Edgar Filing: J P MORGAN CHASE & CO

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2010 Commission file number 1-5805

JPMORGAN CHASE & CO.

(Exact name of registrant as specified in its charter)


Delaware		13-2624428

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

270 Park Avenue, New York, New York		10017

(Address of principal executive offices)		(Zip Code)

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

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

þ Yes o No

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

þ Yes o No

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

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

o Yes þ No

Number of shares of common stock outstanding as of April 30, 2010: 3,978,693,997

FORM 10-Q
TABLE OF CONTENTS


	Page
Part I — Financial information
Item 1 Consolidated Financial Statements — JPMorgan Chase & Co.:
Consolidated Statements of Income (unaudited) for the three months ended March 31, 2010 and 2009		90
Consolidated Balance Sheets (unaudited) at March 31, 2010, and December 31, 2009		91
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (unaudited) for the three months ended March 31, 2010 and 2009		92
Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2010 and 2009		93
Notes to Consolidated Financial Statements (unaudited)		94
Consolidated Average Balance Sheets, Interest and Rates (unaudited) for the three months ended March 31, 2010 and 2009		155
Glossary of Terms and Line of Business Metrics		156
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations:
Consolidated Financial Highlights		3
Introduction		5
Executive Overview		7
Consolidated Results of Operations		11
Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures		14
Business Segment Results		17
Balance Sheet Analysis		43
Off-Balance Sheet Arrangements and Contractual Cash Obligations		45
Capital Management		49
Risk Management		52
Supervision and Regulation		85
Critical Accounting Estimates Used by the Firm		86
Accounting and Reporting Developments		89
Forward-Looking Statements		162
Item 3 Quantitative and Qualitative Disclosures About Market Risk		163
Item 4 Controls and Procedures		163
Part II — Other information
Item 1 Legal Proceedings		163
Item 1A Risk Factors		171
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		171
Item 3 Defaults Upon Senior Securities		171
Item 4 Submission of Matters to a Vote of Security Holders		171
Item 5 Other Information		171
Item 6 Exhibits		171

EX-10
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS


(unaudited)
(in millions, except per share, ratio and headcount data)
As of or for the period ended,	1Q10			4Q09			3Q09			2Q09			1Q09

Selected income statement data
Total net revenue	$	27,671		$	23,164		$	26,622		$	25,623		$	25,025
Total noninterest expense		16,124			12,004			13,455			13,520			13,373

Pre-provision profit^(a)		11,547			11,160			13,167			12,103			11,652
Provision for credit losses		7,010			7,284			8,104			8,031			8,596

Income before income tax expense and extraordinary gain		4,537			3,876			5,063			4,072			3,056
Income tax expense		1,211			598			1,551			1,351			915

Income before extraordinary gain		3,326			3,278			3,512			2,721			2,141
Extraordinary gain^(b)		—			—			76			—			—

Net income	$	3,326		$	3,278		$	3,588		$	2,721		$	2,141

Per common share data
Basic earnings
Income before extraordinary gain	$	0.75		$	0.75		$	0.80		$	0.28		$	0.40
Net income		0.75			0.75			0.82			0.28			0.40
Diluted earnings^(c)
Income before extraordinary gain	$	0.74		$	0.74		$	0.80		$	0.28		$	0.40
Net income		0.74			0.74			0.82			0.28			0.40
Cash dividends declared per share		0.05			0.05			0.05			0.05			0.05
Book value per share		39.38			39.88			39.12			37.36			36.78
Common shares outstanding
Weighted average: Basic		3,970.5			3,946.1			3,937.9			3,811.5			3,755.7
Diluted		3,994.7			3,974.1			3,962.0			3,824.1			3,758.7
Common shares at period end^(d)		3,975.4			3,942.0			3,938.7			3,924.1			3,757.7
Share price^(e)
High	$	46.05		$	47.47		$	46.50		$	38.94		$	31.64
Low		37.03			40.04			31.59			25.29			14.96
Close		44.75			41.67			43.82			34.11			26.58
Market capitalization		177,897			164,261			172,596			133,852			99,881

Selected ratios
Return on common equity (“ROE”)^(c)
Income before extraordinary gain		8	%		8	%		9	%		3	%		5	%
Net income		8			8			9			3			5
Return on tangible common equity (“ROTCE”)^(c)
Income before extraordinary gain		12			12			13			5			8
Net income		12			12			14			5			8
Return on assets (“ROA”)
Income before extraordinary gain		0.66			0.65			0.70			0.54			0.42
Net income		0.66			0.65			0.71			0.54			0.42
Overhead ratio		58			52			51			53			53
Tier 1 capital ratio^(f)		11.5			11.1			10.2			9.7			11.4
Total capital ratio		15.1			14.8			13.9			13.3			15.2
Tier 1 leverage ratio		6.6			6.9			6.5			6.2			7.1
Tier 1 common capital ratio^(g)		9.1			8.8			8.2			7.7			7.3

Selected balance sheet data (period-end)
Trading assets^(f)	$	426,128		$	411,128		$	424,435		$	395,626		$	429,700
Securities^(f)		344,376			360,390			372,867			345,563			333,861
Loans^(f)		713,799			633,458			653,144			680,601			708,243
Total assets^(f)		2,135,796			2,031,989			2,041,009			2,026,642			2,079,188
Deposits^(f)		925,303			938,367			867,977			866,477			906,969
Long-term debt		262,857			266,318			272,124			271,939			261,845
Common stockholders’ equity^(f)		156,569			157,213			154,101			146,614			138,201
Total stockholders’ equity^(f)		164,721			165,365			162,253			154,766			170,194
Headcount		226,623			222,316			220,861			220,255			219,569


(unaudited)
(in millions, except ratios)
As of or for the period ended	1Q10			4Q09			3Q09			2Q09			1Q09

Credit quality metrics
Allowance for credit losses^(f)	$	39,126		$	32,541		$	31,454		$	29,818		$	28,019
Allowance for loan losses to total retained loans^(f)		5.40	%		5.04	%		4.74	%		4.33	%		3.95	%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans^(f)(h)		5.64			5.51			5.28			5.01			4.53
Nonperforming assets	$	19,019		$	19,741		$	20,362		$	17,517		$	14,654
Net charge-offs		7,910			6,177			6,373			6,019			4,396
Net charge-off rate		4.46	%		3.85	%		3.84	%		3.52	%		2.51	%
Wholesale net charge-off rate		1.84			2.31			1.93			1.19			0.32
Consumer net charge-off rate		5.56			4.60			4.79			4.69			3.61


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

(b)		On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual. The acquisition resulted in negative goodwill, and accordingly, the Firm recognized an extraordinary gain. A preliminary gain of $1.9 billion was recognized at December 31, 2008. The final total extraordinary gain that resulted from the Washington Mutual transaction was $2.0 billion.

(c)		The calculation of second-quarter 2009 earnings per share and net income applicable to common equity includes a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of U.S. Troubled Asset Relief Program (“TARP”) preferred capital. Excluding this reduction, the adjusted ROE and ROTCE for the second quarter 2009 would have been 6% and 10%, respectively. The Firm views the adjusted ROE and ROTCE, both non-GAAP financial measures, as meaningful because they enable the comparability to prior periods. For further discussion, see “Explanation and Reconciliation of the Firm’s use of Non-GAAP Financial measures” on pages 14-16 of this Form 10-Q and pages 50-52 of JPMorgan Chase’s 2009 Annual Report.

(d)		On June 5, 2009, the Firm issued $5.8 billion, or 163 million shares, of its common stock at $35.25 per share.

(e)		The principal market for JPMorgan Chase’s common stock is 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.

(f)		Effective January 1, 2010, the Firm adopted new guidance that amended the accounting for the transfer of financial assets and the consolidation of variable interest entities (“VIEs”). Upon adoption of the new guidance, the Firm consolidated its Firm-sponsored credit card securitization trusts, Firm-administered multi-seller conduits and certain other consumer loan securitization entities, primarily mortgage-related, adding $87.7 billion and $92.2 billion of assets and liabilities, respectively, and decreasing stockholders’ equity and the Tier I capital ratio by $4.5 billion and 34 basis points, respectively. The reduction to stockholders’ equity was driven by the establishment of an allowance for loan losses of $7.5 billion (pretax) primarily related to receivables held in credit card securitization trusts that were consolidated on the adoption date.

(g)		The Tier 1 common capital ratio is Tier 1 common capital divided by risk-weighed assets. Tier 1 common capital (“Tier 1 common”) is defined as Tier 1 capital less elements of capital not in the form of common equity — such as perpetual preferred stock, noncontrolling interests in subsidiaries and trust preferred capital debt securities. The Tier 1 common capital ratio, 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 capital along with the other capital measures to assess and monitor its capital position. For further discussion, see Regulatory capital on pages 82-84 of JPMorgan Chase’s 2009 Annual Report.

(h)		Excludes the impact of home lending purchased credit-impaired loans for all periods. Also excludes, as of December 31, 2009, September 30, 2009 and June 30, 2009, the loans held by the Washington Mutual Master Trust, which were consolidated onto the balance sheet at fair value during the second quarter of 2009. Such loans had been fully repaid or charged off as of March 31, 2010. For further discussion, see Allowance for credit losses on pages 78-81 of this Form 10-Q.

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

This section of the Form 10-Q provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase. See the Glossary of terms on pages 156-159 for definitions of terms used throughout this Form 10-Q. The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause the Firm’s actual results to differ materially from those set forth in such forward-looking statements. Certain of such risks and uncertainties are described herein (See Forward-looking Statements on pages 162-163 and Part II, Item 1A: Risk Factors on page 171 of this Form 10-Q), and see Part I, Item 1A, Risk Factors in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the U.S. Securities and Exchange Commission (“2009 Annual Report” or “2009 Form 10-K”), to which reference is hereby made.

INTRODUCTION

JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with $2.1 trillion in assets, $164.7 billion in stockholders’ equity and operations in more than 60 countries as of March 31, 2010. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.

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

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

Investment Bank

J.P. Morgan is one of the world’s leading investment banks, with deep client relationships and broad product capabilities. The 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. IB also commits the Firm’s own capital to principal investing and trading activities on a limited basis.

Retail Financial Services

Card Services

Card Services (“CS”) is one of the nation’s largest credit card issuers, with nearly $150 billion in managed loans and nearly 90 million open accounts. In the three months ended March 31, 2010, customers used Chase cards to meet nearly $70 billion of their spending needs. Through its merchant acquiring business, Chase Paymentech Solutions, Card Services is a global leader in payment processing and merchant acquiring.

Commercial Banking

Commercial Banking (“CB”) serves nearly 25,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from $10 million to $2 billion, and more than 30,000 real estate investors/owners. Delivering extensive industry knowledge, local expertise and dedicated service, CB partners with the Firm’s other businesses to provide comprehensive solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs.

Treasury & Securities Services

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

Asset Management

Asset Management (“AM”), with assets under supervision of $1.7 trillion, is a global leader in investment and wealth management. AM clients include institutions, retail investors and high-net-worth individuals in every major market throughout the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity products, including money-market instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and retirement services for corporations and individuals. The majority of AM’s client assets are in actively managed portfolios.

EXECUTIVE OVERVIEW

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

Financial performance of JPMorgan Chase


	Three months ended March 31,
(in millions, except per share data and ratios)	2010			2009			Change

Selected income statement data
Total net revenue	$	27,671		$	25,025			11	%
Total noninterest expense		16,124			13,373			21
Pre-provision profit		11,547			11,652			(1	)
Provision for credit losses		7,010			8,596			(18	)
Net income		3,326			2,141			55

Diluted earnings per share	$	0.74		$	0.40			85
Return on common equity		8	%		5	%
Capital ratios
Tier 1 capital		11.5			11.4
Tier 1 common capital		9.1			7.3

Business overview

JPMorgan Chase reported first-quarter 2010 net income of $3.3 billion, or $0.74 per share, compared with net income of $2.1 billion, or $0.40 per share, in the first quarter of 2009. Return on common equity for the quarter was 8%, compared with 5% in the prior year. The increase in earnings was driven by a lower provision for credit losses and higher net revenue, partially offset by higher noninterest expense. Strong Fixed Income Markets revenue in the Investment Bank and continued elevated levels of trading and securities gains from the investment portfolio in Corporate contributed to revenue growth. The decrease in the provision for credit losses was driven by a reduction in the allowance for loan losses due to lower loan balances in the Investment Bank (reflecting repayments and loan sales), and lower estimated losses in Card Services. Noninterest expense rose, reflecting increased litigation reserves, including those for mortgage-related matters.

The beginnings of an economic recovery in the U.S. gained momentum in the first quarter of 2010, with favorable developments in financial markets, capital spending and the labor market. These trends, combined with increasing corporate profitability and low inflation, provided support for improving stock markets, asset prices and credit spreads. Household spending expanded but continued to be constrained by high unemployment, modest income growth, lower household wealth and tight credit. The Federal Reserve indicated that these economic conditions were likely to warrant an exceptionally low federal funds rate for an extended period.

The Firm’s net income in the first quarter reflected the improvement in the business environment, with a strong quarter in the Investment Bank and continued solid performance across Asset Management, Commercial Banking and Retail Banking. Although high losses continued in the consumer credit portfolios, delinquencies continued to stabilize and, in some cases, improved. Earnings generated additional capital, resulting in a very strong Tier 1 Capital ratio of 11.5% and a Tier 1 Common ratio of 9.1%. The total firmwide allowance for credit losses was more than $39 billion, or 5.6% of total loans.

JPMorgan Chase continued to contribute to the economic recovery of small businesses and communities. Building on the efforts of the Obama Administration, the Firm expanded its efforts by launching an initiative to increase small-business lending to $10 billion by the end of 2010. During the quarter, the Firm extended $2.1 billion in new small-business credit, with Business Banking originations nearly doubling from last year. In addition, the Firm aims to employ more people and create new jobs across the country and around the world, with plans to add nearly 9,000 new employees in the U.S. alone.

The Firm’s efforts to prevent foreclosures have produced significant results. Since the beginning of 2009, JPMorgan Chase has offered approximately 750,000 trial modifications to struggling homeowners, of which nearly 25% were approved for permanent modification. The Firm approved more than 64,000 permanent modifications during the first quarter of 2010, a 146% increase from the previous quarter. In addition, the Firm recently announced its participation in the U.S. Government’s Second-Lien Modification Program known as 2MP. These mortgage programs are complex to implement and take time to build momentum; however, management believes they could ultimately prevent millions of foreclosures.

The discussion that follows highlights the current-quarter performance of each business segment, compared with the prior-year quarter. Managed basis starts with the reported U.S. GAAP results. For 2010, managed basis includes, for each line of business and the Firm as a whole, certain reclassifications to present total net revenue on a tax-equivalent basis. For 2009, managed basis includes i) the foregoing adjustment; and, ii) for Card Services and the Firm as a whole, certain classifications that assumed credit card loans securitized by Card Services remained on the Consolidated Balance Sheets. Effective January 1, 2010, the Firm adopted new accounting guidance that required the Firm to consolidate its Firm-sponsored credit card securitization trusts; as a result, reported and managed basis relating to credit card securitizations are equivalent for periods beginning after January 1, 2010. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see pages 14—16 of this Form 10-Q.

Investment Bank net income increased from the prior year, driven by strong net revenue, particularly in Fixed Income Markets, and a benefit from the provision for credit losses. Fixed Income Markets revenue reflected strong results across most products. Investment banking fees also rose, driven by higher debt and equity underwriting fees. The provision for credit losses reflected lower loan balances, driven by repayments and loan sales. Noninterest expense was flat to the prior year, as lower performance-based compensation expense was largely offset by increased litigation reserves, including those for mortgage-related matters. Return on equity was 25% on $40 billion of average allocated capital.

Retail Financial Services reported a net loss for the quarter, compared with net income in the first quarter of 2009. The decline was driven by lower net revenue, reflecting the impact of lower mortgage fees and related income, portfolio run-off and lower deposit balances, partially offset by a shift to wider-spread deposit products. The provision for credit losses (excluding purchased credit-impaired loans) decreased from the prior year as delinquency trends improved; however, the allowance for loan losses included an addition of $1.2 billion for further estimated deterioration in the Washington Mutual purchased credit-impaired portfolio. Noninterest expense increased modestly from the prior year as higher default-related expense and increases in sales force and new branch builds were predominantly offset by lower mortgage insurance expense and efficiencies resulting from the Washington Mutual transaction.

Card Services reported an improved net loss compared with the prior year, as a lower provision for credit losses was partially offset by lower net revenue. The decrease in managed net revenue was driven by a decline in net interest income, reflecting lower average managed loan balances (including run-off from the Washington Mutual portfolio), the impact of legislative changes and a decreased level of fees. Partial offsets to the decline included wider loan spreads and a prior-year write-down of securitization interests. The decline in the provision for credit losses included a reduction of $1.0 billion in the allowance for loan losses, reflecting lower estimated losses, partially offset by continued high levels of charge-offs. Noninterest expense increased due to higher marketing expense.

Commercial Banking net income increased from the prior year, driven by a decrease in the provision for credit losses, lower noninterest expense and higher net revenue. Net revenue increased marginally, as overall growth in liability balances, higher lending-related and investment banking fees, and wider loan spreads were predominantly offset by spread compression on liability products and lower loan balances. The provision for credit losses reflected higher charge-offs due to continued weakness in commercial real estate. Noninterest expense declined modestly, driven by lower headcount-related expense, lower volume-related expense and lower FDIC insurance premiums, largely offset by higher performance-based compensation.

Treasury and Securities Services net income decreased from the prior year, driven by lower net revenue in both Worldwide Securities Services and Treasury Services, partially offset by a benefit from the provision for credit losses. Worldwide Securities Services revenue declined due to lower spreads in securities lending, lower liability balances, and the impact of lower volatility on foreign exchange, partially offset by the effects of higher market levels and net inflows on assets under custody. In Treasury Services, lower deposit spreads were partially offset by higher trade loan and card product volumes. Noninterest expense for TSS was flat compared with the prior year.

Asset Management net income increased from the prior year, as higher net revenue was offset partially by higher noninterest expense. Revenue growth was driven by the effect of higher market levels, higher placement fees, net inflows to products with higher margins and higher performance fees; these increases were offset partially by lower net interest income due to narrower deposit spreads. The increase in noninterest expense was driven by higher performance-based compensation and higher headcount-related expense.

Corporate/Private Equity reported net income, compared with a net loss in the first quarter of 2009. The improved results were driven by higher net revenue, reflecting continued elevated levels of net interest income, trading and securities gains from the investment portfolio, and higher private equity gains (compared with losses in the prior year); offsetting the higher revenue was an increase in litigation reserves, including those for mortgage-related matters.

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.

JPMorgan Chase’s outlook for the second quarter of 2010 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment and client activity levels. Each of these linked factors will affect the performance of the Firm and its lines of business.

As noted above, some normalization of the financial markets has occurred, and there are early indications of broad-based improvements in underlying economic trends. Specifically, the Firm began to see credit delinquencies stabilize and, in certain portfolios, improve. However, economic pressures on consumers continued to drive losses in the consumer loan portfolios in the first quarter of 2010. Further declines in U.S. housing prices in certain markets and increases in the unemployment rate remain possible; if this were to occur, it would adversely affect the Firm’s results. At the same time, the U.S. Congress and regulators (as well as legislative and regulatory bodies in other countries) continue to intensify their focus on the regulation of financial institutions; any legislation or regulations that may be adopted as a result could limit or restrict the Firm’s operations, impose additional costs on the Firm in order to comply with such new laws or regulations, or significantly and adversely affect the revenues of certain lines of business. Accordingly, the Firm continues to monitor closely U.S. and international economies and political environments.

In the Retail Banking business within Retail Financial Services, management expects continued strong revenue over the next several quarters, despite continued economic pressure on consumers and consumer spending levels. Additionally, the Firm has made changes consistent with and, in certain respects, beyond the requirements of newly-enacted legislation, in its policies relating to non-sufficient funds and overdraft fees. Although management estimates are subject to change, such changes may result in an annualized reduction in net income in Retail Banking of approximately $500 million by the fourth quarter of 2010.

In the Mortgage Banking & Other Consumer Lending business within Retail Financial Services, management expects revenue to continue to be negatively affected by continued elevated levels of repurchases of mortgages previously sold to, for example, government-sponsored entities. In the Real Estate Portfolios business within Retail Financial Services, management has not changed prior loss guidance, that quarterly net charge-offs could reach $1.4 billion for the home equity portfolio, $600 million for the prime mortgage portfolio and $500 million for the subprime mortgage portfolio over the next several quarters. However, if the initial improvements in delinquency and other loss trends currently being observed continue, net charge-offs may not reach these levels. Given current origination and production levels, combined with management’s current estimate of portfolio run-off levels, the residential real estate portfolio is expected to decline by approximately 10—15% annually for the foreseeable future. Based on management’s preliminary estimate, the effect of such a reduction in the residential real estate portfolio is expected to reduce 2010 net interest income in the portfolio by more than $1.0 billion from the 2009 level, excluding any impact from changes in the interest rate environment.

Finally, management expects noninterest expense in Retail Financial Services to remain modestly above 2009 levels, reflecting investments in new branch builds and sales force hires, as well as continued elevated servicing-, default- and foreclosed asset-related costs.

Management expects average outstandings in Card Services to decline by approximately 10-15% in 2010 due to run-off of both the Washington Mutual portfolio and lower-yielding promotional balances. In addition, management estimates CS’s annual net income may be adversely affected by approximately $500 million to $750 million as a result of the recently enacted credit card legislation; this estimate is subject to change as components of the new legislation are finalized. The net charge-off rate for Card Services (excluding the Washington Mutual credit card portfolio) is anticipated to be approximately 9.5% in the second quarter of 2010, with the potential for improvement in the second half of 2010. The net charge-off rate for the Washington Mutual credit card portfolio is expected to remain at or above 20% over the next several quarters. Excluding the effect of any potential reserve actions, management currently expects CS to report a net loss in the second quarter of 2010; however, the loss will likely improve from the level reported in the first quarter of 2010. Results in the second half of 2010 will depend on the economic environment and potential reserve actions.

Revenue in the Investment Bank, Treasury & Securities Services and Asset Management will be affected by market levels, volumes and volatility, which will influence client flows and assets under management, supervision and custody. In addition, Investment Bank and Commercial Banking results will continue to be affected by the credit environment, which will influence levels of charge-offs, repayments and reserving actions with regard to credit loss allowances.

Earnings in Private Equity (within the Corporate/Private Equity segment) will likely continue to be volatile and be influenced by capital markets activity, market levels, the performance of the broader economy and investment-specific issues. Corporate’s net interest income levels and securities gains will generally trend with the size and duration of the investment securities portfolio in Corporate; however, the high level of trading and securities gains in the first quarter of 2010 is not likely to continue throughout 2010. While management currently anticipates that Corporate will realize additional securities gains in the second quarter of 2010, it is not anticipated that such gains will be of the same magnitude as those reported in the first quarter. Over the next several quarters, Corporate quarterly net income (excluding Private Equity, merger-related items and any significant nonrecurring items) is expected to decline to approximately $300 million.

Lastly, with regard to any decision by the Firm’s Board of Directors concerning any increase in the level of the common stock dividend, their determination will be subject to their judgment that the likelihood of another severe economic downturn has sufficiently diminished; that there is evidence of sustained underlying growth in employment for at least several months; that overall business performance and credit have stabilized or improved; and that such action is warranted, taking into consideration the Firm’s earnings outlook, need to maintain adequate capital levels (in light of business needs and regulatory requirements), alternative investment opportunities and appropriate dividend payout ratios. Ultimately, the Board would seek to return to the Firm’s historical dividend ratio of approximately 30% to 40% of normalized earnings over time, though it would consider moving to that level in stages.

CONSOLIDATED RESULTS OF OPERATIONS

This section provides a comparative discussion of JPMorgan Chase’s Consolidated Results of Operations on a reported basis. Factors that relate primarily to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Results of Operations, see pages 86-88 of this Form 10-Q and pages 127-131 of JPMorgan Chase’s 2009 Annual Report.

Revenue


	Three months ended March 31,
(in millions)	2010		2009		Change

Investment banking fees	$	1,461	$	1,386		5	%
Principal transactions		4,548		2,001		127
Lending- and deposit-related fees		1,646		1,688		(2	)
Asset management, administration and commissions		3,265		2,897		13
Securities gains		610		198		208
Mortgage fees and related income		658		1,601		(59	)
Credit card income		1,361		1,837		(26	)
Other income		412		50	NM

Noninterest revenue		13,961		11,658		20
Net interest income		13,710		13,367		3

Total net revenue	$	27,671	$	25,025		11

Total net revenue for the first quarter of 2010 was $27.7 billion, up by $2.6 billion, or 11%, from the first quarter of 2009. The increase was driven by the following: higher principal transactions revenue, primarily from higher trading revenue and private equity gains (compared with losses in the prior year) in Corporate/Private Equity, as well as strong fixed income revenue in IB; and higher securities gains on the investment portfolio in Corporate. These were offset partially by lower mortgage fees and related income in RFS.

Investment banking fees increased from the first quarter of 2009, reflecting higher debt and equity underwriting fees, largely offset by lower advisory fees. For a further discussion of investment banking fees, which are primarily recorded in IB, see IB segment results on pages 18-21 of this Form 10-Q.

Principal transactions revenue, which consists of revenue from the Firm’s trading and private equity investing activities, rose from the first quarter of 2009. Trading revenue increased, driven by elevated levels of trading gains on the portfolio in Corporate and strong trading results in fixed income in IB. Also contributing to the increase were higher private equity gains, compared with losses in the prior year. For a further discussion of principal transactions revenue, see IB and Corporate/Private Equity segment results on pages 18-21 and 41-42 respectively, and Note 6 on page 117 of this Form 10-Q.

Lending- and deposit-related fees decreased from the first quarter of 2009, reflecting lower deposit fees in RFS predominantly offset by higher lending-related service fees in IB and CB. For a further discussion of lending- and deposit-related fees, which are mostly recorded in RFS, TSS and CB, see the RFS segment results on pages 22-29, the TSS segment results on pages 36-37, and the CB segment results on pages 34-35 of this Form 10-Q.

Asset management, administration and commissions revenue increased compared with the first quarter of 2009, due to higher asset management fees in AM, which were driven by the effect of higher market levels, higher placement fees, net inflows to products with higher margins, and higher performance fees. Also contributing to the increase was higher administration fees in TSS, resulting from the effect of higher market levels and net inflows on assets under custody. For additional information on these fees and commissions, see the segment discussions for AM on pages 38-41 and TSS on pages 36-37 of this Form 10-Q.

Securities gains increased compared with the first quarter of 2009, due to continued repositioning of the Corporate investment securities portfolio in connection with managing the Firm’s structural interest rate risk. For further information on securities gains, which are mostly recorded in the Firm’s Corporate business, and Corporate’s investment securities portfolio, see the Corporate/Private Equity segment discussion on pages 41-42 of this Form 10-Q.

Mortgage fees and related income decreased from the prior year, due to lower mortgage servicing rights (“MSR”) risk management results and lower mortgage production revenue, partially offset by higher mortgage operating income. For a discussion of mortgage fees and related income, which is recorded primarily in RFS, see RFS’s Mortgage Banking & Other Consumer Lending discussion on pages 25-26 of this Form 10-Q.

Credit card income decreased from the first quarter of 2009, due predominantly to the impact of new consolidation guidance related to VIEs, effective January 1, 2010, that required the Firm to consolidate the assets and liabilities of its

Firm-sponsored credit card securitization trusts. Adoption of the new guidance resulted in the elimination of all servicing fees received from Firm-sponsored credit card securitization trusts (offset by a respective increase in net interest income and provision for loan losses). For a more detailed discussion of the impact of the adoption on the Consolidated Statements of Income, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14-16 of this Form 10-Q. For a further discussion of credit card income, see the CS segment results on pages 30-33 of this Form 10-Q.

Other income increased from the prior year, predominantly reflecting the absence of a prior-year write-down of securitization interests in CS, and lower valuation losses on other real estate owned (“REO”).

Net interest income was $13.7 billion, an increase of $343 million from the first quarter of the prior year, driven by the impact of the new consolidation guidance related to VIEs, effective January 1, 2010; this increased net interest income by approximately $1.8 billion, mainly as a result of the consolidation of Firm-sponsored credit card securitization trusts. The Firm’s interest-earning assets were $1.7 trillion, and the net yield on those assets, on a fully taxable-equivalent (“FTE”) basis, was 3.32%, an increase of 3 basis points from 2009. Excluding the impact of the adoption of the new consolidation guidance, the decrease in net interest income was driven by the following: lower average loans, including consumer loans in CS (which included run-off of Washington Mutual credit card loans) and RFS, as well as wholesale loans in IB, in part, from repayments and loan sales; the impact of legislative changes in CS; lower fees on credit card receivables; and lower average deposit balances. For a more detailed discussion of the impact of the adoption on the Consolidated Statements of Income, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14-16 of this Form 10-Q.


Provision for credit losses	Three months ended March 31,
(in millions)	2010			2009		Change

Wholesale	$	(236	)	$	1,530	NM
Consumer		7,246			7,066		3	%

Total provision for credit losses	$	7,010		$	8,596		(18	)

Provision for credit losses

The provision for credit losses in the first quarter of 2010 was $7.0 billion, a decrease of $1.6 billion from the comparable quarter in 2009. The wholesale provision for credit losses was a benefit of $236 million, compared with a charge of $1.5 billion in the prior year, reflecting a reduction in the allowance for loan losses due to repayments and loan sales. The benefit was partially offset by higher provisions related to higher net charge-offs, mainly related to continued weakness in commercial real estate. The consumer provision for credit losses was $7.2 billion, compared with $7.1 billion in 2009, reflecting the following: the impact of new consolidation guidance related to VIEs, effective January 1, 2010, which added approximately $1.7 billion to the provision; a $1.2 billion addition to the allowance in RFS related to further estimated deterioration in the Washington Mutual prime and option adjustable-rate mortgage (“ARM”) purchased credit-impaired pools; and the continued high levels of charge-offs across most consumer portfolios. These were partially offset by a reduction of $1.0 billion to the allowance in CS, reflecting lower estimated losses. In RFS and CS, the prior-year provision included additions of $1.7 billion and $1.2 billion, respectively, to the allowance. For a more detailed discussion of the impact of the adoption on the Consolidated Statements of Income, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14-16 of this Form 10-Q. For a more detailed discussion of the loan portfolio and the allowance for loan losses, see the segment discussions for RFS on pages 22-29, CS on pages 30-33, IB on pages 18-21 and CB on pages 34-35, and the Allowance for Credit Losses section on pages 78-81 of this Form 10-Q.

Noninterest expense

The following table presents the components of noninterest expense.


	Three months ended March 31,
(in millions)	2010		2009		Change

Compensation expense	$	7,276	$	7,588		(4	)%
Noncompensation expense:
Occupancy expense		869		885		(2	)
Technology, communications and equipment expense		1,137		1,146		(1	)
Professional and outside services		1,575		1,515		4
Marketing		583		384		52
Other expense^(a)(b)		4,441		1,375		223
Amortization of intangibles		243		275		(12	)

Total noncompensation expense		8,848		5,580		59
Merger costs		—		205	NM

Total noninterest expense	$	16,124	$	13,373		21



(a)		The first quarter of 2010 includes $2.9 billion of litigation expense compared with a net benefit of $270 million in the first quarter of 2009.

(b)		Includes foreclosed property expense of $303 million and $325 million for the three months ended March 31, 2010 and 2009, respectively. For additional information regarding foreclosed property, see Note 13 on page 196 of JPMorgan Chase’s 2009 Annual Report.

Total noninterest expense for the first quarter of 2010 was $16.1 billion, up by $2.8 billion, or 21%, from the first quarter of 2009. The increase was due to additions to litigation reserves in Corporate/Private Equity and IB, including those for mortgage-related matters and, to a lesser extent, higher marketing expense in CS. These were offset partially by lower compensation expense and the absence of merger costs in 2010, compared with $205 million in the first quarter of 2009.

Compensation expense decreased in the first quarter of 2010 compared with the prior-year period, reflecting lower performance-based compensation expense in IB. This was offset partially by ongoing investments in the businesses, including the RFS sales force.

Noncompensation expense increased from the first quarter of 2009, due predominantly to additions to litigation reserves recorded in other expense for Corporate/Private Equity and IB, including those for mortgage-related matters. The increase was also due to higher marketing expense in CS and was partially offset by lower mortgage insurance expense.

There were no merger costs recorded in the first quarter of 2010, compared with $205 million recorded in the first quarter of 2009. For information on merger costs, refer to Note 10 on page 119 of this Form 10-Q.

Income tax expense

The following table presents the Firm’s income before income tax expense, income tax expense and effective tax rate.


	Three months ended March 31,
(in millions, except rate)	2010			2009

Income before income tax expense	$	4,537		$	3,056
Income tax expense		1,211			915
Effective tax rate		26.7	%		29.9	%

The decrease in the effective tax rate compared with the first quarter of 2009 was primarily the result of tax benefits recognized upon the resolution of tax audits in the first quarter of 2010, increased tax-exempt income, increased business tax credits and increased non-U.S. income not subject to U.S. taxation. The decrease was partially offset by the impact of higher reported pretax income and higher state and local income taxes in the first quarter of 2010. For a further discussion of income taxes, see Critical Accounting Estimates Used by the Firm on pages 86-88 of this Form 10-Q.

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

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

In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s results and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications to present total net revenue for the Firm (and each of the business segments) on a FTE basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits is presented in the managed results on a basis comparable to taxable securities and investments. This non-GAAP financial measure allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these 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.

Prior to January 1, 2010, the Firm’s managed-basis presentation also included certain reclassification adjustments that assumed credit card loans securitized by CS remained on the balance sheet. Effective January 1, 2010, the Firm adopted new accounting guidance that required the Firm to consolidate its Firm-sponsored credit card securitizations trusts. The income, expense and credit costs associated with these securitization activities are now recorded in the 2010 Consolidated Statements of Income in the same classifications that were previously used to report such items on a managed basis. As a result of the consolidation of the credit card securitization trusts, reported and managed basis relating to credit card securitizations are equivalent for periods beginning after January 1, 2010. For additional information on the new accounting guidance, see Note 15 on pages 131-142 of this Form 10-Q.

The presentation in 2009 of CS results on a managed basis assumed that credit card loans that had been securitized and sold in accordance with U.S. GAAP remained on the Consolidated Balance Sheets, and that the earnings on the securitized loans were classified in the same manner as the earnings on retained loans recorded on the Consolidated Balance Sheets. JPMorgan Chase used the concept of managed basis to evaluate the credit performance and overall financial performance of the entire managed credit card portfolio. Operations were funded and decisions were made about allocating resources, such as employees and capital, based on managed financial information. In addition, the same underwriting standards and ongoing risk monitoring are used for both loans on the Consolidated Balance Sheets and securitized loans. Although securitizations result in the sale of credit card receivables to a trust, JPMorgan Chase retains the ongoing customer relationships, as the customers may continue to use their credit cards; accordingly, the customer’s credit performance affects both the securitized loans and the loans retained on the Consolidated Balance Sheets. JPMorgan Chase believed that this managed-basis information was useful to investors, as it enabled them to understand both the credit risks associated with the loans reported on the Consolidated Balance Sheets and the Firm’s retained interests in securitized loans. For a reconciliation of 2009 reported to managed basis results for CS, see CS segment results on pages 30-33 of this Form 10-Q. For information regarding the securitization process, and loans and residual interests sold and securitized, see Note 15 on pages 131-142 of this Form 10-Q.

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

Management also uses certain non-GAAP financial measures at the business-segment level, because it believes these other non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the particular business segment and, therefore, facilitate a comparison of the business segment with the performance of its competitors.

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

Three months ended March 31, 2010

Reported

Credit

Fully
tax-equivalent

Managed

(in millions, except per share and ratios)

results

card

adjustments

Basis

Revenue

Investment banking fees

1,461

—

1,461

Principal transactions

4,548

—

4,548

Lending- and deposit-related fees

1,646

—

1,646

Asset management, administration and commissions

3,265

—

3,265

Securities gains

610

—

610

Mortgage fees and related income

658

—

658

Credit card income

1,361

—

1,361

Other income

412

411

823

Noninterest revenue

13,961

411

14,372

Net interest income

13,710

13,800

Total net revenue

27,671

501

28,172

Noninterest expense

16,124

—

16,124

Pre-provision profit

11,547

501

12,048

Provision for credit losses

7,010

—

7,010

Income before income tax expense

4,537

501

5,038

Income tax expense

1,211

501

1,712

Net income

3,326

—

3,326

Diluted earnings per share

0.74

—

0.74

Return on assets

0.66

Overhead ratio


	Three months ended March 31, 2009
							Fully
	Reported			Credit			tax-equivalent		Managed
(in millions, except per share and ratios)	results			card^(a)			adjustments		Basis

Revenue
Investment banking fees	$	1,386		$	—		$	—	$	1,386
Principal transactions		2,001			—			—		2,001
Lending- and deposit-related fees		1,688			—			—		1,688
Asset management, administration and commissions		2,897			—			—		2,897
Securities gains		198			—			—		198
Mortgage fees and related income		1,601			—			—		1,601
Credit card income		1,837			(540	)		—		1,297
Other income		50			—			337		387

Noninterest revenue		11,658			(540	)		337		11,455
Net interest income		13,367			2,004			96		15,467

Total net revenue		25,025			1,464			433		26,922
Noninterest expense		13,373			—			—		13,373

Pre-provision profit		11,652			1,464			433		13,549
Provision for credit losses		8,596			1,464			—		10,060

Income before income tax expense		3,056			—			433		3,489
Income tax expense		915			—			433		1,348

Net income	$	2,141		$	—		$	—	$	2,141

Diluted earnings per share	$	0.40		$	—		$	—	$	0.40
Return on assets		0.42	%	NM			NM			0.40	%
Overhead ratio		53		NM			NM			50



(a)		See pages 30-33 of this Form 10-Q for a discussion of the effect of credit card securitizations on CS results.


Three months ended March 31,	2010					2009
(in millions)	Reported		Securitized^(a)	Reported		Reported		Securitized^(a)		Managed

Loans — Period-end	$	713,799	NA	$	713,799	$	708,243	$	85,220	$	793,463
Total assets — average		2,038,680	NA		2,038,680		2,067,119		82,782		2,149,901



(a)		Loans securitized is defined as loans that were sold to nonconsolidated securitization trusts and were not included in reported loans as of March 31, 2009. For further discussion of the credit card securitizations, see Note 15 on pages 131-142 of this Form 10-Q.

Average tangible common equity


	Three months ended
(in millions)	March 31, 2010		Dec. 31, 2009		Sept. 30, 2009		June 30, 2009		March 31, 2009

Common stockholders’ equity	$	156,094	$	156,525	$	149,468	$	140,865	$	136,493
Less: Goodwill		48,542		48,341		48,328		48,273		48,071
Less: Certain identifiable intangible assets		4,307		4,741		4,984		5,218		5,443
Add: Deferred tax liabilities^(a)		2,541		2,533		2,531		2,518		2,609

Tangible common equity (TCE)	$	105,786	$	105,976	$	98,687	$	89,892	$	85,588



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

Other financial measures

The Firm also discloses the allowance for loan losses to total retained loans, excluding home lending purchased credit-impaired loans. For a further discussion of this credit metric, see Allowance for Credit Losses on pages 78-81 of this Form 10-Q.

BUSINESS SEGMENT RESULTS

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

Description of business segment reporting methodology

Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives business segment results allocates income and expense using market-based methodologies. For a further discussion of those methodologies, see Business Segment Results — Description of business segment reporting methodology on pages 53-54 of JPMorgan Chase’s 2009 Annual Report. The Firm continues to assess the assumptions, methodologies and reporting classifications used for segment reporting, and further refinements may be implemented in future periods.

Business segment capital allocation changes

Each business segment is allocated capital by taking into consideration stand-alone peer comparisons, economic risk measures and regulatory capital requirements. The amount of capital assigned to each business is referred to as equity. Effective January 1, 2010, the Firm enhanced its line of business equity framework to better align equity assigned to each line of business with the changes anticipated to occur in the business, and in the competitive and regulatory landscape. Equity was assigned to the lines of business based on the Tier 1 common standard, rather than the Tier 1 capital standard. For a further discussion of the changes, see Capital Management — Line of business equity on pages 51-52 of this Form 10-Q.

Segment Results — Managed Basis^(a)

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


Three months ended																										Return
March 31,	Total net revenue								Noninterest expense								Net income/(loss)									on equity
(in millions, except ratios)	2010		2009			Change			2010		2009			Change			2010			2009			Change			2010			2009

Investment Bank^(b)	$	8,319	$	8,371			(1	)%	$	4,838	$	4,774			1	%	$	2,471		$	1,606			54	%		25	%		20	%
Retail Financial Services		7,776		8,835			(12	)		4,242		4,171			2			(131	)		474		NM				(2	)		8
Card Services		4,447		5,129			(13	)		1,402		1,346			4			(303	)		(547	)		45			(8	)		(15	)
Commercial Banking		1,416		1,402			1			539		553			(3	)		390			338			15			20			17
Treasury & Securities Services		1,756		1,821			(4	)		1,325		1,319			—			279			308			(9	)		17			25
Asset Management		2,131		1,703			25			1,442		1,298			11			392			224			75			24			13
Corporate/Private Equity^(b)		2,327		(339	)	NM				2,336		(88	)	NM				228			(262	)	NM			NM			NM

Total	$	28,172	$	26,922			5	%	$	16,124	$	13,373			21	%	$	3,326		$	2,141			55	%		8	%		5	%



(a)		Represents reported results on a tax-equivalent basis. The managed basis also assumes that credit card loans in Firm-sponsored credit card securitization trusts remained on the balance sheet for 2009. Firm-sponsored credit card securitizations were consolidated at their carrying values on January 1, 2010, under the new consolidation guidance related to VIEs.

(b)		In the second quarter of 2009, IB began reporting credit reimbursement from TSS as a component of total net revenue, whereas TSS continues to report its credit reimbursement to IB as a separate line item on its income statement (not part of total net revenue). Corporate/Private Equity includes an adjustment to offset IB’s inclusion of the credit reimbursement in total net revenue.

INVESTMENT BANK

For a discussion of the business profile of IB, see pages 55-57 of JPMorgan Chase’s 2009 Annual Report and page 5 of this Form 10-Q.


Selected income statement data	Three months ended March 31,
(in millions, except ratios)	2010			2009			Change

Revenue
Investment banking fees	$	1,446		$	1,380			5	%
Principal transactions		3,931			3,515			12
Lending- and deposit-related fees		202			138			46
Asset management, administration and commissions		563			692			(19	)
All other income^(a)		49			(56	)	NM

Noninterest revenue		6,191			5,669			9
Net interest income^(b)		2,128			2,702			(21	)

Total net revenue^(c)		8,319			8,371			(1	)

Provision for credit losses		(462	)		1,210		NM

Noninterest expense
Compensation expense		2,928			3,330			(12	)
Noncompensation expense		1,910			1,444			32

Total noninterest expense		4,838			4,774			1

Income before income tax expense		3,943			2,387			65
Income tax expense		1,472			781			88

Net income	$	2,471		$	1,606			54


Financial ratios
ROE		25	%		20	%
ROA		1.48			0.89
Overhead ratio		58			57
Compensation expense as a percentage of total net revenue		35			40


Revenue by business
Investment banking fees:
Advisory	$	305		$	479			(36	)
Equity underwriting		413			308			34
Debt underwriting		728			593			23

Total investment banking fees		1,446			1,380			5
Fixed income markets		5,464			4,889			12
Equity markets		1,462			1,773			(18	)
Credit portfolio^(a)		(53	)		329		NM

Total net revenue	$	8,319		$	8,371			(1	)


Revenue by region^(a)
Americas	$	4,562		$	4,316			6
Europe/Middle East/Africa		2,814			3,073			(8	)
Asia/Pacific		943			982			(4	)

Total net revenue	$	8,319		$	8,371			(1	)



(a)		TSS was charged a credit reimbursement related to certain exposures managed within IB credit portfolio on behalf of clients shared with TSS. IB recognizes this credit reimbursement in its credit portfolio business in all other income.

(b)		The decrease in net interest income in the first quarter was primarily due to lower loan balances and lower Prime Services spreads.

(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 $403 million and $365 million for the quarters ended March 31, 2010 and 2009, respectively.

Quarterly results

Net income was $2.5 billion, an increase of $865 million from the prior year. These results reflected strong net revenue, particularly in Fixed Income Markets, and a benefit from the provision for credit losses.

Net revenue was $8.3 billion, compared with $8.4 billion in the prior year. Investment banking fees increased by 5% to $1.4 billion, consisting of debt underwriting fees of $728 million (up 23%), equity underwriting fees of $413 million (up 34%), and advisory fees of $305 million (down 36%). Fixed Income Markets revenue was $5.5 billion, compared with $4.9 billion in the prior year, reflecting strong results across most products. Equity Markets revenue was $1.5 billion, compared with $1.8 billion in the prior year, reflecting solid client revenue and strong trading results. Credit Portfolio revenue was a loss of $53 million.

The provision for credit losses was a benefit of $462 million, compared with an expense of $1.2 billion in the prior year. The current-quarter provision reflected lower loan balances, driven by repayments and loan sales. The allowance for loan losses to end-of-period loans retained was 4.9%, compared with 7.0% in the prior year. The decline in the allowance ratio was due largely to the high credit quality of the retained loans that were consolidated as assets of the Firm-administered multi-seller conduits in accordance with new consolidation guidance related to VIEs, effective January 1, 2010. Net charge-offs were $697 million, compared with $36 million in the prior year. Nonperforming loans were $2.7 billion, down by $763 million from last quarter, and up by $946 million from the prior year.

Noninterest expense was $4.8 billion, flat to the prior year, as lower performance-based compensation expense was largely offset by increased litigation reserves, including those for mortgage-related matters.


Selected metrics	Three months ended March 31,
(in millions, except headcount and ratios)	2010			2009			Change

Selected balance sheet data (period-end)
Loans^(a):
Loans retained^(b)	$	53,010		$	66,506			(20	)%
Loans held-for-sale and loans at fair value		3,594			10,993			(67	)

Total loans		56,604			77,499			(27	)
Equity		40,000			33,000			21

Selected balance sheet data (average)
Total assets	$	676,122		$	733,166			(8	)
Trading assets — debt and equity instruments		284,085			272,998			4
Trading assets — derivative receivables		66,151			125,021			(47	)
Loans^(a):
Loans retained^(b)		58,501			70,041			(16	)
Loans held-for-sale and loans at fair value		3,150			12,402			(75	)

Total loans		61,651			82,443			(25	)
Adjusted assets^(c)		506,635			589,163			(14	)
Equity		40,000			33,000			21

Headcount		24,977			26,142			(4	)

Credit data and quality statistics
Net charge-offs	$	697		$	36		NM
Nonperforming assets:
Nonperforming loans:
Nonperforming loans retained^(b)(d)		2,459			1,738			41
Nonperforming loans held-for-sale and loans at fair value		282			57			395

Total nonperforming loans		2,741			1,795			53
Derivative receivables		363			1,010			(64	)
Assets acquired in loan satisfactions		185			236			(22	)

Total nonperforming assets		3,289			3,041			8
Allowance for credit losses:
Allowance for loan losses		2,601			4,682			(44	)
Allowance for lending-related commitments		482			295			63

Total allowance for credit losses		3,083			4,977			(38	)
Net charge-off rate^(b)(e)		4.83	%		0.21	%
Allowance for loan losses to period-end loans retained^(b)(e)		4.91			7.04
Allowance for loan losses to average loans retained^(b)(e)		4.45			6.68
Allowance for loan losses to nonperforming loans retained^(b)(d)(e)		106			269
Nonperforming loans to total period-end loans		4.84			2.32
Nonperforming loans to total average loans		4.45			2.18
Market risk—average trading and credit portfolio VaR — 95% confidence level
Trading activities:
Fixed income	$	69		$	158			(56	)
Foreign exchange		13			23			(43	)
Equities		24			97			(75	)
Commodities and other		15			20			(25	)
Diversification^(f)		(49	)		(108	)		55

Total trading VaR^(g)		72			190			(62	)
Credit portfolio VaR^(h)		19			86			(78	)
Diversification^(f)		(9	)		(63	)		86

Total trading and credit portfolio VaR	$	82		$	213			(62	)



(a)		Effective January 1, 2010, the Firm adopted new consolidation guidance related to VIEs. Upon adoption of the new guidance, the Firm consolidated its Firm-administered multi-seller conduits. As a result, $15.1 billion of related loans were recorded in loans on the Consolidated Balance Sheets.

(b)		Loans retained include credit portfolio loans, leveraged leases and other accrual loans, and exclude loans held-for-sale and loans accounted for at fair value.

(c)		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 VIEs; (3) cash and securities segregated and on deposit for regulatory and other purposes; (4) goodwill and intangibles; (5) securities received as collateral; and (6) investments purchased under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (“AML Facility”). The amount of adjusted assets is presented to assist the reader in comparing IB’s asset and capital levels to other investment banks in the securities industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a company’s capital adequacy. IB believes an


		adjusted asset amount that excludes the assets discussed above, which were considered to have a low risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry.

(d)		Allowance for loan losses of $811 million and $767 million were held against these nonperforming loans at March 31, 2010 and 2009, respectively.

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

(f)		Average VaR was less than the sum of the VaRs of the components described above, which is due to portfolio diversification. The diversification effect reflects the fact that the risks were not perfectly correlated. The risk of a portfolio of positions is therefore usually less than the sum of the risks of the positions themselves. For a further discussion of VaR, see pages 81-83 of this Form 10-Q. The risk of a portfolio of positions is usually less than the sum of the risks of the positions themselves.

(g)		Trading VaR includes predominantly all trading activities in IB, as well as syndicated lending facilities that the Firm intends to distribute; however, particular risk parameters of certain products are not fully captured, for example, correlation risk. Trading VaR does not include the debit valuation adjustments (“DVA”) taken on derivative and structured liabilities to reflect the credit quality of the Firm. See VaR discussion on pages 81-83 and the DVA Sensitivity table on page 84 of this Form 10-Q for further details. Trading VaR includes the estimated credit spread sensitivity of certain mortgage products.

(h)		Includes VaR on derivative credit valuation adjustments (“CVA”), hedges of the CVA and mark-to-market (“MTM”) hedges of the retained loan portfolio, which were all reported in principal transactions revenue. This VaR does not include the retained loan portfolio.

According to Dealogic, for the first three months of 2010, the Firm was ranked #1 in Global Debt, Equity and Equity-Related; #1 in Global Equity and Equity-Related; #3 in Global Long-Term Debt; #1 in Global Syndicated Loans and #5 in Global Announced M&A based on volume.

According to Dealogic, the Firm was ranked #1 in Investment Banking fees generated for the first three months of 2010, based on revenue.


	Three months ended March 31, 2010					Full-year 2009
Market shares and rankings^(a)	Market Share			Rankings		Market Share			Rankings

Global investment banking fees^(b)		8	%		#1		9	%		#1
Global debt, equity and equity-related		7			1		9			1
Global syndicated loans		9			1		8			1
Global long-term debt^(c)		7			3		8			1
Global equity and equity-related^(d)		9			1		12			1
Global announced M&A^(e)		18			5		25			3
U.S. debt, equity and equity-related		12			2		15			1
U.S. syndicated loans		21			1		22			1
U.S. long-term debt^(c)		11			2		14			1
U.S. equity and equity-related^(d)		20			1		16			2
U.S. announced M&A^(e)		29			3		37			2


(a)		Source: Dealogic. Global Investment Banking fees reflects fee rank and share. Remainder of rankings reflect volume rank and share.

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

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

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

(e)		Global announced M&A is based on value at announcement; all other rankings are based on proceeds, with full credit to each book manager/equal if joint. Because of joint assignments, market share of all participants will add up to more than 100%. M&A for the first quarter of 2010 and full-year 2009 reflects the removal of any withdrawn transactions. U.S. announced M&A represents any U.S. involvement ranking.

RETAIL FINANCIAL SERVICES

Retail Financial Services (“RFS”) serves consumers and businesses through personal service at bank branches and through ATMs, online banking and telephone banking, as well as through auto dealerships and school financial-aid offices. Customers can use more than 5,100 bank branches (third-largest nationally) and 15,500 ATMs (second-largest nationally), as well as online and mobile banking around the clock. More than 25,300 branch salespeople assist customers with checking and savings accounts, mortgages, home equity and business loans, and investments across the 23-state footprint from New York and Florida to California. Consumers also can obtain loans through more than 15,800 auto dealerships and 2,200 schools and universities nationwide. Prior to January 1, 2010, RFS was reported as: Retail Banking and Consumer Lending. Commencing January 1, 2010, RFS is presenting Consumer Lending for reporting purposes as: (1) Mortgage Banking & Other Consumer Lending, and (2) Real Estate Portfolios. Mortgage Banking & Other Consumer Lending comprises mortgage production and servicing, auto finance, and student and other lending activities. Real Estate Portfolios comprises residential mortgages and home equity loans, including the purchased credit-impaired portfolio acquired in the Washington Mutual transaction. This change is intended solely to provide further clarity around the Real Estate Portfolios. Retail Banking, which includes branch banking and business banking activities, is not affected by these reporting revisions.


Selected income statement data	Three months ended March 31,
(in millions, except ratios)	2010			2009			Change

Revenue
Lending- and deposit-related fees	$	841		$	948			(11	)%
Asset management, administration and commissions		452			435			4
Mortgage fees and related income		655			1,633			(60	)
Credit card income		450			367			23
Other income		354			214			65

Noninterest revenue		2,752			3,597			(23	)
Net interest income		5,024			5,238			(4	)

Total net revenue		7,776			8,835			(12	)

Provision for credit losses		3,733			3,877			(4	)

Noninterest expense
Compensation expense		1,770			1,631			9
Noncompensation expense		2,402			2,457			(2	)
Amortization of intangibles		70			83			(16	)

Total noninterest expense		4,242			4,171			2

Income/(loss) before income tax expense/(benefit)		(199	)		787		NM
Income tax expense/(benefit)		(68	)		313		NM

Net income/(loss)	$	(131	)	$	474		NM


Financial ratios
ROE		(2	)%		8	%
Overhead ratio		55			47
Overhead ratio excluding core deposit intangibles^(a)		54			46


(a)		Retail Financial Services uses the overhead ratio (excluding the amortization of core deposit intangibles (“CDI”)), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation would result in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would therefore result in an improving overhead ratio over time, all things remaining equal. The non-GAAP ratio excludes Retail Banking’s CDI amortization expense related to prior business combination transactions of $70 million and $83 million for the quarters ended March 31, 2010 and 2009, respectively.

Quarterly results

Retail Financial Services reported a net loss of $131 million, compared with net income of $474 million in the prior year.

Net revenue was $7.8 billion, a decrease of $1.1 billion, or 12%, from the prior year. Net interest income was $5.0 billion, down by $214 million, or 4%, reflecting the impact of lower loan and deposit balances, partially offset by a shift to wider-spread deposit products. Noninterest revenue was $2.8 billion, down by $845 million, or 23%, driven by lower mortgage fees and related income.

The provision for credit losses was $3.7 billion, a decrease of $144 million from the prior year. Economic pressure on consumers continued to drive losses for the mortgage and home equity portfolios. The provision included an addition of $1.2 billion to the allowance for loan losses for further estimated deterioration in the Washington Mutual purchased credit-impaired portfolio. The prior-year provision included an addition to the allowance for loan losses of $1.7 billion. Home equity net charge-offs were $1.1 billion (4.59% net charge-off rate), compared with $1.1 billion (3.93% net charge-off rate) in the prior year. Subprime mortgage net charge-offs were $457 million (13.43% net charge-off rate), compared with $364 million (9.91% net charge-off rate) in the prior year. Prime mortgage net charge-offs were $459 million (3.10% net charge-off rate), compared with $312 million (1.95% net charge-off rate) in the prior year.

Noninterest expense was $4.2 billion, an increase of $71 million, or 2%, from the prior year.


Selected metrics	Three months ended March 31,
(in millions, except headcount and ratios)	2010			2009			Change

Selected balance sheet data (period-end)
Assets	$	382,475		$	412,505			(7	)%
Loans:
Loans retained		339,002			364,220			(7	)
Loans held-for-sale and loans at fair value^(a)		11,296			12,529			(10	)

Total loans		350,298			376,749			(7	)
Deposits		362,470			380,140			(5	)
Equity		28,000			25,000			12

Selected balance sheet data (average)
Assets	$	393,867		$	423,472			(7	)
Loans:
Loans retained		342,997			366,925			(7	)
Loans held-for-sale and loans at fair value^(a)		17,055			16,526			3

Total loans		360,052			383,451			(6	)
Deposits		356,934			370,278			(4	)
Equity		28,000			25,000			12

Headcount		112,616			100,677			12

Credit data and quality statistics
Net charge-offs	$	2,438		$	2,176			12
Nonperforming loans:
Nonperforming loans retained		10,769			7,714			40
Nonperforming loans held-for-sale and loans at fair value		217			264			(18	)

Total nonperforming loans^(b)(c)(d)		10,986			7,978			38
Nonperforming assets^(b)(c)(d)		12,191			9,846			24
Allowance for loan losses		16,200			10,619			53

Net charge-off rate^(e)		2.88	%		2.41	%
Net charge-off rate excluding purchased credit-impaired loans^(e)(f)		3.76			3.16
Allowance for loan losses to ending loans retained^(e)		4.78			2.92
Allowance for loan losses to ending loans retained excluding purchased credit-impaired loans^(e)(f)		5.16			3.84
Allowance for loan losses to nonperforming loans retained^(b)(e)(f)		124			138
Nonperforming loans to total loans		3.14			2.12
Nonperforming loans to total loans excluding purchased credit-impaired loans^(b)		4.05			2.76


(a)		Loans at fair value consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. These loans totaled $8.4 billion and $8.9 billion at March 31, 2010 and 2009, respectively. Average balances of these loans totaled $14.2 billion and $13.4 billion for the quarters ended March 31, 2010 and 2009, respectively.

(b)		Excludes purchased credit-impaired loans that were acquired as part of the Washington Mutual transaction. These loans are accounted for on a pool basis, and the pools are considered to be performing.

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

(d)		At March 31, 2010 and 2009, nonperforming loans and assets exclude: (1) mortgage loans insured by U.S. government agencies of $10.5 billion and $4.2 billion, respectively; (2) real estate owned insured by U.S. government agencies of $707 million and $433 million, respectively; and (3) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program, of $581 million and $433 million, respectively. These amounts are excluded as reimbursement is proceeding normally.

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

(f)		Excludes the impact of purchased credit-impaired loans that were acquired as part of the Washington Mutual transaction. These loans were accounted for at fair value on the acquisition date, which incorporated management’s estimate, as of that date, of credit losses over the remaining life of the portfolio. An allowance for loan losses of $2.8 billion was recorded for these loans at March 31, 2010, which has also been excluded from applicable ratios. No allowance for loan losses was recorded for these loans at March 31, 2009. To date, no charge-offs have been recorded for these loans.

RETAIL BANKING


Selected income statement data	Three months ended March 31,
(in millions, except ratios)	2010			2009			Change

Noninterest revenue	$	1,702		$	1,718			(1	)%
Net interest income		2,635			2,614			1

Total net revenue		4,337			4,332			—
Provision for credit losses		191			325			(41	)
Noninterest expense		2,577			2,580			—

Income before income tax expense		1,569			1,427			10
Net income	$	898		$	863			4

Overhead ratio		59	%		60	%
Overhead ratio excluding core deposit intangibles^(a)		58			58


(a)		Retail Banking uses the overhead ratio (excluding the amortization of CDI), a non-GAAP financial measure, to evaluate the underlying expense trends of the business. Including CDI amortization expense in the overhead ratio calculation would result in a higher overhead ratio in the earlier years and a lower overhead ratio in later years; this method would therefore result in an improving overhead ratio over time, all things remaining equal. The non-GAAP ratio excludes Retail Banking’s CDI amortization expense related to prior business combination transactions of $70 million and $83 million for the quarters ended March 31, 2010 and 2009, respectively.

Quarterly results

Retail Banking reported net income of $898 million, an increase of $35 million, or 4%, compared with the prior year.

Net revenue was $4.3 billion, flat compared with the prior year. Net interest income benefited from a shift to wider-spread deposit products, largely offset by a decline in time deposit balances. The decrease in noninterest revenue was driven by declining deposit-related fees, predominantly offset by an increase in debit card income.

The provision for credit losses was $191 million, compared with $325 million in the prior year. The prior-year provision reflected a $150 million increase in the allowance for loan losses for Business Banking.

Noninterest expense was $2.6 billion, flat compared with the prior year, as efficiencies from the Washington Mutual integration offset increases in sales force and new branch builds.


Selected metrics	Three months ended March 31,
(in billions, except ratios and where otherwise noted)	2010			2009			Change

Business metrics

Business banking origination volume	$	0.9		$	0.5			96	%
End-of-period loans owned		16.8			18.2			(8	)
End-of-period deposits:
Checking	$	123.8		$	113.9			9
Savings		163.4			152.4			7
Time and other		53.2			86.5			(38	)

Total end-of-period deposits		340.4			352.8			(4	)
Average loans owned	$	16.9		$	18.4			(8	)
Average deposits:
Checking	$	119.7		$	109.4			9
Savings		158.6			148.2			7
Time and other		55.6			88.2			(37	)

Total average deposits		333.9			345.8			(3	)
Deposit margin		3.02	%		2.85	%
Average assets	$	28.9		$	30.2			(4	)


Credit data and quality statistics (in millions, except ratio)
Net charge-offs	$	191		$	175			9
Net charge-off rate		4.58	%		3.86	%
Nonperforming assets	$	872		$	579			51


Retail branch business metrics
Investment sales volume (in millions)	$	5,956		$	4,398			35

Number of:
Branches		5,155			5,186			(1	)
ATMs		15,549			14,159			10
Personal bankers		19,003			15,544			22
Sales specialists		6,315			5,454			16
Active online customers (in thousands)		16,208			12,882			26
Checking accounts (in thousands)		25,830			24,984			3

MORTGAGE BANKING & OTHER CONSUMER LENDING


Selected income statement data	Three months ended March 31,
(in millions, except ratio)	2010			2009			Change

Noninterest revenue^(a)	$	1,018		$	1,921			(47	)%
Net interest income		893			808			11

Total net revenue		1,911			2,729			(30	)
Provision for credit losses		217			405			(46	)
Noninterest expense		1,246			1,137			10

Income before income tax expense		448			1,187			(62	)

Net income^(a)	$	257		$	730			(65	)
Overhead ratio		65	%		42	%


(a)		Losses related to the repurchase of previously-sold loans are recorded as a reduction of production revenue. These losses totaled $432 million and $220 million for the quarters ended March 31, 2010 and 2009, respectively. The losses resulted in a negative impact on net income of $252 million and $135 million for the quarters ended March 31, 2010 and 2009, respectively. For further discussion, see Repurchase Liability on pages 47-48 and Note 22 on pages 149-152 of this Form 10-Q, and Note 31 on pages 230-234 of JPMorgan Chase’s 2009 Annual Report.

Quarterly results

Mortgage Banking & Other Consumer Lending reported net income of $257 million, compared with $730 million in the prior year. The decrease was driven by lower noninterest revenue and higher noninterest expense, partially offset by the lower provision for credit losses.

Net revenue was $1.9 billion, down by $818 million, or 30%, from the prior year. The decline was driven by lower mortgage fees and related income, partially offset by an increase in net interest income, reflecting the impact of higher auto loan balances and wider auto loan spreads. Mortgage fees and related income decreased due to lower MSR risk management results and lower mortgage production revenue, partially offset by higher mortgage operating income. MSR risk management results were $152 million, compared with $1.0 billion in the prior year. Mortgage production revenue was $1 million, compared with $481 million in the prior year, as a result of an increase in losses from the repurchase of

previously-sold loans, a decline in new originations and narrower spreads. Mortgage operating revenue, which represents loan servicing revenue net of other changes in fair value of the MSR asset, was $502 million, up by $353 million. The increase was driven by other changes in the fair value of the MSR asset, partially offset by lower servicing revenue as a result of lower third-party loans serviced.

The provision for credit losses, predominantly related to the auto and student loan portfolios, was $217 million, compared with $405 million in the prior year. The prior-year provision reflected a $150 million increase in the allowance for loan losses for student loans.

Noninterest expense was $1.2 billion, up by $109 million, or 10%, from the prior year, driven by default-related expense, partially offset by a decrease in mortgage insurance expense.


Selected metrics	Three months ended March 31,
(in billions, except ratios and where otherwise noted)	2010			2009			Change

Business metrics
End-of-period loans owned:
Auto loans	$	47.4		$	43.1			10	%
Mortgage^(a)		13.7			8.8			56
Student loans and other		17.4			17.4			—

Total end-of-period loans owned		78.5			69.3			13

Average loans owned:
Auto loans	$	46.9		$	42.5			10
Mortgage^(a)		12.5			7.4			69
Student loans and other		18.4			17.6			5

Total average loans owned^(b)		77.8			67.5			15

Credit data and quality statistics (in millions, except ratios)
Net charge-offs:
Auto loans	$	102		$	174			(41	)
Mortgage		6			5			20
Student loans and other		64			34			88

Total net charge-offs		172			213			(19	)

Net charge-off rate:
Auto loans		0.88	%		1.66	%
Mortgage		0.20			0.29
Student loans and other		1.64			0.92
Total net charge-off rate^(b)		0.93			1.34


30+ day delinquency rate^(c)(d)		1.47	%		1.56	%
Nonperforming assets (in millions)^(e)	$	1,006		$	830			21


Origination volume:
Mortgage origination volume by channel
Retail	$	11.4		$	13.6			(16	)%
Wholesale^(f)		0.4			1.6			(75	)
Correspondent^(f)		16.0			18.0			(11	)
CNT (negotiated transactions)		3.9			4.5			(13	)

Total mortgage origination volume		31.7			37.7			(16	)

Student loans	$	1.6		$	1.7			(6	)
Auto		6.3			5.6			13


Selected metrics	Three months ended March 31,
(in billions, except ratios and where otherwise noted)	2010			2009			Change

Application volume:
Mortgage application volume by channel
Retail	$	20.3		$	32.7			(38	)%
Wholesale^(f)		0.8			1.8			(56	)
Correspondent^(f)		18.2			29.2			(38	)

Total mortgage application volume	$	39.3		$	63.7			(38	)

Average mortgage loans held-for-sale and loans at fair value^(g):	$	14.5		$	14.0			4
Average assets		124.8			113.4			10
Third-party mortgage loans serviced (ending)		1,075.0			1,148.8			(6	)
Third-party mortgage loans serviced (average)		1,076.4			1,155.0			(7	)
MSR net carrying value (ending)		15.5			10.6			46
Ratio of MSR net carrying value (ending) to third-party mortgage loans serviced (ending)		1.44	%		0.92	%

Supplemental mortgage fees and related income details (in millions)

Production revenue:	$	1		$	481			(100	)

Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue		1,107			1,222			(9	)
Other changes in MSR asset fair value		(605	)		(1,073	)		44

Total operating revenue		502			149			237
Risk management:
Changes in MSR asset fair value due to inputs or assumptions in model		(96	)		1,310		NM
Derivative valuation adjustments and other		248			(307	)	NM

Total risk management		152			1,003			(85	)

Total net mortgage servicing revenue		654			1,152			(43	)

Mortgage fees and related income	$	655		$	1,633			(60	)

Ratio of annualized loan servicing revenue to third-party mortgage loans serviced (average)		0.42	%		0.43	%
MSR revenue multiple^(h)		3.43	x		2.14	x


(a)		Predominantly represents prime loans repurchased from Government National Mortgage Association (“Ginnie Mae”) pools, which are insured by U.S. government agencies.

(b)		Total average loans owned includes loans held-for-sale of $2.9 billion and $3.1 billion for the quarters ended March 31, 2010 and 2009, respectively. These amounts are excluded when calculating the net charge-off rate.

(c)		Excludes mortgage loans that are insured by U.S. government agencies of $11.2 billion and $4.9 billion at March 31, 2010 and 2009, respectively. These amounts are excluded as reimbursement is proceeding normally.

(d)		Excludes loans that are 30 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program, of $1.0 billion and $770 million at March 31, 2010 and 2009, respectively. These amounts are excluded as reimbursement is proceeding normally.

(e)		At March 31, 2010 and 2009, nonperforming loans and assets exclude: (1) mortgage loans insured by U.S. government agencies of $10.5 billion and $4.2 billion, respectively; (2) real estate owned insured by U.S. government agencies of $707 million and $433 million, respectively; and (3) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program, of $581 million and $433 million, respectively. These amounts are excluded as reimbursement is proceeding normally.

(f)		Includes rural housing loans sourced through brokers and correspondents, which are underwritten under U.S. Department of Agriculture guidelines. Prior period amounts have been revised to conform with the current period presentation.

(g)		Loans at fair value consist of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. Average balances of these loans totaled $14.2 billion and $13.4 billion for the quarters ended March 31, 2010 and 2009, respectively.

(h)		Represents the ratio of MSR net carrying value (ending) to third-party mortgage loans serviced (ending) divided by the ratio of annualized loan servicing revenue to third-party mortgage loans serviced (average). The increase is driven by higher expected future servicing cash flows resulting from lower assumed prepayments.

REAL ESTATE PORTFOLIOS


Selected income statement data	Three months ended March 31,
(in millions, except ratios)	2010			2009			Change

Noninterest revenue	$	32		$	(42	)	NM
Net interest income		1,496			1,816			(18	)%

Total net revenue		1,528			1,774			(14	)

Provision for credit losses		3,325			3,147			6
Noninterest expense		419			454			(8	)
Income/(loss) before income tax expense/(benefit)		(2,216	)		(1,827	)		(21	)

Net income/(loss)	$	(1,286	)	$	(1,119	)		(15	)


Overhead ratio		27	%		26	%

Quarterly results

Real Estate Portfolios reported a net loss of $1.3 billion, compared with a net loss of $1.1 billion in the prior year. The deterioration was driven by lower net revenue and the higher provision for credit losses, partially offset by lower noninterest expense.

Net revenue was $1.5 billion, down by $246 million, or 14%, from the prior year. The decrease was predominantly driven by a decline in net interest income as a result of lower loan balances, reflecting portfolio run-off, as well as narrower loan spreads.

The provision for credit losses was $3.3 billion, compared with $3.1 billion in the prior year. The current-quarter provision reflected an addition of $1.2 billion to the allowance for loan losses for further estimated deterioration in the Washington Mutual prime and option ARM purchased credit-impaired pools. The prior-year provision was driven by an addition of $1.4 billion to the allowance for loan losses. (For further detail, see RFS discussion of the provision for credit losses above on page 23 of this Form 10-Q.)

Noninterest expense was $419 million, down by $35 million, or 8%, from the prior year, reflecting lower foreclosed asset expense.


Selected metrics	Three months ended March 31,
(in billions)	2010		2009		Change

Loans excluding purchased credit-impaired loans^(a)
End-of-period loans owned:
Home equity	$	97.7	$	111.7		(13	)%
Prime mortgage		46.8		56.6		(17	)
Subprime mortgage		13.2		14.6		(10	)
Option ARMs		8.6		9.0		(4	)
Other		1.0		0.9		11

Total end-of-period loans owned	$	167.3	$	192.8		(13	)


Average loans owned:
Home equity	$	99.5	$	113.4		(12	)
Prime mortgage		47.9		58.0		(17	)
Subprime mortgage		13.8		14.9		(7	)
Option ARMs		8.7		8.8		(1	)
Other		1.1		0.9		22

Total average loans owned	$	171.0	$	196.0		(13	)


Purchased credit-impaired loans^(a)
End-of-period loans owned:
Home equity	$	26.0	$	28.4		(8	)
Prime mortgage		19.2		21.4		(10	)
Subprime mortgage		5.8		6.6		(12	)
Option ARMs		28.3		31.2		(9	)

Total end-of-period loans owned	$	79.3	$	87.6		(9	)


Average loans owned:
Home equity	$	26.2	$	28.4		(8	)
Prime mortgage		19.5		21.6		(10	)
Subprime mortgage		5.9		6.7		(12	)
Option ARMs		28.6		31.4		(9	)

Total average loans owned	$	80.2	$	88.1		(9	)


Total Real Estate Portfolios
End-of-period loans owned:
Home equity	$	123.7	$	140.1		(12	)
Prime mortgage		66.0		78.0		(15	)
Subprime mortgage		19.0		21.2		(10	)
Option ARMs		36.9		40.2		(8	)
Other		1.0		0.9		11

Total end-of-period loans owned	$	246.6	$	280.4		(12	)

Average loans owned:
Home equity	$	125.7	$	141.8		(11	)
Prime mortgage		67.4		79.6		(15	)
Subprime mortgage		19.7		21.6		(9	)
Option ARMs		37.3		40.2		(7	)
Other		1.1		0.9		22

Total average loans owned	$	251.2	$	284.1		(12	)

Average assets	$	240.2	$	279.9		(14	)
Home equity origination volume		0.3		0.9		(67	)


(a)		Purchased credit-impaired loans represent loans acquired in the Washington Mutual transaction for which a deterioration in credit quality occurred between the origination date and JPMorgan Chase’s acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loan as long as cash flows are reasonably estimable, even if the underlying loans are contractually past due.

Included within Real Estate Portfolios are purchased credit-impaired loans that the Firm acquired in the Washington Mutual transaction. For purchased credit-impaired loans, the excess of the undiscounted gross cash flows initially expected to be collected over the fair value of the loans at the acquisition date is accreted into interest income at a level rate of return over the expected life of the loans. This is commonly referred to as the “accretable yield.” The estimate of gross cash flows expected to be collected is updated each reporting period based on updated assumptions. Probable decreases in expected loan principal cash flows require recognition of an allowance for loan losses; probable and significant increases in expected cash flows would first reverse any previously recorded allowance for loan losses with any remaining increases recognized over time through interest income.

The net spread between the purchased credit-impaired loans and the related liabilities should be relatively constant over time, except for any basis risk or other residual interest rate risk that remains and changes in the accretable yield percentage (e.g., extended loan liquidation periods). As of March 31, 2010, the weighted-average life of the portfolio is expected to be 6.6 years. For further information, see Note 13, Purchased credit-impaired loans, on page 129 of this Form 10-Q. The loan balances are expected to decline more rapidly in the earlier years as the most troubled loans are liquidated, and more slowly thereafter as the remaining troubled borrowers have limited refinancing opportunities. Similarly, default and servicing expenses are expected to be higher in the earlier years and decline over time as liquidations slow down.

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


Credit data and quality statistics	Three months ended March 31,
(in millions, except ratios)	2010			2009			Change

Net charge-offs excluding purchased credit-impaired loans^(a):
Home equity	$	1,126		$	1,098			3	%
Prime mortgage		453			307			48
Subprime mortgage		457			364			26
Option ARMs		23			4			475
Other		16			15			7

Total net charge-offs	$	2,075		$	1,788			16

Net charge-off rate excluding purchased credit-impaired loans^(a):
Home equity		4.59	%		3.93	%
Prime mortgage		3.84			2.15
Subprime mortgage		13.43			9.91
Option ARMs		1.07			0.18
Other		5.90			6.76
Total net charge-off rate excluding purchased credit-impaired loans		4.92			3.70

Net charge-off rate — reported:
Home equity		3.63	%		3.14	%
Prime mortgage		2.73			1.56
Subprime mortgage		9.41			6.83
Option ARMs		0.25			0.04
Other		5.90			6.76
Total net charge-off rate — reported		3.35			2.55

30+ day delinquency rate excluding purchased credit-impaired loans^(b)		7.28	%		5.87	%
Allowance for loan losses	$	14,127		$	8,870			59
Nonperforming assets^(c)		10,313			8,437			22
Allowance for loan losses to ending loans retained		5.73	%		3.16	%
Allowance for loan losses to ending loans retained excluding purchased credit-impaired loans^(a)		6.76			4.60


(a)		Excludes the impact of purchased credit-impaired loans that were acquired as part of the Washington Mutual transaction. These loans were accounted for at fair value on the acquisition date, which incorporated management’s estimate, as of that date, of credit losses over the remaining life of the portfolio. An allowance for loan losses of $2.8 billion was recorded for these loans at March 31, 2010, which has also been excluded from applicable ratios. No allowance for loan losses was recorded for these loans at March 31, 2009. To date, no charge-offs have been recorded for these loans.

(b)		The delinquency rate for purchased credit-impaired loans was 28.49% and 21.36% at March 31, 2010 and 2009, respectively.

(c)		Excludes purchased credit-impaired loans that were acquired as part of the Washington Mutual transaction. These loans are accounted for on a pool basis, and the pools are considered to be performing.

CARD SERVICES

For a discussion of the business profile of CS, see pages 64-66 of JPMorgan Chase’s 2009 Annual Report and Introduction on page 6 of this Form 10-Q.

Effective January 1, 2010, the Firm adopted new consolidation guidance related to VIEs. Prior to the adoption of the new guidance JPMorgan Chase used the concept of “managed basis” to evaluate the credit performance of its credit card loans, both loans on the balance sheet and loans that had been securitized. For further information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14-16 of this Form 10-Q. Managed results excluded the impact of credit card securitizations on total net revenue, the provision for credit losses, net charge-offs and loan receivables. Securitization did not change reported net income; however, it did affect the classification of items on the Consolidated Statements of Income and Consolidated Balance Sheets. As a result of the consolidation of the securitization trusts, reported and managed basis are comparable for periods beginning after January 1, 2010.


Selected income statement data-managed basis^(a)	Three months ended March 31,
(in millions, except ratios)	2010			2009			Change

Revenue
Credit card income	$	813		$	844			(4	)%
All other income		(55	)		(197	)		72

Noninterest revenue		758			647			17
Net interest income		3,689			4,482			(18	)

Total net revenue		4,447			5,129			(13	)

Provision for credit losses		3,512			4,653			(25	)
Noninterest expense
Compensation expense		330			357			(8	)
Noncompensation expense		949			850			12
Amortization of intangibles		123			139			(12	)

Total noninterest expense		1,402			1,346			4


Income/(loss) before income tax expense/(benefit)		(467	)		(870	)		46
Income tax expense/(benefit)		(164	)		(323	)		49

Net income/(loss)	$	(303	)	$	(547	)		45


Memo: Net securitization income/(loss)	NA			$	(180	)	NM

Financial ratios^(a)
ROE		(8	)%		(15	)%
Overhead ratio		32			26


(a)		Effective January 1, 2010, the Firm adopted new consolidation guidance related to VIEs. Upon adoption, the Firm recorded a net increase in U.S. GAAP assets of $60.9 billion on the Consolidated Balance Sheets, which comprised: $84.7 billion of loans; $7.4 billion of allowance for loan losses; $4.4 billion of other assets, offset partially by $20.8 billion of previously recognized assets, consisting primarily of retained available-for-sale (“AFS”) securities, which were eliminated upon consolidation.

Quarterly results

Card Services reported a net loss of $303 million, compared with a net loss of $547 million in the prior year. The improved results were driven by the lower provision for credit losses, partially offset by lower net revenue.

End-of-period managed loans were $149.3 billion, a decrease of $26.9 billion, or 15%, from the prior year. Average managed loans were $155.8 billion, a decrease of $27.6 billion, or 15%, from the prior year.

Managed net revenue was $4.4 billion, a decrease of $682 million, or 13%, from the prior year. Net interest income was $3.7 billion, down by $793 million, or 18%. The decrease was driven by lower average managed loan balances (including run-off from the Washington Mutual portfolio), the impact of legislative changes, and a decreased level of fees, partially offset by wider loan spreads. Noninterest revenue was $758 million, an increase of $111 million, or 17%. The increase was driven by a prior-year write-down of securitization interests, partially offset by run-off from the Washington Mutual portfolio.

The managed provision for credit losses was $3.5 billion, compared with $4.7 billion in the prior year. The decline in the provision for credit losses included a reduction of $1.0 billion to the allowance for loan losses, reflecting lower estimated losses (primarily related to improved delinquency trends) as well as lower levels of outstandings, partially offset by continued high levels of charge-offs. The prior-year provision included an addition of $1.2 billion to the allowance for loan losses. The managed net charge-off rate for the quarter was 11.75%, up from 7.72% in the prior year. The current-quarter net charge-off rate was negatively affected by approximately 60 basis points from a payment-holiday program

offered in the second quarter of 2009. The 30-day managed delinquency rate was 5.62%, down from 6.16% in the prior year. Excluding the impact of the Washington Mutual transaction, the managed net charge-off rate for the first quarter was 10.54%, and the 30-day delinquency rate was 4.99%.

Noninterest expense was $1.4 billion, an increase of $56 million, or 4%, due to higher marketing expense.

Credit Card Legislation

In May 2009, the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (“CARD Act”) was enacted. Management estimates that, as a result of continuing its phased implementation of the CARD Act during 2010, Card Services’ annual net income may be adversely affected by approximately $500 million to $750 million. This estimate is subject to change as certain components of the new legislation are finalized and implemented.

The most significant effects of the CARD Act include: (a) the inability to change the pricing of existing balances; (b) the allocation of customer payments above the minimum payment to the existing balance with the highest APR; (c) the requirement that customers opt-in in order to receive, for a fee, overlimit protection that permits an authorized transaction over their credit limit; and (d) the requirement that statements must be mailed or delivered not later than 21 days before the payment due date. In addition, certain rules have not yet been finalized, including those limiting the amount of penalty fees that can be assessed and those that would require Card Services to review customer accounts for potential interest rate reductions in certain circumstances.

As a result of the CARD Act, Card Services has implemented certain changes to its business practices to manage its inability to price loans to customers at rates that are commensurate with their risk over time. These changes include: (a) selectively increasing pricing; (b) reducing the volume and duration of low-rate promotional pricing offered to customers; and (c) reducing the amount of credit that is granted to certain new and existing customers.


Selected metrics	Three months ended March 31,
(in millions, except headcount, ratios and where otherwise noted)	2010			2009			Change

Financial ratios^(a)
Percentage of average outstandings:
Net interest income		9.60	%		9.91	%
Provision for credit losses		9.14			10.29
Noninterest revenue		1.97			1.43
Risk adjusted margin^(b)		2.43			1.05
Noninterest expense		3.65			2.98
Pretax income/(loss) (ROO)^(c)		(1.22	)		(1.92	)
Net income/(loss)		(0.79	)		(1.21	)

Business metrics
Sales volume (in billions)	$	69.4		$	66.6			4	%
New accounts opened (in millions)		2.5			2.2			14
Open accounts (in millions)		88.9			105.7			(16	)

Merchant acquiring business
Bank card volume (in billions)	$	108.0		$	94.4			14
Total transactions (in billions)		4.7			4.1			15

Selected balance sheet data (period-end)
Loans:
Loans on balance sheets	$	149,260		$	90,911			64
Securitized loans^(a)	NA				85,220		NM

Total loans	$	149,260		$	176,131			(15	)

Equity	$	15,000		$	15,000			—

Selected balance sheet data (average)
Managed assets	$	156,968		$	201,200			(22	)
Loans:
Loans on balance sheets	$	155,790		$	97,783			59
Securitized loans^(a)	NA				85,619		NM

Total average loans	$	155,790		$	183,402			(15	)

Equity	$	15,000		$	15,000			—

Headcount		22,478			23,759			(5	)


Selected metrics	Three months ended March 31,
(in millions, except ratios)	2010			2009			Change

Credit quality statistics^(a)
Net charge-offs	$	4,512		$	3,493			29	%
Net charge-off rate^(d)		11.75	%		7.72	%
Delinquency rates^(a)
30+ day		5.62	%		6.16	%
90+ day		3.15			3.22

Allowance for loan losses^(a)(e)	$	16,032		$	8,849			81
Allowance for loan losses to period-end loans^(a)(e)		10.74	%		9.73	%

Key stats — Washington Mutual only
Loans	$	17,204		$	25,908			(34	)
Average loans		18,607			27,578			(33	)
Net interest income^(f)		15.06	%		16.45	%
Risk adjusted margin^(b)(f)		2.47			4.42
Net charge-off rate^(g)		24.14			14.57
30+ day delinquency rate		10.49			10.89
90+ day delinquency rate		6.32			5.79

Key stats — excluding Washington Mutual
Loans	$	132,056		$	150,223			(12	)
Average loans		137,183			155,824			(12	)
Net interest income^(f)		8.86	%		8.75	%
Risk adjusted margin^(b)(f)		2.43			0.46
Net charge-off rate		10.54			6.86
30+ day delinquency rate		4.99			5.34
90+ day delinquency rate		2.74			2.78


(a)		Effective January 1, 2010, the Firm adopted new consolidation guidance related to VIEs. Upon adoption, the Firm recorded a net increase in U.S. GAAP assets of $60.9 billion on the Consolidated Balance Sheets, which comprised: $84.7 billion of loans; $7.4 billion of allowance for loan losses; $4.4 billion of other assets, offset partially by $20.8 billion of previously recognized assets, consisting primarily of retained available-for-sale (“AFS”) securities, which were eliminated upon consolidation.

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

(c)		Pretax return on average managed outstandings.

(d)		Results reflect the impact of purchase accounting adjustments related to the Washington Mutual transaction and the consolidation of the Washington Mutual Master Trust in the second quarter of 2009.

(e)		Based on loans on the Consolidated Balance Sheets.

(f)		As a percentage of average managed outstandings.

(g)		Excludes the impact of purchase accounting adjustments related to the Washington Mutual transaction and the consolidation of the Washington Mutual Master Trust in the second quarter of 2009.

NA: Not applicable.

Reconciliation from reported basis to managed basis

The financial information presented below reconciles reported basis and managed basis to disclose the effect of securitizations.


	Three months ended March 31,
(in millions)	2010			2009			Change

Income statement data
Credit card income
Reported	$	813		$	1,384			(41	)%
Securitization adjustments^(a)	NA				(540	)	NM

Managed credit card income	$	813		$	844			(4	)


Net interest income
Reported		3,689		$	2,478			49
Securitization adjustments^(a)	NA				2,004		NM

Managed net interest income	$	3,689		$	4,482			(18	)


Total net revenue
Reported	$	4,447		$	3,665			21
Securitization adjustments^(a)	NA				1,464		NM

Managed total net revenue	$	4,447		$	5,129			(13	)


Provision for credit losses
Reported	$	3,512		$	3,189			10
Securitization adjustments^(a)	NA				1,464		NM

Managed provision for credit losses	$	3,512		$	4,653			(25	)


Balance sheet — average balances
Total average assets
Reported	$	156,968		$	118,418			33
Securitization adjustments^(a)	NA				82,782		NM

Managed average assets	$	156,968		$	201,200			(22	)


Credit quality statistics
Net charge-offs
Reported	$	4,512		$	2,029			122
Securitization adjustments^(a)	NA				1,464		NM

Managed net charge-offs	$	4,512		$	3,493			29


Net charge-off rates
Reported		11.75	%		8.42	%
Securitized^(a)	NA				6.93
Managed net charge-off rate		11.75			7.72


(a)		Effective January 1, 2010, the Firm adopted new consolidation guidance related to VIEs. Prior to the adoption of the new guidance JPMorgan Chase used the concept of “managed basis” to evaluate the credit performance and overall performance of the underlying credit card loans, both sold and not sold; as the same borrower continues to use the credit card for ongoing charges, a borrower’s credit performance affects both the securitized loans and the loans retained on the Consolidated Balance Sheets. Thus, in its 2009 disclosures regarding managed receivables, JPMorgan Chase treated the sold receivables as if they were still on the balance sheet in order to disclose the credit performance (such as net charge-off rates) of the entire managed credit card portfolio. Managed results excluded the impact of credit card securitizations on total net revenue, the provision for credit losses, net charge-offs and loan receivables. Securitization did not change reported net income versus managed earnings; however, it did affect the classification of items on the Consolidated Statements of Income and Consolidated Balance Sheets. For further information, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures on pages 14-16 of this Form 10-Q.

COMMERCIAL BANKING

For a discussion of the business profile of CB, see pages 67-68 of JPMorgan Chase’s 2009 Annual Report and Introduction on page 6 of this Form 10-Q.


Selected income statement data	Three months ended March 31,
(in millions, except ratios)	2010			2009			Change

Revenue:
Lending- and deposit-related fees	$	277		$	263			5	%
Asset management, administration and commissions		37			34			9
All other income^(a)		186			125			49

Noninterest revenue		500			422			18
Net interest income		916			980			(7	)

Total net revenue		1,416			1,402			1

Provision for credit losses		214			293			(27	)

Noninterest expense
Compensation expense		206			200			3
Noncompensation expense		324			342			(5	)
Amortization of intangibles		9			11			(18	)

Total noninterest expense		539			553			(3	)

Income before income tax expense		663			556			19
Income tax expense		273			218			25

Net income	$	390		$	338			15


Revenue by product:
Lending	$	658		$	665			(1	)
Treasury services		638			646			(1	)
Investment banking		105			73			44
Other		15			18			(17	)

Total Commercial Banking revenue	$	1,416		$	1,402			1

IB revenue, gross^(b)	$	311		$	206			51

Revenue by client segment:
Middle Market Banking	$	746		$	752			(1	)
Commercial Term Lending		229			228			—
Mid-Corporate Banking		263			242			9
Real Estate Banking		100			120			(17	)
Other		78			60			30

Total Commercial Banking revenue	$	1,416		$	1,402			1


Financial ratios
ROE		20	%		17	%
Overhead ratio		38			39


(a)		Revenue from investment banking products sold to CB clients and commercial card revenue is included in all other income.

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

Quarterly results

Net income was $390 million, an increase of $52 million, or 15%, from the prior year. The increase was driven by a decrease in the provision for credit losses, lower noninterest expense and higher net revenue.

Net revenue was $1.4 billion, up by $14 million, or 1%, compared with the prior year. Net interest income was $916 million, down by $64 million, or 7%, driven by spread compression on liability products and lower loan balances, largely offset by overall growth in liability balances and wider loan spreads. Noninterest revenue was $500 million, an increase of $78 million, or 18%, reflecting higher lending-related and investment banking fees.

Revenue from Middle Market Banking was $746 million, a decrease of $6 million, or 1%, from the prior year. Revenue from Commercial Term Lending was $229 million, an increase of $1 million. Revenue from Mid-Corporate Banking was $263 million, an increase of $21 million, or 9%. Revenue from Real Estate Banking was $100 million, a decrease of $20 million, or 17%.

The provision for credit losses was $214 million, compared with $293 million in the prior year. Net charge-offs were $229 million (0.96% net charge-off rate), compared with $134 million (0.48% net charge-off rate) in the prior year, driven by continued weakness in commercial real estate. The allowance for loan losses to end-of-period loans retained was 3.15%, up from 2.65% in the prior year. Nonperforming loans were $3.0 billion, up by $1.5 billion from the prior year reflecting increases in each client segment.

Noninterest expense was $539 million, a decrease of $14 million, or 3%, compared with the prior year, reflecting lower headcount-related expense, lower volume-related expense and lower FDIC insurance premiums, largely offset by higher performance-based compensation.


Selected metrics	Three months ended March 31,
(in millions, except headcount and ratios)	2010			2009			Change

Selected balance sheet data (period-end):
Loans:
Loans retained	$	95,435		$	110,923			(14	)%
Loans held-for-sale and loans at fair value		294			272			8

Total loans		95,729			111,195			(14	)
Equity		8,000			8,000			—

Selected balance sheet data (average):
Total assets	$	133,013		$	144,298			(8	)
Loans:
Loans retained		96,317			113,568			(15	)
Loans held-for-sale and loans at fair value		297			297			—

Total loans		96,614			113,865			(15	)
Liability balances^(a)		133,142			114,975			16
Equity		8,000			8,000			—

Average loans by client segment:
Middle Market Banking	$	33,919		$	40,728			(17	)
Commercial Term Lending		36,057			36,814			(2	)
Mid-Corporate Banking		12,258			18,416			(33	)
Real Estate Banking		10,438			13,264			(21	)
Other		3,942			4,643			(15	)

Total Commercial Banking loans	$	96,614		$	113,865			(15	)

Headcount		4,701			4,545			3

Credit data and quality statistics:
Net charge-offs	$	229		$	134			71
Nonperforming loans:
Nonperforming loans retained^(b)		2,947			1,531			92
Nonperforming loans held-for-sale and loans at fair value		49			—		NM

Total nonperforming loans		2,996			1,531			96
Nonperforming assets		3,186			1,651			93
Allowance for credit losses:
Allowance for loan losses		3,007			2,945			2
Allowance for lending-related commitments		359			240			50

Total allowance for credit losses		3,366			3,185			6

Net charge-off rate		0.96	%		0.48	%
Allowance for loan losses to period-end loans retained		3.15			2.65
Allowance for loan losses to average loans retained		3.12			2.59
Allowance for loan losses to nonperforming loans retained		102			192
Nonperforming loans to total period-end loans		3.13			1.38
Nonperforming loans to total average loans		3.10			1.34


(a)		Liability balances include deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased, time deposits and securities loaned or sold under repurchase agreements) as part of customer cash management programs.

(b)		Allowance for loan losses of $612 million and $352 million were held against nonperforming loans retained at March 31, 2010 and 2009, respectively.

TREASURY & SECURITIES SERVICES

For a discussion of the business profile of TSS, see pages 69-70 of JPMorgan Chase’s 2009 Annual Report and Introduction on page 6 of this Form 10-Q.


Selected income statement data	Three months ended March 31,
(in millions, except headcount and ratios)	2010			2009			Change

Revenue
Lending- and deposit-related fees	$	311		$	325			(4	)%
Asset management, administration and commissions		659			626			5
All other income		176			197			(11	)

Noninterest revenue		1,146			1,148			—
Net interest income		610			673			(9	)

Total net revenue		1,756			1,821			(4	)

Provision for credit losses		(39	)		(6	)	NM
Credit reimbursement to IB^(a)		(30	)		(30	)		—

Noninterest expense
Compensation expense		657			629			4
Noncompensation expense		650			671			(3	)
Amortization of intangibles		18			19			(5	)

Total noninterest expense		1,325			1,319			—

Income before income tax expense		440			478			(8	)
Income tax expense		161			170			(5	)

Net income	$	279		$	308			(9	)


Revenue by business
Treasury Services	$	882		$	931			(5	)
Worldwide Securities Services		874			890			(2	)

Total net revenue	$	1,756		$	1,821			(4	)

Financial ratios
ROE		17	%		25	%
Overhead ratio		75			72
Pretax margin ratio^(b)		25			26

Selected balance sheet data (period-end)
Loans^(c)	$	24,066		$	18,529			30
Equity		6,500			5,000			30

Selected balance sheet data (average)
Total assets	$	38,273		$	38,682			(1	)
Loans^(c)		19,578			20,140			(3	)
Liability balances^(d)		247,905			276,486			(10	)
Equity		6,500			5,000			30

Headcount		27,223			26,998			1


(a)		IB credit portfolio group manages certain exposures on behalf of clients shared with TSS. TSS reimburses IB for a portion of the total cost of managing the credit portfolio. IB recognizes this credit reimbursement as a component of noninterest revenue.

(b)		Pretax margin represents income before income tax expense divided by total net revenue, which is a measure of pretax performance and another basis by which management evaluates its performance and that of its competitors.

(c)		Loan balances include wholesale overdrafts, commercial card and trade finance loans.

(d)		Liability balances include deposits, as well as deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds purchased, time deposits and securities loaned or sold under repurchase agreements) as part of customer cash management programs.

Quarterly results

Net income was $279 million, a decrease of $29 million, or 9%, from the prior year. The results reflected lower net revenue and a benefit from the provision for credit losses.

Net revenue was $1.8 billion, a decrease of $65 million, or 4% from the prior year. Worldwide Securities Services net revenue was $874 million, a decrease of $16 million, or 2%. The decrease reflected lower spreads in securities lending, lower liability balances, and the impact of lower volatility on foreign exchange, partially offset by the effects of higher market levels and net inflows on assets under custody. Treasury Services net revenue was $882 million, a decrease of

$49 million, or 5%. The decrease reflected lower deposit spreads, partially offset by higher trade loan and card product volumes.

TSS generated firmwide net revenue of $2.5 billion, including $1.6 billion by Treasury Services; of that amount, $882 million was recorded in Treasury Services, $638 million was recorded in Commercial Banking and $56 million was recorded in other lines of business. The remaining $874 million of net revenue was recorded in Worldwide Securities Services.

The provision for credit losses was a benefit of $39 million, up $33 million from the prior year.

Noninterest expense was $1.3 billion, flat compared with the prior year.


Selected metrics	Three months ended March 31,
(in millions, except ratios and where otherwise noted)	2010			2009			Change

TSS firmwide disclosures
Treasury Services revenue — reported	$	882		$	931			(5	)%
Treasury Services revenue reported in CB		638			646			(1	)
Treasury Services revenue reported in other lines of business		56			62			(10	)

Treasury Services firmwide revenue^(a)		1,576			1,639			(4	)
Worldwide Securities Services revenue		874			890			(2	)

Treasury & Securities Services firmwide revenue^(a)	$	2,450		$	2,529			(3	)

Treasury Services firmwide liability balances (average)^(b)	$	305,105		$	289,645			5
Treasury & Securities Services firmwide liability balances (average)^(b)		381,047			391,461			(3	)

TSS firmwide financial ratios
Treasury Services firmwide overhead ratio^(c)		55	%		53	%
Treasury & Securities Services firmwide overhead ratio^(c)		65			63

Firmwide business metrics
Assets under custody (in billions)	$	15,283		$	13,532			13

Number of:
U.S.$ ACH transactions originated (in millions)		949			978			(3	)
Total U.S.$ clearing volume (in thousands)		28,669			27,186			5
International electronic funds transfer volume (in thousands)^(d)		55,754			44,365			26
Wholesale check volume (in millions)		478			568			(16	)
Wholesale cards issued (in thousands)^(e)		27,352			23,757			15


Credit data and quality statistics
Net charge-offs	$	—		$	2		NM
Nonperforming loans		14			30			(53	)
Allowance for credit losses:
Allowance for loan losses		57			51			12
Allowance for lending-related commitments		76			77			(1	)

Total allowance for credit losses		133			128			4

Net charge-off rate		—	%		0.04	%
Allowance for loan losses to period-end loans		0.24			0.28
Allowance for loan losses to average loans		0.29			0.25
Allowance for loan losses to nonperforming loans		407			170
Nonperforming loans to period-end loans		0.06			0.16
Nonperforming loans to average loans		0.07			0.15


(a)		TSS firmwide revenue includes foreign exchange (“FX”) revenue recorded in TSS and FX revenue associated with TSS customers who are FX customers of IB. However, some of the FX revenue associated with TSS customers who are FX customers of IB is not included in TS and TSS firmwide revenue. These amounts were $137 million and $154 million for the three months ended March 31, 2010 and 2009, respectively.

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

(c)		Overhead ratios have been calculated based on firmwide revenue and TSS and TS expense, respectively, including those allocated to certain other lines of business. FX revenue and expense recorded in IB for TSS-related FX activity are not included in this ratio.

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

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

ASSET MANAGEMENT

For a discussion of the business profile of AM, see pages 71-73 of JPMorgan Chase’s 2009 Annual Report and Introduction on page 6 of this Form 10-Q.


Selected income statement data	Three months ended March 31,
(in millions, except ratios)	2010			2009			Change

Revenue:
Asset management, administration and commissions	$	1,508		$	1,231			23	%
All other income		266			69			286

Noninterest revenue		1,774			1,300			36
Net interest income		357			403			(11	)

Total net revenue		2,131			1,703			25

Provision for credit losses		35			33			6

Noninterest expense:
Compensation expense		910			800			14
Noncompensation expense		514			479			7
Amortization of intangibles		18			19			(5	)

Total noninterest expense		1,442			1,298			11

Income before income tax expense		654			372			76
Income tax expense		262			148			77

Net income	$	392		$	224			75


Revenue by client segment
Private Bank	$	698		$	583			20
Institutional		566			460			23
Retail		415			253			64
Private Wealth Management		343			312			10
JPMorgan Securities^(a)		109			95			15

Total net revenue	$	2,131		$	1,703			25

Financial ratios
ROE		24	%		13	%
Overhead ratio		68			76
Pretax margin ratio^(b)		31			22


(a)		JPMorgan Securities was formerly known as Bear Stearns Private Client Services prior to January 1, 2010.

(b)		Pretax margin represents income before income tax expense divided by total net revenue, which is a measure of pretax performance and another basis by which management evaluates its performance and that of its competitors.

Quarterly results

Net income was $392 million, an increase of $168 million, or 75%, from the prior year. These results reflected higher net revenue offset partially by higher noninterest expense.

Net revenue was $2.1 billion, an increase of $428 million, or 25%, from the prior year. Noninterest revenue was $1.8 billion, up by $474 million, or 36%, due to the effect of higher market levels, higher placement fees, net inflows to products with higher margins, and higher performance fees. Net interest income was $357 million, down by $46 million, or 11%, primarily due to narrower deposit spreads.

Revenue from the Private Bank was $698 million, up 20% from the prior year. Revenue from Institutional was $566 million, up 23%. Revenue from Retail was $415 million, up 64%. Revenue from Private Wealth Management was $343 million, up 10%. Revenue from JPMorgan Securities was $109 million, up 15%.

The provision for credit losses was $35 million, an increase of $2 million from the prior year.

Noninterest expense was $1.4 billion, an increase of $144 million, or 11%, from the prior year, reflecting higher performance-based compensation and higher headcount-related expense.


Business metrics
(in millions, except headcount, ratios and	Three months ended March 31,
ranking data, and where otherwise noted)	2010			2009			Change

Number of:
Client advisors		1,987			1,872			6	%
Retirement planning services participants (in thousands)		1,651			1,628			1
JPMorgan Securities brokers^(a)		390			359			9

% of customer assets in 4 & 5 Star Funds^(b)		43	%		42	%		2
% of AUM in 1^st and 2^nd quartiles:^(c)
1 year		55	%		54	%		2
3 years		67	%		62	%		8
5 years		77	%		66	%		17

Selected balance sheet data (period-end)
Loans	$	37,088		$	33,944			9
Equity		6,500			7,000			(7	)

Selected balance sheet data (average)
Total assets	$	62,525		$	58,227			7
Loans		36,602			34,585			6
Deposits		80,662			81,749			(1	)
Equity		6,500			7,000			(7	)

Headcount		15,321			15,109			1

Credit data and quality statistics
Net charge-offs	$	28		$	19			47
Nonperforming loans		475			301			58
Allowance for credit losses:
Allowance for loan losses		261			215			21
Allowance for lending-related commitments		13			4			225

Total allowance for credit losses		274			219			25

Net charge-off rate		0.31	%		0.22	%
Allowance for loan losses to period-end loans		0.70			0.63
Allowance for loan losses to average loans		0.71			0.62
Allowance for loan losses to nonperforming loans		55			71
Nonperforming loans to period-end loans		1.28			0.89
Nonperforming loans to average loans		1.30			0.87


(a)		JPMorgan Securities was formerly known as Bear Stearns Private Client Services prior to January 1, 2010.

(b)		Derived from Morningstar for the United States, the United Kingdom, Luxembourg, France, Hong Kong and Taiwan; and Nomura for Japan.

(c)		Quartile rankings sourced from Lipper for the United States and Taiwan; Morningstar for the United Kingdom, Luxembourg, France and Hong Kong; and Nomura for Japan.

Assets under supervision

Assets under supervision were $1.7 trillion, an increase of $243 billion, or 17%, from the prior year. Assets under management were $1.2 trillion, an increase of $104 billion, or 9%. The increases were due to the effect of higher market levels and inflows in fixed income and equity products offset largely by outflows in liquidity products. Custody, brokerage, administration and deposit balances were $488 billion, up by $139 billion, or 40%, due to the effect of higher market levels on custody and brokerage balances, and custody inflows in the Private Bank.


ASSETS UNDER SUPERVISION^(a) (in billions)
As of March 31,	2010		2009

Assets by asset class
Liquidity	$	521	$	625
Fixed income		246		180
Equities and multi-asset		355		215
Alternatives		97		95

Total assets under management		1,219		1,115
Custody/brokerage/administration/deposits		488		349

Total assets under supervision	$	1,707	$	1,464


Assets by client segment

Institutional	$	669	$	668
Private Bank		184		181
Retail		282		184
Private Wealth Management		70		68
JPMorgan Securities^(b)		14		14

Total assets under management	$	1,219	$	1,115


Institutional	$	670	$	669
Private Bank		476		375
Retail		371		250
Private Wealth Management		133		120
JPMorgan Securities^(b)		57		50

Total assets under supervision	$	1,707	$	1,464


Assets by geographic region
U.S./Canada	$	815	$	789
International		404		326

Total assets under management	$	1,219	$	1,115

U.S./Canada	$	1,189	$	1,066
International		518		398

Total assets under supervision	$	1,707	$	1,464


Mutual fund assets by asset class
Liquidity	$	470	$	570
Fixed income		76		42
Equities		150		85
Alternatives		9		8

Total mutual fund assets	$	705	$	705


(a)		Excludes assets under management of American Century Companies, Inc., in which the Firm had a 42% ownership at both March 31, 2010 and 2009.

(b)		JPMorgan Securities was formerly known as Bear Stearns Private Client Services prior to January 1, 2010.


Assets under management rollforward	Three months ended March 31,
(in billions)	2010			2009

Beginning balance	$	1,249		$	1,133
Net asset flows:
Liquidity		(62	)		19
Fixed income		16			1
Equities, multi-asset and alternatives		6			(5	)
Market/performance/other impacts		10			(33	)

Total assets under management	$	1,219		$	1,115


Assets under supervision rollforward

Beginning balance	$	1,701		$	1,496
Net asset flows		(10	)		25
Market/performance/other impacts		16			(57	)

Total assets under supervision	$	1,707		$	1,464

CORPORATE / PRIVATE EQUITY

For a discussion of the business profile of Corporate/Private Equity, see pages 74-75 of JPMorgan Chase’s 2009 Annual Report.


Selected income statement data	Three months ended March 31,
(in millions, except headcount)	2010			2009			Change

Revenue
Principal transactions	$	547		$	(1,493	)	NM
Securities gains		610			214			185	%
All other income		124			(19	)	NM

Noninterest revenue		1,281			(1,298	)	NM
Net interest income		1,076			989			9

Total net revenue		2,357			(309	)	NM

Provision for credit losses		17			—		NM

Noninterest expense
Compensation expense		475			641			(26	)
Noncompensation expense^(a)		3,041			345		NM
Merger costs		—			205		NM

Subtotal		3,516			1,191			195
Net expense allocated to other businesses		(1,180	)		(1,279	)		8

Total noninterest expense		2,336			(88	)	NM

Income/(loss) before income tax expense/(benefit)		4			(221	)	NM
Income tax expense/(benefit)^(b)		(224	)		41		NM

Net income/(loss)	$	228		$	(262	)	NM


Total net revenue
Private equity	$	115		$	(449	)	NM
Corporate		2,242			140		NM

Total net revenue	$	2,357		$	(309	)	NM


Net income/(loss)
Private equity	$	55		$	(280	)	NM
Corporate^(c)		173			18		NM

Total net income/(loss)	$	228		$	(262	)	NM

Headcount		19,307			22,339			(14	)


(a)		The first quarter of 2010 includes a $2.3 billion increase reflecting increased litigation reserves, including those for mortgage-related matters.

(b)		The income tax benefit in the first quarter of 2010 includes tax benefits recognized upon the resolution of tax audits.

(c)		The 2009 period included merger costs and extraordinary gain related to the Washington Mutual transaction, as well as items related to the Bear Stearns merger, including merger costs, asset management liquidation costs and Bear Stearns Private Client Services (which was renamed to JPMorgan Securities effective January 1, 2010) broker retention expense.

Quarterly results

Net income was $228 million, compared with a net loss of $262 million in the prior year.

Private Equity reported net income of $55 million, compared with a net loss of $280 million in the prior year. Net revenue was $115 million, an increase of $564 million, reflecting private equity gains of $136 million due primarily to more favorable market conditions and underlying performance on certain portfolio investments compared with losses of $462 million. Noninterest expense was $30 million, an increase of $41 million.

Corporate net income was $173 million, compared with $18 million in the prior year. Net revenue was $2.2 billion, reflecting continued elevated levels of net interest income and trading and securities gains from the investment portfolio. Noninterest expense reflected an increase of $2.3 billion for litigation reserves, including those for mortgage-related matters.


Treasury and Chief Investment Office (“CIO”)
Selected income statement and balance sheet data	Three months ended March 31,
(in millions)	2010		2009		Change

Securities gains^(a)	$	610	$	214		185	%
Investment securities portfolio (average)		330,584		265,785		24
Investment securities portfolio (ending)		337,442		316,498		7
Mortgage loans (average)		8,162		7,210		13
Mortgage loans (ending)		8,368		7,162		17


(a)		Reflects repositioning of the Corporate investment securities portfolio and excludes gains/losses on securities used to manage risk associated with MSRs.

For further information on the investment portfolio, see Note 3 and Note 11 on pages 96-107 and 120-124, respectively, of this Form 10-Q. For further information on CIO VaR and the Firm’s earnings-at-risk, see the Market Risk Management section on pages 81-84 of this Form 10-Q.


Private Equity
Selected income statement and balance sheet data	Three months ended March 31,
(in millions)	2010			2009			Change

Private equity gains/(losses)
Realized gains	$	113		$	15		NM
Unrealized gains/(losses)^(a)		(75	)		(409	)		82	%

Total direct investments		38			(394	)	NM
Third-party fund investments		98			(68	)	NM

Total private equity gains/(losses)^(b)	$	136		$	(462	)	NM

Private equity portfolio information^(c)


Direct investments	March 31, 2010		December 31, 2009		Change

Publicly held securities
Carrying value	$	890	$	762		17	%
Cost		793		743		7
Quoted public value		982		791		24

Privately held direct securities
Carrying value		4,782		5,104		(6	)
Cost		5,795		5,959		(3	)

Third-party fund investments^(d)
Carrying value		1,603		1,459		10
Cost		2,134		2,079		3

Total private equity portfolio — Carrying value	$	7,275	$	7,325		(1	)
Total private equity portfolio — Cost	$	8,722	$	8,781		(1	)


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

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

(c)		For more information on the Firm’s policies regarding the valuation of the private equity portfolio, see Note 3 on pages 96-107 of this Form 10-Q.

(d)		Unfunded commitments to third-party equity funds were $1.4 billion and $1.5 billion at March 31, 2010, and December 31, 2009, respectively.

The carrying value of the private equity portfolio at both March 31, 2010, and December 31, 2009, was $7.3 billion. During the first quarter, the decline in the portfolio from realized gains and distributions and net unrealized losses on markdowns was primarily offset by unrealized gains on third party fund investments. The portfolio represented 6.3% of the Firm’s stockholders’ equity less goodwill at both March 31, 2010, and December 31, 2009.

BALANCE SHEET ANALYSIS


Selected Consolidated Balance Sheets data (in millions)	March 31, 2010			December 31, 2009

Assets
Cash and due from banks	$	31,422		$	26,206
Deposits with banks		59,014			63,230
Federal funds sold and securities purchased under resale agreements		230,123			195,404
Securities borrowed		126,741			119,630
Trading assets:
Debt and equity instruments		346,712			330,918
Derivative receivables		79,416			80,210
Securities		344,376			360,390
Loans		713,799			633,458
Allowance for loan losses		(38,186	)		(31,602	)

Loans, net of allowance for loan losses		675,613			601,856
Accrued interest and accounts receivable		53,991			67,427
Premises and equipment		11,123			11,118
Goodwill		48,359			48,357
Mortgage servicing rights		15,531			15,531
Other intangible assets		4,383			4,621
Other assets		108,992			107,091

Total assets	$	2,135,796		$	2,031,989


Liabilities
Deposits	$	925,303		$	938,367
Federal funds purchased and securities loaned or sold under repurchase agreements		295,171			261,413
Commercial paper		50,554			41,794
Other borrowed funds		48,981			55,740
Trading liabilities:
Debt and equity instruments		78,228			64,946
Derivative payables		62,741			60,125
Accounts payable and other liabilities		154,185			162,696
Beneficial interests issued by consolidated VIEs		93,055			15,225
Long-term debt		262,857			266,318

Total liabilities		1,971,075			1,866,624
Stockholders’ equity		164,721			165,365

Total liabilities and stockholders’ equity	$	2,135,796		$	2,031,989

Consolidated Balance Sheets overview

The following is a discussion of the significant changes in the Consolidated Balance Sheets from December 31, 2009. For a description of the specific line captions discussed below, see pages 76-78 of JPMorgan Chase’s 2009 Annual Report.

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

The slight decrease in deposits with banks primarily reflected lower interbank lending. The increase in securities purchased under resale agreements was largely due to higher financing volume in IB, resulting from increased client flows offset partially by reduced activity in Corporate Treasury due to tightening of financing spreads. The increase in securities borrowed was primarily driven by the need to cover trading liabilities in IB. For additional information on the Firm’s Liquidity Risk Management, see pages 52-55 of this Form 10-Q.

Trading assets and liabilities – debt and equity instruments

The increase in trading assets — debt and equity instruments primarily reflected favorable developments in financial markets, which provided support for improving stock markets, asset prices and credit spreads, as well as an increase in business activity in markets outside of the United States, partially offset by sales of debt securities. The increase in trading liabilities — debt and equity instruments also reflected favorable developments in financial markets, as well as an increase in business activity in markets outside of the United States. For additional information, refer to Note 3 on pages 96-107 of this Form 10-Q.

Trading assets and liabilities – derivative receivables and payables

The changes in derivative receivables and payables was primarily due to the effect of lower levels of foreign exchange-rate volatility and tightening credit spreads, partially offset by a decline in interest rate swap rates. For additional information,

refer to Derivative contracts on pages 63-65, and Note 3 and Note 5 on pages 96-107 and 110-116, respectively, of this Form 10-Q.

Securities

The decrease in securities was primarily due to the January 1, 2010, adoption of new consolidation guidance related to VIEs, which resulted in the elimination of retained AFS securities issued by Firm-sponsored credit card securitization trusts. For additional information related to securities, refer to the Corporate/Private Equity segment on pages 41-42, and Note 3 and Note 11 on pages 96-107 and 120-124, respectively, of this Form 10-Q.

Loans and allowance for loan losses

The increase in loans was due to the adoption of new consolidation guidance, which resulted in the consolidation of Firm-sponsored credit card securitization trusts, Firm-administered multi-seller conduits and certain other consumer securitization entities primarily mortgage-related. Excluding the effect of this adoption, loans decreased driven by the seasonal decline in credit card receivables, continued run-off of the residential real estate portfolios, and repayments and loan sales predominantly in IB.

The allowance for loan losses increased by $6.6 billion, due to the addition of $7.5 billion primarily related to the receivables held in Firm-sponsored credit card securitization trusts that were consolidated on January 1, 2010. Excluding the effect of this adoption, the allowance decreased as a result of a $1.2 billion reduction in the wholesale allowance, due predominantly to repayments and loan sales; and a $1.0 billion reduction in the consumer allowance, reflecting lower estimated losses on the credit card portfolio. These items were offset by an addition of $1.2 billion in the consumer allowance, due to further estimated deterioration in the Washington Mutual prime and option ARM purchased credit-impaired pools. For a more detailed discussion of the adoption, see Note 1 on pages 94-95 of this Form 10-Q. For a more detailed discussion of the loan portfolio and the allowance for loan losses, refer to Credit Portfolio on pages 56-81, and Notes 3, 4, 13 and 14 on pages 96-107, 108-109, 125-129 and 130-131, respectively, of this Form 10-Q.

Accrued interest and accounts receivable

The decrease in accrued interest and accounts receivable was due to the elimination of retained securitization interests upon the consolidation of Firm-sponsored credit card securitization trusts on January 1, 2010. For a more detailed discussion of the adoption, see Note 15 on pages 131-142 of this Form 10-Q.

Mortgage servicing rights

MSRs remained unchanged, as increases due to sales in RFS of originated loans for which servicing rights were retained were offset by decreases in the fair value of the MSR asset, related primarily to servicing portfolio run-off, as well as changes to inputs and assumptions in the MSR valuation model. For additional information on MSRs, see Note 16 on pages 144-145 of this Form 10-Q.

Other intangible assets

The decrease in other intangible assets primarily reflects amortization expense offset partially by foreign currency translation adjustments related to the Firm’s Canadian credit card operations. For additional information on other intangible assets, see Note 16 on pages 145-146 of this Form 10-Q.

Deposits

The decrease in deposits reflected normalization of TSS deposit levels from year-end inflows, offset partially by net inflows from existing customers and new business in CB, RFS and AM. For more information on deposits, refer to the RFS and AM segment discussions on pages 22-29 and 38-41, respectively; the Liquidity Risk Management discussion on pages 52-55; and Note 17 on page 146 of this Form 10-Q. For more information on wholesale liability balances, including deposits, refer to the CB and TSS segment discussions on pages 34-35 and 36-37, respectively, of this Form 10-Q.

Federal funds purchased and securities loaned or sold under repurchase agreements

The increase in securities sold under repurchase agreements was primarily to facilitate the increase in IB’s securities purchased under resale agreements. For additional information on the Firm’s Liquidity Risk Management, see pages 52-55 of this Form 10-Q.

Commercial paper and other borrowed funds

Commercial paper increased, primarily reflecting the Firm’s ongoing efforts to further build liquidity, and growth in the volume of liability balances in sweep accounts in connection with TSS’s cash management product, whereby clients’ excess funds are transferred into commercial paper overnight sweep accounts. Other borrowed funds decreased predominantly due to lower advances from Federal Home Loan Banks. For additional information on the Firm’s Liquidity Risk Management and other borrowed funds, see pages 52-55, and Note 18 on page 146 of this Form 10-Q.

Accounts payable and other liabilities

The decrease in accounts payable and other liabilities primarily reflected lower customer payables in IB’s Prime Services business as customers increased their investment activity, which reduced their credit balances.

Beneficial interests issued by consolidated VIEs

The increase in these interests was predominantly due to the adoption of new consolidation guidance related to VIEs. For additional information on Firm-administered VIEs and loan securitization trusts, see Note 15 on pages 131-142 of this Form 10-Q.

Long-term debt

The slight decrease in long-term debt was predominantly due to maturities and redemptions, partially offset by new issuances. For additional information on the Firm’s long-term debt activities, see the Liquidity Risk Management discussion on pages 52-55 of this Form 10-Q.

Stockholders’ equity

The decrease in total stockholders’ equity reflected, in part, the impact of the adoption of the new consolidation guidance related to VIEs. Adoption of the guidance resulted in a reduction in stockholders’ equity of $4.5 billion, driven by the establishment of an allowance for loan losses of $7.5 billion (pretax) primarily related to receivables held in credit card securitization trusts that were consolidated at the adoption date. Also contributing to the decrease were the purchase of the remaining interest in a consolidated subsidiary from noncontrolling shareholders and the declaration of cash dividends on preferred and common stocks. These factors were offset partially by net income for the first quarter of 2010; net issuances under the Firm’s employee stock-based compensation plans; a net increase in accumulated other comprehensive income, due primarily to the narrowing of spreads on commercial and nonagency residential mortgage-backed securities and collateralized loan obligations, and increased market values on pass-through agency residential mortgage-backed securities. For a more detailed discussion of the adoption, see Note 15 on pages 131-142 of this Form 10-Q. For a further discussion of stockholders’ equity, see the Capital Management section on pages 49-52, and Note 20 on pages 147-148 of this Form 10-Q.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS

JPMorgan Chase is involved with several types of off-balance sheet arrangements, including through special-purpose entities (“SPEs”), which are a type of variable interest entity, and through lending-related financial instruments (e.g., commitments and guarantees). For further discussion of contractual cash obligations, see Off-Balance Sheet Arrangements and Contractual Cash Obligations on pages 78-81 of JPMorgan Chase’s 2009 Annual Report.

Special-purpose entities

SPEs are the most common type of VIE, used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. As a result of new accounting guidance, certain VIEs were consolidated on to the Firm’s Consolidated Balance Sheets effective January 1, 2010. Nevertheless, SPEs continue to be an important part of the financial markets, including the mortgage- and asset-backed securities and commercial paper markets, as they provide market liquidity by facilitating investors’ access to specific portfolios of assets and risks. The Firm holds capital, as deemed appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments and guarantees. For further information on the Firm’s involvement with SPEs, see Note 1 on pages 94-95 and Note 15 on pages 131-142 of this Form 10-Q; and Note 1 on pages 142-143, Note 15 on pages 198-205 and Note 16 on pages 206-214 of JPMorgan Chase’s 2009 Annual Report.

The Firm has no commitments to issue its own stock to support any SPE transaction, and its policies require that transactions with SPEs be conducted at arm’s length and reflect market pricing. Consistent with this policy, no JPMorgan Chase employee is permitted to invest in SPEs with which the Firm is involved where such investment would violate the Firm’s Code of Conduct. These rules prohibit employees from self-dealing and acting on behalf of the Firm in transactions with which they or their family have any significant financial interest.

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

For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the short-term credit rating of JPMorgan Chase Bank, N.A., were downgraded below specific levels, primarily “P-1,” “A-1” and “F1” for Moody’s, Standard & Poor’s and Fitch, respectively. The amounts of these liquidity commitments, to both consolidated and nonconsolidated SPEs, were $32.7 billion and $34.2 billion at March 31, 2010, and December 31, 2009, respectively. Alternatively, if JPMorgan Chase Bank, N.A., were downgraded, the Firm could be replaced by another liquidity provider in lieu of providing funding under the liquidity commitment; or, in certain circumstances, the Firm could facilitate the sale or refinancing of the assets in the SPE in order to provide liquidity.

Special-purpose entities revenue

The following table summarizes certain revenue information related to consolidated and nonconsolidated VIEs with which the Firm has significant involvement. The revenue reported in the table below primarily represents contractual servicing and credit fee income (i.e., income from acting as administrator, structurer or liquidity provider). It does not include mark-to-market gains and losses from changes in the fair value of trading positions (such as derivative transactions) entered into with VIEs. Those gains and losses are recorded in principal transactions revenue.


Revenue from VIEs and Securitization Entities	Three months ended March 31,
(in millions)	2010		2009

Multi-seller conduits	$	67	$	120
Investor intermediation		13		6
Other securitization entities^(a)		544		637

Total	$	624	$	763


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

Loan modifications

The Firm modifies loans that it services, and that were sold to off-balance sheet SPEs, pursuant to the U.S. Treasury’s Making Home Affordable (“MHA”) programs and the Firm’s other loss mitigation programs. For both the Firm’s on-balance sheet loans and loans serviced for others, approximately 160,000 mortgage modifications had been offered to borrowers during the first quarter of 2010; and, more than 64,000 permanent mortgage modifications were approved during the quarter. The majority of the loans contractually modified to date were modified under the Firm’s other loss mitigation programs. See Consumer Credit Portfolio on pages 67-78 of this Form 10-Q for more details on these loan modifications.

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

JPMorgan Chase uses 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 should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and the counterparty subsequently fail to perform according to the terms of the contract. These commitments and guarantees often expire without being drawn, and even higher proportions expire without a default. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements. For further discussion of lending-related commitments and guarantees and the Firm’s accounting for them, see page 65 and Note 22 on pages 149-152 of this Form 10-Q; and page 105 and Note 31 on pages 230-234 of JPMorgan Chase’s 2009 Annual Report.

The following table presents, as of March 31, 2010, the amounts by contractual maturity of off-balance sheet lending-related financial instruments, guarantees and other commitments. The amounts in the table for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products would be utilized at the same time. The Firm can reduce or cancel these lines of credit by providing the borrower prior notice or, in some cases, without notice as permitted by law. The table excludes certain commitments and guarantees that do not have a contractual maturity date (e.g., loan sale and securitization-related indemnifications). For further discussion, see discussion of repurchase liability below and Note 22 on pages 149-152 of this Form 10-Q, and Note 31 on pages 230-234 of JPMorgan Chase’s 2009 Annual Report.

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


	March 31, 2010										Dec. 31, 2009
			Due after		Due after
			1 year		3 years
By remaining maturity	Due in 1		through		through		Due after
(in millions)	year or less		3 years		5 years		5 years		Total		Total

Lending-related
Consumer:
Home equity — senior lien	$	344	$	1,908	$	5,830	$	10,788	$	18,870	$	19,246
Home equity — junior lien		688		4,650		11,978		18,337		35,653		37,231
Prime mortgage		1,136		—		—		—		1,136		1,654
Subprime mortgage		—		—		—		—		—		—
Option ARMs		—		—		—		—		—		—
Auto loans		6,070		175		5		—		6,250		5,467
Credit card		556,207		—		—		—		556,207		569,113
All other loans		8,941		293		106		994		10,334		11,229

Total consumer	$	573,386	$	7,026	$	17,919	$	30,119	$	628,450	$	643,940

Wholesale:
Other unfunded commitments to extend credit^(a)(b)		63,914		104,584		19,128		4,627		192,253		192,145
Asset purchase agreements^(b)		—		—		—		—		—		22,685
Standby letters of credit and other financial guarantees^(a)(c)(d)		26,886		46,388		14,812		2,278		90,364		91,485
Unused advised lines of credit		33,782		4,993		100		202		39,077		35,673
Other letters of credit^(a)(d)		3,915		965		342		5		5,227		5,167

Total wholesale		128,497		156,930		34,382		7,112		326,921		347,155

Total lending-related	$	701,883	$	163,956	$	52,301	$	37,231	$	955,371	$	991,095

Other guarantees and commitments
Securities lending guarantees^(e)	$	171,529	$	—	$	—	$	—	$	171,529	$	170,777
Derivatives qualifying as guarantees^(f)		17,621		17,866		11,681		34,678		81,846		87,191
Equity investment commitments^(g)		1,423		9		13		955		2,400		2,374
Building purchase commitment^(h)		670		—		—		—		670		670


(a)		At March 31, 2010, and December 31, 2009, represents the contractual amount net of risk participations totaling $1.6 billion and $643 million, respectively, for other unfunded commitments to extend credit; $25.4 billion and $24.6 billion, respectively, for standby letters of credit and other financial guarantees; and $630 million and $690 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve Board these commitments are shown gross of risk participations.

(b)		Upon the adoption of the new consolidation guidance related to VIEs, $24.2 billion of lending-related commitments between the Firm and the Firm-administered multi-seller conduits were eliminated upon consolidation. The decrease in lending-related commitments was partially offset by the addition of $6.5 billion of unfunded commitments directly between the multi-seller conduits and clients. These unfunded commitments of the consolidated conduits are now included as off-balance sheet lending-related commitments of the Firm.

(c)		Includes unissued standby letters of credit commitments of $40.0 billion and $38.4 billion at March 31, 2010, and December 31, 2009, respectively.

(d)		At March 31, 2010, and December 31, 2009, JPMorgan Chase held collateral relating to $32.9 billion and $31.5 billion, respectively, of standby letters of credit; and $1.5 billion and $1.3 billion, respectively, of other letters of credit.

(e)		Collateral held by the Firm in support of securities lending indemnification agreements totaled $175.2 billion and $173.2 billion at March 31, 2010, and December 31, 2009, respectively. Securities lending collateral comprises primarily cash and securities issued by governments that are members of the Organisation for Economic Co-operation and Development (“OECD”) and U.S. government agencies.

(f)		Represents notional amounts of derivatives qualifying as guarantees.

(g)		Includes unfunded commitments to third-party private equity funds of $1.4 billion and $1.5 billion at March 31, 2010, and December 31, 2009, respectively. Also includes unfunded commitments for other equity investments of $980 million and $897 million at March 31, 2010, and December 31, 2009, respectively. These commitments include $1.4 billion and $1.5 billion at March 31,2010, and December 31, 2009, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3 on pages 96-107 of this Form 10-Q.

(h)		For further information refer to Building purchase commitment in Note 22 on page 152 of this Form 10-Q.

Repurchase liability

The Firm primarily conducts its loan sale and securitization activities with Fannie Mae and Freddie Mac (the “GSEs”). In connection with these and other securitization transactions, the Firm makes certain representations and warranties that the loans sold meet certain requirements (e.g., type of collateral, underwriting standards, lack of material false representation in connection with the loan, primary mortgage insurance is in force for any mortgage loan with a loan-to-value ratio (“LTV”) greater than 80%, use of the GSEs’ standard legal documentation). The Firm may be required to repurchase the loans and/or indemnify the GSEs or other purchasers against losses due to material breaches of these representations and warranties. For additional information about the Firm’s loan sale and securitization-related indemnifications, including a description of how the Firm estimates its repurchase liability, see Note 22 on pages 149-152 of this Form 10-Q, and Note 31 on pages 230-234 of JPMorgan Chase’s 2009 Annual Report.

The Firm also sells loans in securitization transactions with Ginnie Mae; these loans are typically insured by the Federal Housing Administration (“FHA”), Rural Housing Administration (“RHA”) and/or guaranteed by the U.S. Department of Veterans Affairs (“VA”). To date, the Firm’s repurchase liability in respect of Ginnie Mae loans has been de minimus.

Although the GSEs or other purchasers may demand repurchase at any time, the majority of repurchase demands occur in the first 24 to 36 months following origination of the mortgage loan. Currently, repurchase demands predominantly relate to the 2006 to 2008 vintages. To date, demands against the 2009 vintage have not been significant. The Firm attributes the comparatively favorable performance of the 2009 vintage to the tightened underwriting and loan qualification standards that were implemented in 2007 and 2008.

The repurchase liability is based on a number of variables, such as the Firm’s ability to accurately estimate probable future demands from purchasers, cure identified defects, accurately estimate loss severities and recover amounts from third parties. Estimating the repurchase liability is further complicated by limited and rapidly changing historical data and uncertainty surrounding numerous external factors, including: i) economic factors (e.g., further declines in home prices and changes in borrower behavior may lead to increases in the number of defaults, the severity of losses, or both), and ii) the level of future demands will be determined, in part, by actions taken by third parties, such as the GSEs and mortgage insurers. While the Firm uses the best information available to it in estimating its repurchase liability, the estimation process is inherently uncertain and requires the application of judgment. An assumed simultaneous 10% adverse change in each of the variables noted above would increase the repurchase liability as of March 31, 2010, by approximately $1.7 billion. This estimate is based upon a hypothetical scenario and is intended to provide an indication of the impact on the estimated repurchase liability of significant and simultaneous adverse changes in each of the key underlying assumptions. Actual changes in these assumptions may not occur at the same time or to the same degree, or improvement in one factor may offset deterioration in another.

The following table summarizes the total unpaid principal balance of repurchases for the periods indicated. In addition, the Firm recognized $105 million and $56 million of “make-whole” settlements in the first quarter of 2010 and the first quarter of 2009, respectively, in lieu of repurchasing loans.


Three months ended March 31, (in millions)	2010		2009

Ginnie Mae repurchases^(a)	$	2,010	$	2,059
GSE/other repurchases		322		148

Total	$	2,332	$	2,207


(a)		In substantially all cases, these repurchases represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools or packages as permitted by Ginnie Mae guidelines (i.e., they do not result from repurchase demands due to breaches of representations and warranties). In certain cases, it is economically advantageous for the Firm 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 FHA and/or the VA. Substantially all of the loans continue to be insured/guaranteed and reimbursement is proceeding normally. Accordingly, none of the Firm’s recorded repurchase liability relates to these Ginnie Mae repurchases.

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


Three months ended March 31, (in millions)	2010			2009

Repurchase liability at beginning of period	$	1,705		$	1,093
Losses realized upon settlement		(246	)		(714	)^(a)
Provision for repurchase losses		523			283

Repurchase liability at end of period	$	1,982		$	662


(a)		Primarily related to the Firm’s settlement of claims for certain loans originated and sold by Washington Mutual. The unpaid principal balance of loans related to this settlement are not included in the table above.

Nonperforming loans held-for-investment included $270 million of repurchased loans at March 31, 2010, and $218 million at December 31, 2009.

CAPITAL MANAGEMENT

The following discussion of JPMorgan Chase’s capital management highlights developments since December 31, 2009, and should be read in conjunction with Capital Management on pages 82-85 of JPMorgan Chase’s 2009 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;

•		Achieve debt rating targets;

•		Remain flexible to take advantage of future 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 March 31, 2010, and December 31, 2009, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and met all capital requirements to which each was subject.

The following table presents the risk-based capital ratios for JPMorgan Chase and its significant banking subsidiaries at March 31, 2010, and December 31, 2009.


	JPMorgan Chase & Co.^(c)						JPMorgan Chase Bank, N.A.^(c)						Chase Bank USA, N.A.^(c)						Well-			Minimum
(in millions,	March 31,			Dec. 31,			March 31,			Dec. 31,			March 31,			Dec. 31,			capitalized			capital
except ratios)	2010			2009			2010			2009			2010			2009			ratios^(e)			ratios^(e)

Regulatory capital:
Tier 1	$	131,350		$	132,971		$	96,039		$	96,372		$	10,979		$	15,534
Total		173,332			177,073			135,428			136,646			14,936			19,198
Tier 1 common		103,908			105,284			95,281			95,353			10,979			15,534

Assets:
Risk-weighted^(a)		1,147,008	^(d)		1,198,006			959,013			1,011,995			132,013			114,693
Adjusted average^(b)		1,981,060	^(d)		1,933,767			1,608,086			1,609,081			144,154			74,087

Capital ratios:
Tier 1 capital		11.5	%^(d)		11.1	%		10.0	%		9.5	%		8.3	%		13.5	%		6.0	%		4.0	%
Total capital		15.1			14.8			14.1			13.5			11.3			16.7			10.0			8.0
Tier 1 leverage		6.6			6.9			6.0			6.0			7.6			21.0			5.0	^(f)		3.0	^(g)
Tier 1 common		9.1			8.8			9.9			9.4			8.3			13.5		NA			NA


(a)		Includes off-balance sheet risk-weighted assets at March 31, 2010, of $269.0 billion, $263.3 billion and $34 million, and at December 31, 2009, of $367.4 billion, $312.3 billion and $49.9 billion, for JPMorgan Chase, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., respectively. Risk-weighted assets are calculated in accordance with U.S. federal regulatory capital standards.

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

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

(d)		Effective January 1, 2010, the Firm adopted new guidance that amended the accounting for the consolidation of VIEs, which resulted in a decrease in the Tier 1 capital ratio of 34 basis points. See Note 15 on pages 131-142 of this Form 10-Q for further information.

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

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

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

Note:		Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities, which have resulted from both nontaxable business combinations and from tax-deductible goodwill. The Firm had deferred tax liabilities resulting from nontaxable business combinations totaling $770 million at March 31, 2010, and $812 million at December 31, 2009. Additionally, the Firm had deferred tax liabilities resulting from tax-deductible goodwill of $1.8 billion and $1.7 billion at March 31, 2010, and December 31, 2009, respectively.

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


Risk-based capital components and assets	March 31,			December 31,
(in millions)	2010			2009

Tier 1 capital
Tier 1 common capital:
Total stockholders’ equity	$	164,721		$	165,365
Less: Preferred stock		8,152			8,152

Common stockholders’ equity		156,569			157,213
Effect of certain items in accumulated other comprehensive income/(loss) excluded from Tier 1 common equity		(745	)		75

Less: Goodwill^(a)		46,585			46,630
Fair value DVA on derivative and structured note liabilities related to the Firm’s credit quality		947			912
Investments in certain subsidiaries		823			802
Other intangible assets		3,561			3,660

Tier 1 common capital		103,908			105,284

Preferred stock		8,152			8,152
Qualifying hybrid securities and noncontrolling interests^(b)		19,290			19,535

Total Tier 1 capital		131,350			132,971

Tier 2 capital
Long-term debt and other instruments qualifying as Tier 2		27,445			28,977
Qualifying allowance for credit losses		14,727			15,296
Adjustment for investments in certain subsidiaries and other		(190	)		(171	)

Total Tier 2 capital		41,982			44,102

Total qualifying capital	$	173,332		$	177,073

Risk-weighted assets	$	1,147,008		$	1,198,006

Total adjusted average assets	$	1,981,060		$	1,933,767


(a)		Goodwill is net of any associated deferred tax liabilities.

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

The Firm’s Tier 1 common capital was $103.9 billion at March 31, 2010, compared with $105.3 billion at December 31, 2009, a decrease of $1.4 billion. The decrease was due to the $4.4 billion retained earnings adjustment that resulted from the Firm’s adoption of new consolidation guidance related to VIEs; a $1.1 billion reduction in common stockholders’ equity related to the purchase of the remaining interest in a consolidated subsidiary from noncontrolling shareholders; and dividends on preferred and common stock outstanding. The decrease was partially offset by net income (adjusted for DVA) of $3.3 billion and net issuances of common stock under the Firm’s employee stock-based compensation plans of $1.0 billion. The Firm’s Tier 1 capital was $131.4 billion at March 31, 2010, compared with $133.0 billion at December 31, 2009, a decrease of $1.6 billion. The decrease in Tier 1 capital predominantly reflects the decline in Tier 1 common capital. Additional information regarding the Firm’s capital ratios and the federal regulatory capital standards to which it is subject is presented in Note 29 on pages 228-229 of JPMorgan Chase’s 2009 Annual Report.

Basel II

The minimum risk-based capital requirements adopted by the U.S. federal banking agencies follow the Capital Accord of the Basel Committee on Banking Supervision. In 2004, the Basel Committee published a revision to the Accord (“Basel II”). The goal of the new 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 will require JPMorgan Chase to implement Basel II at the holding company level, as well as at certain of its key U.S. bank subsidiaries.

Prior to full implementation of the new Basel II Framework, JPMorgan Chase will be required to complete a qualification period of four consecutive quarters during which it will need to demonstrate that it meets the requirements of the new rule to the satisfaction of its primary U.S. banking regulators. The U.S. implementation timetable consists of the qualification period, starting no later than April 1, 2010, followed by a minimum transition period of three years. During the transition period, Basel II risk-based capital requirements cannot fall below certain floors based on current (“Basel l”) regulations. 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.

Broker-dealer regulatory capital

JPMorgan Chase’s principal U.S. broker-dealer subsidiaries are J.P. Morgan Securities Inc. (“JPMorgan Securities”) and J.P. Morgan Clearing Corp. JPMorgan Securities and J.P. Morgan Clearing Corp. are each subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Net Capital Rule”). JPMorgan Securities and J.P. Morgan Clearing Corp. are also registered as futures commission merchants and subject to Rule 1.17 under the Commodity Futures Trading Commission (“CFTC”). J.P. Morgan Clearing Corp., a subsidiary of JPMorgan Securities, provides clearing and settlement services.

JPMorgan Securities and J.P. Morgan Clearing Corp. have elected to compute their minimum net capital requirements in accordance with the “Alternative Net Capital Requirements” of the Net Capital Rule. At March 31, 2010, JPMorgan Securities’ net capital, as defined by the Net Capital Rule, was $9.6 billion, exceeding the minimum requirement by $9.0 billion. J.P. Morgan Clearing Corp’s net capital was $5.5 billion, exceeding the minimum requirement by $4.0 billion.

In addition to its net capital requirements, JPMorgan Securities is required to hold tentative net capital in excess of $1.0 billion and is also required to notify the Securities and Exchange Commission (“SEC”) in the event that tentative net capital is less than $5.0 billion, in accordance with the market and credit risk standards of Appendix E of the Net Capital Rule. As of March 31, 2010, JPMorgan Securities had tentative net capital in excess of the minimum and notification requirements.

Economic risk capital

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


Economic risk capital	Quarterly Averages
(in billions)	1Q10		4Q09		1Q09

Credit risk	$	49.3	$	48.5	$	55.0
Market risk		13.8		15.8		15.0
Operational risk		7.4		7.9		9.1
Private equity risk		5.2		4.9		4.6

Economic risk capital		75.7		77.1		83.7
Goodwill		48.6		48.3		48.1
Other^(a)		31.8		31.1		4.7

Total common stockholders’ equity	$	156.1	$	156.5	$	136.5


(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, incorporating sufficient capital to address economic risk measures, regulatory capital requirements and capital levels for similarly rated peers. Capital is also allocated to each line of business for, among other things, goodwill and other intangibles associated with acquisitions effected by the line of business. Return on common equity is measured and internal targets for expected returns are established as a key measure of a business segment’s performance.

Effective January 1, 2010, the Firm enhanced its line of business equity framework to better align equity assigned to each line of business with the changes anticipated to occur in the business, and in the competitive and regulatory landscape. The lines of business are now capitalized based on the Tier 1 common standard, rather than the Tier 1 Capital standard.

Line of business equity

(in billions)

March 31, 2010

December 31, 2009

Investment Bank

40.0

33.0

Retail Financial Services

28.0

25.0

Card Services

15.0

15.0

Commercial Banking

8.0

8.0

Treasury & Securities Services

6.5

5.0

Asset Management

6.5

7.0

Corporate/Private Equity

52.6

64.2

Total common stockholders’ equity

156.6

157.2


Line of business equity	Quarterly Averages
(in billions)	1Q10		4Q09		1Q09

Investment Bank	$	40.0	$	33.0	$	33.0
Retail Financial Services		28.0		25.0		25.0
Card Services		15.0		15.0		15.0
Commercial Banking		8.0		8.0		8.0
Treasury & Securities Services		6.5		5.0		5.0
Asset Management		6.5		7.0		7.0
Corporate/Private Equity		52.1		63.5		43.5

Total common stockholders’ equity	$	156.1	$	156.5	$	136.5

Capital actions

Stock repurchases

The Board of Directors has approved a stock repurchase program that authorizes the repurchase of up to $10.0 billion of the Firm’s common shares plus warrants issued in 2008 as part of the U.S. Treasury’s Capital Purchase Program. During the first quarter of 2010, the Firm did not repurchase any shares of its common stock or the warrants. As of March 31, 2010, under the program $6.2 billion of authorized repurchase capacity remained with respect to the Firm’s common stock, and all of the authorized repurchase capacity remained with respect to the warrants.

The Firm has determined that it may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate the repurchase of common stock and warrants in accordance with the repurchase program. A Rule 10b5-1 repurchase plan allows the Firm to repurchase its equity during periods when it would not otherwise be repurchasing common stock — for example, during internal trading “black-out periods.” All purchases under a Rule 10b5-1 plan must be made according to a predefined plan established when the Firm is not aware of material nonpublic information. For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on page 171 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. In addition, this framework recognizes the diversity among the Firm’s core businesses, which helps reduce the impact of volatility in any particular area on the Firm’s operating results as a whole. There are eight major types of risk identified in the business activities of the Firm: liquidity, credit, market, interest rate, operational, legal and reputation, fiduciary, and private equity risk.

For further discussion of these risks, see Risk Management on pages 86-126 of JPMorgan Chase’s 2009 Annual Report and the information below.

LIQUIDITY RISK MANAGEMENT

The following discussion of JPMorgan Chase’s liquidity risk management framework highlights developments since December 31, 2009, and should be read in conjunction with pages 88-92 of JPMorgan Chase’s 2009 Annual Report.

The ability to maintain a sufficient level of liquidity is crucial to financial services companies, particularly their ability to maintain appropriate levels of liquidity during periods of adverse conditions. JPMorgan Chase’s primary sources of liquidity include a diversified deposit base and access to the long-term debt (including trust preferred capital debt securities) and equity capital markets. The Firm’s funding strategy is intended to ensure liquidity and diversity of funding sources to meet actual and contingent liabilities during both normal and stress periods. Consistent with this strategy, JPMorgan Chase maintains large pools of highly liquid unencumbered assets and significant sources of secured funding, and monitors its capacity in the wholesale funding markets across various geographic regions and in various currencies. The Firm also maintains access to secured funding capacity through overnight borrowings from various central banks. Throughout the recent financial crisis, the Firm successfully raised both secured and unsecured funding.

Management considers the Firm’s liquidity position to be strong, based on its liquidity metrics as of March 31, 2010. Management believes that its unsecured and secured funding capacity is sufficient to meet its on- and off-balance sheet obligations. As of March 31, 2010, JPMorgan Chase’s long-dated funding, including core liabilities, exceeded illiquid assets.

Funding

Sources of funds

The deposits held by the RFS, CB, TSS and AM lines of business are generally stable sources of funding for JPMorgan Chase Bank, N.A. As of March 31, 2010, total deposits for the Firm were $925.3 billion, compared with $938.4 billion at December 31, 2009. A significant portion of the Firm’s deposits are retail deposits (39% at March 31, 2010), which are less sensitive to interest rate changes or market volatility and therefore are considered more stable than market-based (i.e., wholesale) liability balances. At March 31, 2010, the Firm’s deposits exceeded its loans (loans were approximately 77% of deposits at the end of the period, and averaged 83% during the quarter). In addition, through the normal course of business, the Firm benefits from substantial liability balances originated by RFS, CB, TSS and AM. These franchise-generated liability balances include deposits, as well as deposits that are swept to on—balance sheet liabilities (e.g., commercial paper, federal funds purchased, time deposits and securities loaned or sold under repurchase agreements), as part of customer cash management programs. A significant portion of the Firm’s wholesale liability balances are considered also to be stable and consistent sources of funding due to the nature of the businesses from which they are generated. 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 18-41 and 43-45, respectively, of this Form 10-Q.

Additional sources of funding include a variety of unsecured short- and long-term instruments, including federal funds purchased, certificates of deposit, time deposits, bank notes, commercial paper, long-term debt, trust preferred capital debt securities, preferred stock and common stock. The Firm’s reliance on short-term unsecured commercial paper funding is limited, and averaged $37.5 billion (including $26.5 billion of deposits that customers chose to sweep into commercial paper liabilities) and $33.7 billion (including $22.6 billion of deposits that customers chose to sweep into commercial paper liabilities) during the three months ended March 31, 2010, and 2009, respectively. Average institutional wholesale commercial paper liabilities were $11.0 billion and $11.1 billion for the three months ended March 31, 2010 and 2009, respectively. Secured sources of funding include securities loaned or sold under repurchase agreements, asset securitizations, and borrowings from Federal Home Loan Banks. The Firm also maintains the ability to borrow from the Federal Reserve (including discount-window borrowings) as well as other central banks; however, the Firm does not view such borrowings from the Federal Reserve and other central banks as a primary means of funding. At the parent holding company level, long-term funding is managed to ensure that the parent holding company has, at a minimum, sufficient liquidity to cover its obligations and those of its nonbank subsidiaries within the next 12 months.

Issuance

During the first three months of 2010, the Firm issued $10.9 billion of long-term debt, including $5.6 billion of senior notes issued in U.S. markets, $904 million of senior notes issued in non-U.S. markets and $4.4 billion of IB structured notes. In addition, in April 2010, the Firm issued $1.5 billion of trust preferred capital debt securities in the U.S. market. During the first three months of 2010, $14.1 billion of long-term debt matured or were redeemed, including $7.4 billion of IB structured notes. The maturities or redemptions in the first three months of 2010 were partially offset by the issuances during the period.

Replacement capital covenants

In connection with the issuance of certain of its trust preferred capital debt securities and its noncumulative perpetual preferred stock, the Firm has entered into Replacement Capital Covenants (“RCCs”). These RCCs grant certain rights to the holders of “covered debt,” as defined in the RCCs, that prohibit the repayment, redemption or purchase of such trust preferred capital debt securities and noncumulative perpetual preferred stock except, with limited exceptions, to the extent that JPMorgan Chase has received, in each such case, specified amounts of proceeds from the sale of certain qualifying securities. Currently, the Firm’s covered debt is its 5.875% Junior Subordinated Deferrable Interest Debentures, Series O, due in 2035. For more information regarding these covenants, reference is made to the respective RCCs (including any supplements thereto) entered into by the Firm in relation to such trust preferred capital debt securities and noncumulative perpetual preferred stock, which are available in filings made by the Firm with the SEC.

Cash flows

Cash and due from banks was $31.4 billion and $26.7 billion at March 31, 2010 and 2009, respectively; these balances increased by $5.2 billion from December 31, 2009, and decreased by $214 million from December 31, 2008. The following discussion highlights the major activities and transactions that affected JPMorgan Chase’s cash flows during the first three months of 2010 and 2009.

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 activities, market conditions and trading strategies. 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 three months ended March 31, 2010, net cash provided by operating activities was $19.1 billion, primarily driven by a net increase in trading liabilities reflecting favorable developments in financial markets, as well as an increase in business activity in markets outside of the United States, partially offset by sales of debt securities. Also, net cash generated from operating activities was higher than net income, largely as a result of adjustments for non-cash items such as the provision for credit losses, stock-based compensation, and depreciation and amortization. Proceeds from sales and paydowns of loans originated or purchased with an initial intent to sell were higher than cash used to acquire such loans.

For the three months ended March 31, 2009, net cash provided by operating activities was $50.8 billion, largely due to a decline in trading activity reflecting the effect of the challenging capital markets environment. In addition, net cash generated from operating activities was higher than net income, largely as a result of noncash adjustments for operating items such as the provision for credit losses, stock-based compensation, and depreciation and amortization. Proceeds from sales and paydowns of loans originated or purchased with an initial intent to sell were slightly higher than cash used to acquire such loans, but the cash flows from these loan activities remained at a significantly reduced level as a result of the continued volatility and stress in the markets.

Cash flows from investing activities

The Firm’s investing activities predominantly include originating loans to be held for investment, the AFS securities portfolio and other short-term interest-earning assets. For the three months ended March 31, 2010, net cash of $13.9 billion was used in investing activities. This was primarily due to an increase in securities purchased under resale agreements largely due to higher financing volume in IB resulting from increased client flows, partially offset by a net decrease in the loan portfolio, driven by seasonally lower charge volume on credit cards, continued run-off in the residential real estate portfolios, and repayments and loan sales, predominantly in IB. Proceeds from sales and maturities of AFS securities used in the Firm’s interest rate risk management activities were slightly higher than cash used to acquire such securities.

For the three months ended March 31, 2009, net cash of $3.6 billion was provided by investing activities, primarily from a decrease in deposits with banks; a decrease in securities purchased under resale agreements, reflecting a lower volume of excess cash available for short-term investments; a net decrease in the loan portfolio, reflecting declines across all wholesale businesses, the seasonal decline in credit card receivables, and credit card securitization activities; and net maturities of asset-backed commercial paper purchased from money market mutual funds in connection with the AML Facility of the Federal Reserve Bank of Boston. Largely offsetting these cash proceeds were net purchases of AFS securities to manage the Firm’s exposure to a declining interest rate environment.

Cash flows from financing activities

The Firm’s financing activities primarily reflect cash flows related to raising customer deposits, and issuing long-term debt (including trust preferred capital debt securities) as well as preferred and common stock. In the first three months of 2010 net cash provided by financing activities was $285 million, which reflected increased cash proceeds from securities loaned or sold under repurchase agreements primarily to facilitate the increase in IB’s securities purchased under resale agreements. Cash was used as TSS deposits declined reflecting the normalization of deposit levels, offset partially by net inflows from existing customers and new business in CB, RFS and AM; for the net repayment of long-term debt and trust preferred capital debt securities as new issuances were more than offset by repayments; and for the payment of cash dividends.

In the first three months of 2009, net cash used in financing activities was $54.3 billion reflecting a decline in wholesale deposits in TSS, compared with the elevated level during the latter part of 2008 due to the heightened volatility and credit concerns in the markets at that time. In addition, there was a decline in other borrowings due to net repayments of advances from Federal Home Loan Banks and nonrecourse advances under the Federal Reserve Bank of Boston AML Facility; net repayments of long-term debt (including trust preferred capital debt securities) as proceeds from new issuances (including $13.8 billion of FDIC-guaranteed debt issued under the TLG Program and $4.0 billion of IB structured notes) were more than offset by repayments; and the payment of cash dividends. Cash proceeds resulted from an increase in securities loaned or sold under repurchase agreements, partly attributable to favorable pricing and to finance the Firm’s increased AFS securities portfolio.

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-rating downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see Special-purpose entities on pages 45-46 and Ratings profile of derivative receivables marked to market (“MTM”) on page 64 and Note 5 on pages 110-116 of this Form 10-Q.

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

The credit ratings of the parent holding company and each of the Firm’s significant banking subsidiaries as of March 31, 2010, were as follows.

Short-term debt

Senior long-term debt

Moody’s

S&P

Fitch

Moody’s

S&P

Fitch

JPMorgan Chase & Co.

-1

A-1

F1+

Aa3

A+

AA-

JPMorgan Chase Bank, N.A.

-1

A-1+

F1+

Aa1

AA-

Chase Bank USA, N.A.

-1

A-1+

F1+

Aa1

AA-

Ratings actions affecting the Firm

Ratings from Moody’s, S&P and Fitch on JPMorgan Chase and its principal bank subsidiaries remained unchanged at March 31, 2010, from December 31, 2009. At March 31, 2010, Moody’s and S&P’s outlook remained negative, while Fitch’s outlook remained stable.

On January 29, 2010, Fitch downgraded 592 hybrid capital instruments issued by banks and other non-bank financial institutions, including those issued by the Firm. This action was in line with Fitch’s revised hybrid ratings methodology. The Firm’s trust preferred capital debt and hybrid preferred securities were downgraded by one notch to A.

Moody’s and S&P have recently announced that they will be evaluating the effects of any financial regulatory reform legislation that is enacted in order to determine the extent to which financial institutions, including the Firm, may be negatively impacted. While it is unlikely that any ratings action will take place until the legislation is finally enacted and the agencies complete their assessments, there is no assurance the Firm’s credit ratings will not be downgraded as a result of any such review.

CREDIT PORTFOLIO

The following table presents JPMorgan Chase’s credit portfolio as of March 31, 2010, and December 31, 2009. Total managed credit exposure of $1.8 trillion at March 31, 2010, decreased by $40.6 billion from December 31, 2009, reflecting decreases of $29.9 billion in the consumer portfolio and $10.7 billion in the wholesale portfolio. During the first three months of 2010, lending-related commitments decreased by $35.7 billion and managed loans decreased by $4.3 billion. The decrease in lending-related commitments was partially related to the adoption of the new consolidation guidance related to VIEs which resulted in the elimination of $24.2 billion of lending-related wholesale commitments between the Firm and its administrated multi-seller conduits upon consolidation. This decrease in lending-related commitments was partially offset by the addition of $6.5 billion of unfunded commitments between the consolidated multi-seller conduits and their clients. The decrease in managed loans was partially related to, lower customer demand, repayments, and loan sales partially offset by the adoption of the new consolidation guidance related to VIEs.

While overall portfolio exposure declined, the Firm provided more than $145 billion in new loans and lines of credit to consumer and wholesale clients in the first quarter of 2010, including individuals, small businesses, large corporations, not-for-profit organizations, U.S. states and municipalities, and other financial institutions.

In the table below, reported loans include loans retained; loans held-for-sale (which are carried at the lower of cost or fair value, with changes in value recorded in noninterest revenue); and loans accounted for at fair value. Loans retained are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs. Nonperforming assets include nonaccrual loans and assets acquired in satisfaction of debt (primarily real estate owned). Nonaccrual loans are those for which the accrual of interest has been suspended in accordance with the Firm’s accounting policies. For additional information on these loans, including the Firm’s accounting policies, see Note 13 on pages 125-129 of this Form 10-Q, and Note 13 on pages 192—196 of JPMorgan Chase’s 2009 Annual Report.


	Credit						Nonperforming						90 days or more past due
	exposure						assets^(e)(f)						and still accruing^(f)
	March 31,			Dec. 31,			March 31,			Dec. 31,			March 31,		Dec. 31,
(in millions)	2010			2009			2010			2009			2010		2009

Total credit portfolio
Loans — retained^(a)	$	706,841		$	627,218		$	16,719		$	17,219		$	5,511	$	4,355
Loans held-for-sale		4,933			4,876			166			234			—		—
Loans at fair value		2,025			1,364			165			111			—		—

Loans — reported^(a)		713,799			633,458			17,050			17,564			5,511		4,355
Loans — securitized^(a)(b)	NA				84,626		NA				—		NA			2,385

Total managed loans^(a)		713,799			718,084			17,050			17,564			5,511		6,740
Derivative receivables		79,416			80,210			363			529			—		—
Receivables from customers^(c)		16,314			15,745			—			—			—		—
Interests in purchased receivables^(a)		2,579			2,927			—			—			—		—

Total managed credit-related assets^(a)		812,108			816,966			17,413			18,093			5,511		6,740
Lending-related commitments^(a)		955,371			991,095		NA			NA			NA		NA

Assets acquired in loan satisfactions
Real estate owned	NA			NA				1,510			1,548		NA		NA
Other	NA			NA				96			100		NA		NA

Total assets acquired in loan satisfactions	NA			NA				1,606			1,648		NA		NA

Total credit portfolio	$	1,767,479		$	1,808,061		$	19,019		$	19,741		$	5,511	$	6,740

Net credit derivative hedges notional^(d)	$	(46,583	)	$	(48,376	)	$	(152	)	$	(139	)	NA		NA
Liquid securities collateral held against derivatives		(14,408	)		(15,519	)	NA			NA			NA		NA


	Three months ended March 31,
					Average annual net
	Net charge-offs				charge-off rate^(g)(h)
(in millions, except ratios)	2010		2009		2010			2009

Total credit portfolio
Loans — reported	$	7,910	$	4,396		4.46	%		2.51	%
Loans — securitized^(a)(b)	NA			1,464	NA				6.93

Total managed loans^(a)	$	7,910	$	5,860		4.46	%		2.98	%


(a)		Effective January 1, 2010, the Firm adopted new consolidation guidance related to VIEs. Upon the adoption of the new guidance, the Firm consolidated its Firm-sponsored credit card securitization trusts, its Firm-administered multi-seller conduits and certain other consumer loan securitization entities, primarily mortgage-related. As a result, related assets are now primarily recorded in loans or other assets on the Consolidated Balance Sheet. As a result of the consolidation of the credit card securitization trusts, reported and managed basis are comparable for periods beginning after January 1, 2010. For further discussion, see Note 15 on pages 131-142 of this Form 10-Q.

(b)		Loans securitized is defined as loans that were sold to nonconsolidated securitization trusts and were not included in reported loans. For further discussion of credit card securitizations, see Note 15 on pages 131-142 of this Form 10-Q.

(c)		Represents margin loans to prime and retail brokerage customers, which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets.

(d)		Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage both performing and non-performing credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on pages 64-65 and Note 5 on pages 110-116 of this Form 10-Q.

(e)		At March 31, 2010, and December 31, 2009, nonperforming loans and assets exclude: (1) mortgage loans insured by U.S. government agencies of $10.5 billion and $9.0 billion, respectively; (2) real estate owned insured by U.S. government agencies of $707 million and $579 million, respectively; and (3) student loans that are 90 days past due and still accruing, which are insured by U.S. government agencies under the Federal Family Education Loan Program of $581 million and $542 million, respectively. These amounts are excluded as reimbursement is proceeding normally. In addition, the Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance. Under guidance issued by the Federal Financial Institutions Examination Council, credit card loans are charged off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a specified event (e.g., bankruptcy of the borrower), whichever is earlier.

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

(g)		Net charge-off ratios were calculated using: (1) average retained loans of $718.5 billion and $710.6 billion for the quarters ended March 31, 2010 and 2009, respectively; (2) average securitized loans of zero and $85.6 billion for the quarters ended March 31, 2010 and 2009, respectively; and (3) average managed loans of $718.5 billion and $796.2 billion for the quarters ended March 31, 2010 and 2009, respectively.

(h)		Firmwide net charge-off ratios were calculated including average purchased credit-impaired loans of $80.3 billion and $88.3 billion at March 31, 2010 and 2009, respectively. Excluding the impact of purchased credit-impaired loans, the total Firm’s managed net charge-off rate would have been 5.03% and 3.36% respectively.

WHOLESALE CREDIT PORTFOLIO

As of March 31, 2010, wholesale exposure (IB, CB, TSS and AM) decreased by $10.7 billion from December 31, 2009. The overall decrease was primarily driven by decreases of $20.2 billion in lending-related commitments, partially offset by an increase of $10.1 billion in loans. The decrease in lending-related commitments and the increase in loans were primarily related to the adoption of the new consolidation guidance related to VIEs which resulted in the elimination of $24.2 billion of lending related commitments between the Firm and its administrated multi-seller conduits upon consolidation. This decrease in lending-related commitments was partially offset by the addition of $6.5 billion of unfunded commitments between the consolidated multi-seller conduits and their clients. Assets of the consolidated conduits included $15.1 billion of wholesale loans. Excluding the effect of the new consolidation guidance, loans and lending-related commitments would have decreased by $5.0 billion and $2.5 billion, respectively.


	Credit						Nonperforming						90 days past due
	exposure						assets^(c)						and still accruing
	March 31,			Dec. 31,			March 31,			Dec. 31,			March 31,		Dec. 31,
(in millions)	2010			2009			2010			2009			2010		2009

Loans — retained	$	210,211		$	200,077		$	5,895		$	6,559		$	221	$	332
Loans held-for-sale		2,054			2,734			166			234			—		—
Loans at fair value		2,025			1,364			165			111			—		—

Loans — reported		214,290			204,175			6,226			6,904			221		332
Derivative receivables		79,416			80,210			363			529			—		—
Receivables from customers^(a)		16,314			15,745			—			—			—		—
Interests in purchased receivables		2,579			2,927			—			—			—		—

Total wholesale credit-related assets		312,599			303,057			6,589			7,433			221		332
Lending-related commitments		326,921			347,155		NA			NA			NA		NA

Total wholesale credit exposure	$	639,520		$	650,212		$	6,589		$	7,433		$	221	$	332

Net credit derivative hedges notional^(b)	$	(46,583	)	$	(48,376	)	$	(152	)	$	(139	)	NA		NA
Liquid securities collateral held against derivatives		(14,408	)		(15,519	)	NA			NA			NA		NA


(a)		Represents margin loans to prime and retail brokerage customers, which are included in accrued interest and accounts receivable on the Consolidated Balance Sheets.

(b)		Represents the net notional amount of protection purchased and sold of single-name and portfolio credit derivatives used to manage both performing and nonperforming credit exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. For additional information, see Credit derivatives on pages 64-65 and Note 5 on pages 110-116 of this Form 10-Q.

(c)		Excludes assets acquired in loan satisfactions. For additional information, see the wholesale nonperforming assets by business segment table on page 61 of this Form 10-Q.

The following table summarizes the maturity and ratings profiles of the wholesale portfolio as of March 31, 2010, and December 31, 2009. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to ratings as defined by S&P and Moody’s.

Wholesale credit exposure — maturity and ratings profile


	Maturity profile^(c)												Ratings profile
													Investment-			Noninvestment-
				Due after 1									grade (“IG”)			grade
At March 31, 2010	Due in 1			through year			Due after						AAA/Aaa to			BB+/Ba1					Total %
(in billions, except ratios)	year or less			5 years			5 years			Total			BBB-/Baa3			& below		Total			of IG

Loans		31	%		40	%		29	%		100	%	$	134		$	76	$	210			64	%
Derivative receivables		12			42			46			100			62			18		80			78
Lending-related commitments		39			59			2			100			262			65		327			80

Total excluding loans held-for-sale and loans at fair value		33	%		51	%		16	%		100	%	$	458		$	159	$	617			74	%
Loans held-for-sale and loans at fair value^(a)																			4
Receivables from customers																			16
Interests in purchased receivables																			3

Total exposure																		$	640

Net credit derivative hedges notional^(b)		46	%		37	%		17	%		100	%	$	(47	)	$	—	$	(47	)		100	%


	Maturity profile^(c)												Ratings profile
													Investment-			Noninvestment-
				Due after 1									grade (“IG”)			grade
At December 31, 2009	Due in 1			through year			Due after						AAA/Aaa to			BB+/Ba1					Total %
(in billions, except ratios)	year or less			5 years			5 years			Total			BBB-/Baa3			& below		Total			of IG

Loans		29	%		40	%		31	%		100	%	$	118		$	82	$	200			59	%
Derivative receivables		12			42			46			100			61			19		80			76
Lending-related commitments		41			57			2			100			281			66		347			81

Total excluding loans held-for-sale and loans at fair value		34	%		50	%		16	%		100	%	$	460		$	167	$	627			73	%
Loans held-for-sale and loans at fair value^(a)																			4
Receivables from customers																			16
Interests in purchased receivables																			3

Total exposure																		$	650

Net credit derivative hedges notional^(b)		49	%		42	%		9	%		100	%	$	(48	)	$	—	$	(48	)		100	%


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

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

(c)		The maturity profile of loans and lending-related commitments is based on the remaining contractual maturity. The maturity profile of derivative receivables is based on the maturity profile of average exposure. See Derivative Receivables Marked to Market on pages 102-103 of JPMorgan Chase’s 2009 Annual Report for further discussion of average exposure.

Wholesale credit exposure — selected industry concentrations

The Firm focuses on the management and diversification of its industry concentrations, with particular attention paid to industries with actual or potential credit concerns.

Exposures deemed criticized generally represent a ratings profile similar to a rating of “CCC+”/“Caa1” and lower, as defined by S&P and Moody’s, respectively. The total criticized component of the portfolio, excluding loans held-for-sale and loans at fair value, decreased to $29.7 billion at March 31, 2010, from $33.2 billion at year-end 2009. The decrease was primarily related to repayments and loan sales.


	March 31, 2010										December 31, 2009
	Total credit exposure					Criticized exposure					Total credit exposure					Criticized exposure
								% of										% of
	Credit		% of					criticized			Credit		% of					criticized
(in millions, except ratios)	exposure^(c)		portfolio			Criticized		portfolio			exposure^(c)		portfolio			Criticized		portfolio

Top 25 industries^(a)
Real estate	$	65,547		11	%	$	11,483		39	%	$	68,509		11	%	$	11,975		36	%
Banks and finance companies		56,414		9			1,542		5			54,053		9			2,053		6
Healthcare		35,215		6			324		1			35,605		6			329		1
State and municipal governments		33,726		5			177		1			34,726		5			466		1
Utilities		27,118		4			1,067		3			27,178		4			1,238		4
Consumer products		26,244		4			655		2			27,004		4			515		2
Asset managers		26,102		4			583		2			24,920		4			680		2
Oil and gas		22,814		4			512		2			23,322		4			386		1
Retail and consumer services		20,384		3			776		3			20,673		3			782		2
Insurance		13,960		2			576		2			13,421		2			599		2
Technology		13,058		2			761		2			14,169		2			1,288		4
Machinery and equipment manufacturing		12,489		2			263		1			12,759		2			350		1
Telecom services		12,325		2			195		1			11,265		2			251		1
Business services		11,919		2			277		1			10,667		2			344		1
Securities firms and exchanges		11,389		2			121		—			10,832		2			145		—
Chemicals/plastics		11,296		2			559		2			9,870		2			611		2
Metals/mining		11,265		2			637		2			12,547		2			639		2
Media		10,607		2			1,756		6			12,379		2			1,692		5
Central government		10,346		2			—		—			9,557		1			—		—
Building materials/construction		10,327		2			1,252		4			10,448		2			1,399		4
Holding companies		10,235		2			111		—			16,018		3			110		—
Transportation		8,931		1			545		2			9,749		1			588		2
Automotive		8,864		1			1,083		4			9,357		1			1,240		4
Agriculture/paper manufacturing		7,306		1			501		2			5,801		1			500		2
Leisure		5,776		1			1,255		4			6,822		1			1,798		5
All other^(b)		132,891		22			2,698		9			135,791		22			3,205		10

Subtotal	$	616,548		100	%	$	29,709		100	%	$	627,442		100	%	$	33,183		100	%

Loans held-for-sale and loans at fair value		4,079					1,099					4,098					1,545
Receivables from customers		16,314										15,745
Interest in purchased receivables		2,579										2,927

Total	$	639,520				$	30,808				$	650,212				$	34,728


(a)		Rankings are based on exposure at March 31, 2010. The industries presented in the table as of December 31, 2009, are based on the same rankings of the exposure at March 31, 2010, not the actual rankings at December 31, 2009.

(b)		For more information on exposures to SPEs included in all other, see Note 15 on pages 131-142 of this Form 10-Q.

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

The following table presents additional information on the wholesale real estate industry at March 31, 2010, and December 31, 2009.

% of

% of net

nonperforming

Net

charge-offs

March 31, 2010

Credit

% of credit

Criticized

Nonperforming

loans to

charge-offs/

to total

(in millions, except ratios)

exposure

portfolio

exposure

loans

total loans^(b)

(recoveries)

loans^(b)

Commercial real estate subcategories

Multi-family

31,876

4,037

1,272

4.12

0.18

Commercial lessors

18,574

4,121

494

3.36

298

2.03

Commercial construction and development

6,024

1,354

309

7.06

0.71

Other^(a)

9,073

1,971

783

15.47

0.22

Total commercial real estate

65,547

100

11,483

2,858

5.19

397

0.72


										% of					% of net
										nonperforming			Net		charge-offs
December 31, 2009	Credit		% of credit			Criticized		Nonperforming		loans to			charge-offs/		to total
(in millions, except ratios)	exposure		portfolio			exposure		loans		total loans^(b)			(recoveries)		loans^(b)

Commercial real estate subcategories
Multi-family	$	32,073		47	%	$	3,986	$	1,109		3.57	%	$	199		0.64	%
Commercial lessors^(c)		18,689		27			4,194		687		4.53			232		1.53
Commercial construction and development		6,593		10			1,518		313		6.81			105		2.28
Other^(a)(c)		11,154		16			2,277		779		12.27			152		2.39

Total commercial real estate	$	68,509		100	%	$	11,975	$	2,888		5.05	%	$	688		1.20	%


(a)		Other includes lodging, Real estate investment trusts (“REITs”), single family, homebuilders and other real estate.

(b)		Ratios were calculated using end-of-period retained loans of $55.0 billion and $57.2 billion for the quarters ended March 31, 2010, and December 31, 2009, respectively.

(c)		Prior periods have been reclassed to conform to current presentation.

Loans

The following table presents wholesale loans and nonperforming assets by business segment as of March 31, 2010, and December 31, 2009.

March 31, 2010

Assets acquired in loan

Loans

Nonperforming

satisfactions

Held-for-sale

Real estate

Nonperforming

(in millions)

Retained

and fair value

Total

Loans

Derivatives

owned

Other

assets

Investment Bank

53,010

3,594

56,604

2,741

363

^(b)

185

—

3,289

Commercial Banking

95,435

294

95,729

2,996

—

189

3,186

Treasury & Securities Services

24,066

—

24,066

—

Asset Management

37,088

—

37,088

475

—

498

Corporate/Private Equity

612

191

803

—

Total

210,211

4,079

214,290

6,226

^(a)

363

375

6,987


	December 31, 2009
													Assets acquired in loan
	Loans						Nonperforming						satisfactions
			Held-for-sale										Real estate				Nonperforming
(in millions)	Retained		and fair value		Total		Loans			Derivatives			owned		Other		assets

Investment Bank	$	45,544	$	3,567	$	49,111	$	3,504		$	529	^(b)	$	203	$	—	$	4,236
Commercial Banking		97,108		324		97,432		2,801			—			187		1		2,989
Treasury & Securities Services		18,972		—		18,972		14			—			—		—		14
Asset Management		37,755		—		37,755		580			—			2		—		582
Corporate/Private Equity		698		207		905		5			—			—		—		5

Total	$	200,077	$	4,098	$	204,175	$	6,904	^(a)	$	529		$	392	$	1	$	7,826


(a)		The Firm held allowance for loan losses of $1.6 billion and $2.0 billion related to nonperforming retained loans resulting in allowance coverage ratios of 26% and 31%, at March 31, 2010, and December 31, 2009, respectively. Wholesale nonperforming loans represent 2.91% and 3.38% of total wholesale loans at March 31, 2010, and December 31, 2009, respectively.

(b)		Nonperforming derivatives represent less than 1.0% of the total derivative receivables net of cash collateral at both March 31, 2010, and December 31, 2009.

In the normal course of business, the Firm provides loans to a variety of customers, from large corporate and institutional clients to high-net-worth individuals.

Retained wholesale loans were $210.2 billion at March 31, 2010, compared with $200.1 billion at December 31, 2009. The $10.1 billion increase was primarily related to the January 1, 2010, adoption of new consolidation guidance related to VIEs. Upon adoption of the new guidance, $15.1 billion of wholesale loans associated with Firm-administered multi-seller conduits were added to the Consolidated Balance Sheets. Excluding the effect of the new guidance adoption, loans decreased by $5.0 billion. Loans held-for-sale and loans at fair value relate primarily to syndicated loans and loans transferred from the retained portfolio. Held-for-sale loans and loans carried at fair value were $4.1 billion at both March 31, 2010, and December 31, 2009.

The Firm actively manages wholesale credit exposure through sales of loans and lending-related commitments. During the first three months of 2010 the Firm sold $2.6 billion of loans and commitments, recognizing gains of $19 million. In the first three months of 2009, the Firm sold $414 million of loans and commitments, recognizing net losses of $4 million. These results include gains or losses on sales of nonperforming loans, if any, as discussed on pages 62-63 of this Form 10-Q. These activities are not related to the Firm’s securitization activities. For further discussion of securitization activity, see Liquidity Risk Management and Note 15 on pages 52-55 and 131-142 respectively, of this Form 10-Q.

Nonperforming wholesale loans were $6.2 billion at March 31, 2010, a decrease of $678 million from December 31, 2009, reflecting loan sales.

The following table presents the geographic distribution of wholesale loans and nonperforming loans as of March 31, 2010, and December 31, 2009. The geographic distribution of the wholesale portfolio is determined based predominantly on the domicile of the borrower.

Loans and nonperforming loans, U.S. and Non-U.S.


	March 31, 2010				December 31, 2009
Wholesale			Nonperforming				Nonperforming
(in millions)	Loans		loans		Loans		loans

U.S.	$	151,856	$	5,073	$	149,085	$	5,844
Non-U.S.		62,434		1,153		55,090		1,060

Ending balance	$	214,290	$	6,226	$	204,175	$	6,904

The following table presents the change in the nonperforming loan portfolio for the three months ended March 31, 2010 and 2009.

Nonperforming loan activity


Wholesale	Three months ended March 31,
(in millions)	2010			2009

Beginning balance	$	6,904		$	2,382
Additions		2,717			1,652

Reductions:
Paydowns and other		1,595			165
Gross charge-offs		909			206
Returned to performing		59			1
Sales		832			—

Total reductions		3,395			372

Net additions (reductions)		(678	)		1,280

Ending balance	$	6,226		$	3,662

The following table presents net charge-offs, which are defined as gross charge-offs less recoveries, for the three months ended March 31, 2010 and 2009. A nonaccrual loan is charged off to the allowance for loan losses when it is highly certain that a loss has been realized; this determination considers many factors, including the prioritization of the Firm’s claim in bankruptcy, expectations of the workout/restructuring of the loan, and valuation of the borrower’s equity. The amounts in the table below do not include gains from sales of nonperforming loans.

Net charge-offs


Wholesale	Three months ended March 31,
(in millions, except ratios)	2010			2009

Loans — reported
Average loans retained	$	211,599		$	238,689
Net charge-offs		959			191
Average annual net charge-off rate		1.84	%		0.32	%

Derivatives

Derivative contracts

In the normal course of business, the Firm uses derivative instruments to meet the needs of customers; to generate revenue through trading activities; to manage exposure to fluctuations in interest rates, currencies and other markets; and to manage the Firm’s credit exposure. For further discussion of these contracts, see Note 5 on pages 110-116 of this Form 10-Q and Notes 5 and 32 on pages 167—175 and 224—235 of JPMorgan Chase’s 2009 Annual Report.

The following table summarizes the net derivative receivables MTM for the periods presented.


Derivative receivables marked to market	Derivative receivables MTM
(in millions)	March 31, 2010			December 31, 2009

Interest rate^(a)	$	38,744		$	33,733
Credit derivatives^(a)		10,088			11,859
Foreign exchange		18,537			21,984
Equity		5,538			6,635
Commodity		6,509			5,999

Total, net of cash collateral		79,416			80,210
Liquid securities collateral held against derivative receivables		(14,408	)		(15,519	)

Total, net of all collateral	$	65,008		$	64,691


(a)