3.01		%
Prime mortgage, including option ARMs	1.37			1.48					1.22			1.49
Subprime mortgage	6.89			5.43					5.77			6.04
Other	2.99			2.83					2.73			3.68
Total net charge-off rate excluding PCI loans	4.60			2.57					3.09			2.73
Net charge-off rate – reported:
Home equity	4.78		%	2.20		%			2.96		%	2.35		%
Prime mortgage, including option ARMs	0.74			0.80					0.66			0.80
Subprime mortgage	4.48			3.63					3.77			4.06
Other	2.99			2.83					2.73			3.68
Total net charge-off rate – reported	3.06			1.72					2.06			1.84
30+ day delinquency rate excluding PCI loans^(b)	5.12		%	5.80		%			5.12		%	5.80		%
Allowance for loan losses:
Allowance for loan losses, excluding PCI	$	5,568		$	9,718		(43	)	$	5,568		$	9,718		(43	)
Allowance for PCI loan losses	5,711			4,941			16		5,711			4,941			16
Total allowance for loan losses	11,279			14,659			(23	)	11,279			14,659			(23	)
Nonperforming assets^(c)(d)	8,669			7,112			22	%	8,669			7,112			22	%
Allowance for loan losses to ending loans retained	6.21		%	7.20		%			6.21		%	7.20		%
Allowance for loan losses to ending loans retained excluding PCI loans	4.63			7.12					4.63			7.12


(a)	Net charge-offs and net charge-off rates for the three and nine months ended September 30, 2012 included $825 million of incremental charge-offs of Chapter 7 loans. See Consumer Credit Portfolio on pages 82–92 of this Form 10-Q for further details.


(b)	The delinquency rate for PCI loans was 20.65% and 24.44% at September 30, 2012 and 2011, respectively.


(c)	Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.


(d)	At September 30, 2012, included $1.7 billion of Chapter 7 loans as well as $1.3 billion of performing junior liens that are subordinate to senior liens that are 90 days or more past due. See Consumer Credit Portfolio on pages 82–92 of this Form 10-Q for further details.



CARD SERVICES & AUTO

For a discussion of the business profile of Card, see pages 94–97 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 5 of this Form 10–Q.



Selected income statement data
	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Revenue
Credit card income	$	1,032		$	1,053		(2	)%	$	2,995		$	3,074		(3	)%
All other income	248			201			23		782			533			47
Noninterest revenue	1,280			1,254			2		3,777			3,607			5
Net interest income	3,443			3,521			(2	)	10,185			10,720			(5	)
Total net revenue	4,723			4,775			(1	)	13,962			14,327			(3	)

Provision for credit losses	1,231			1,264			(3	)	2,703			2,561			6

Noninterest expense
Compensation expense	489			459			7		1,465			1,366			7
Noncompensation expense	1,345			1,560			(14	)	4,304			4,348			(1	)
Amortization of intangibles	86			96			(10	)	276			306			(10	)
Total noninterest expense	1,920			2,115			(9	)	6,045			6,020			—
Income before income tax expense	1,572			1,396			13		5,214			5,746			(9	)
Income tax expense	618			547			13		2,047			2,253			(9	)
Net income	$	954		$	849		12	%	$	3,167		$	3,493		(9	)%
Financial ratios
Return on common equity	23		%	21		%			26		%	29		%
Overhead ratio	41			44					43			42

Quarterly results

Net income was $954 million, an increase of $105 million, or 12%, compared with the prior year. The increase was driven by lower noninterest expense and lower provision for credit losses, partially offset by lower net revenue.

Net revenue was $4.7 billion, a decrease of $52 million, or 1%, from the prior year. Net interest income was $3.4 billion, down $78 million, or 2%, from the prior year. The decrease was driven by narrower loan spreads, lower average loan balances, and lower late fee income. These decreases were largely offset by lower revenue reversals associated with lower net charge-offs. Noninterest revenue was $1.3 billion, an increase of $26 million, or 2%, from the prior year. The increase was driven by higher net interchange and merchant servicing revenue, largely offset by higher amortization of direct loan origination costs.

The provision for credit losses was $1.2 billion, compared with $1.3 billion in the prior year. The current-quarter provision reflected lower net charge-offs and a small reduction in the allowance for loan losses. The prior-year provision included a $370 million reduction in the allowance for loan losses. The Credit Card net charge-off rate¹ was 3.57%, down from 4.70% in the prior year; and the 30+ day delinquency rate¹ was 2.15%, down from 2.89% in the prior year. The Auto net charge-off rate was 0.74%, up from 0.36% in the prior year, including $55 million of incremental net charge-offs of Chapter 7 loans. Excluding these incremental charge-offs, Auto net charge-

offs would have been $35 million for the current quarter, and the net charge-off rate would have been 0.29%.

Noninterest expense was $1.9 billion, a decrease of $195 million, or 9%, from the prior year, driven by lower marketing expense.

Year-to-date results

Net income was $3.2 billion, a decrease of $326 million, or 9%, compared with the prior year. The decrease was driven by lower net revenue and higher provision for credit losses.

Net revenue was $14.0 billion, a decrease of $365 million, or 3%, from the prior year. Net interest income was $10.2 billion, down $535 million, or 5%, from the prior year. The decrease was driven by narrower loan spreads and lower average loan balances, partially offset by lower revenue reversals associated with lower net charge-offs. Noninterest revenue was $3.8 billion, an increase of $170 million, or 5%, from the prior year. The increase was driven by higher net interchange income and lower partner revenue-sharing, reflecting the impact of the Kohl’s portfolio sale on April 1, 2011, as well as higher merchant servicing revenue, partially offset by higher amortization of direct loan origination costs.

The provision for credit losses was $2.7 billion, compared with $2.6 billion in the prior year. The current-year provision reflected lower net charge-offs and a $1.6 billion reduction in the allowance for loan losses due to lower estimated losses. The prior-year provision included a $3.4

billion reduction in the allowance for loan losses. The Credit Card net charge-off rate¹ was 4.09%, down from 5.78% in the prior year. The net charge-off rate¹ would have been 3.99% absent a policy change on restructured loans that do not comply with their modified payment terms. The Auto net charge-off rate was 0.40%, up from 0.31% in the prior year. Excluding the $55 million of incremental net charge-offs of Chapter 7 loans, the Auto net charge-off rate would have been 0.25%.

Noninterest expense was $6.0 billion, flat compared with the prior year, driven by expense related to a non-core product that is being exited, predominantly offset by lower marketing expense.

¹ The net charge-off and 30+ day delinquency rates presented for credit card loans, which include loans held-for-sale, are non-GAAP financial measures. Management uses this as an additional measure to assess the performance of the portfolio.



Selected metrics	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except headcount and ratios)	2012			2011			Change		2012			2011			Change
Selected balance sheet data (period-end)
Total assets	$	200,812		$	199,473		1	%	$	200,812		$	199,473		1	%
Loans:
Credit Card	124,537			127,135			(2	)	124,537			127,135			(2	)
Auto	48,920			46,659			5		48,920			46,659			5
Student	11,868			13,751			(14	)	11,868			13,751			(14	)
Total loans	$	185,325		$	187,545		(1	)	$	185,325		$	187,545		(1	)
Equity	$	16,500		$	16,000		3		$	16,500		$	16,000		3
Selected balance sheet data (average)
Total assets	$	196,302		$	199,974		(2	)	$	197,679		$	200,803		(2	)
Loans:
Credit Card	124,339			126,536			(2	)	125,712			128,015			(2	)
Auto	48,399			46,549			4		48,126			47,064			2
Student	12,037			13,865			(13	)	12,774			14,135			(10	)
Total loans	$	184,775		$	186,950		(1	)	$	186,612		$	189,214		(1	)
Equity	$	16,500		$	16,000		3		$	16,500		$	16,000		3
Headcount	27,365			27,554			(1	)	27,365			27,554			(1	)
Credit data and quality statistics
Net charge-offs:
Credit Card	$	1,116		$	1,499		(26	)	$	3,847		$	5,535		(30	)
Auto^(a)	90			42			114		144			108			33
Student	80			93			(14	)	268			308			(13	)
Total net charge-offs	$	1,286		$	1,634		(21	)%	$	4,259		$	5,951		(28	)%
Net charge-off rate:
Credit Card^(b)	3.57		%	4.70		%			4.11		%	5.83		%
Auto^(a)	0.74			0.36					0.40			0.31
Student	2.64			2.66					2.80			2.91
Total net charge-off rate	2.77			3.47					3.06			4.23



Selected metrics	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except ratios and where otherwise noted)	2012			2011			Change		2012			2011			Change
Delinquency rates
30+ day delinquency rate:
Credit Card^(c)	2.15		%	2.90		%			2.15		%	2.90		%
Auto	1.11			1.01					1.11			1.01
Student^(d)	2.38			1.93					2.38			1.93
Total 30+ day delinquency rate	1.89			2.36					1.89			2.36
90+ day delinquency rate – Credit Card^(c)	0.99			1.43					0.99			1.43
Nonperforming assets^(a)(e)	$	284		$	232		22	%	$	284		$	232		22	%
Allowance for loan losses:
Credit Card	$	5,503		$	7,528		(27	)	$	5,503		$	7,528		(27	)
Auto and Student	954			1,009			(5	)	954			1,009			(5	)
Total allowance for loan losses	$	6,457		$	8,537		(24	)	$	6,457		$	8,537		(24	)
Allowance for loan losses to period-end loans:
Credit Card^(c)	4.42		%	5.93		%			4.42		%	5.93		%
Auto and Student	1.57			1.67					1.57			1.67
Total allowance for loan losses to period-end loans	3.49			4.55					3.49			4.55
Business metrics
Credit Card, excluding Commercial Card
Sales volume (in billions)	$	96.6		$	87.3		11		$	279.5		$	250.3		12
New accounts opened	1.6			2.0			(20	)	4.9			6.6			(26	)
Open accounts	63.9			64.3			(1	)	63.9			64.3			(1	)
Merchant Services
Bank card volume (in billions)	$	163.6		$	138.1		18		$	476.6		$	401.1		19
Total transactions (in billions)	7.4			6.1			21		21.3			17.6			21
Auto and Student
Origination volume (in billions)
Auto	$	6.3		$	5.9		7		$	17.9		$	16.1		11
Student	0.1			0.1			—	%	0.2			0.2			—	%

(a)

Net charge-offs and net charge-off rates for the three and nine months ended September 30, 2012, included $55 million of incremental charge-offs of Chapter 7 loans. Excluding these incremental charge-offs, net charge-offs for the third quarter of 2012 would have been $35 million, and the net charge-off rate for the same period would have been 0.29%. Nonperforming assets at September 30, 2012, included $65 million of Chapter 7 loans.


(b)	Average credit card loans included loans held-for-sale of $109 million and $1 million for the three months ended September 30, 2012 and 2011, respectively, and $569 million and $1.1 billion for the nine months ended September 30, 2012 and 2011, respectively. These amounts were excluded when calculating the net charge-off rate.


(c)	Period-end credit card loans included loans held-for-sale of $106 million and $94 million at September 30, 2012 and 2011, respectively. No allowance for loan losses was recorded for these loans. These amounts were excluded when calculating delinquency rates and the allowance for loan losses to period-end loans.


(d)	Excluded student loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) of $910 million and $995 million at September 30, 2012 and 2011, respectively, that are 30 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally.


(e)	Nonperforming assets excluded student loans insured by U.S. government agencies under the FFELP of $536 million and $567 million at September 30, 2012 and 2011, respectively, that are 90 or more days past due. These amounts were excluded as reimbursement of insured amounts is proceeding normally.



Card Services supplemental information
	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Noninterest revenue	$	971		$	957		1	%	$	2,873		$	2,755		4	%
Net interest income	2,923			2,984			(2	)	8,606			9,095			(5	)
Total net revenue	3,894			3,941			(1	)	11,479			11,850			(3	)

Provision for credit losses	1,116			999			12		2,347			2,035			15

Noninterest expense	1,517			1,734			(13	)	4,856			4,911			(1	)
Income before income tax expense	1,261			1,208			4		4,276			4,904			(13	)
Net income	$	769		$	737		4	%	$	2,608		$	2,991		(13	)%
Financial ratios
Percentage of average loans:
Noninterest revenue	3.11		%	3.00		%			3.05		%	2.88		%
Net interest income	9.35			9.36					9.14			9.50
Total net revenue	12.46			12.36					12.20			12.38



COMMERCIAL BANKING

For a discussion of the business profile of CB, see pages 98–100 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 5 of this Form 10-Q.



Selected income statement data
	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Revenue
Lending- and deposit-related fees	$	263		$	269		(2	)%	$	803		$	814		(1	)%
Asset management, administration and commissions	30			35			(14	)	100			104			(4	)
All other income^(a)	293			220			33		802			706			14
Noninterest revenue	586			524			12		1,705			1,624			5
Net interest income	1,146			1,064			8		3,375			3,107			9
Total net revenue^(b)	1,732			1,588			9		5,080			4,731			7
Provision for credit losses	(16		)	67			NM		44			168			(74	)
Noninterest expense
Compensation expense^(c)	263			242			9		764			709			8
Noncompensation expense^(c)	332			324			2		1,006			967			4
Amortization of intangibles	6			7			(14	)	20			23			(13	)
Total noninterest expense	601			573			5		1,790			1,699			5
Income before income tax expense	1,147			948			21		3,246			2,864			13
Income tax expense	457			377			21		1,292			1,140			13
Net income	$	690		$	571		21		$	1,954		$	1,724		13
Revenue by product
Lending	$	916		$	857		7		$	2,728		$	2,574		6
Treasury services	609			572			6		1,814			1,670			9
Investment banking	139			116			20		388			378			3
Other	68			43			58		150			109			38
Total Commercial Banking net revenue	$	1,732		$	1,588		9		$	5,080		$	4,731		7

IB revenue, gross^(d)	$	431		$	320		35		$	1,154		$	1,071		8

Revenue by client segment
Middle Market Banking	$	838		$	791		6		$	2,496		$	2,335		7
Commercial Term Lending	298			297			—		882			869			1
Corporate Client Banking	370			306			21		1,050			935			12
Real Estate Banking	106			104			2		325			301			8
Other	120			90			33		327			291			12
Total Commercial Banking net revenue	$	1,732		$	1,588		9	%	$	5,080		$	4,731		7	%
Financial ratios
Return on common equity	29		%	28		%			27		%	29		%
Overhead ratio	35			36					35			36


(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, totaling $115 million and $90 million for the three months ended September 30, 2012 and 2011, respectively, and $308 million and $222 million for the nine months ended September 30, 2012 and 2011, respectively.

(c)

Effective July 1, 2012, certain Treasury Services product sales staff supporting CB were transferred from TSS to CB. As a result, compensation expense for these sales staff is now reflected in CB’s compensation expense rather than as an allocation from TSS in noncompensation expense. CB’s and TSS’s previously reported headcount, compensation expense and noncompensation expense have been revised to reflect this transfer.


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

Quarterly results

Net income was $690 million, an increase of $119 million, or 21%, from the prior year. The improvement was driven by an increase in net revenue and lower provision for credit losses, partially offset by higher expense.

Record net revenue was $1.7 billion, an increase of $144 million, or 9%, from the prior year. Net interest income was $1.1 billion, up by $82 million, or 8%, driven by growth in loan and liability balances, partially offset by spread compression on loan products. Noninterest revenue was $586 million, up $62 million, or 12%, compared with the prior year, primarily driven by higher investment banking revenue.

Revenue from Middle Market Banking was $838 million, an increase of $47 million, or 6%, from the prior year. Revenue from Commercial Term Lending was $298 million, flat compared with the prior year. Revenue from Corporate Client Banking was $370 million, an increase of $64 million, or 21%. Revenue from Real Estate Banking was $106 million, an increase of $2 million, or 2%.

The provision for credit losses was a benefit of $16 million, compared with provision for credit losses of $67 million in the prior year. There were net recoveries of $18 million in the current quarter (0.06% net recovery rate), compared with net charge-offs of $17 million (0.06% net charge-off rate) in the prior year. The allowance for loan losses to period-end loans retained was 2.15%, down from 2.50% in the prior year. Nonaccrual loans were $876 million, down by $567 million, or 39%, from the prior year, due to commercial real estate repayments and loan sales.

Noninterest expense was $601 million, an increase of $28 million, or 5%, from the prior year, reflecting higher headcount-related expense.

Year-to-date results

Net income was $2.0 billion, an increase of $230 million, or 13%, from the prior year. The improvement was driven by an increase in net revenue and a decrease in the provision for credit losses, partially offset by higher expense.

Net revenue was a record of $5.1 billion, an increase of $349 million, or 7%, from the prior year. Net interest income was $3.4 billion, up by $268 million, or 9%, driven by growth in loan and liability balances, partially offset by spread compression on loan and liability products. Noninterest revenue was $1.7 billion, up by $81 million, or 5%, compared with the prior year, predominantly driven by increased community development investment-related revenue and other fee income.

Revenue from Middle Market Banking was $2.5 billion, an increase of $161 million, or 7%, from the prior year. Revenue from Commercial Term Lending was $882 million, an increase of $13 million, or 1%. Revenue from Corporate Client Banking was $1.1 billion, an increase of $115 million, or 12%. Revenue from Real Estate Banking was $325 million, an increase of $24 million, or 8%.

The provision for credit losses was $44 million, compared with $168 million in the prior year. Net recoveries were $15 million (0.02% net recovery rate) compared with net charge-offs of $88 million (0.12% net charge-off rate) in the prior year.

Noninterest expense was $1.8 billion, an increase of $91 million, or 5% from the prior year, primarily reflecting higher headcount-related expense.



Selected metrics
	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(in millions, except headcount and ratios)	2012		2011		Change		2012		2011		Change
Selected balance sheet data (period-end)
Total assets	$	168,124	$	151,095	11	%	$	168,124	$	151,095	11	%
Loans:
Loans retained	123,173		106,834		15		123,173		106,834		15
Loans held-for-sale and loans at fair value	549		584		(6	)	549		584		(6	)
Total loans	$	123,722	$	107,418	15		$	123,722	$	107,418	15
Equity	9,500		8,000		19		9,500		8,000		19

Period-end loans by client segment
Middle Market Banking	$	48,852	$	42,365	15		$	48,852	$	42,365	15
Commercial Term Lending	42,304		38,539		10		42,304		38,539		10
Corporate Client Banking	19,727		15,100		31		19,727		15,100		31
Real Estate Banking	8,563		7,470		15		8,563		7,470		15
Other	4,276		3,944		8		4,276		3,944		8
Total Commercial Banking loans	$	123,722	$	107,418	15		$	123,722	$	107,418	15

Selected balance sheet data (average)
Total assets	$	164,702	$	145,195	13		$	163,072	$	143,069	14
Loans:
Loans retained	121,566		104,705		16		117,442		101,485		16
Loans held-for-sale and loans at fair value	552		632		(13	)	677		801		(15	)
Total loans	$	122,118	$	105,337	16		$	118,119	$	102,286	15
Liability balances	190,910		180,275		6		194,775		166,503		17
Equity	9,500		8,000		19		9,500		8,000		19
Average loans by client segment
Middle Market Banking	$	47,741	$	41,540	15		$	46,560	$	39,932	17
Commercial Term Lending	41,658		38,198		9		40,194		37,914		6
Corporate Client Banking	19,791		14,373		38		18,635		13,277		40
Real Estate Banking	8,651		7,465		16		8,600		7,512		14
Other	4,277		3,761		14		4,130		3,651		13
Total Commercial Banking loans	$	122,118	$	105,337	16		$	118,119	$	102,286	15

Headcount^(a)	6,100		5,687		7		6,100		5,687		7



Credit data and quality statistics
Net (recoveries)/charge-offs	$	(18	)	$	17		NM		$	(15	)	$	88		NM
Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained^(b)	843			1,417			(41	)	843			1,417			(41	)
Nonaccrual loans held-for-sale and loans held at fair value	33			26			27		33			26			27
Total nonaccrual loans	876			1,443			(39	)	876			1,443			(39	)
Assets acquired in loan satisfactions	32			168			(81	)	32			168			(81	)
Total nonperforming assets	908			1,611			(44	)	908			1,611			(44	)
Allowance for credit losses:
Allowance for loan losses	2,653			2,671			(1	)	2,653			2,671			(1	)
Allowance for lending-related commitments	196			181			8		196			181			8
Total allowance for credit losses	2,849			2,852			—	%	2,849			2,852			—	%
Net (recovery)/charge-off rate^(c)	(0.06		)%	0.06		%			(0.02		)%	0.12		%
Allowance for loan losses to period-end loansretained	2.15			2.50					2.15			2.50
Allowance for loan losses to nonaccrual loans retained^(b)	315			188					315			188
Nonaccrual loans to total period-end loans	0.71			1.34					0.71			1.34


(a)	Effective July 1, 2012, certain Treasury Services product sales staff supporting CB were transferred from TSS to CB. For further discussion of this transfer, see footnote (c) on page 38 of this Form 10-Q.


(b)	Allowance for loan losses of $148 million and $257 million was held against nonaccrual loans retained at September 30, 2012 and 2011, respectively.


(c)	Loans held-for-sale and loans at fair value were excluded when calculating the net (recovery)/charge-off rate.



TREASURY & SECURITIES SERVICES

For a discussion of the business profile of TSS, see pages 101–103 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 5 of this Form 10-Q.



Selected income statement data	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratio data)	2012			2011			Change		2012			2011			Change
Revenue
Lending- and deposit-related fees	$	282		$	310		(9	)%	$	855		$	927		(8	)%
Asset management, administration and commissions	630			656			(4	)	1,992			2,077			(4	)
All other income	136			141			(4	)	419			423			(1	)
Noninterest revenue	1,048			1,107			(5	)	3,266			3,427			(5	)
Net interest income	981			801			22		2,929			2,253			30
Total net revenue	2,029			1,908			6		6,195			5,680			9
Provision for credit losses	(12		)	(20		)	40		(2		)	(18		)	89

Credit allocation income/(expense)^(a)	54			9			500		125			68			84

Noninterest expense
Compensation expense^(b)	686			705			(3	)	2,115			2,114			—
Noncompensation expense^(b)	743			741			—		2,251			2,132			6
Amortization of intangibles	14			24			(42	)	41			54			(24	)
Total noninterest expense	1,443			1,470			(2	)	4,407			4,300			2
Income before income tax expense	652			467			40		1,915			1,466			31
Income tax expense	232			162			43		681			512			33
Net income	$	420		$	305		38		$	1,234		$	954		29
Financial ratios
Return on common equity	22		%	17		%			22		%	18		%
Pretax margin ratio	32			24					31			26
Overhead ratio	71			77					71			76
Pre-provision profit ratio	29			23					29			24
Revenue by business
Worldwide Securities Services
Investor Services	$	777		$	740		5		$	2,395		$	2,267		6
Clearance, Collateral Management and Depositary Receipts	188			199			(6	)	610			623			(2	)
Total WSS revenue	$	965		$	939		3		$	3,005		$	2,890		4
Treasury Services
Transaction Services	$	913		$	816		12		$	2,723		$	2,366		15
Trade Finance	151			153			(1	)	467			424			10
Total TS revenue	$	1,064		$	969		10	%	$	3,190		$	2,790		14	%


(a)	IB manages traditional credit exposures related to GCB on behalf of IB and TSS, and IB and TSS share the economics related to the Firm’s GCB clients. Included within this allocation are net revenue, provision for credit losses and expenses. IB recognizes this credit allocation as a component of all other income.


(b)	Effective July 1, 2012, certain Treasury Services product sales staff supporting CB were transferred from TSS to CB. For further discussion of this transfer, see footnote (c) on page 38 of this Form 10-Q.

Quarterly results

Net income was $420 million, an increase of $115 million, or 38%, from the prior year.

Net revenue was $2.0 billion, an increase of $121 million, or 6%, from the prior year. Treasury Services (“TS”) net revenue was $1.1 billion, an increase of $95 million, or 10%. The increase was driven by higher deposit balances and higher trade finance loan volumes. Worldwide Securities Services (“WSS”) net revenue was $1.0 billion, an increase of $26 million, or 3%, compared with the prior year driven by higher deposit balances.

TSS generated firmwide net revenue of $2.7 billion, including $1.7 billion by TS; of that amount, $1.1 billion was recorded in TS, $609 million in Commercial Banking and $67 million in other lines of business. The remaining $1.0 billion of firmwide net revenue was recorded in WSS.

Noninterest expense was $1.4 billion, a decrease of $27 million, or 2%, compared with the prior year.

Year-to-date results

Net income was $1.2 billion, an increase of $280 million, or 29%, from the prior year.

Net revenue was $6.2 billion, an increase of $515 million, or 9%, from the prior year. TS revenue was $3.2 billion, an increase of $400 million, or 14%. The increase was primarily driven by higher deposit balances and higher trade finance loan volumes. WSS net revenue was $3.0 billion, an increase of $115 million, or 4% compared with the prior year, driven by higher deposit balances.

TSS generated firmwide net revenue of $8.2 billion, including $5.2 billion by TS; of that amount, $3.2 billion was recorded in TS, $1.8 billion in Commercial Banking, and $204 million in other lines of business. The remaining $3.0 billion of firmwide net revenue was recorded in WSS.

Noninterest expense was $4.4 billion, an increase of $107 million, or 2%, from the prior year.



Selected metrics	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(in millions, except headcount data and where otherwise noted)	2012		2011		Change		2012		2011		Change
Selected balance sheet data (period-end)
Total assets	$	65,337	$	62,364	5	%	$	65,337	$	62,364	5	%
Loans^(a)	40,616		36,389		12		40,616		36,389		12
Equity	7,500		7,000		7		7,500		7,000		7
Selected balance sheet data (average)
Total assets	$	63,203	$	60,141	5		$	64,714	$	53,612	21
Loans^(a)	40,791		35,303		16		41,179		32,576		26
Liability balances	351,383		341,107		3		352,147		303,504		16
Equity	7,500		7,000		7		7,500		7,000		7

Headcount^(b)	26,595		27,887		(5	)	26,595		27,887		(5	)
WSS business metrics
Assets under custody (“AUC”) by assets class (period-end) (in billions)
Fixed income	$	11,545	$	10,871	6		$	11,545	$	10,871	6
Equity	5,328		4,401		21		5,328		4,401		21
Other^(c)	1,346		978		38		1,346		978		38
Total AUC	$	18,219	$	16,250	12		$	18,219	$	16,250	12
Liability balances (average)	124,669		107,105		16		123,840		93,433		33
TS business metrics
TS liability balances (average)	226,714		234,002		(3	)	228,307		210,071		9
Trade finance loans (period-end)	35,142		30,104		17	%	35,142		30,104		17	%


(a)	Loan balances include trade finance loans and wholesale overdrafts.


(b)	Effective July 1, 2012, certain Treasury Services product sales staff supporting CB were transferred from TSS to CB. For further discussion of this transfer, see footnote (c) on page 38 of this Form 10-Q.


(c)	Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and nonsecurities contracts.



Selected metrics	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except ratio data, and where otherwise noted)	2012			2011			Change		2012			2011			Change
Credit data and quality statistics
Net charge-offs	$	(6	)	$	—		NM%		$	(6	)	$	—		NM%
Nonaccrual loans	7			3			133		7			3			133
Allowance for credit losses:
Allowance for loan losses	74			49			51		74			49			51
Allowance for lending-related commitments	9			46			(80	)	9			46			(80	)
Total allowance for credit losses	83			95			(13	)	83			95			(13	)
Net charge-off rate	(0.06		)%	—		%			(0.02		)%	—		%
Allowance for loan losses to period-end loans	0.18			0.14					0.18			0.14
Allowance for loan losses to nonaccrual loans	NM			NM					NM			NM
Nonaccrual loans to period-end loans	0.02			0.01					0.02			0.01
International metrics
Net revenue^(a)
Europe/Middle East/Africa	$	677		$	648		4		$	2,122		$	1,969		8
Asia/Pacific	342			321			7		1,040			896			16
Latin America/Caribbean	70			61			15		224			217			3
North America	940			878			7		2,809			2,598			8
Total net revenue	$	2,029		$	1,908		6		$	6,195		$	5,680		9
Average liability balances^(a)
Europe/Middle East/Africa	$	125,720		$	129,608		(3	)	$	126,891		$	121,581		4
Asia/Pacific	50,862			42,987			18		50,465			41,541			21
Latin America/Caribbean	10,141			12,722			(20	)	10,813			12,983			(17	)
North America	164,660			155,790			6		163,978			127,399			29
Total average liability balances	$	351,383		$	341,107		3		$	352,147		$	303,504		16
Trade finance loans(period-end)^(a)
Europe/Middle East/Africa	$	9,274		$	6,853		35		$	9,274		$	6,853		35
Asia/Pacific	18,317			16,918			8		18,317			16,918			8
Latin America/Caribbean	5,710			5,228			9		5,710			5,228			9
North America	1,841			1,105			67		1,841			1,105			67
Total trade finance loans	$	35,142		$	30,104		17		$	35,142		$	30,104		17
AUC (period-end)(in billions)^(a)
North America	$	10,206		$	9,611		6		$	10,206		$	9,611		6
All other regions	8,013			6,639			21		8,013			6,639			21
Total AUC	$	18,219		$	16,250		12	%	$	18,219		$	16,250		12	%


(a)	Total net revenue, average liability balances, trade finance loans and AUC are based on the domicile of the client. In the second quarter of 2012, the methodology for allocating the data by region was refined. Prior period was not revised due to immateriality.



Selected metrics	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(in millions, except where otherwise noted)	2012		2011		Change		2012		2011		Change
TSS firmwide disclosures^(a)
TS revenue – reported	$	1,064	$	969	10	%	$	3,190	$	2,790	14	%
TS revenue reported in CB	609		572		6		1,814		1,670		9
TS revenue reported in other lines of business	67		68		(1	)	204		196		4
TS firmwide revenue^(b)	1,740		1,609		8		5,208		4,656		12
WSS revenue	965		939		3		3,005		2,890		4
TSS firmwide revenue^(b)	$	2,705	$	2,548	6		$	8,213	$	7,546	9
TSS total foreign exchange (“FX”) revenue^(b)	135		179		(25	)	419		504		(17	)
TS firmwide liability balances (average)^(c)	417,821		414,485		1		423,289		376,661		12
TSS firmwide liability balances (average)^(c)	542,293		521,383		4		546,922		470,008		16
Number of:
U.S.$ ACH transactions originated	1,028		972		6		3,067		2,923		5
Total U.S.$ clearing volume (in thousands)	34,697		33,117		5		101,373		96,362		5
International electronic funds transfer volume (in thousands)^(d)	73,281		62,718		17		224,711		186,868		20
Wholesale check volume	580		601		(3	)	1,771		1,741		2
Wholesale cards issued (in thousands)^(e)	24,955		24,288		3	%	24,955		24,288		3	%

(a)

TSS firmwide metrics include revenue recorded in CB, Consumer & Business Banking and AM lines of business and net TSS FX revenue (it excludes TSS FX revenue recorded in IB). In order to capture the firmwide impact of TS and TSS products and revenue, management reviews firmwide metrics in assessing financial performance of TSS. Firmwide metrics are necessary in order to understand the aggregate TSS business.


(b)	IB executes FX transactions on behalf of TSS customers under revenue sharing agreements. FX revenue generated by TSS customers is recorded in TSS and IB. TSS total FX revenue reported above is the gross (pre-split) FX revenue generated by TSS customers. However, TSS firmwide revenue includes only the FX revenue booked in TSS, i.e., it does not include the portion of TSS FX revenue recorded in IB.


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


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


(e)	Wholesale cards issued and outstanding include stored value, prepaid and government electronic benefit card products.



ASSET MANAGEMENT

For a discussion of the business profile of AM, see pages 104–106 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 5 of this Form 10-Q.



Selected income statement data
	Three months ended September 30,								Nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Revenue
Asset management, administration and commissions	$	1,708		$	1,617		6	%	$	5,030		$	5,142		(2	)%
All other income	199			281			(29	)	616			915			(33	)
Noninterest revenue	1,907			1,898			—		5,646			6,057			(7	)
Net interest income	552			418			32		1,547			1,202			29
Total net revenue	2,459			2,316			6		7,193			7,259			(1	)

Provision for credit losses	14			26			(46	)	67			43			56

Noninterest expense
Compensation expense	1,083			999			8		3,227			3,106			4
Noncompensation expense	625			775			(19	)	1,866			2,078			(10	)
Amortization of intangibles	23			22			5		68			66			3
Total noninterest expense	1,731			1,796			(4	)	5,161			5,250			(2	)
Income before income tax expense	714			494			45		1,965			1,966			—
Income tax expense	271			109			149		745			676			10
Net income	$	443		$	385		15		$	1,220		$	1,290		(5	)
Revenue by client segment
Private Banking	$	1,365		$	1,298		5		$	3,985		$	3,904		2
Institutional	563			478			18		1,657			1,715			(3	)
Retail	531			540			(2	)	1,551			1,640			(5	)
Total net revenue	$	2,459		$	2,316		6	%	$	7,193		$	7,259		(1	)%
Financial ratios
Return on common equity	25		%	24		%			23		%	27		%
Overhead ratio	70			78					72			72
Pretax margin ratio	29			21					27			27

Quarterly results

Net income was $443 million, an increase of $58 million, or 15%, from the prior year. These results reflected higher net revenue, lower noninterest expense and lower provision for credit losses.

Net revenue was $2.5 billion, an increase of $143 million, or 6%, from the prior year. Noninterest revenue was $1.9 billion, up $9 million, flat compared with the prior year, as higher valuations of seed capital investments and net product inflows were offset by the absence of a prior-year gain on the sale of an investment and lower loan-related revenue. Net interest income was $552 million, up by $134 million, or 32%, primarily due to higher deposit and loan balances.

Revenue from Private Banking was $1.4 billion, up 5% from the prior year. Revenue from Institutional was $563 million, up 18%. Revenue from Retail was $531 million, down 2%.

The provision for credit losses was $14 million, compared with $26 million in the prior year.

Noninterest expense was $1.7 billion, a decrease of $65 million, or 4%, from the prior year, due to the absence of non-client-related litigation expense, partially offset by higher performance-based compensation.

Year-to-date results

Net income was $1.2 billion, a decrease of $70 million, or 5%, from the prior year. These results reflected lower net revenue and a higher provision for credit losses, offset by lower noninterest expense.

Net revenue was $7.2 billion, a decrease of $66 million, or 1%, from the prior year. Noninterest revenue was $5.6 billion, down by $411 million, or 7%, due to lower loan-related revenue, lower performance fees, the absence of a prior-year gain on the sale of an investment and the effect of lower market levels, partially offset by net product inflows. Net interest income was $1.5 billion, up by $345 million, or 29%, due to higher deposit and loan balances.

Revenue from Private Banking was $4.0 billion, up 2% from the prior year. Revenue from Institutional was $1.7 billion, down 3%. Revenue from Retail was $1.6 billion, down 5%.

The provision for credit losses was $67 million, compared with $43 million in the prior year.

Noninterest expense was $5.2 billion, a decrease of $89 million, or 2%, from the prior year, due to the absence of

non-client-related litigation expense, partially offset by higher headcount-related expense and higher performance-based compensation.



Selected metrics	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except headcount, ranking data and where otherwise noted)	2012			2011			Change		2012			2011			Change
Number of:
Client advisors^(a)	2,826			2,864			(1	)%	2,826			2,864			(1	)%
Retirement planning services participants (in thousands)	1,951			1,755			11		1,951			1,755			11
% of customer assets in 4 & 5 Star Funds^(b)	45		%	47		%			45		%	47		%
% of AUM in 1^st and 2^nd quartiles:^(c)
1 year	69			49					69			49
3 years	78			73					78			73
5 years	77			77					77			77
Selected balance sheet data (period-end)
Total assets	$	103,608		$	81,179		28		$	103,608		$	81,179		28
Loans^(d)	74,924			54,178			38		74,924			54,178			38
Equity	7,000			6,500			8		7,000			6,500			8
Selected balance sheet data (average)
Total assets	$	99,209		$	78,669		26		$	95,168		$	73,967		29
Loans	71,824			52,652			36		66,097			48,841			35
Deposits	127,487			111,090			15		127,702			101,341			26
Equity	7,000			6,500			8		7,000			6,500			8

Headcount	18,109			18,084			—	%	18,109			18,084			—	%


(a)	Effective January 1, 2012, the previously disclosed separate metric for client advisors and JPMorgan Securities brokers were combined into one metric that reflects the number of Private Banking client-facing representatives.


(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.


(d)	Includes $8.9 billion of prime mortgage loans reported in the Consumer loan portfolio at September 30, 2012.



Selected metrics	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except ratios)	2012			2011			Change		2012			2011			Change
Credit data and quality statistics
Net charge-offs	$	6		$	—		NM		$	61		$	44		39	%
Nonaccrual loans	227			311			(27	)	227			311			(27	)
Allowance for credit losses:
Allowance for loan losses	229			240			(5	)	229			240			(5	)
Allowance for lending-related commitments	5			9			(44	)	5			9			(44	)
Total allowance for credit losses	234			249			(6	)%	234			249			(6	)%
Net charge-off rate	0.03		%	—		%			0.12		%	0.12		%
Allowance for loan losses to period-end loans	0.31			0.44					0.31			0.44
Allowance for loan losses to nonaccrual loans	101			77					101			77
Nonaccrual loans to period-end loans	0.30			0.57					0.30			0.57

Assets under supervision

Assets under supervision were $2.0 trillion, an increase of $225 billion, or 12%, from the prior year. Assets under management were $1.4 trillion, an increase of $127 billion, or 10%, due to the effect of higher market levels and net

inflows to long-term products. Custody, brokerage, administration and deposit balances were $650 billion, up by $98 billion, or 18%, primarily due to the effect of higher market levels and custody and brokerage inflows.



Assets under supervision
September 30, (in billions)	2012		2011		Change
Assets by asset class
Liquidity	$	451	$	464	(3	)%
Fixed income	380		321		18
Equity and multi-asset	432		356		21
Alternatives	118		113		4
Total assets under management	1,381		1,254		10
Custody/brokerage/administration/deposits	650		552		18
Total assets under supervision	$	2,031	$	1,806	12
Assets by client segment
Private Banking	$	311	$	276	13
Institutional	710		673		5
Retail	360		305		18
Total assets under management	$	1,381	$	1,254	10
Private Banking	$	852	$	738	15
Institutional	710		674		5
Retail	469		394		19
Total assets under supervision	$	2,031	$	1,806	12
Mutual fund assets by asset class
Liquidity	$	390	$	409	(5	)
Fixed income	128		101		27
Equity and multi-asset	174		139		25
Alternatives	6		8		(25	)
Total mutual fund assets	$	698	$	657	6	%



	Three months ended September 30,						Nine months ended September 30,
(in billions)	2012			2011			2012			2011
Assets under management rollforward
Beginning balance	$	1,347		$	1,342		$	1,336		$	1,298
Net asset flows:
Liquidity	(17		)	(10		)	(67		)	(35		)
Fixed income	13			3			29			31
Equity, multi-asset and alternatives	8			(1		)	23			17
Market/performance/other impacts	30			(80		)	60			(57		)
Ending balance, September 30	$	1,381		$	1,254		$	1,381		$	1,254
Assets under supervision rollforward
Beginning balance	$	1,968		$	1,924		$	1,921		$	1,840
Net asset flows	10			11			12			54
Market/performance/other impacts	53			(129		)	98			(88		)
Ending balance, September 30	$	2,031		$	1,806		$	2,031		$	1,806



International metrics	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(in billions, except where otherwise noted)	2012		2011		Change		2012		2011		Change
Total net revenue (in millions)^(a)
Europe/Middle East/Africa	$	386	$	395	(2	)%	$	1,170	$	1,312	(11	)%
Asia/Pacific	245		248		(1	)	711		751		(5	)
Latin America/Caribbean	191		168		14		532		584		(9	)
North America	1,637		1,505		9		4,780		4,612		4
Total net revenue	$	2,459	$	2,316	6		$	7,193	$	7,259	(1	)
Assets under management
Europe/Middle East/Africa	$	267	$	255	5		$	267	$	255	5
Asia/Pacific	112		104		8		112		104		8
Latin America/Caribbean	42		32		31		42		32		31
North America	960		863		11		960		863		11
Total assets under management	$	1,381	$	1,254	10		$	1,381	$	1,254	10
Assets under supervision
Europe/Middle East/Africa	$	325	$	306	6		$	325	$	306	6
Asia/Pacific	155		140		11		155		140		11
Latin America/Caribbean	106		87		22		106		87		22
North America	1,445		1,273		14		1,445		1,273		14
Total assets under supervision	$	2,031	$	1,806	12	%	$	2,031	$	1,806	12	%


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



CORPORATE/PRIVATE EQUITY

For a discussion of Corporate/Private Equity, see pages 107–108 of JPMorgan Chase’s 2011 Annual Report and the Introduction on page 5 of this Form 10-Q.



Selected income statement data
	As of or for the three months ended September 30,								As of or for the nine months ended September 30,
(in millions, except headcount)	2012			2011			Change		2012			2011			Change
Revenue
Principal transactions	$	(304	)	$	(933	)	67	%	$	(4,427	)	$	1,110		NM%
Securities gains	459			607			(24	)	1,921			1,546			24
All other income	1,046			186			462		2,316			529			338
Noninterest revenue	1,201			(140		)	NM		(190		)	3,185			NM
Net interest income	(625		)	8			NM		(814		)	260			NM
Total net revenue^(a)	576			(132		)	NM		(1,004		)	3,445			NM

Provision for credit losses	(11		)	(7		)	(57	)	(31		)	(26		)	(19	)

Noninterest expense
Compensation expense	589			552			7		2,064			1,823			13
Noncompensation expense^(b)	1,603			1,995			(20	)	6,248			5,235			19
Subtotal	2,192			2,547			(14	)	8,312			7,058			18
Net expense allocated to other businesses	(1,462		)	(1,331		)	(10	)	(4,254		)	(3,839		)	(11	)
Total noninterest expense	730			1,216			(40	)	4,058			3,219			26
Income/(loss) before income tax expense/(benefit)	(143		)	(1,341		)	89		(5,031		)	252			NM
Income tax expense/(benefit)	(364		)	(696		)	48		(2,453		)	(327		)	NM
Net income/(loss)	$	221		$	(645	)	NM		$	(2,578	)	$	579		NM
Total net revenue
Private equity	$	(135	)	$	(546	)	75		$	529		$	949		(44	)
Treasury and CIO	713			102			NM		(2,954		)	2,351			NM
Corporate	(2		)	312			NM		1,421			145			NM
Total net revenue	$	576		$	(132	)	NM		$	(1,004	)	$	3,445		NM
Net income/(loss)
Private equity	$	(89	)	$	(347	)	74		$	242		$	480		(50	)
Treasury and CIO	369			(94		)	NM		(1,936		)	932			NM
Corporate	(59		)	(204		)	71		(884		)	(833		)	(6	)
Total net income/(loss)	$	221		$	(645	)	NM		$	(2,578	)	$	579		NM
Total assets (period-end)	$	685,412		$	693,597		(1	)	$	685,412		$	693,597		(1	)
Headcount	23,427			21,844			7	%	23,427			21,844			7	%


(a)	Total net revenue included tax-equivalent adjustments, predominantly due to tax-exempt income from municipal bond investments of $109 million and $73 million for the three months ended September 30, 2012 and 2011, respectively, and $326 million and $206 million for the nine months ended September 30, 2012 and 2011, respectively.


(b)	Included litigation expense of $685 million and $1.0 billion for the three months ended September 30, 2012 and 2011, respectively, and $3.5 billion and $2.6 billion for the nine months ended September 30, 2012 and 2011, respectively.

Quarterly results

Net income was $221 million, compared with a net loss of $645 million in the prior year.

Private Equity reported a net loss of $89 million, compared with a net loss of $347 million in the prior year. Net revenue was a loss of $135 million, compared with a loss of $546 million in the prior year, due to lower net valuation losses on both private and public investments.

Treasury and CIO reported net income of $369 million, compared with a net loss of $94 million in the prior year. Net revenue was $713 million, compared with net revenue of $102 million in the prior year. The current-quarter revenue reflected $888 million of pretax extinguishment

gains related to the redemption of trust preferred capital debt securities. The extinguishment gains were related to adjustments applied to the cost basis of the trust preferred capital debt securities during the period they were in a qualified hedge accounting relationship.

During the third quarter, CIO effectively closed out the index credit derivative positions that were retained following the transfer of the synthetic credit portfolio to IB on July 2, 2012. Principal transactions in CIO included $449 million of losses on this portfolio reflecting credit spread tightening during the quarter. Net revenue also included securities gains of $459 million from sales of AFS investment securities during the current quarter. Net interest income

was negative, reflecting the impact of lower portfolio yields and higher deposit balances across the Firm.

Other Corporate reported a net loss of $59 million, compared with a net loss of $204 million in the prior year. The current quarter included pretax expense of $684 million for additional litigation reserves, largely offset by other items, including tax adjustments. The prior year included pretax expense of $1.0 billion for additional litigation reserves.

Year-to-date results

Net loss was $2.6 billion, compared with net income of $579 million in the prior year.

Private Equity reported net income of $242 million, compared with net income of $480 million in the prior year. Net revenue of $529 million, compared with $949 million in the prior year, due to lower net valuation gains on private investments and lower gains on sales, partially offset by higher net valuation gains on public securities. Noninterest expense was $150 million, down from $210 million in the prior year.

Treasury and CIO reported a net loss of $1.9 billion, compared with net income of $932 million in the prior year. Net revenue was a loss of $3.0 billion, compared with net revenue of $2.4 billion in the prior year. The current year loss reflected $5.8 billion of principal transactions losses for the sixth months ended June 30, 2012 and $449 million

of principal transactions losses for the three months ended September 30, 2012, from the synthetic credit portfolio recorded in CIO. These losses were partially offset by securities gains of $1.9 billion. The current-year revenue reflected $888 million of pretax extinguishment gains related to the redemption of trust preferred capital debt securities. The extinguishment gains were related to adjustments applied to the cost basis of the trust preferred capital debt securities during the period they were in a qualified hedge accounting relationship. Net interest income was negative $295 million, compared with $926 million in the prior year, primarily reflecting the impact of lower portfolio yields and higher deposit balances across the Firm.

Other Corporate reported a net loss of $884 million, compared with a net loss of $833 million in the prior year. Noninterest revenue of $1.8 billion was driven by a $1.1 billion benefit from the Washington Mutual bankruptcy settlement and a $663 million gain for the expected recovery on a Bear Stearns-related subordinated loan. Noninterest expense of $3.5 billion was up $1.2 billion compared with the prior year. The current year included pretax expense of $3.5 billion for additional litigation reserves, largely for mortgage-related matters. The prior year included pretax expense of $2.6 billion for additional litigation reserves.

Treasury and CIO overview

Treasury and CIO are responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding, capital, interest rate and foreign exchange risks, and other risks. The risks managed by Treasury and CIO arise from the activities undertaken by the Firm’s six major reportable business segments to serve their respective client bases, which generate both on- and off-balance sheet assets and liabilities.

Treasury is responsible for, among other functions, funds transfer pricing. Funds transfer pricing is used to transfer interest rate risk and foreign exchange risk of the Firm to Treasury and CIO and allocate interest income and expense to each business based on market rates. CIO, through its management of the investment portfolio, generates net interest income to pay the lines of business market rates. Any variance (whether positive or negative) between amounts generated by CIO through its investment portfolio activities and amounts paid to or received by the lines of business are retained by CIO, and are not reflected in line of business segment results. Treasury and CIO activities operate in support of the overall Firm.

CIO achieves the Firm’s asset-liability management objectives generally by investing in high-quality securities that are managed for the longer-term as part of the Firm’s AFS investment portfolio. Unrealized gains and losses on securities held in the AFS portfolio are recorded in other comprehensive income. For further information about

securities in the AFS portfolio, see Note 3 and Note 11 on pages 119–133 and 148–153, respectively, of this Form 10-Q. CIO also uses securities that are not classified within the AFS portfolio, as well as derivatives, to meet the Firm’s asset-liability management objectives. Securities not classified within the AFS portfolio are recorded in trading assets and liabilities; realized and unrealized gains and losses on such securities are recorded in the principal transactions revenue line in the Consolidated Statements of Income. For further information about securities included in trading assets and liabilities, see Note 3 on pages 119–133 of this Form 10-Q. Derivatives used by CIO are also classified as trading assets and liabilities. For further information on derivatives, including the classification of realized and unrealized gains and losses, see Note 5 on pages 136–144 of the Form 10-Q.

CIO’s AFS portfolio consists of U.S. and non-U.S. government securities, agency and non-agency mortgage-backed securities, other asset-backed securities and corporate and municipal debt securities. At September 30, 2012, the total CIO AFS portfolio was approximately $338 billion; the average credit rating of the securities comprising the AFS portfolio was AA+ (based upon external ratings where available and where not available, based primarily upon internal ratings which correspond to ratings as defined by S&P and Moody’s). See Note 11 on pages 148–153 of this Form 10-Q for further information on the details of the AFS portfolio.

For further information on liquidity and funding risk, see Liquidity Risk Management on pages 66–72 of this Form 10-Q. For information on interest rate, foreign exchange and other risks, and CIO VaR and the Firm’s nontrading

interest rate-sensitive revenue at risk, see Market Risk Management on pages 96–102 of this

Form 10-Q.



Selected income statement and balance sheet data
	As of or for the three months ended September 30,						As of or for the nine months ended September 30,
(in millions)	2012		2011		Change		2012		2011		Change
Securities gains^(a)	$	459	$	459	—	%	$	1,925	$	1,398	38	%
Investment securities portfolio (average)^(b)	348,571		324,596		7		356,405		324,527		10
Investment securities portfolio (ending)^(b)	360,268		330,800		9		360,268		330,800		9
Mortgage loans (average)	9,469		13,748		(31	)	11,033		12,641		(13	)
Mortgage loans (ending)	8,574		14,226		(40	)%	8,574		14,226		(40	)%


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


(b)	The investment securities portfolio includes the AFS portfolio in Treasury and CIO.



Private Equity Portfolio
Selected income statement and balance sheet data
	Three months ended September 30,								Nine months ended September 30,
(in millions)	2012			2011			Change		2012		2011			Change
Private equity gains/(losses)
Realized gains	$	75		$	394		(81	)%	$	25	$	1,784		(99	)%
Unrealized gains/(losses)^(a)	(140		)	(827		)	83		628		(1,183		)	NM
Total direct investments	(65		)	(433		)	85		653		601			9
Third-party fund investments	(27		)	(7		)	(286	)	47		502			(91	)
Total private equity gains/(losses)^(b)	$	(92	)	$	(440	)	79	%	$	700	$	1,103		(37	)%



Private equity portfolio information^(c)
Direct investments
(in millions)	September 30, 2012		December 31, 2011		Change
Publicly held securities
Carrying value	$	637	$	805	(21	)%
Cost	384		573		(33	)
Quoted public value	673		896		(25	)
Privately held direct securities
Carrying value	5,313		4,597		16
Cost	6,662		6,793		(2	)
Third-party fund investments^(d)
Carrying value	2,119		2,283		(7	)
Cost	2,018		2,452		(18	)
Total private equity portfolio
Carrying value	$	8,069	$	7,685	5
Cost	$	9,064	$	9,818	(8	)%


(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 119–133 of this Form 10-Q.


(d)	Unfunded commitments to third-party private equity funds were $398 million and $789 million at September 30, 2012, and December 31, 2011, respectively.

The carrying value of the private equity portfolio at September 30, 2012, was $8.1 billion, up from $7.7 billion at December 31, 2011. The increase in the portfolio was predominantly driven by new investments and net valuation gains, partially offset by sales of investments. The portfolio represented 5.3% of the Firm’s stockholders’ equity less goodwill at September 30, 2012, down from 5.7% at December 31, 2011.



INTERNATIONAL OPERATIONS

During the three and nine months ended September 30, 2012, the Firm recorded approximately $5.3 billion and $12.9 billion, respectively, of managed revenue derived from clients, customers and counterparties domiciled outside of North America. Of those amounts, approximately 63% and 53%, respectively, were derived from Europe/Middle East/Africa (“EMEA”); approximately 26% and 33%, respectively, from Asia/Pacific; and approximately 11% and 14%, respectively, from Latin America/Caribbean.

During the three and nine months ended September 30, 2011, the Firm recorded approximately $5.6 billion and $19.1 billion, respectively, of managed revenue derived from clients, customers and counterparties domiciled outside of North America. Of those amounts, approximately 64% and 66%, respectively, were derived from EMEA; approximately 28% and 25%, respectively, from Asia/Pacific; and approximately 8% and 9%, respectively, from Latin America/Caribbean. For additional information regarding international operations, see Note 32 on pages 299–300 of JPMorgan Chase’s 2011 Annual Report.

International wholesale activities

The Firm is committed to further expanding its wholesale business activities outside of the United States, and it continues 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 continue to be 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 they operate, front-office headcount, number of clients, revenue and selected balance-sheet data.



(in millions, except headcount and where otherwise noted)	EMEA								Asia/Pacific								Latin America/Caribbean
	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011		2012		2011		2012		2011		2012		2011		2012		2011
Revenue^(a)	$	3,341	$	3,600	$	6,802	$	12,636	$	1,371	$	1,586	$	4,247	$	4,737	$	582	$	409	$	1,737	$	1,646
Countries of operation	33		34		33		34		16		16		16		16		9		9		9		9
Total headcount^(b)	15,668		16,520		15,668		16,520		20,499		20,457		20,499		20,457		1,428		1,354		1,428		1,354
Front-office headcount	5,925		6,120		5,925		6,120		4,206		4,280		4,206		4,280		631		562		631		562
Significant clients^(c)	966		935		966		935		476		473		476		473		167		160		167		160
Deposits (average)^(d)	$	167,930	$	173,204	$	168,728	$	166,934	$	55,577	$	58,078	$	57,330	$	55,804	$	4,899	$	4,926	$	4,762	$	5,365
Loans (period-end)^(e)	37,480		34,239		37,480		34,239		30,596		27,723		30,956		27,723		28,641		23,289		28,641		23,289
Assets under management (in billions)	267		255		267		255		112		104		112		104		42		32		42		32
Assets under supervision (in billions)	325		306		325		306		155		140		155		140		106		87		106		87
Assets under custody (in billions)	6,257		5,140		6,257		5,140		1,508		1,331		1,508		1,331		248		168		248		168

Note: International wholesale operations is comprised of IB, AM, TSS, CB and Treasury and CIO, and prior-period amounts have been revised to conform with current allocation methodologies.


(a)	Revenue is based predominantly on the domicile of the client, the location from which the client relationship is managed, or the location of the trading desk.


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


(c)	Significant clients are defined as companies with over $1 million in revenue over a trailing 12-month period in the region (excludes private banking clients).


(d)	Deposits are based on the location from which the client relationship is managed.


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



BALANCE SHEET ANALYSIS



Selected Consolidated Balance Sheets data
(in millions)	September 30, 2012			December 31, 2011
Assets
Cash and due from banks	$	53,343		$	59,602
Deposits with banks	104,344			85,279
Federal funds sold and securities purchased under resale agreements	281,991			235,314
Securities borrowed	133,526			142,462
Trading assets:
Debt and equity instruments	367,090			351,486
Derivative receivables	79,963			92,477
Securities	365,901			364,793
Loans	721,947			723,720
Allowance for loan losses	(22,824		)	(27,609		)
Loans, net of allowance for loan losses	699,123			696,111
Accrued interest and accounts receivable	62,989			61,478
Premises and equipment	14,271			14,041
Goodwill	48,178			48,188
Mortgage servicing rights	7,080			7,223
Other intangible assets	2,641			3,207
Other assets	100,844			104,131
Total assets	$	2,321,284		$	2,265,792
Liabilities
Deposits	$	1,139,611		$	1,127,806
Federal funds purchased and securities loaned or sold under repurchase agreements	257,218			213,532
Commercial paper	55,474			51,631
Other borrowed funds	22,255			21,908
Trading liabilities:
Debt and equity instruments	71,471			66,718
Derivative payables	73,462			74,977
Accounts payable and other liabilities	203,042			202,895
Beneficial interests issued by consolidated VIEs	57,918			65,977
Long-term debt	241,140			256,775
Total liabilities	2,121,591			2,082,219
Stockholders’ equity	199,693			183,573
Total liabilities and stockholders’ equity	$	2,321,284		$	2,265,792

Consolidated Balance Sheets overview

For a description of each of the significant line item captions on the Consolidated Balance Sheets, see pages 110–112 of JPMorgan Chase’s 2011 Annual Report.

JPMorgan Chase’s total assets and total liabilities increased by 2% from December 31, 2011. The increase in total assets was predominantly due to higher securities purchased under resale agreements and deposits with banks, partially offset by lower securities borrowed. The net increase in these categories reflected the Firm’s deployment of its excess funds. The increase in total liabilities was

predominantly due to higher securities sold under repurchase agreements associated with financing the Firm’s assets. Also contributing to the increase in total liabilities was higher deposits predominantly from growth in retail deposits, which was more than offset by lower long-term debt, largely related to the redemption of TruPS. The increase in stockholders’ equity was predominantly due to the Firm’s net income.

The following is a discussion of the significant changes in the specific line item captions on the Consolidated Balance Sheets from December 31, 2011.

Cash and due from banks and deposits with banks

The net increase in cash and due from banks and deposits with banks reflected the placement of the Firm’s excess funds with various central banks, including Federal Reserve Banks. For additional information, refer to the Liquidity Risk Management discussion on pages 66–72 of this Form 10-Q.

Federal funds sold and securities purchased under resale agreements; and securities borrowed

The net increase in securities purchased under resale agreements and securities borrowed was predominantly due to deployment of excess cash by Treasury.

Trading assets and liabilities–debt and equity instruments

Trading assets-debt and equity instruments increased, driven by client market-making activity in IB; this resulted in higher levels of non-U.S. government debt securities, U.S government debt securities and equity securities. Increases were partially offset by a decrease in physical commodities. For additional information, refer to Note 3 on pages 119–133 of this Form 10-Q.

Trading assets and liabilities–derivative receivables and payables

Derivative receivables and payables decreased, primarily due to the impact of changes in the underlying parameters, including FX rates, interest rates, and credit spreads. The changes resulted in reductions in derivative receivables related to foreign exchange, interest rate and credit derivative contracts, partially offset by increases in equity derivative receivables. Derivative payables decreased, reflecting lower credit derivative payables, partially offset by higher equity derivative payables. For additional information, refer to Derivative contracts on page 80, and Notes 3 and 5 on pages 119–133 and 136–144, respectively, of this Form 10-Q.

Securities

Securities increased largely due to reinvestment and repositioning of the CIO AFS portfolio, which increased the levels of non-U.S. government debt and residential mortgage-backed securities (“MBS”) as well as obligations of U.S. states and municipalities; the increase was partially offset by decreases in corporate debt securities and U.S. government agency issued MBS. For additional information related to securities, refer to the discussion in the Corporate/Private Equity segment on pages 49–51, and

Notes 3 and 11 on pages 119–133 and 148–153, respectively, of this Form 10-Q.

Loans and allowance for loan losses

Loans decreased slightly, due to lower consumer loans, offset by higher wholesale loans. The decline in consumer, excluding credit card loans was due to paydowns, portfolio run-off and charge-offs; the decline in credit card loans was due to seasonality and higher repayment rates. The increase in wholesale loans was driven by increased client activity across most regions and most businesses.

The allowance for loan losses decreased as a result of a reduction in the consumer allowances, predominantly related to the continuing trend of improved delinquencies across most consumer portfolios, notably non-PCI residential real estate and credit card. The wholesale allowance for loan losses was relatively unchanged. For a more detailed discussion of the loan portfolio and the allowance for loan losses, refer to Credit Portfolio and Allowance for Credit Losses on pages 72–95, and Notes 3, 4, 13 and 14 on pages 119–133, 133–135, 154–175 and 176, respectively, of this Form 10-Q.

Mortgage servicing rights

MSRs decreased slightly, as the combined effects of changes in market interest rates and modeled amortization were predominantly offset by new MSR originations. For additional information on MSRs, see Note 16 on pages 184–187 of this Form 10-Q.

Other intangible assets

Other intangible assets decreased, due to amortization. For additional information on other intangible assets, see Note 16 on pages 184–187 of this Form 10-Q.

Deposits

Deposits increased, predominantly due to growth in retail deposits. For more information on deposits, refer to the RFS and AM segment discussions on pages 24–33 and 45–48, respectively; the Liquidity Risk Management discussion on pages 66–72; and Notes 3 and 17 on pages 119–133 and 188, respectively, of this Form 10-Q. For more information on liability balances in the wholesale businesses, which includes deposits, refer to the TSS and CB segment discussions on pages 41–44 and 38–40, respectively, of this Form 10-Q.

Federal funds purchased and securities loaned or sold under repurchase agreements

Securities loaned or sold under repurchase agreements increased predominantly because of higher secured financing of the Firm’s assets and a change in the mix of the Firm’s liabilities. For additional information on the Firm’s Liquidity Risk Management, see pages 66–72 of this Form 10-Q.

Commercial paper and other borrowed funds

Commercial paper increased due to higher commercial paper liabilities sourced from wholesale funding markets to meet short-term funding needs, partially offset by a decline in the volume of liability balances in sweep accounts related to TSS’s cash management product. Other borrowed funds remained relatively unchanged. For additional information on the Firm’s Liquidity Risk Management and other borrowed funds, see pages 66–72 of this Form 10-Q.

Beneficial interests issued by consolidated VIEs

Beneficial interests issued by consolidated VIEs decreased primarily due to a reduction in outstanding conduit commercial paper held by third parties and credit card maturities, partially offset by new credit card issuances and new consolidated municipal bond vehicles. For additional information on Firm-sponsored VIEs and loan securitization trusts, see Off–Balance Sheet Arrangements on pages 55–58, and Note 15 on pages 177–184 of this Form 10-Q.

Long-term debt

Long-term debt decreased due to net redemptions and maturities of long-term borrowings, largely related to the redemption of TruPS. For additional information on the Firm’s long-term debt activities, see the Liquidity Risk Management discussion on pages 66–72 of this Form 10-Q.

Stockholders’ equity

Total stockholders’ equity increased, predominantly due to net income; a net increase in accumulated other comprehensive income (“AOCI”) reflecting net unrealized market value increases on AFS securities predominantly driven by declining interest rates and the tightening of spreads across the portfolio, partially offset by sales; net issuances and commitments to issue under the Firm’s employee stock-based compensation plans; and the issuance of preferred stock. The increase was partially offset by the declaration of cash dividends on common and preferred stock and repurchases of common equity.



OFF-BALANCE SHEET ARRANGEMENTS

JPMorgan Chase is involved with several types of off–balance sheet arrangements, including through unconsolidated 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 113–118 of JPMorgan Chase’s 2011 Annual Report.

Special-purpose entities

The most common type of VIE is an SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. SPEs are 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 types of SPEs, see Note 15 on pages 177–184 of this Form 10-Q, and Note 1 on pages 182–183 and Note 16 on pages 256–267 of JPMorgan Chase’s 2011 Annual Report.

Implications of a credit rating downgrade to JPMorgan Chase Bank, N.A.

For certain liquidity commitments to SPEs, JPMorgan Chase Bank, N.A., could be required to provide funding if its short-term credit rating were downgraded below specific levels, primarily “P-1,” “A-1” and “F1” for Moody’s, Standard & Poor’s and Fitch, respectively. These liquidity commitments support the issuance of asset-backed commercial paper by both Firm-administered consolidated and third-party-sponsored nonconsolidated SPEs. In the event of a short-term credit rating downgrade, JPMorgan Chase Bank, N.A., absent other solutions, would be required to provide funding to the SPE, if the commercial paper could not be reissued as it matured. The aggregate amounts of commercial paper outstanding, issued by both Firm-administered and third-party-sponsored SPEs, that are held by third parties as of September 30, 2012, and December 31, 2011, was $12.6 billion and $19.7 billion, respectively. In addition, the aggregate amounts of commercial paper outstanding could increase in future periods should clients of the Firm-administered consolidated or third-party-sponsored nonconsolidated SPEs draw down on certain unfunded lending-related commitments. JPMorgan Chase Bank, N.A. had unfunded lending-related commitments to clients to fund an incremental $12.2 billion and $11.0 billion at September 30, 2012, and December 31, 2011, respectively. The Firm could facilitate the refinancing of some of the clients’ assets in order to reduce the funding obligation.

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, see Lending-related commitments on page 79, and Note 21 on pages 192–196 of this Form 10-Q, and Lending-related commitments on page 144, and Note 29 on pages 283–289 of JPMorgan Chase’s 2011 Annual Report.

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. For additional information regarding loans sold to the GSEs, see Mortgage repurchase liability on pages 115–118 of JPMorgan Chase’s 2011 Annual Report.

The Firm also sells loans in securitization transactions with Ginnie Mae; these loans are typically insured or guaranteed by another government agency. The Firm, in its role as servicer, may elect, but is typically not required, to repurchase delinquent loans securitized by Ginnie Mae, including those that have been sold back to Ginnie Mae subsequent to modification. Principal 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 mortgage 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 Federal Deposit Insurance

Corporation (“FDIC”) receivership), approximately $195 billion of principal has been repaid (including $71 billion related to Washington Mutual). In addition, approximately $113 billion of the principal amount of loans has been liquidated (including $41 billion related to Washington Mutual), with an average loss severity of 59%. Accordingly, the remaining outstanding principal balance of these loans (including Washington Mutual) was, as of September 30, 2012, approximately $142 billion, of which $42 billion was 60 days or more past due. The remaining outstanding principal balance of loans related to Washington Mutual was approximately $53 billion, of which $15 billion were 60 days or more past due. For additional information regarding loans sold to private investors, see Mortgage repurchase liability on pages 115–118 of JPMorgan Chase’s 2011 Annual Report.

There have been generalized allegations, as well as specific demands, that the Firm repurchase loans sold or deposited into private-label securitizations (including claims from insurers that have guaranteed certain obligations of the securitization trusts). Although the Firm encourages parties to use the contractual repurchase process established in the governing agreements, these private-label repurchase claims have generally manifested themselves through threatened or pending litigation. Accordingly, the liability related to repurchase demands associated with all of the private-label securitizations described above is separately evaluated by the Firm in establishing its litigation reserves. For additional information regarding litigation, see Note 23

on pages 196–206 of this Form 10-Q, and Note 31 on pages 290–299 of JPMorgan Chase’s 2011 Annual Report.

Estimated mortgage repurchase liability

The Firm has recognized a mortgage repurchase liability of $3.1 billion and $3.6 billion, as of September 30, 2012, and December 31, 2011, respectively. The Firm’s mortgage repurchase liability is intended to cover losses associated with all loans previously sold in connection with loan sale and securitization transactions with the GSEs, regardless of when those losses occur or how they are ultimately resolved (e.g., repurchase, make-whole payment). While uncertainties continue to exist with respect to both GSE behavior and the economic environment, the Firm believes that the model inputs and assumptions that it uses to estimate its mortgage repurchase liability are becoming increasingly seasoned and stable. Based on these model inputs and taking into consideration its projections regarding future uncertainty, including the GSEs’ behavior, the Firm has become increasingly confident in its ability to estimate reliably its mortgage repurchase liability. For these reasons, the Firm believes that its existing mortgage repurchase liability at September 30, 2012, is sufficient to cover probable future repurchase losses arising from loan sale and securitization transactions with the GSEs. For additional information about the process that the Firm uses to estimate its mortgage repurchase liability and the factors it considers in connection with that process, see Mortgage repurchase liability on pages 115–118 of JPMorgan Chase’s 2011 Annual Report.

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
(in millions)	September 30, 2012			June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011
GSEs	$	1,533		$	1,646		$	1,868		$	1,682		$	1,666
Mortgage insurers	1,036			1,004			1,000			1,034			1,112
Other^(a)	1,697			981			756			663			467
Overlapping population^(b)	(150		)	(125		)	(116		)	(113		)	(155		)
Total	$	4,116		$	3,506		$	3,508		$	3,266		$	3,090

(a)

Represents repurchase demands received from parties other than the GSEs that have been presented to the Firm by trustees who assert authority to present such claims under the terms of the underlying sale or securitization agreement, and excludes repurchase demands asserted in or in connection with pending repurchase litigation. All mortgage repurchase demands associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves.


(b)	Because the GSEs and others 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 outstanding repurchase demand.

The following tables show 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 or to increase if there is a significant increase in private-label repurchase demands outside of pending repurchase litigation.



Quarterly mortgage repurchase demands received by loan origination vintage^(a)
(in millions)	September 30, 2012		June 30, 2012		March 31, 2012		December 31, 2011		September 30, 2011
Pre-2005	$	33	$	28	$	41	$	39	$	34
2005	103		65		95		55		200
2006	963		506		375		315		232
2007	371		420		645		804		602
2008	196		311		361		291		323
Post-2008	124		191		124		81		153
Total repurchase demands received	$	1,790	$	1,521	$	1,641	$	1,585	$	1,544

(a) All mortgage repurchase demands associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves. This table excludes repurchase demands asserted in or in connection with pending repurchase litigation.



Quarterly mortgage insurance rescission notices received by loan origination vintage^(a)
(in millions)	September 30, 2012		June 30, 2012		March 31, 2012		December 31, 2011		September 30, 2011
Pre-2005	$	6	$	9	$	13	$	4	$	3
2005	14		13		19		12		15
2006	46		26		36		19		31
2007	139		121		78		48		63
2008	37		51		32		26		30
Post-2008	8		6		4		2		1
Total mortgage insurance rescissions received	$	250	$	226	$	182	$	111	$	143


(a)	Mortgage insurance rescissions typically result in a repurchase demand from the GSEs. This table includes mortgage insurance rescission notices for which the GSEs or others also have issued a repurchase demand.

Since the beginning of 2011, the Firm’s overall cure rate (excluding loans originated by Washington Mutual) has been approximately 55%. A significant portion of repurchase demands now relate to loans with a longer pay history, which have historically had higher cure rates. 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 at approximately 50-60% for the foreseeable future.

The Firm has not observed a direct relationship between the type of defect that allegedly 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 changes in home prices. Actual principal loss severities on finalized repurchases and “make-whole” settlements to date (excluding loans originated by 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 originator, the Firm typically has the right to seek a recovery of related repurchase losses from the third-party originator. Estimated and actual third-party recovery rates may vary from

quarter to quarter based upon the underlying mix of third-party originators (e.g., active, inactive, out-of-business originators) from which recoveries are being sought.

Substantially all of the estimates and assumptions underlying the Firm’s established methodology for computing its recorded mortgage repurchase liability — including the amount of probable future demands from the GSEs (which is largely based on 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. While the Firm uses the best information available to it in estimating its mortgage repurchase liability, the estimation process is inherently uncertain and imprecise.

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



Summary of changes in mortgage repurchase liability^(a)
	Three months ended September 30,							Nine months ended September 30,
(in millions)	2012				2011			2012			2011
Repurchase liability at beginning of period	$	3,293			$	3,631		$	3,557		$	3,285
Realized losses^(b)	(268		)		(329		)	(891		)	(801		)
Provision^(c)	74				314			433			1,132
Repurchase liability at end of period	$	3,099		^(d)	$	3,616		$	3,099		$	3,616


(a)	All mortgage repurchase demands associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves.


(b)	Includes principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expense. Make-whole settlements were $94 million and $162 million for the three months ended September 30, 2012 and 2011, respectively and $387 million and $403 million, for the nine months ended September 30, 2012 and 2011, respectively.


(c)	Includes $30 million and $12 million of provision related to new loan sales for the three months ended September 30, 2012 and 2011, respectively, and $85 million and $35 million for the nine months ended September 30, 2012 and 2011, respectively.


(d)	Includes $3 million at September 30, 2012, related to future repurchase demands on loans sold by Washington Mutual to the GSEs.

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 September 30,				Nine months ended September 30,
(in millions)	2012		2011		2012		2011
Ginnie Mae^(b)	$	1,216	$	1,558	$	4,342	$	4,271
GSEs^(c)	312		367		933		756
Other^(c)(d)	39		18		147		92
Total	$	1,567	$	1,943	$	5,422	$	5,119

(a)

This table includes: (i) repurchases of mortgage loans due to breaches of representations and warranties, and (ii) loans repurchased from Ginnie Mae loan pools as described in (b) below. This table does not include mortgage insurance rescissions; while the rescission of mortgage insurance typically results in a repurchase demand from the GSEs, the mortgage insurers themselves do not present repurchase demands to the Firm. This table excludes mortgage loan repurchases associated with repurchase demands asserted in or in connection with pending repurchase litigation.

(b)

In substantially all cases, these repurchases represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools 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 Services (“RHS”) and/or the U.S. Department of Veterans Affairs (“VA”).


(c)	Nonaccrual loans held-for-investment included $484 million and $477 million at September 30, 2012, and December 31, 2011, respectively, of loans repurchased as a result of breaches of representations and warranties.


(d)	Represents loans repurchased from parties other than the GSEs, excluding those repurchased in connection with pending repurchase litigation.

For additional information regarding the mortgage repurchase liability, see Note 21 on pages 192–196 of this Form 10-Q, and Note 29 on pages 283–289 of JPMorgan Chase’s 2011 Annual Report.

In addition, the Firm faces a variety of exposures resulting from repurchase demands and litigation arising out of its various roles as issuer and/or underwriter of mortgage-backed securities (“MBS”) offerings in private-label securitizations. It is possible that these matters will take a number of years to resolve and their ultimate resolution is currently uncertain. Reserves for such matters may need to be increased in the future; however, with the additional litigation reserves taken to date, absent any materially adverse developments that could change management’s current views, JPMorgan Chase does not currently anticipate further material additions to its litigation reserves for mortgage-backed securities-related matters over the remainder of the year. For further information, see Note 23, Litigation on pages 196–206 of the Form 10-Q.



CAPITAL MANAGEMENT

The following discussion of JPMorgan Chase’s capital management highlights developments since December 31, 2011, and should be read in conjunction with Capital Management on pages 119–124 of JPMorgan Chase’s 2011 Annual 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;


•	Maintain debt ratings that enable the Firm to optimize its funding mix and liquidity sources while minimizing costs;


•	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 September 30, 2012, and December 31, 2011, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and each met all capital requirements to which it was subject. For more information, see Note 20 on pages 191–192 of this Form 10-Q.

At September 30, 2012, and December 31, 2011, JPMorgan Chase maintained Tier 1 and Total capital ratios in excess of the well-capitalized standards established by the Federal Reserve, as indicated in the tables below. In addition, the Firm’s Tier 1 common ratio was significantly above the 5% well-capitalized standard established at the time of the 2012 CCAR process. Tier 1 common, introduced by U.S. banking regulators in 2009, is defined as Tier 1 capital less elements of Tier 1 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, 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 other capital measures to assess and monitor its capital position.

The following table presents the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase at September 30, 2012, and December 31, 2011. These amounts are determined in accordance with regulations issued by the Federal Reserve.



Risk-based capital ratios
	September 30, 2012		December 31, 2011
Capital ratios
Tier 1 capital	11.9	%	12.3	%
Total capital	14.7		15.4
Tier 1 leverage	7.1		6.8
Tier 1 common^(a)	10.4		10.1


(a)	The Tier 1 common ratio is Tier 1 common capital divided by risk-weighted assets (“RWA”).

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



Risk-based capital components and assets
(in millions)	September 30, 2012			December 31, 2011
Total stockholders’ equity	$	199,693		$	183,573
Less: Preferred stock	9,058			7,800
Common stockholders’ equity	190,635			175,773
Effect of certain items in AOCI excluded from Tier 1 common	(4,501		)	(970		)
Less: Goodwill^(a)	45,718			45,873
Fair value DVA on derivative and structured note liabilities related to the Firm’s credit quality	1,928			2,150
Investments in certain subsidiaries and other	857			993
Other intangible assets^(a)	2,566			2,871
Tier 1 common	135,065			122,916
Preferred stock	9,058			7,800
Qualifying hybrid securities and noncontrolling interests	10,568			19,668
Adjustment for investments in certain subsidiaries and other	(5		)	—
Total Tier 1 capital	154,686			150,384
Long-term debt and other instruments qualifying as Tier 2	19,459			22,275
Qualifying allowance for credit losses	16,367			15,504
Adjustment for investments in certain subsidiaries and other	(21		)	(75		)
Total Tier 2 capital	35,805			37,704
Total qualifying capital	$	190,491		$	188,088
Risk-weighted assets	$	1,297,016		$	1,221,198
Total adjusted average assets	$	2,186,292		$	2,202,087


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

The Firm’s Tier 1 common was $135.1 billion at September 30, 2012, an increase of $12.1 billion from December 31, 2011. The increase was predominantly due to net income (adjusted for DVA) of $15.8 billion and net issuances and commitments to issue common stock under the Firm’s employee stock-based compensation plans of $1.5 billion. The increase was partially offset by $4.0 billion of dividends on common and preferred stock and $1.6 billion (on a

trade-date basis) of repurchases of common stock and warrants. The Firm’s Tier 1 capital was $154.7 billion at September 30, 2012, an increase of $4.3 billion from December 31, 2011. The increase in Tier 1 capital was due to the increase in Tier 1 common and the issuance of $1.3 billion of fixed–rate noncumulative perpetual preferred stock on August 27, 2012, partially offset by the redemption of $9.0 billion of trust preferred capital debt securities on July 12, 2012.

Risk-weighted assets were $1,297 billion at September 30, 2012, an increase of $76 billion from December 31, 2011. In addition to the growth in the Firm’s assets, the increase in risk-weighted assets also reflected an adjustment to RWA to reflect regulatory guidance regarding a limited number of market risk models used for certain positions held by the Firm, including the synthetic credit portfolio. The Firm believes that, as a result of portfolio management actions and enhancements it will be making to certain of its market risk models, these adjustments will be reduced over time.

Additional information regarding the Firm’s capital ratios and the federal regulatory capital standards to which it is subject is presented in Part II, Item 1A, Risk Factors on pages 220–222, and Note 20 on pages 191–192 of this Form 10-Q.

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. banking 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 can meet the requirements of the rule to the satisfaction of its 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.

Basel 2.5

In June 2012 the U.S. federal banking agencies published final rules that will go into effect on January 1, 2013, that would result in additional capital requirements for trading positions and securitizations. It is currently estimated that implementation of these rules could result in approximately a 100 basis point decrease in the Firm’s current Basel I Tier

1 common ratio, but the actual impact on the Firm’s capital ratios upon implementation could differ depending on final implementation guidance from the regulators, as well as regulatory approval of certain of the Firm’s internal risk models.

Basel III

In June 2012 the U.S. federal banking agencies published for comment a NPR for implementing the Capital Accord, commonly referred to as “Basel III”, in the United States. Basel III revised Basel II by, among other things, narrowing the definition of capital, and increasing capital requirements for specific exposures. Basel III also includes higher capital ratio requirements and provides that the Tier 1 common capital requirement will be increased to 7%, comprised of a minimum ratio of 4.5% plus a 2.5% capital conservation buffer. Implementation of the 7% Tier 1 common capital requirement is required by January 1, 2019.

In addition, U.S. federal banking agencies have published proposed risk-based capital floors pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to establish a permanent Basel I floor under Basel II and Basel III capital calculations.

The U.S. federal banking agencies also included, as part of the NPR, revised prompt corrective action treatment of the existing U.S. leverage ratio and a new supplemental leverage ratio which takes into account off-balance sheet assets, such as lending-related commitments and derivative exposures.

In addition, the Basel Committee announced in June 2011 an agreement to require GSIBs to maintain Tier 1 common requirements above the 7% minimum in amounts ranging from an additional 1% to an additional 2.5%. In November 2012, the FSB indicated that it would require the Firm, as well as three other banks, to hold the additional 2.5% of Tier 1 common, which requirement will be phased in beginning in 2016 as discussed below. The Basel Committee also stated it intended to require certain GSIBs to maintain a further Tier 1 common requirement of an additional 1% under certain circumstances, to act as a disincentive for the GSIB from taking actions that would further increase its systemic importance. The Firm has not been notified that it must meet this additional requirement. The GSIB assessment methodology reflects an approach based on five broad categories: size, interconnectedness, lack of substitutability, cross-jurisdictional activity, and complexity.

The following table presents a comparison of the Firm’s Tier 1 common under Basel I rules to its estimated Tier 1 common under Basel III rules, along with the Firm’s estimated risk-weighted assets and the Tier 1 common ratio under Basel III rules, all of which are non-GAAP financial measures. Tier 1 common under Basel III includes additional adjustments and deductions not included in Basel I Tier 1 common, such as the inclusion of AOCI related to AFS securities and defined benefit pension and other

postretirement employee benefit (“OPEB”) plans.

Including the impact of the final Basel 2.5 rules and the Basel III NPR, the Firm estimates that its Tier 1 common ratio under Basel III rules would be 8.4% as of September 30, 2012. Management considers the Basel III Tier 1 common estimate a key measure to assess the Firm’s capital position in conjunction with its capital ratios under Basel I requirements; this measure enables 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.



September 30, 2012 (in millions, except ratios)
Tier 1 common under Basel I rules	$	135,065
Adjustments related to AOCI for AFS securities and defined benefit pension and OPEB plans	4,389
All other adjustments	(149		)
Estimated Tier 1 common under Basel III rules	$	139,305
Estimated risk-weighted assets under Basel III rules^(a)	$	1,663,029
Estimated Tier 1 common ratio under Basel III rules^(b)	8.4		%

(a)

Key differences in the calculation of risk-weighted assets between Basel I and Basel III include: (1) 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 weightings which vary only by counterparty type and asset class; (2) Basel III market risk RWA reflects the new capital requirements related to trading assets and securitizations, which include incremental capital requirements for stress VaR, correlation trading, and re-securitization positions; and (3) Basel III includes RWA for operational risk, whereas Basel I does not. The actual impact on the Firm’s capital ratios upon implementation could differ depending on final implementation guidance from the regulators, as well as regulatory approval of certain of the Firm’s internal risk models.


(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 based on information currently published by the Basel Committee and U.S. federal banking agencies and on the application of such rules to its businesses as currently conducted; it 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, possible enhancements to certain market risk models, and any further implementation guidance from the regulators.

The Basel III revisions governing capital requirements are subject to prolonged transition periods. The transition period for banks to meet the Tier 1 common requirement under Basel III will begin in 2013, with full implementation on January 1, 2019. The Firm fully expects to be in compliance with the higher Basel III capital standards, as well as any additional Dodd-Frank Act capital requirements, as they become effective. The additional capital requirements for GSIBs will be phased in starting January 1, 2016, with full implementation on January 1, 2019.

In December 2010, the Basel Committee introduced minimum standards for short-term liquidity coverage (the liquidity coverage ratio (“LCR”)) and term funding (the net stable funding ratio (“NSFR”)). See Liquidity Risk

Management on pages 66–72 of this Form 10-Q for further information.

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.

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 each registered as futures commission merchants and subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”).

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 September 30, 2012, JPMorgan Securities’ net capital, as defined by the Net Capital Rule, was $11.6 billion, exceeding the minimum requirement by $10.0 billion, and JPMorgan Clearing’s net capital was $6.9 billion, exceeding the minimum requirement by $5.1 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 to notify the U.S. Securities and Exchange Commission 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 September 30, 2012, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements.

Economic risk capital

The Firm measures economic capital using internal risk-assessment methodologies and models primarily based on four risk factors: credit, market, operational and private equity risk. The growth in economic risk capital during the nine months ended September 30, 2012, was predominantly driven by higher operational risk capital due to increased mortgage-related litigation, and continued model enhancements to better capture large historical loss events and better align the model with the advanced measurement rules under the Basel II Framework; and to higher market risk capital driven by increased risk in the synthetic credit portfolio. These increases were partially offset by a decrease in credit risk capital driven by consumer portfolio runoff and continued model enhancements to better estimate future stress credit losses.



	Quarterly Averages
(in billions)	3Q12		4Q11		3Q11
Credit risk	$	44.3	$	48.2	$	48.2
Market risk	18.5		13.7		14.0
Operational risk	15.2		8.5		8.6
Private equity risk	5.9		6.4		6.8
Economic risk capital	83.9		76.8		77.6
Goodwill	48.2		48.2		48.6
Other^(a)	54.5		50.0		48.3
Total common stockholders’ equity	$	186.6	$	175.0	$	174.5


(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, considering capital levels for similarly rated peers, regulatory capital requirements (under Basel III) and economic risk measures. 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.



Line of business equity
(in billions)	September 30, 2012		December 31, 2011
Investment Bank	$	40.0	$	40.0
Retail Financial Services	26.5		25.0
Card Services & Auto	16.5		16.0
Commercial Banking	9.5		8.0
Treasury & Securities Services	7.5		7.0
Asset Management	7.0		6.5
Corporate/Private Equity	83.6		73.3
Total common stockholders’ equity	$	190.6	$	175.8



Line of business equity	Quarterly Averages
(in billions)	3Q12		4Q11		3Q11
Investment Bank	$	40.0	$	40.0	$	40.0
Retail Financial Services	26.5		25.0		25.0
Card Services & Auto	16.5		16.0		16.0
Commercial Banking	9.5		8.0		8.0
Treasury & Securities Services	7.5		7.0		7.0
Asset Management	7.0		6.5		6.5
Corporate/Private Equity	79.6		72.5		72.0
Total common stockholders’ equity	$	186.6	$	175.0	$	174.5

Effective January 1, 2012, the Firm further revised the capital allocated to certain businesses, reflecting additional refinement of each segment’s estimated Basel III Tier 1 common capital requirements and balance sheet trends. 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 the near term.

Capital actions

Issuance of preferred stock

On August 27, 2012, the Firm issued $1.3 billion of fixed–rate noncumulative perpetual preferred stock.

Dividends

On March 13, 2012, the Board of Directors increased the Firm’s quarterly common stock dividend from $0.25 to $0.30 per share, effective with the dividend paid on April 30, 2012, to shareholders of record on April 5, 2012. 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.

For information regarding dividend restrictions, see Note 22 and Note 27 on page 276 and 281, respectively, of JPMorgan Chase’s 2011 Annual Report.

Common equity repurchases

On March 13, 2012, the Board of Directors authorized a $15.0 billion common equity (i.e., common stock and warrants) repurchase program, of which up to $12.0 billion is approved for repurchase in 2012 and up to an additional $3.0 billion is approved through the end of the first quarter of 2013. During the nine months ended September 30, 2012, the Firm repurchased (on a trade-date basis) an aggregate of 49 million shares of common stock and warrants for $1.6 billion; the Firm did not make any repurchases after May 17, 2012. As of September 30, 2012, $13.4 billion of authorized repurchase capacity remained under the program. For additional information regarding repurchases of the Firm’s equity securities, see 2012 Business outlook, on page 9 of this Form 10-Q.

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 equity — for example, during internal trading “black-out periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. 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 222–223 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 are 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. The Firm’s Chief Executive Officer and Chief Risk Officer (“CRO”) are responsible for setting the overall firmwide risk appetite. The lines of business CEOs and CROs and Corporate/Private Equity senior management are responsible for setting the risk appetite for their respective lines of business, within the Firm’s limits. The Risk Policy Committee of the Firm’s Board of Directors approves the risk appetite policy on behalf of the entire Board of Directors.

Risk governance

The Firm’s risk governance structure is based on the principle that each line of business is responsible for managing the risk inherent in its business, albeit with appropriate corporate oversight. Each line of business risk committee is responsible for decisions regarding the business’ risk strategy, policies and controls. There are nine major risk types identified in the business activities of the Firm: liquidity risk, credit risk, market risk, interest rate risk, country risk, private equity risk, operational risk, legal and fiduciary risk, and reputation risk.

Overlaying line of business risk management are the following corporate functions with risk management-related responsibilities: Risk Management, Treasury and CIO and Legal and Compliance.

Risk Management operates independently of the lines of business to provide oversight of firmwide risk management and controls, and is viewed as a partner in achieving appropriate business risk and reward objectives. Risk Management coordinates and communicates with each line of business through the line of business risk committees and CROs to manage risk. The Risk Management function is headed by the Firm’s Chief Risk Officer, who is a member of the Firm’s Operating Committee and who reports to the Chief Executive Officer and is accountable to the Board of Directors, primarily through the Board’s Risk Policy Committee. The Chief Risk Officer is also a member of the line of business risk committees. Within the Firm’s Risk Management function are units responsible for credit risk, market risk, country risk, private equity risk and the governance of operational risk, as well as risk reporting and risk policy. Risk management is supported by risk technology and operations functions that are responsible for building the information technology infrastructure used to monitor and manage risk.

Treasury and CIO are responsible for measuring, monitoring, reporting and managing the Firm’s liquidity, funding, capital, interest rate and foreign exchange risks, and other risks.

Legal and Compliance has oversight for legal risk.

In addition to the risk committees of the lines of business and the above-referenced risk management functions, the Firm also has a Finance Committee, an Asset-Liability Committee (“ALCO”), an Investment Committee and three other risk-related committees — the Firmwide Risk Committee, the Risk Governance Committee and the Global Counterparty Committee. All of these committees are accountable to the Chief Executive Officer and Operating Committee. The membership of these committees is composed of senior management of the Firm, including representatives of the lines of business, CIO, Treasury, Risk Management, Finance, Legal and Compliance and other senior executives. The committees meet regularly to discuss a broad range of topics including, for example, current market conditions and other external events, risk exposures, and risk concentrations to ensure that the effects of risk issues are considered broadly across the Firm’s businesses.

The Finance Committee, chaired by the Chief Financial Officer, oversees the firmwide funding, liquidity, capital and balance sheet management strategy, including targeted levels, composition and line of business allocations.

The Asset-Liability Committee, chaired by the Corporate Treasurer, monitors the Firm’s overall interest rate risk and liquidity risk. ALCO is responsible for reviewing and approving the Firm’s liquidity policy and contingency funding plan. ALCO also reviews the Firm’s funds transfer pricing policy (through which lines of business “transfer” interest rate and foreign exchange risk to Treasury), nontrading interest rate-sensitive revenue-at-risk, overall interest rate position, funding requirements and strategy, and the Firm’s securitization programs (and any required liquidity support by the Firm of such programs).

The Investment Committee, chaired by the Firm’s Chief Financial Officer, oversees global merger and acquisition activities undertaken by JPMorgan Chase for its own account that fall outside the scope of the Firm’s private equity and other principal finance activities.

The Firmwide Risk Committee is co-chaired by the Firm's CEO and CRO. The Risk Governance Committee is chaired by the Firm’s CRO. These committees meet monthly to review cross-line of business issues such as risk appetite, certain business activity and aggregate risk measures, risk policy, risk methodology, risk concentrations, regulatory capital and other regulatory issues, and other topics referred by line of business risk committees. The Risk Governance

Committee is also responsible for ensuring that line of business and firmwide risk reporting and compliance with risk appetite levels are monitored periodically, in conjunction with the Firm’s capital assessment process. Line of business risk committees each meet at least on a monthly basis. Each line of business risk committee is co-chaired by the line of business CRO and CEO, except for the Consumer Risk Committee which is chaired solely by the CRO. Each line of business risk committee is also attended by individuals from outside the line of business. It is the responsibility of attendees of the line of business risk committees who are members of the Firmwide Risk Committee (including individuals from outside the line of business) to escalate line of business risk topics to the Firmwide Risk Committee.

The Global Counterparty Committee, chaired by the Firm’s Wholesale Chief Credit Risk Officer, reviews exposures to our largest interbank trading counterparties. The Committee meets periodically to review total exposures with these counterparties to ensure that such exposures are deemed appropriate and to direct changes in exposure levels as needed.

The Board of Directors exercises its oversight of risk management principally through the Board’s Risk Policy Committee and Audit Committee. The Board’s Risk Policy Committee oversees senior management risk-related responsibilities, including reviewing management policies and performance against these policies and related benchmarks. The Board’s Risk Policy Committee also reviews firm level market risk limits at least annually.

The CROs for each line of business meet with the Risk Policy Committee on a regular basis. In addition, in conjunction with the Firm’s capital assessment process, the CEO or Chief Risk Officer is responsible for notifying the Risk Policy Committee of any results which are projected to exceed line of business or firmwide risk appetite tolerances. The CEO or CRO will notify the Chairman of the Board’s Risk Policy Committee if certain firmwide limits are modified or exceeded. The Audit Committee is responsible for oversight of guidelines and policies that govern the process by which risk assessment and management is undertaken. In addition, the Audit Committee reviews with management the system of internal controls that is relied upon to provide reasonable assurance of compliance with the Firm’s operational risk management processes.

Risk monitoring and control

The Firm’s ability to properly identify, measure, monitor and report risk is critical to both its soundness and profitability.

•

Risk identification: The Firm’s exposure to risk through its daily business dealings, including lending and capital markets activities, is identified and aggregated through the Firm’s risk management infrastructure. There are nine major risk types identified in the business activities of the Firm: liquidity risk, credit risk, market risk, interest rate risk, country risk, private equity risk, operational risk, legal and fiduciary risk, and reputation risk.

•

Risk measurement: The Firm measures risk using a variety of methodologies, including calculating probable loss, unexpected loss and value-at-risk, and by conducting stress tests and making comparisons to external benchmarks. Measurement models and related assumptions are routinely subject to internal model review, empirical validation and benchmarking with the goal of ensuring that the Firm’s risk estimates are reasonable and reflective of the risk of the underlying positions.


•	Risk monitoring/control: The Firm’s risk management policies and procedures incorporate risk mitigation strategies and include approval limits by customer, product, industry, country and business. These limits are monitored on a daily, weekly and monthly basis, as appropriate.


•	Risk reporting: The Firm reports risk exposures on both a line of business and a consolidated basis. This information is reported to management on a daily, weekly and monthly basis, as appropriate.

CIO risk management matters

As part of its internal review of CIO’s activities, management concluded that CIO’s risk management had been ineffective in dealing with the growth in size and change in characteristics of the synthetic credit portfolio during the first quarter of 2012. The Firm has taken several steps to address these risk management issues, including introducing more granular risk limits for CIO; enhancing risk management talent and resourcing of key support functions in CIO; and enhancing the Firm’s risk governance, including establishing the joint CIO, Treasury and Corporate Risk (“CTC”) Committee co-chaired by CTC’s CRO and the Firm’s co- Chief Operating Officer. The committee meets weekly to monitor risk and has enhanced membership from Treasury and Corporate, as well as other Firm senior management.



LIQUIDITY RISK MANAGEMENT

Liquidity risk management is intended to ensure that the Firm has the appropriate amount, composition and tenor of funding and liquidity in support of its assets. The primary objective of effective liquidity management is to ensure that the Firm’s core businesses are able to operate in support of client needs and meet contractual and contingent obligations through normal economic cycles as well as during market stress.

The Firm manages liquidity and funding using a centralized, global approach in order to actively manage liquidity for the Firm as a whole, to monitor exposures and identify constraints on the transfer of liquidity within the Firm, and to maintain the appropriate amount of surplus liquidity as part of the Firm’s overall balance sheet management strategy.

In the context of the Firm’s liquidity management, Treasury is responsible for:


•	Measuring, managing, monitoring and reporting the Firm’s current and projected liquidity sources and uses;


•	Understanding the liquidity characteristics of the Firm’s assets and liabilities;


•	Defining and monitoring Firmwide and legal entity liquidity strategies, policies, guidelines, and contingency funding plans;


•	Managing funding mix and deployment of excess short-term cash;


•	Defining and implementing Funds Transfer Pricing (“FTP”) across all lines of business and regions; and


•	Defining and addressing the impact of regulatory changes on funding and liquidity.

The Firm has a liquidity risk governance framework to review, approve and monitor the implementation of liquidity risk policies and funding and capital strategies, at the Firmwide, regional and line of business levels.

Specific risk committees responsible for liquidity risk governance include ALCO and the Finance Committee, as well as lines of business and regional asset and liability management committees. For further discussion of the risk committees, see Risk Management on pages 63–65 of this Form 10-Q.

Management considers the Firm’s liquidity position to be strong, based on its liquidity metrics as of September 30, 2012, and believes that the Firm’s unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations.

LCR and NSFR

In December 2010, the Basel Committee introduced the minimum standards for short-term liquidity coverage (the liquidity coverage ratio (“LCR”)) and term funding (the net stable funding ratio (“NSFR”)). The Firm intends to maintain its strong liquidity position in the future as the LCR and NSFR standards of the Basel III rules are implemented. 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 requirements are subject to prolonged observation and transition periods. The observation periods for both the LCR and NSFR began in 2011, with implementation in 2015 and 2018, respectively.

Funding

The Firm funds its global balance sheet through diverse sources of funding, including a stable deposit franchise as well as secured and unsecured funding in the capital markets. Funding objectives include maintaining diversification, maximizing market access and optimizing funding cost. Access to funding markets is executed regionally through hubs in New York, London, Hong Kong and other locations which enables the Firm to observe and respond effectively to local market dynamics and client needs. The Firm manages and monitors its use of wholesale funding markets to ensure diversification of its funding profile across geographic regions, tenors, currencies, product types and counterparties, using key metrics including: short-term unsecured funding as a percentage of total liabilities, and as a percentage of highly liquid assets; and counterparty concentration.

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 limits reliance on the wholesale funding markets. As of September 30, 2012, the Firm’s deposits-to-loans ratio was 158%, compared with 156% at December 31, 2011.

As of September 30, 2012, total deposits for the Firm were $1,139.6 billion, compared with $1,127.8 billion at December 31, 2011 (54% of total liabilities for both periods). The increase in deposits was predominantly due to growth in retail deposits.

The Firm typically experiences higher customer deposit inflows at period-ends. Therefore, average deposit balances are more representative of deposit trends. The table below summarizes by line of business average deposits for the three and nine months ended September 30, 2012 and 2011, respectively.



Average deposits
	Three months ended September 30,				Nine months ended September 30,
(in millions)	2012		2011		2012		2011
Retail Financial Services	$	414,608	$	382,202	$	407,833	$	377,678
Commercial Banking	177,516		163,459		180,417		149,715
Treasury & Securities Services	326,094		310,787		325,324		279,148
Asset Management	127,487		111,090		127,702		101,341
Other^(a)	52,343		70,973		55,321		75,446
Total Firm	$	1,098,048	$	1,038,511	$	1,096,597	$	983,328


(a)	Includes remaining lines of business (i.e., Investment Bank, Card and Corporate/Private Equity).

A significant portion of the Firm’s deposits are retail deposits (37% and 35% at September 30, 2012, and December 31, 2011, respectively), which are considered particularly stable as they are less sensitive to interest rate changes or market volatility. Additionally, the majority of the Firm’s institutional deposits are also considered to be stable sources of funding since they are generated from customers that maintain operating service relationships with the Firm. 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 17–51 and 53–54, respectively, of this Form 10-Q.

Short-term funding

Short-term unsecured funding sources include federal funds and Eurodollars purchased, which represent overnight funds; certificates of deposit; time deposits; commercial paper, and other borrowed funds that generally have maturities of one year or less.

The Firm’s reliance on short-term unsecured funding sources is limited. A significant portion of the total commercial paper liabilities, approximately 64% as of September 30, 2012, as shown in the table below, were originated from deposits that customers choose to sweep into commercial paper liabilities as a cash management

product offered by TSS and are not sourced from wholesale funding markets.

The Firm’s sources of short-term secured funding primarily consist of securities loaned or sold under agreements to repurchase. 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, and constitute a significant portion of the federal funds purchased and securities loaned or sold under purchase agreements. The increase in the balance at September 30, 2012, compared with the balance at December 31, 2011, and the average balance for the three and nine months ended September 30, 2012, was predominantly because of higher secured financing of the Firm’s assets and a change in the mix of the Firm’s liabilities. 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 ongoing management of the mix of the Firm’s liabilities, including its secured and unsecured financing (for both the investment and market-making portfolios); and other market and portfolio factors.

At September 30, 2012, the balance of total unsecured and secured other borrowed funds remained flat, compared with the balance at December 31, 2011. The average balance for the three and nine months ended September 30, 2012, decreased compared with the same period in the prior year, predominantly driven by maturities of short-term unsecured bank notes and other unsecured borrowings, short-term Federal Home Loan Bank (“FHLB”) advances, and other secured short-term borrowings.

For additional information, see the Balance Sheet Analysis on pages 53–54 and Note 12 on page 154 of this Form 10-Q. The following table summarizes by source short-term unsecured funding as of September 30, 2012, and December 31, 2011, and average balances for the three and nine months ended September 30, 2012 and 2011, respectively.



	September 30, 2012		December 31, 2011		Three months ended September 30,				Nine months ended September 30,
Short-term funding					Average				Average
(in millions)					2012		2011		2012		2011
Commercial paper:
Wholesale funding	$	20,124	$	4,245	$	18,187	$	5,450	$	13,209	$	7,057
Client cash management	35,350		47,386		34,336		41,577		36,692		34,829
Total commercial paper	$	55,474	$	51,631	$	52,523	$	47,027	$	49,901	$	41,886

Securities loaned or sold under agreements to repurchase:
Securities sold under agreements to repurchase	$	233,363	$	197,789	$	228,550	$	213,415	$	224,662	$	240,155
Securities loaned	23,044		14,214		21,638		20,116		18,793		20,402
Total securities loaned or sold under agreements to repurchase^(a)(b)	$	256,407	$	212,003	$	250,188	$	233,531	$	243,455	$	260,557

Other borrowed funds	$	22,255	$	21,908	$	21,436	$	30,108	$	24,361	$	33,511


(a)	Excludes federal funds purchased.


(b)	Includes long-term structured repurchase agreements of $7.4 billion and $6.6 billion as of September 30, 2012 and December 31, 2011, respectively.

Long-term funding and issuance

Long-term funding provides additional sources of stable funding and liquidity for the Firm. The majority of the Firm’s long-term unsecured funding is issued by the parent holding company to provide maximum flexibility in support of both bank and nonbank subsidiary funding.

The following table summarizes long-term unsecured issuance and maturities or redemption for the three and nine months ended September 30, 2012 and 2011, respectively. For additional information, see Note 21 on pages 273-275 of JPMorgan Chase’s 2011 Annual Report.



Long-term unsecured funding	Three months ended September 30,				Nine months ended September 30,
(in millions)	2012		2011		2012		2011
Issuance
Senior notes issued in the U.S. market	$	6,006	$	4,379	$	12,242	$	24,259
Senior notes issued in non-U.S. markets	3,278		385		5,328		4,515
Total senior notes	9,284		4,764		17,570		28,774
Trust preferred capital debt securities	—		—		—		—
Subordinated debt	—		—		—		—
Structured notes	2,593		3,628		11,385		11,403
Total long-term unsecured funding – issuance	$	11,877	$	8,392	$	28,955	$	40,177

Maturities/redemptions
Total senior notes	$	6,094	$	6,697	$	27,931	$	23,965
Trust preferred capital debt securities	9,030		—		9,482		—
Subordinated debt	—		—		1,000		2,100
Structured notes	4,458		4,271		15,697		14,374
Total long-term unsecured funding – maturities/redemptions	$	19,582	$	10,968	$	54,110	$	40,439

Following the Federal Reserve’s announcement on June 7, 2012, of proposed rules which will implement the phase-out of Tier 1 capital treatment for trust preferred capital debt securities, the Firm announced on June 11, 2012, that it would redeem $9.0 billion of trust preferred capital debt securities pursuant to redemption provisions relating to the occurrence of a “Capital Treatment Event” (as defined in the documents governing those securities). The redemption was completed on July 12, 2012.

The Firm raises secured long-term funding through securitization of consumer credit card loans, residential mortgages, auto loans and student loans as well as through advances from the FHLBs, all of which increase funding and investor diversity.

The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemption for the three and nine months ended September 30, 2012 and 2011.



	Three months ended September 30,								Nine months ended September 30,
Long-term secured funding	Issuance				Maturities/Redemption				Issuance				Maturities/Redemption
(in millions)	2012		2011		2012		2011		2012		2011		2012		2011
Credit card securitization	$	3,350	$	—	$	1,729	$	3,475	$	7,200	$	1,000	$	10,332	$	13,077
Other securitizations^(a)	—		—		139		129		—		—		370		365
FHLB advances	9,100		—		1,005		7		15,200		4,000		5,517		2,553
Total long-term secured funding	$	12,450	$	—	$	2,873	$	3,611	$	22,400	$	5,000	$	16,219	$	15,995


(a)	Other securitizations includes securitizations of residential mortgages, auto loans and student loans.

The Firm’s wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table above. For further description of the client-driven loan securitizations, see Note 15 on pages 177–184 of this Form 10-Q.

Parent holding company and subsidiary funding

The parent holding company acts as an important source of funding to its subsidiaries. The Firm’s liquidity management is therefore intended to ensure that liquidity at the parent holding company is maintained at levels sufficient to fund the operations of the parent holding company and its subsidiaries and affiliates for an extended period of time in a stress environment where access to normal funding sources is disrupted.

To effectively monitor the adequacy of liquidity and funding at the parent holding company, the Firm uses three primary measures:


•	Number of months of pre-funding: The Firm targets pre-funding of the parent holding company to ensure that both contractual and non-contractual obligations can be met for at least 12 months assuming no access to wholesale funding markets. However, due to conservative liquidity management actions taken by the Firm, the current pre-funding of such obligations is significantly greater than target.


•	Excess cash: Excess cash is managed to ensure that daily cash requirements can be met in both normal and stressed environments. Excess cash generated by parent holding company issuance activity is placed on deposit with or as advances to both bank and nonbank subsidiaries or held as liquid collateral purchased through reverse repurchase agreements.

•

Stress testing: The Firm conducts regular stress testing for the parent holding company and major bank subsidiaries as well as the Firm’s principal U.S. and U.K. broker-dealer subsidiaries to ensure sufficient liquidity for the Firm in a stress environment. The Firm’s liquidity management takes into consideration its subsidiaries’ ability to generate replacement funding in the event the parent holding company requires repayment of the aforementioned deposits and advances. For further information, see the “Stress testing” discussion below.

Global Liquidity Reserve

The Global Liquidity Reserve includes cash on deposit at central banks, and cash proceeds reasonably expected to be received in secured financings of highly liquid, unencumbered securities, such as sovereign debt, government-guaranteed corporate debt, U.S. government agency debt, and agency 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 funds from 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 as a result of 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 September 30, 2012, the Global Liquidity Reserve was

estimated to be approximately $449 billion, compared with approximately $379 billion at December 31, 2011. The Global Liquidity Reserve fluctuates due to changes in deposits, the Firm’s purchase and investment activities and general market conditions.

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

Stress testing

Liquidity stress tests are intended to ensure sufficient liquidity for the Firm under a variety of adverse conditions. Results of stress tests are therefore considered in the formulation of the Firm’s funding plan and assessment of its liquidity position. Liquidity outflow assumptions are modeled across a range of time horizons and varying degrees of market and idiosyncratic stress. Standard stress tests are performed on a regular basis and ad hoc stress tests are performed as required. Stress scenarios are produced for the parent holding company and the Firm’s major bank subsidiaries as well as the Firm’s principal U.S. and U.K. broker-dealer subsidiaries. In addition, separate regional liquidity stress testing is performed.

Liquidity stress tests assume all of the Firm’s contractual obligations are met and also take into consideration varying levels of access to unsecured and secured funding markets. Additionally, assumptions with respect to potential non-contractual and contingent outflows include, but are not limited to, the following:


•	Deposits


◦	For bank deposits that have no contractual maturity, the range of potential outflows reflect the type and size of deposit account, and the nature and extent of the Firm’s relationship with the depositor.


•	Secured funding


◦	Range of haircuts on collateral based on security type and counterparty.


•	Derivatives


◦	Margin calls by exchanges or clearing houses;


◦	Collateral calls associated with ratings downgrade triggers and variation margin;


◦	Outflows of excess client collateral;


◦	Novation of derivative trades.


•	Unfunded commitments


◦	Potential facility drawdowns reflecting type of commitment and counterparty.

Contingency funding plan

The Firm’s contingency funding plan (“CFP”), which is reviewed and approved by ALCO, provides a documented framework for managing both temporary and longer-term unexpected adverse liquidity situations. It sets out a list of indicators and metrics that are reviewed on a daily basis to identify the emergence of increased risks or vulnerabilities in the Firm’s liquidity position. The CFP identifies alternative contingent liquidity resources that can be accessed under adverse liquidity circumstances.

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 55, and Note 5 on page 142, 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 certain of the Firm’s significant operating subsidiaries as of September 30, 2012, were as follows.



	JPMorgan Chase & Co.			JPMorgan Chase Bank, N.A. Chase Bank USA, N.A.			J.P. Morgan Securities LLC
	Senior unsecured	Commercial paper	Outlook	Long-term deposits	Short-term deposits	Outlook	Long-term issuer rating	Short-term issuer rating	Outlook
Moody’s Investor Services	A2	P-1	Negative	Aa3	P-1	Stable	NR	NR	NR
Standard & Poor’s	A	A-1	Negative	A+	A-1	Negative	A+	A-1	Negative
Fitch Ratings	A+	F1	RWN^(a)	AA-	F1+	RWN^(a)	A+	F1	RWN^(a)


(a)	Refers to “Ratings Watch Negative” on long-term ratings.

On June 21, 2012, Moody’s downgraded the long-term ratings of the Firm and affirmed all its short-term ratings. The outlook for the parent holding company was left on negative reflecting Moody’s view that government support for U.S. bank holding company creditors is becoming less certain and less predictable. Such ratings actions concluded Moody’s review of 17 banks and securities firms with global capital markets operations, including the Firm, as a result of which all of these institutions were downgraded by various degrees.

Following the disclosure by the Firm, on May 10, 2012, of losses from the synthetic credit portfolio held by CIO. Fitch placed all parent and subsidiary long-term ratings on Ratings Watch Negative. Subsequently, on October 10, 2012, Fitch revised the outlook to Stable and affirmed the Firm’s ratings.

The above-mentioned rating actions did not have a material adverse impact on the Firm’s cost of funds and its ability to fund itself. Further downgrades of the Firm’s long-term ratings by one notch or two notches could result in a downgrade of the Firm’s short-term ratings. If this were to occur, the Firm believes its cost of funds could increase and access to certain funding markets could be reduced. The nature and magnitude of the impact of further ratings downgrades depends on numerous contractual and behavioral factors (which the Firm believes are incorporated in the Firm’s liquidity risk and stress testing metrics). The Firm believes it maintains sufficient liquidity to withstand any potential decrease in funding capacity due to further ratings downgrades.

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.

Rating agencies continue to evaluate various ratings factors, such as regulatory reforms, rating uplift assumptions surrounding government support, and economic uncertainty and sovereign creditworthiness, and their potential impact on ratings of financial institutions. Although the Firm closely monitors and endeavors to manage factors influencing its credit ratings, there is no assurance that its credit ratings will not be changed in the future.

Cash flows

As of September 30, 2012 and 2011, cash and due from banks was $53.3 billion and $56.8 billion, respectively. These balances decreased by $6.3 billion and increased by $29.2 billion from December 31, 2011 and 2010, respectively. The following discussion highlights the major activities and transactions that affected JPMorgan Chase’s cash flows for the nine months ended September 30, 2012 and 2011.

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 nine months ended September 30, 2012, net cash provided by operating activities was $29.6 billion. Net cash generated from operating activities was higher than net income, partially as a result of adjustments for noncash items such as depreciation and amortization, provision for credit losses, and stock-based compensation. In addition, net cash provided by operating activities was driven by a decrease in securities borrowed due to a shift in the deployment of excess cash by Treasury. Cash proceeds received from sales and paydowns of loans was higher than the cash used to acquire such loans originated and purchased with an initial intent to sell, and also reflected a lower level of activity over the prior-year period.

For the nine months ended September 30, 2011, net cash provided by operating activities was $66.5 billion. This resulted from a decrease in trading assets-debt and equity instruments, driven by lower client market-making activity in IB, resulting in declines in equity securities and U.S. government agency mortgage-backed securities, partially offset by an increase in U.S. treasury securities; an increase in accounts payable and other liabilities largely due to higher IB customer balances; an increase in trading liabilities–derivative payables predominantly due to increases in interest rate derivative balances driven by declining interest rates and increases in commodity derivative balances driven by price movements in base metals and energy. Partially offsetting these cash proceeds was an increase in trading assets–derivative receivables predominantly due to the aforementioned declining interest rates and increases in commodity derivative balances. 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 higher than cash used to acquire such loans, and also reflected a higher level of activity over the prior-year period.

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 nine months ended September 30, 2012, net cash of $69.7 billion was used in investing activities. This resulted from an increase in securities purchased under resale agreements predominantly due to deployment of excess cash by Treasury; an increase in deposits with banks reflecting the placement of the Firm’s excess funds with various central banks, including Federal Reserve Banks; and an increase in wholesale loans driven by increased client activity across most regions and businesses. Partially offsetting these cash outflows were proceeds from maturities and sales of AFS securities being higher than cash used to acquire such securities; and a decline in the level of consumer, excluding credit card loans due to paydowns, portfolio run-off, and a decrease in credit card loans due to seasonality and higher repayment rates.

For the nine months ended September 30, 2011, net cash of $169.7 billion was used in investing activities. This resulted from a significant increase in deposits with banks reflecting the placement of funds with various central banks, including Federal Reserve Banks during the third quarter of 2011, predominantly resulting from the overall growth in wholesale client deposits; an increase in securities purchased under resale agreements, predominantly in IB, reflecting higher client financing activity; an increase in loans reflecting continued growth in client activity across all of the Firm’s wholesale businesses; and net purchases of AFS securities, largely due to repositioning of the portfolio in Corporate in response to changes in the market environment. Partially offsetting these cash outflows were a decline in loans from the 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.

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 nine months ended September 30, 2012, net cash provided by financing activities was $33.6 billion. This was driven by an increase in securities loaned or sold under repurchase agreements, predominantly because of higher secured financing of the Firm’s assets and a change in the mix of the Firm’s liabilities; an increase in deposits predominantly due to growth in retail deposits; an increase in commercial paper due to higher commercial paper liabilities sourced from wholesale funding markets to meet short-term funding needs, partially offset by a decline in the volume of liability balances in sweep accounts related to TSS’s cash management product; and proceeds from the issuance of

preferred stock. Partially offsetting these cash inflows were net redemptions and maturities of long-term borrowings, largely related to the redemption of TruPS; and payments of cash dividends on common and preferred stock and repurchases of common stock and warrants.

For the nine months ended September 30, 2011, net cash provided by financing activities was $132.4 billion. This was largely driven by a significant increase in deposits, predominantly due to an overall growth in wholesale client balances and, to a lesser extent, consumer deposit balances; and an increase in commercial paper due to growth in the volume of liability balances in sweep accounts related to TSS’s cash management product. Cash was used to reduce securities sold under repurchase agreements, predominantly in IB, due to lower financing of the Firm’s trading assets; 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; to reduce other borrowed funds, predominantly driven by maturities of short-term unsecured bank notes and short-term FHLB advances; for repurchases of common stock and warrants, and payments of cash dividends on common and preferred stock.



CREDIT PORTFOLIO

For a further discussion of the Firm’s Credit Risk Management framework, see pages 132–134 of JPMorgan Chase’s 2011 Annual Report. For further information regarding the credit risk inherent in the Firm’s investment securities portfolio, see Note 11 on pages 148–153 of this Form 10-Q and Note 12 on pages 225–230 of JPMorgan Chase’s 2011 Annual Report.

The following table presents JPMorgan Chase’s credit portfolio as of September 30, 2012, and December 31, 2011. Total credit exposure was $1.8 trillion at September 30, 2012, an increase of $30.5 billion from December 31, 2011, primarily reflecting an increase in the wholesale portfolio of $48.0 billion, partially offset by a decrease in the consumer portfolio of $17.5 billion.

For further information on the changes in the credit portfolio, see Wholesale Credit Portfolio on pages 74–81, and Consumer Credit Portfolio on pages 82–92, of this Form 10-Q.

The Firm provided credit to and raised capital of over $1.3 trillion for its commercial and consumer clients during the nine months ended September 30, 2012; this included more than $15 billion of credit provided to U.S. small businesses, up 21% compared with the prior year and $52 billion to more than 1,300 not-for-profit and government entities, including states, municipalities, hospitals and universities. The Firm also originated more than 664,000 mortgages and provided credit cards to approximately 4.9 million consumers during the nine months ended September 30, 2012. The Firm remains committed to helping homeowners and preventing foreclosures. Since the beginning of 2009, the Firm has offered nearly 1.4 million mortgage modifications and of these more than 578,000 have achieved permanent modification as of September 30, 2012.

In the following table, 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 certain loans accounted for at fair value. The Firm also records certain loans accounted for at fair value in trading assets. For further information regarding these loans see Note 3 on pages 119–133 of this Form 10-Q. 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 154–175 and 136–144, respectively, of this Form 10-Q.



Total credit portfolio
	Credit exposure						Nonperforming^{(b)(c)(d)(e)(f)}
(in millions)	Sep 30, 2012			Dec 31, 2011			Sep 30, 2012			Dec 31, 2011
Loans retained	$	717,086		$	718,997		$	11,124		$	9,810
Loans held-for-sale	2,111			2,626			71			110
Loans at fair value	2,750			2,097			175			73
Total loans – reported	721,947			723,720			11,370			9,993
Derivative receivables	79,963			92,477			282			297
Receivables from customers and other	18,946			17,561			—			—
Total credit-related assets	820,856			833,758			11,652			10,290
Assets acquired in loan satisfactions
Real estate owned	NA			NA			788			975
Other	NA			NA			41			50
Total assets acquired in loan satisfactions	NA			NA			829			1,025
Total assets	820,856			833,758			12,481			11,315
Lending-related commitments	1,019,073			975,662			586			865
Total credit portfolio	$	1,839,929		$	1,809,420		$	13,067		$	12,180
Credit Portfolio Management derivatives notional, net^(a)	$	(30,204	)	$	(26,240	)	$	(20	)	$	(38	)
Liquid securities and other cash collateral held against derivatives	(13,999		)	(21,807		)	NA			NA



(in millions, except ratios)	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Net charge-offs^(g)	$	2,770		$	2,507		$	7,435		$	9,330
Average retained loans
Loans – reported	719,071			689,021			716,398			683,098
Loans – reported, excluding residential real estate PCI loans	657,293			620,974			653,103			613,263
Net charge-off rates^(g)
Loans – reported	1.53		%	1.44		%	1.39		%	1.83		%
Loans – reported, excluding PCI	1.68			1.60			1.52			2.03

(a)

Represents the net notional amount of protection purchased and sold through credit derivatives used to manage both performing and nonperforming wholesale credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. Excludes the synthetic credit portfolio. For additional information, see Credit derivatives on pages 80–81 and Note 5 on pages 136–144 of this Form 10-Q.


(b)	Nonperforming includes nonaccrual loans, nonperforming derivatives, commitments that are risk rated as nonaccrual and real estate owned.

(c)

At September 30, 2012, and December 31, 2011, nonperforming assets excluded: (1) mortgage loans insured by U.S. government agencies of $11.0 billion and $11.5 billion, respectively, that are 90 or more days past due; (2) real estate owned insured by U.S. government agencies of $1.5 billion and $954 million, respectively; and (3) student loans insured by U.S. government agencies under the FFELP of $536 million and $551 million, respectively, that are 90 or more days past due. These amounts were excluded from nonaccrual loans as reimbursement of insured amounts are 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”).


(d)	Excludes PCI loans. Because the Firm is recognizing interest income on each pool of PCI loans, they are all considered to be performing.

(e)

At September 30, 2012, and December 31, 2011, total nonaccrual loans represented 1.57% and 1.38%, respectively, of total loans. At September 30, 2012, included $1.7 billion of residential real estate Chapter 7 loans and $1.3 billion of performing junior liens that are subordinate to senior liens that are 90 days or more past due. For more information, see Consumer Credit Portfolio on pages 82–92 of this Form 10-Q.


(f)	Prior to the first quarter of 2012, reported amounts had only included defaulted derivatives; effective in the first quarter of 2012, reported amounts in all periods include both defaulted derivatives as well as derivatives that have been risk rated as nonperforming.


(g)	Net charge-offs and net charge-off rates for the three months and nine months ended September 30, 2012, included $880 million of incremental charge-offs of Chapter 7 loans. See Consumer Credit Portfolio on pages 82–92 of this Form 10-Q for further details.



WHOLESALE CREDIT PORTFOLIO

As of September 30, 2012, wholesale exposure (IB, CB, TSS and AM) increased by $48.0 billion from December 31, 2011, primarily driven by increases of $39.8 billion in lending-related commitments and $19.3 billion in loans due to increased client activity across most regions and most businesses. These increases were partially offset by a $12.5 billion decrease in derivative receivables, primarily due to the impact of changes in the underlying parameters, including FX rates, interest rates and credit spreads, which resulted in reductions in derivative receivables related to foreign exchange, interest rate and credit derivative contracts, partially offset by increases in equity derivative receivables.



Wholesale credit portfolio
	Credit exposure						Nonperforming^(c)(d)
(in millions)	Sep 30, 2012			Dec 31, 2011			Sep 30, 2012			Dec 31, 2011
Loans retained	$	297,576		$	278,395		$	1,663		$	2,398
Loans held-for-sale	2,005			2,524			71			110
Loans at fair value	2,750			2,097			175			73
Loans – reported	302,331			283,016			1,909			2,581
Derivative receivables	79,963			92,477			282			297
Receivables from customers and other^(a)	18,837			17,461			—			—
Total wholesale credit-related assets	401,131			392,954			2,191			2,878
Lending-related commitments	422,557			382,739			586			865
Total wholesale credit exposure	$	823,688		$	775,693		$	2,777		$	3,743
Credit Portfolio Management derivatives notional, net^(b)	$	(30,204	)	$	(26,240	)	$	(20	)	$	(38	)
Liquid securities and other cash collateral held against derivatives	(13,999		)	(21,807		)	NA			NA


(a)	Predominantly includes receivables from customers, which represent margin loans to prime and retail brokerage customers; these are classified in accrued interest and accounts receivable on the Consolidated Balance Sheets.

(b)


(c)	Excludes assets acquired in loan satisfactions.


(d)	Prior to the first quarter of 2012, reported amounts had only included defaulted derivatives; effective in the first quarter of 2012, reported amounts in all periods include both defaulted derivatives as well as derivatives that have been risk rated as nonperforming.

The following table summarizes the maturity and ratings profile of the wholesale portfolio at September 30, 2012, and December 31, 2011. 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.



Wholesale credit exposure – maturity and ratings profile
	Maturity profile^(c)												Ratings profile
September 30, 2012	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	$	113,069		$	113,582		$	70,925		$	297,576		$	210,551		$	87,025	$	297,576		71	%
Derivative receivables										79,963								79,963
Less: Liquid securities and other cash collateral held against derivatives										(13,999		)						(13,999		)
Total derivative receivables, net of all collateral	14,692			26,976			24,296			65,964			53,279			12,685		65,964			81
Lending-related commitments	155,812			255,522			11,223			422,557			337,549			85,008		422,557			80
Subtotal	283,573			396,080			106,444			786,097			601,379			184,718		786,097			77
Loans held-for-sale and loans at fair value^(a)										4,755								4,755
Receivables from customers and other										18,837								18,837
Total exposure – net of liquid securities and other cash collateral held against derivatives										$	809,689							$	809,689
Credit Portfolio Management derivatives notional, net^(b)	$	(1,607	)	$	(13,837	)	$	(14,760	)	$	(30,204	)	$	(30,264	)	$	60	$	(30,204	)	100	%



	Maturity profile^(c)									Ratings profile
December 31, 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	$	113,222	$	101,959	$	63,214	$	278,395		$	196,998	$	81,397	$	278,395		71	%
Derivative receivables							92,477							92,477
Less: Liquid securities and other cash collateral held against derivatives							(21,807		)					(21,807		)
Total derivative receivables, net of all collateral	8,243		29,910		32,517