JP Morgan Chase 2012 Annual Report Download

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ANNUAL
REPORT
2012 WE ARE JPMORGAN CHASE

Table of contents

  • Page 1
    ANNUAL R EP O RT 2012 WE ARE J P MO RG AN CHASE

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

  • Page 3
    ... single day. Those customers are companies, small businesses, families, countries and municipalities. And we serve the communities in which we live - in the United States, where we're based, and around the world. We invite you, the owners of our company, to view this video on jpmorganchase.com/we...

  • Page 4
    ...across virtually all our businesses, fueled by strong lending and deposit growth. We also maintained our leadership positions and continued to gain market share in key areas of our franchise. This financial performance has resulted in good stock performance. For Bank One shareholders since March 27...

  • Page 5
    ... Co. merger (7/1/2004 - 12/31/2012): Compounded Annual Gain Overall Gain 15.4% 237.2% 4.8% 49.2% 10.6% 188.0% Tangible book value over time captures the company's use of capital, balance sheet and profitability. In this chart, we are looking at heritage Bank One shareholders and JPMorgan Chase...

  • Page 6
    ... of our times. We can do it because of the strong company we have built - global in reach, with outstanding people, expertise, capabilities, relationships and capital at the scale required to do big things. During the course of 2012, JPMorgan Chase provided credit and raised capital of over...

  • Page 7
    ... clients and investing in the future of our franchise - opening new offices and branches, adding bankers in key markets, innovating and gaining market share. Our capital strength and earnings power are as strong as they have ever been. Challenges still exist, and there's always room for improvement...

  • Page 8
    ... of where our country and the world are today - the opportunities and challenges II. III. JPMorgan Chase faces the future with a strong hand IV. We are using our unique capabilities to do even more for our clients and communities V. Our people are our future - how we are developing and retaining...

  • Page 9
    ... changes in our business practices. These new rules will touch almost every system, every legal entity, every product and every service that we have across the company. To give you one example, we are enhancing systems to manage risk-weighted asset and liquidity requirements all the way down to the...

  • Page 10
    ... asked every line of business in the company to appoint a business control officer to report jointly to the line of business CEO and the Firmwide Oversight & Control Group. In addition, every major enterprisewide control initiative (we have more than 20 of them) will be staffed with program managers...

  • Page 11
    ...of fixing the problem across the company. Follow up, follow up, follow up to ensure your partners in other businesses can benefit from what you've learned. We are so proud of what we do, day in and day out, for the clients and communities we serve. Thank you for all of your efforts every day to work...

  • Page 12
    ... the event there was a credit crisis. It worked and essentially accomplished its intended objectives for many years. In late 2011, we asked the CIO team to reduce the portfolio for a variety of reasons. It was at this point that a new strategy was devised, which actually added to the risk. This new...

  • Page 13
    ... JPMorgan Chase are made of - and they made us proud In this time of need, hundreds of our senior employees volunteered to step in and help. They worked around the clock, seven days a week, for many months to try to fix this problem and limit the damage. We can't thank them enough. A company built...

  • Page 14
    ... is the company that was able to buy Bear Stearns and Washington Mutual and assimilate them - an enormously complex job of managing risk, systems and people - in less than a year. JPMorgan Chase was a port of safety in the last storm - a source of strength, not weakness, for the global economy. We...

  • Page 15
    ... • Foreign direct investment grew as a share of total global capital flows over the last five years, from 22% in 2007 to 38% in 2012. This trend is likely to continue as well. • In 1990, only 19 of the world's top 500 multinationals were from developing countries, and by 2012, that number had...

  • Page 16
    ... a quarter. The markets we operate in cover 5.6 billion people who speak over 100 languages and use close to 50 currencies. Our firm provides support to these clients 24 hours a day, 365 days a year - across all time zones. The speed of markets and the constant application of new technology are...

  • Page 17
    ... transparent and best financial markets in the world. And I'm not talking about just Wall Street and banks - I include the whole mosaic: venture capital, private equity, asset managers, individual and corporate investors, and the public and private capital markets. Our financial markets have been...

  • Page 18
    ... are working closely with the appropriate government agencies and with other businesses to continue to enhance our defenses and improve our resiliency to the cybersecurity threats facing many industries. I recently met with President Obama and a small group of CEOs from various companies to discuss...

  • Page 19
    ... not only grow but will become more global and complex. This includes companies' needs for financing - loans, equity, debt and trade - and strategic advice; investors' needs for execution, research and best prices; and individuals' needs for asset management, mortgages, credit and financial advice...

  • Page 20
    ... in 2020. At JPMorgan Chase, loans to middle market companies have grown from $34.2 billion in 2009 to $50.7 billion in 2012 - a compound annual growth rate of 14%. • Investable assets for high-net-worth individuals globally rose from $33 trillion in 2008 to $42 trillion in 2011 - up nearly 9% on...

  • Page 21
    ... extraordinary relationships developed over decades value at lower costs due to our purchasing power and the highly efficient use of global data networks, data centers and other operating systems. We estimate that this represents a $3 billion cost efficiency benefit. All our businesses also benefit...

  • Page 22
    .... After investing in the growth of our businesses, we look at other ways to use the remaining excess capital. One use we consider is buying back stock - but only at a price we think is good for shareholders. In March, we passed the Federal Reserve Board's Comprehensive Capital Analysis and Review...

  • Page 23
    ...-term profitable businesses. We work hard to use our capital wisely. We generate enough capital to be able to invest at scale and on a continual basis. For example, in the last five years, we have built more than 800 new Chase branches, and since 2011, we added 1,200 Chase Private Client locations...

  • Page 24
    ... global markets, countries, economies and policies. We know a tremendous amount about our clients and their needs, and you'll be hearing more in future years as we increasingly use Big Data to manage risk, offer our clients more targeted products and services, and give them additional information...

  • Page 25
    ... business to manage risk, capital, credit and liquidity on a client-by-client basis, which is a necessity in the new regulatory environment. The scale with which we operate - arranging $450 billion of syndicated loans for clients, processing up to $10 trillion a day in transactions around the world...

  • Page 26
    ... in the capital markets, advise on merger and acquisition deals, and provide credit and cash management services to more than 800 bank clients. Since the start of the financial crisis in September 2008 through the end of 2012, we have raised $22.8 billion in equity, $43.6 billion in debt and advised...

  • Page 27
    ... America, and more than 17 million customers paid their bills with us online. Our bank branch model is evolving beyond just a place where customers conduct routine business to a place where customers get advice, new products and direct service. Currently, about 50% of our Chase-branded credit cards...

  • Page 28
    ...growth will come. That is why JPMorgan Chase continues to focus on ways to help metropolitan communities operate and grow. We offer cities and states our best advice and considerable financial support. Last year, the firm provided more than $85 billion in capital or credit to nearly 1,500 government...

  • Page 29
    ...employees each year across all our global businesses, and we train them to understand our products, services and customers and to know how to do their jobs well. For example, last year, our Corporate & Investment Bank programs alone hired and trained more than 1,000 full-time analysts and associates...

  • Page 30
    ..., want to change jobs or retire), this year we had more than our normal share. Three new members were added to the senior management team, replacing five former members (the Operating Committee now totals 12 members). Some turnover was due to the reorganization of our businesses that I mentioned in...

  • Page 31
    ... trips around the country where we can both learn from our employees and clients and show our deep appreciation to them. One of my favorite things to do each year is travel to our annual event where we recognize and thank our top branch tellers and personal bankers for the great job they are doing...

  • Page 32
    ... our people, the common bond they share, and the many wonderful ways - large and small - in which they make life better for each other, our clients and our communities. It will show you why I am so proud to work at JPMorgan Chase. Jamie Dimon Chairman and Chief Executive Officer April 10, 2013 30

  • Page 33
    31

  • Page 34
    ... of Deposits survey, growing deposits at approximately three times the industry rate, while gaining market share in all our top 25 markets. Chase Wealth Management had solid results, with investment sales and client investment assets both up 15% year-over-year. We remain the leading credit card...

  • Page 35
    ... needs with Chase Private Client (CPC). Affluent customers were banking at Chase but investing somewhere else, and they told us they wanted to consolidate with one partner. In 2012, we added approximately 950 CPC branch locations for a total of 1,218 locations as of year-end. Investment sales in the...

  • Page 36
    ... of the community. Conclusion For us, 2012 was a strong year. We delivered outstanding financial performance to JPMorgan Chase shareholders. We took a major step forward in improving the experience our customers have when they bank with us. And we empowered our employees to use their good judgment...

  • Page 37
    ... increasing Chase's network to 5,614; added approximately 950 Chase Private Client branch locations for a total of 1,218 locations as of year-end - Consumer household relationships up 4% - Investment sales and client investment assets both up 15% • #1 credit card issuer in the U.S. based...

  • Page 38
    ...ability to extend capital and provide innovative solutions while investing for future growth is supported by solid, consistent financial performance. For three years running, both heritage businesses produced returns on equity in excess of 17%. In 2012, the CIB achieved net income of $8.4 billion on...

  • Page 39
    ...we are able to provide best-in-class services to the largest institutional investors, pension funds, governments, banks and insurers. Our scale, global presence and balance sheet FY2012 CIB return on equity (ROE) on a pro forma basis assuming the 2013 allocated capital level of $56.5 billion would...

  • Page 40
    ... operations and growth, creating opportunities for global leaders in capital markets underwriting such as J.P. Morgan. We will continue to strengthen our ability to provide Global Corporate Bank and Treasury Services solutions around the world, ensuring that the full integration of foreign exchange...

  • Page 41
    ... provided $70 billion of capital for nonprofit and governmental clients, including states, municipalities, hospitals and universities (Source: Thomson Financial, internal sources) • Traded more than 125 million equity shares and 60,000 fixed income securities daily on average • Ranked...

  • Page 42
    ...capital to our clients, helping them expand and invest in their businesses and thus contribute Douglas Petno In Commercial Banking, we always have taken a long-term view and measured the success of our business by the value we bring to our clients. We look for the best management teams in the best...

  • Page 43
    ...growth opportunity - one we believe will reach $1 billion in annual revenue over time. We added over 900 new Middle Market clients last year, with more than a quarter of those in our expansion markets. We are deepening existing relationships by continually improving our coverage and customer service...

  • Page 44
    ... • Corporate Client Banking - 15% increase in revenue; record loans and investment banking fees • Commercial Term Lending - Record originations: 73% increase in 2012; improvement in credit quality • In 2012, Commercial Banking clients accounted for:3 31% of North America (NA) total...

  • Page 45
    ... Management balances, an additional $18 billion in total underwritten mortgages, and a record $145 billion in private client deposits at year-end. A unique business model serving the world's most influential clients Asset Management's Global Investment Management (GIM) and Global Wealth Management...

  • Page 46
    ... with corporate banking and lending, we are able to connect them with our colleagues across the firm to develop the best solutions. 2012 financial results Our relentless focus on our clients' needs helped Asset Management produce record annual revenue for the third consecutive year - $9.9 billion...

  • Page 47
    ...-class business and that in a first-class way. Mary Callahan Erdoes CEO, Asset Management 2012 HIGHLIGHTS AND ACCOMPLISHMENTS • #1 Ultra-High-Net-Worth Global Private Bank, Euromoney • #1 Institutional Money Market Fund Manager Worldwide, iMoneyNet • Best Asset Management Company...

  • Page 48
    ... innovation across our lines of business in close partnership with clients and through careful management of our direct operations, including energy use and greenhouse gas emissions. Peter Scher About Corporate Responsibility Five years after the global financial crisis began, 2012 saw the economic...

  • Page 49
    ... around the fiscal year 2012. world and to foster a global network of leaders whose met• Continued to provide billions ropolitan regions trade, invest of dollars in credit and financing and grow together. to European clients - corporate and sovereign - even as those economies came under...

  • Page 50
    ...with access to financial and clean technology companies nonprofits in 37 countries around services and improves the income and projects, including more the world to support community of small businesses in the network. than $1.6 billion in tax equity for development, education, and renewable...

  • Page 51
    ... Risk Management Critical Accounting Estimates Used by the Firm Accounting and Reporting Developments Nonexchange-Traded Commodity Derivative Contracts at Fair Value Forward-Looking Statements Supplementary information: 331 333 Selected Quarterly Financial Data Glossary of Terms 188 193 Management...

  • Page 52
    ... gain Net income Overhead ratio Deposits-to-loans ratio Tier 1 capital ratio(g) Total capital ratio Tier 1 leverage ratio Tier 1 common capital ratio(h) Selected balance sheet data (period-end)(g) Trading assets Securities Loans Total assets Deposits Long-term debt Common stockholders' equity Total...

  • Page 53
    ... this Annual Report. (e) Share prices shown for JPMorgan Chase's common stock are from the New York Stock Exchange. JPMorgan Chase's common stock is also listed and traded on the London Stock Exchange and the Tokyo Stock Exchange. (f) Return on Basel I risk-weighted assets is the annualized earnings...

  • Page 54
    ... businesses, commercial banking, financial transaction processing, asset management and private equity. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world's most prominent corporate, institutional and government clients. JPMorgan Chase...

  • Page 55
    ... clients' investment needs. For individual investors, AM also provides retirement products and services, brokerage and banking services including trust and estate, loans, mortgages and deposits. The majority of AM's client assets are in actively managed portfolios. JPMorgan Chase & Co./2012 Annual...

  • Page 56
    ... to readers of this Annual Report. For a complete description of events, trends and uncertainties, as well as the capital, liquidity, credit, market, and country risks, and the critical accounting estimates affecting the Firm and its various lines of business, this Annual Report should be read in...

  • Page 57
    ...& Community Banking added 106 branches and increased deposits by 11% in 2012. Business Banking loans increased to a record $18.9 billion, up 7% compared with 2011. Mortgage Banking reported strong production revenue driven by strong originations growth. In Card, Merchant Services & Auto, credit card...

  • Page 58
    ... housing prices or the unemployment rate, do not continue to improve. Management continues to closely monitor the portfolios in these businesses. In Private Equity, within the Corporate/Private Equity segment, earnings will likely continue to be volatile and JPMorgan Chase & Co./2012 Annual Report

  • Page 59
    ... improvements in model governance and market risk; and • effecting a series of changes to the Risk function's governance, organizational structure and interaction with the Board. The Board of Directors formed the Board Review Committee in May 2012 to oversee the scope and work of the Management...

  • Page 60
    ..., trading and money market mutual funds businesses. The Firm also faces regulatory initiatives relating to its structure, including push-out of certain derivatives activities from its subsidiary banks under Section 716 of the Dodd-Frank Act, a proposed requirement from the U.K. Financial Services...

  • Page 61
    ... and branches, loan money, provide liquidity to customers, and settle trades, and it waived a number of checking account and loan fees, including late payment fees. Superstorm Sandy did not have a material impact on the 2012 financial results of the Firm and the Firm does not anticipate total losses...

  • Page 62
    ...) Investment banking fees Principal transactions Lending- and deposit-related fees Asset management, administration and commissions Securities gains Mortgage fees and related income Card income Other income(a) Noninterest revenue Net interest income Total net revenue $ 2012 5,808 5,536 6,196 $ 2011...

  • Page 63
    ... businesses, lower securities gains in Corporate/Private Equity, lower mortgage fees and related income in CCB, and lower principal transactions revenue in Corporate/Private Equity. These declines were partially offset by higher asset management fees, largely in AM. Investment banking fees decreased...

  • Page 64
    ... year, driven by lower average loan balances and yields in CCB, reflecting the expected runoff of credit card balances and residential real estate loans; lower fees on credit card receivables, reflecting the impact of legislative changes; higher average interest-bearing deposit balances and related...

  • Page 65
    ... investments. The current and prior periods include deferred tax benefits associated with state and local inc ome taxes. For additional information on income taxes, see Critical Accounting Estimates Used by the Firm on pages 178-182 and Note 26 on pages 303-305 of this Annual Report. 2011 compared...

  • Page 66
    ... business segments and Corporate/Private Equity. Tangible common equity ("TCE"), ROTCE, tangible book value per share ("TBVS"), and Tier 1 common under Basel I and III rules are each non-GAAP financial measures. TCE represents the Firm's common stockholders' equity (i.e., total stockholders' equity...

  • Page 67
    ...financial measure due to the exclusion of CIB's market-based net interest income and the related assets. Management believes the exclusion of CIB's market-based activities provides investors and analysts a more meaningful measure by which to analyze the non-market-related business trends of the Firm...

  • Page 68
    ... reflect these revenue-sharing agreements. Funds transfer pricing Funds transfer pricing is used to allocate interest income and expense to each business and transfer the primary interest rate risk exposures to the Treasury group within Corporate/Private Equity. The allocation process is unique to...

  • Page 69
    ...161 $ 36,856 $ 43,646 Year ended December 31, (in millions, except ratios) Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset Management Corporate/Private Equity Total $ $ Provision for credit losses 2012 3,774 $ (479) 41 86 (37) 3,385 $ 2011 7,620 $ (285) 208 67 (36...

  • Page 70
    ... sector clients through its commercial card products, offers payment processing services to merchants, and provides auto and student loan services. Selected income statement data Year ended December 31, (in millions, except ratios) Revenue Lending- and deposit-related fees $ 3,121 Asset management...

  • Page 71
    ... Banking, as well as higher marketing expense in Card. Selected metrics As of or for the year ended December 31, (in millions, except headcount and ratios) Selected balance sheet data (period-end) Total assets Loans: Loans retained Loans held-for-sale and loans at fair value(a) Total loans Deposits...

  • Page 72
    ...,812 2012 2011 2010 Consumer & Business Banking Selected income statement data Year ended December 31, (in millions, except ratios) Revenue Lending- and deposit-related fees $ Asset management, administration and commissions Card income All other income Noninterest revenue Net interest income Total...

  • Page 73
    ... noted) Credit data and quality statistics Net charge-offs Net charge-off rate Allowance for loan losses Nonperforming assets Retail branch business metrics Investment sales volume Client investment assets % managed accounts Number of: Chase Private Client branch locations Personal bankers Sales...

  • Page 74
    ... income tax expense/ $ 5,332 (benefit) Mortgage Banking net income/ (loss) $ 3,341 Overhead ratios Mortgage Production Mortgage Servicing Real Estate Portfolios 43% 133 40 65% 462 33 111% 68 29 (a) Includes credit costs associated with Production. 84 JPMorgan Chase & Co./2012 Annual Report

  • Page 75
    ... earned from servicing third-party mortgage loans including stated service fees, excess service fees and other ancillary fees; and - modeled MSR asset amortization (or time decay). (b) Risk management comprises: - changes in MSR asset fair value due to market-based inputs such as interest rates, as...

  • Page 76
    ...higher level of default and servicing expense associated with the portfolio. Over time, the Firm expects that this portfolio will contribute positively to net income. For further information, see Note 14, PCI loans, on pages 266-268 of this Annual Report. 86 JPMorgan Chase & Co./2012 Annual Report

  • Page 77
    ... this Annual Report. (b) Predominantly consists of prime mortgages originated with the intent to sell that are accounted for at fair value and classified as trading assets on the Consolidated Balance Sheets. (c) At December 31, 2012, 2011 and 2010, excluded mortgage loans insured by U.S. government...

  • Page 78
    ... the home equity, prime mortgage, including option ARMs, and subprime mortgage portfolios, respectively. For further information, see Consumer Credit Portfolio on pages 138-149 of this Annual Report. (b) The delinquency rate for PCI loans was 20.14%, 23.30%, and 28.20% at December 31, 2012, 2011 and...

  • Page 79
    ... of the Commercial Card business to Card from CIB in the first quarter of 2011, higher net interchange income, and lower partner revenue-sharing due to the impact of the Kohl's portfolio sale. These increases were partially offset by lower revenue from fee-based products. Excluding the impact of the...

  • Page 80
    ... balance sheet data (average) Total assets Loans: Credit Card Auto Student Total loans Business metrics Credit Card, excluding Commercial Card Sales volume (in billions) New accounts opened Open accounts Accounts with sales activity % of accounts acquired online Merchant Services Merchant processing...

  • Page 81
    ... charge-off rate would have been 0.28%. Nonperforming assets at December 31, 2012, included $51 million of loans based upon regulatory guidance. (b) Average credit card loans included loans held-for-sale of $433 million, $833 million and $148 million for the years ended December 31, 2012, 2011 and...

  • Page 82
    ... Total investment banking fees Treasury Services Lending Total Banking Fixed Income Markets(c) Equity Markets Securities Services Credit Adjustments & Other(d)(e) Selected income statement data Year ended December 31, (in millions) Revenue Investment banking fees Principal transactions (a) 2012...

  • Page 83
    ... fees on lending-related commitments. This was partially offset by higher fair value losses on credit risk-related hedges of the retained loan portfolio. Markets and Investor Services revenue was $23.0 billion compared to $23.2 billion in the prior year. Combined Fixed Income and Equity Markets...

  • Page 84
    ... capital. Selected metrics As of or for the year ended December 31, (in millions, except headcount) Selected balance sheet data (period-end) Assets Loans: Loans retained(a) Loans held-for-sale and loans at fair value Total loans Equity Selected balance sheet data (average) Assets Trading assets-debt...

  • Page 85
    ... commercial paper, federal funds purchased and securities loaned or sold under repurchase agreements) as part of their client cash management program. According to Dealogic, the Firm was ranked #1 in Global Investment Banking Fees generated during 2012, based on revenue; #1 in Global Debt, Equity...

  • Page 86
    ... real estate investors and owners. Partnering with the Firm's other businesses, CB provides comprehensive financial solutions, including lending, treasury services, investment banking and asset management to meet its clients' domestic and international financial needs. Selected income statement data...

  • Page 87
    ... growth in client deposits and loan balances and higher lending- and deposit-related fees, partially offset by spread compression on client deposits. Revenue from Real Estate Banking was $416 million, a decrease of $44 million, or 10%, driven by a reduction in loan balances and lower gains on sales...

  • Page 88
    ...the year ended December 31, (in millions, except headcount and ratios) Selected balance sheet data (period-end) Total assets Loans: Loans retained Loans held-for-sale and loans at fair value Total loans Equity Period-end loans by client segment Middle Market Banking Commercial Term Lending Corporate...

  • Page 89
    ...clients' investment needs. For individual investors, AM also provides retirement products and services, brokerage and banking services including trust and estate, loans, mortgages and deposits. The majority of AM's client assets are in actively managed portfolios. Selected income statement data Year...

  • Page 90
    ... ranking data, ratios and where otherwise noted) Number of: Client advisors(a) Retirement planning services participants (in thousands) % of customer assets in 4 & 5 Star Funds(b) % of AUM in 1st and 2nd quartiles:(c) 1 year 3 years 5 years Selected balance sheet data (period-end) Total assets Loans...

  • Page 91
    ... products, partially offset by the impact of lower market levels. Custody, brokerage, administration and deposit balances were $585 billion, up by $43 billion, or 8%, due to deposit and custody inflows. Assets under supervision December 31, (in billions) Assets by asset class Liquidity Fixed income...

  • Page 92
    ...and managing the Firm's liquidity, funding, capital and structural interest rate and foreign exchange risks. The corporate staff units include Central Technology and Operations, Internal Audit, Executive, Finance, Human Resources, Legal & Compliance, Global Real Estate, General Services, Operational...

  • Page 93
    ... Annual Report. For information on interest rate, foreign exchange and other risks, and CIO VaR and the Firm's nontrading interest rate-sensitive revenue at risk, see Market Risk Management on pages 163-169 of this Annual Report. Selected income statement and balance sheet data As of or for the year...

  • Page 94
    ... transactions revenue in the Consolidated Statements of Income. Private equity portfolio information(a) Direct investments December 31, (in millions) Publicly held securities Carrying value Cost Quoted public value Privately held direct securities Carrying value Cost Third-party fund investments...

  • Page 95
    ... private banking clients). Deposits are based on the location from which the client relationship is managed. Loans outstanding are based predominantly on the domicile of the borrower and exclude loans held-for-sale and loans carried at fair value. JPMorgan Chase & Co./2012 Annual Report 105

  • Page 96
    ... Reserve Banks. For additional information, refer to the Liquidity Risk Management discussion on pages 127-133 of this Annual Report. Federal funds sold and securities purchased under resale agreements; and securities borrowed The Firm uses these instruments to support its client-driven market...

  • Page 97
    ... information on wholesale client deposits, refer to the CB and CIB segment discussions on pages 96-98 and 92-95, respectively, of this Annual Report. Federal funds purchased and securities loaned or sold under repurchase agreements The Firm uses these instruments as part of its liquidity management...

  • Page 98
    ... information on the Firm's long-term debt activities, see the Liquidity Risk Management discussion on pages 127-133 of this Annual Report. Stockholders' equity Total stockholders' equity increased, predominantly due to net income; a net increase in AOCI driven by net unrealized market value...

  • Page 99
    ... SPEs. In the event of such a short-term credit rating downgrade, JPMorgan Chase Bank, N.A., absent other solutions, would be required to provide funding to the SPE, if the commercial paper could not be JPMorgan Chase & Co./2012 Annual Report Off-balance sheet lending-related financial instruments...

  • Page 100
    ... 31, (in millions) On-balance sheet obligations Deposits(a) Federal funds purchased and securities loaned or sold under repurchase agreements Commercial paper Other borrowed funds Long-term debt(a) Other(b) Total on-balance sheet obligations Off-balance sheet obligations Unsettled reverse repurchase...

  • Page 101
    ...has no remaining exposure related to loans sold by Washington Mutual to the GSEs. The Firm also sells loans in securitization transactions with Ginnie Mae; these loans are typically insured or guaranteed by another government agency. The Firm, in its role as servicer, may elect, but is typically not...

  • Page 102
    ... repurchase liability. For these reasons, the Firm believes that its mortgage repurchase liability at December 31, 2012, is sufficient to cover probable future repurchase losses arising from loan sale and securitization transactions with the GSEs. 112 JPMorgan Chase & Co./2012 Annual Report

  • Page 103
    ... associated with private-label securitizations are separately evaluated by the Firm in establishing its litigation reserves. This table excludes repurchase demands asserted in or in connection with pending repurchase litigation. Quarterly mortgage insurance rescission notices received by loan...

  • Page 104
    ... from third parties - require application of a significant level of management judgment. While the Firm uses the best information available to it in estimating its mortgage repurchase liability, this estimate is inherently uncertain and imprecise. 114 JPMorgan Chase & Co./2012 Annual Report

  • Page 105
    ... repurchase demands and litigation arising out of its various roles as issuer and/or sponsor of mortgage-backed securities ("MBS") offerings in private-label securitizations. For further information, see Note 31 on pages 316-325 of this Annual Report. JPMorgan Chase & Co./2012 Annual Report 115

  • Page 106
    ...trade-date basis) 31 million shares of common stock and 18 million warrants for $1.3 billion and $238 million, respectively. Following the voluntary cessation of its common equity repurchase program in May 2012, the Firm resubmitted its capital plan to the Federal Reserve under the 2012 CCAR process...

  • Page 107
    ...be grouped into four main categories: • Credit risk • Market risk • Operational risk • Private equity risk These internal calculations result in the capital needed to cover JPMorgan Chase's business activities in the event of unexpected losses. In determining line of business equity the Firm...

  • Page 108
    ... of the well-capitalized standards established by the Federal Reserve, as indicated in the above tables. In addition, at December 31, 2012 and 2011, the Firm's Tier 1 common ratio was significantly above the 5% CCAR standard. For more information, see Note 28 on pages 306-308 of this Annual Report...

  • Page 109
    ...measures are used by bank regulators, investors and analysts as a key measure to assess the Firm's capital position and to compare the Firm's capital to that of other financial services companies. December 31, 2012 (in millions, except ratios) Tier 1 common under Basel I rules Adjustments related to...

  • Page 110
    ... risk capital JPMorgan Chase assesses its capital adequacy relative to the risks underlying its business activities using internal risk-assessment methodologies. The Firm measures economic capital primarily based on four risk factors: credit, market, operational and private equity risk. Yearly...

  • Page 111
    ... internal targets for expected returns are established as key measures of a business segment's performance. Line of business equity Year ended December 31, (in billions) Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset Management Corporate/Private Equity Total common...

  • Page 112
    ..., related stockholder matters and issuer purchases of equity securities, on pages 22-23 of JPMorgan Chase's 2012 Form 10-K and 2013 Business Outlook, on pages 68-69 of this Annual Report. Capital actions Issuance of preferred stock On August 27, 2012, the Firm issued $1.3 billion of fixed- rate...

  • Page 113
    ... the line of business risk committees and CROs to manage risk. The Risk Management function is headed by the Firm's Chief Risk Officer, who is a member of JPMorgan Chase & Co./2012 Annual Report the Firm's Operating Committee and who reports to the Chief Executive Officer and is accountable to...

  • Page 114
    ... management policies and performance against these policies and related benchmarks. The Board's Risk Policy Committee also reviews firm level market risk limits at least annually. The CROs for each line of business and the heads of Country Risk, Market Risk, Model Risk and the Wholesale Chief Credit...

  • Page 115
    ... operational services, is identified and aggregated through the Firm's risk management infrastructure. There are nine major risk types identified in the business activities of the Firm: liquidity risk, credit risk, market risk, interest rate risk, country risk, private equity risk, operational risk...

  • Page 116
    ... Model Governance Group and reports to the Model Risk and Development unit, which in turn reports to the Chief Risk Officer. The Model Risk function is independent of the model owners and reviews and approves a wide range of models, including risk management, valuation and certain regulatory capital...

  • Page 117
    ... of its lines of business, which provides a stable source of funding and limits reliance on the wholesale funding markets. As of December 31, 2012, the Firm's deposits-to-loans ratio was 163%, compared with 156% at December 31, 2011. As of December 31, 2012, total deposits for the Firm were $1,193...

  • Page 118
    ... secured funding as of December 31, 2012 and 2011, and average balances for the year ended December 31, 2012 and 2011, respectively. Deposits December 31, (in millions) Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset Management Corporate/ Private Equity Total Firm...

  • Page 119
    ..., 2012. The Firm raises secured long-term funding through securitization of consumer credit card loans, residential mortgages, auto loans and student loans, as well as through advances from the FHLBs, all of which increase funding and investor diversity. JPMorgan Chase & Co./2012 Annual Report 129

  • Page 120
    ... corporate debt, U.S. government agency debt, and agency MBS) that are available to the Firm on a consolidated basis. The liquidity amount estimated to be realized from secured financings is based on management's current judgment and assessment of the Firm's ability to quickly raise funds...

  • Page 121
    ... information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see Special-purpose entities on page 109, and Credit risk, liquidity risk and credit-related contingent features in Note 5 on pages 224-225, of this Annual...

  • Page 122
    ... by client-driven and risk management activities, and market conditions. Management believes cash flows from operations, available cash balances and the Firm's ability to generate cash through short- and long-term borrowings are sufficient to fund the Firm's operating liquidity needs. For the year...

  • Page 123
    ... secured financings of the Firm's assets; an increase in commercial paper issuance in the wholesale funding markets to meet short-term funding needs, partially offset by a decline in the volume of client deposits and other third-party liability balances related to CIB's liquidity management product...

  • Page 124
    ... is estimated considering the collateral and structural support for each credit facility. The calculations and assumptions are based on management Risk identification and measurement The Firm is exposed to credit risk through its lending, capital markets activities and operating services businesses...

  • Page 125
    ... on an annual basis. Industry and counterparty limits, as measured in terms of exposure and economic credit risk capital, are subject to stress-based loss constraints. Management of the Firm's wholesale credit risk exposure is accomplished through a number of means including: • Loan underwriting...

  • Page 126
    ...2012. The rise in commercial client activity resulted in an increase in credit exposure across most businesses, regions and products. Underwriting guidelines across all areas of lending continue to remain a key point of focus, consistent with evolving market conditions and the Firm's risk management...

  • Page 127
    ... Note 6 on pages 218-227 of this Annual Report. Nonperforming includes nonaccrual loans, nonperforming derivatives, commitments that are risk rated as nonaccrual, real estate owned and other commercial and personal property. At December 31, 2012 and 2011, nonperforming assets excluded: (1) mortgage...

  • Page 128
    ... real estate loans, credit card loans, auto loans, business banking loans, and student loans. The Firm's primary focus is on serving the prime segment of the consumer credit market. For further information on consumer loans, see Note 14 on pages 250-275 of this Annual Report. A substantial...

  • Page 129
    ...loans - retained Loans held-for-sale Total consumer, excluding credit card loans Lending-related commitments Home equity - senior lien(c) Home equity - junior lien(c) Prime mortgage Subprime mortgage Auto Business banking Student and other Total lending-related commitments Receivables from customers...

  • Page 130
    ... quarter of 2012. Approximately 20% of the Firm's home equity portfolio consists of home equity loans ("HELOANs") and the remainder consists of home equity lines of credit ("HELOCs"). HELOANs are generally fixed-rate, closed-end, amortizing loans, with terms ranging from 3-30 years. Approximately...

  • Page 131
    ... Firm estimates the balance of its total exposure to high-risk seconds on a quarterly basis using internal data, loan level credit bureau data, which typically provides the delinquency status of the senior lien, as well as information from a database maintained by one of the bank regulatory agencies...

  • Page 132
    ... and a strong used car market. The auto loan portfolio reflected a high concentration of prime-quality credits. Business banking: Business banking loans at December 31, 2012, were $18.9 billion, compared with $17.7 billion at December 31, 2011. The increase was due to growth in new loan origination...

  • Page 133
    ... these five states represented 72% of total PCI loans at both December 31, 2012 and 2011. Current estimated LTVs of residential real estate loans The current estimated average LTV ratio for residential real estate loans retained, excluding mortgage loans insured by U.S. government agencies and PCI...

  • Page 134
    ... is generally not required, unless the targeted loan is delinquent at the time of modification. When the Firm modifies home equity lines of credit, future lending commitments related to the modified loans are canceled as part of the terms of the modification. JPMorgan Chase & Co./2012 Annual Report

  • Page 135
    ... years ended December 31, 2012 and 2011, see Note 14 on pages 250-275 of this Annual Report. Modified residential real estate loans 2012 December 31, (in millions) Modified residential real estate loans, excluding PCI loans(a)(b)(c) Home equity - senior lien Home equity - junior lien Prime mortgage...

  • Page 136
    ...2012 and 2011, about consumer, excluding credit card, nonperforming assets. Nonperforming assets(a) December 31, (in millions) Nonaccrual loans(b) Home equity - senior lien Home equity - junior lien Prime mortgage, including option ARMs Subprime mortgage Auto Business banking Student and other Total...

  • Page 137
    ... their homes. Initial interest rates on loans JPMorgan Chase & Co./2012 Annual Report refinanced under the Refi Program were lower than the borrowers' interest rates prior to the refinancings and were capped at the greater of 100 basis points over Freddie Mac's then-current Primary Mortgage Market...

  • Page 138
    ... Program has been considered in the Firm's allowance for loan losses. For additional information, see Allowance for Credit Losses on pages 159-162 of this Annual Report. On February 9, 2012, the Firm also entered into agreements with the Federal Reserve and the OCC for the payment of civil money...

  • Page 139
    ...-based portfolio that has good U.S. geographic diversification. The greatest geographic concentration of credit card retained loans is in California, which represented 13% of total retained loans at both December 31, 2012 and 2011. Loan concentration for the top five states of California, New York...

  • Page 140
    ... rate, credit derivative, and foreign exchange balances. Wholesale credit portfolio December 31, (in millions) Loans retained Loans held-for-sale Loans at fair value Loans - reported Derivative receivables Receivables from customers and other(a) Total wholesale creditrelated assets Lending-related...

  • Page 141
    ... Lending-related commitments Subtotal Loans held-for-sale and loans at fair value(a) Receivables from customers and other Total exposure - net of liquid securities and other cash collateral held against derivatives Credit Portfolio Management derivatives net notional by counterparty ratings...

  • Page 142
    ...,658) As of or for the year ended December 31, 2012 (in millions) Top 25 industries(a) Real Estate Banks & Finance Cos Healthcare Oil & Gas State & Municipal Govt(b) Consumer Products Asset Managers Utilities Retail & Consumer Services Central Govt Metals/Mining Transportation Machinery & Equipment...

  • Page 143
    ...,807) As of or for the year ended December 31, 2011 (in millions) Top 25 industries(a) Real Estate Banks & Finance Cos Healthcare Oil & Gas State & Municipal Govt(b) Consumer Products Asset Managers Utilities Retail & Consumer Services Central Govt Metals/Mining Transportation Machinery & Equipment...

  • Page 144
    ... on commercial real estate loans, see Note 14 on pages 250-275 of this Annual Report. Banks and finance companies: Exposure to this industry increased by $1.9 billion or 3%, and criticized exposure decreased by 0.7%, compared with 2011. At December 31, 2012, 76% of the portfolio is rated investment...

  • Page 145
    ... on loans, including information on credit quality indicators, see Note 14 on pages 250-275 of this Annual Report. The Firm actively manages wholesale credit exposure. One way of managing credit risk is through sales of loans and lending-related commitments. During 2012 and 2011, the Firm sold...

  • Page 146
    ...Interest rate $ Credit derivatives Foreign exchange Equity Commodity Total, net of cash collateral Liquid securities and other cash collateral held against derivative receivables Total, net of all collateral $ 2012 2011 Derivative contracts In the normal course of business, the Firm uses derivative...

  • Page 147
    ... over time. To the extent that these correlations are identified, the Firm may adjust the CVA associated with that counterparty's AVG. The Firm risk manages exposure to changes in CVA by entering into credit derivative transactions, as well as interest rate, foreign exchange, equity and commodity...

  • Page 148
    ... Management activities; for further information on these credit derivatives as well as credit derivatives used in the Firm's capacity as a market maker in credit derivatives, see Credit derivatives in Note 6 on pages 226-227 of this Annual Report. 158 JPMorgan Chase & Co./2012 Annual Report

  • Page 149
    ... derivatives used in Credit Portfolio Management activities do not qualify for hedge accounting under U.S. GAAP; these derivatives are reported at fair value, with gains and losses recognized in principal transactions revenue. In contrast, the loans and lending-related commitments being risk-managed...

  • Page 150
    ...card, and wholesale portfolios, which is reported in other liabilities, was $668 million and $673 million at December 31, 2012 and 2011, respectively. The credit ratios in the following table are based on retained loan balances, which exclude loans held-for-sale and loans accounted for at fair value...

  • Page 151
    ... estimated losses recorded as purchase accounting adjustments at the time of acquisition. (d) Net charge-offs and net charge-off rates for the year ended December 31, 2012, included $800 million of charge-offs of Chapter 7 loans. See Consumer Credit Portfolio on pages 138-149 of this Annual Report...

  • Page 152
    ... nonperforming loans, current credit trends and other portfolio activity. For further information on the provision for credit losses, see the Consolidated Results of Operations on pages 72-75 of this Annual Report. Provision for lending-related commitments 2012 $ - $ - (2) $ (2) $ 2011 2 $ - (40...

  • Page 153
    ... in Corporate/Private Equity. CIB makes markets in products across fixed income, foreign exchange, equities and commodities markets. This activity gives rise to market risk and may lead to a potential decline in net income as a result of changes in market prices and rates. In addition, CIB's credit...

  • Page 154
    ... For further information, see Capital Management on pages 116-122 of this Annual Report. Effective in the first quarter of 2013, the Firm will implement regulatory VaR for positions as defined by the U.S. banking regulators' Basel 2.5 "Market Risk Rule". 164 JPMorgan Chase & Co./2012 Annual Report

  • Page 155
    ... results of the Firm's VaR measure using a 95% confidence level. Total VaR As of or for the year ended December 31, (in millions) CIB trading VaR by risk type Fixed income Foreign exchange Equities Commodities and other Diversification benefit to CIB trading VaR CIB trading VaR Credit portfolio VaR...

  • Page 156
    ... daily market riskrelated gains and losses for CIB, CIO and Mortgage Production and Mortgage Servicing positions in CCB for the year ended December 31, 2012. This market risk-related revenue is defined as the change in value of: principal transactions revenue for CIB and CIO (excludes Private Equity...

  • Page 157
    ... changes in risk factors such as credit spreads, equity prices, interest rates, currency rates or commodity prices. The framework uses a grid-based approach, which calculates multiple magnitudes of stress for both market rallies and market sell-offs for 167 JPMorgan Chase & Co./2012 Annual Report

  • Page 158
    ... adjustable rate products. All transfer-pricing assumptions are dynamically reviewed. The Firm manages this interest rate risk generally through its investment securities portfolio and related derivatives. The Firm evaluates its nontrading interest rate risk JPMorgan Chase & Co./2012 Annual Report

  • Page 159
    ... level. Limits are established by Market Risk in agreement with the lines of business. Limits are reviewed regularly by Market Risk and updated as appropriate, with any changes approved by lines of business management and Market Risk. Senior management, including the Firm's Chief Executive Officer...

  • Page 160
    ... financing receivables or related to client clearing activities). These indirect exposures are managed in the normal course of business through the Firm's credit, market, and operational risk governance, rather than through the country risk governance. The Firm's internal country risk reporting...

  • Page 161
    ... crisis. Country ratings and limits activity are actively monitored and reported on a regular basis. Country limit requirements are reviewed and approved by senior management as often as necessary, but at least annually. For further information on market-risk stress testing the Firm performs in...

  • Page 162
    ... of interest rates and credit spreads on market valuations. The following table presents the Firm's direct exposure to the five countries listed below at December 31, 2012, as measured under the Firm's internal country risk management approach. For individual exposures, corporate clients represent...

  • Page 163
    ... derivatives reflected in the "Trading" column include those from the Firm's market-making activities as well as $(4.1) billion of net purchased protection in the synthetic credit portfolio managed by CIB beginning in July 2012. Based on scheduled maturities and risk reduction actions being taken in...

  • Page 164
    ... estimate losses based on significan t market moves. The Firm's merchant banking business is managed in Corporate/Private Equity (for detailed information, see Private Equity portfolio on page 104 of this Annual Report); other lines of business may also conduct some principal investing activities...

  • Page 165
    ... business, to escalate issues and to provide consistent data aggregation across the Firm's businesses and support areas. Risk measurement Operational risk is measured using a statistical model based on the loss distribution approach. The operational risk 175 JPMorgan Chase & Co./2012 Annual Report

  • Page 166
    ...reporting. This includes reviewing the operational risk framework, the effectiveness of the business self-assessment process, and the loss data-collection and reporting activities. Insurance One of the ways operational loss is mitigated is through insurance maintained by the Firm. The Firm purchases...

  • Page 167
    ... Firm's success depends not only on its prudent management of the liquidity, credit, market, principal, and operational risks that are part of its business risk, but equally on the maintenance among its many constituents - customers and clients, investors, regulators, as well as the general public...

  • Page 168
    ...Note 15 on pages 276-279 of this Annual Report. The determination of the formula-based allowance for credit losses also involves significant judgment on a number of matters, as discussed below. Consumer loans and lending-related commitments, excluding PCI loans The formula-based allowance for credit...

  • Page 169
    ... losses and the allowance for lending-related commitments requires the early identification of credits that are deteriorating. The Firm uses a risk-rating system to determine the credit quality of its wholesale loans. Wholesale loans are reviewed for information affecting the obligor's ability to...

  • Page 170
    ... Report. December 31, 2012 Total assets at Total level 3 (in billions, except ratio data) fair value assets Trading debt and equity instruments $ 375.0 $ 25.6 Derivative receivables 75.0 23.3 Trading assets 450.0 48.9 AFS securities 371.1 28.9 Loans 2.6 2.3 MSRs 7.6 7.6 Private equity investments...

  • Page 171
    ...of equity used to discount those cash flows to a present value. Each of these factors requires significant judgment and the assumptions used are based on management's best estimate and most current projections, derived from the Firm's business forecasting process reviewed with senior management. The...

  • Page 172
    ... the financial statement impact of accounting for income taxes, including the provision for income tax expense and unrecognized tax benefits, JPMorgan Chase must make assumptions and judgments about how to interpret and apply these complex tax laws to numerous transactions and business events, as...

  • Page 173
    ... 1, 2012. The Firm has accounted for its repurchase and similar agreements as secured financings, and therefore, the application of this guidance did not have an impact on the Firm's Consolidated Balance Sheets or results of operations. Presentation of other comprehensive income In June 2011, the...

  • Page 174
    ... business, JPMorgan Chase trades nonexchange-traded commodity derivative contracts. To determine the fair value of these contracts, the Firm uses various fair value estimation techniques, primarily based on internal models with significant observable market parameters. The Firm's nonexchange-traded...

  • Page 175
    ..., technology, data processing and other operating systems and facilities; The other risks and uncertainties detailed in Part I, Item 1A: Risk Factors in the Firm's Annual Report on Form 10K for the year ended December 31, 2012. • • • • • Any forward-looking statements made...

  • Page 176
    ... LLP, an independent registered public accounting firm, as stated in their report which appears herein. James Dimon Chairman and Chief Executive Officer Marianne Lake Executive Vice President and Chief Financial Officer February 28, 2013 186 JPMorgan Chase & Co./2012 Annual Report

  • Page 177
    ...consolidated balance sheets and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of JPMorgan Chase & Co. and its subsidiaries (the "Firm") at December 31, 2012 and 2011...

  • Page 178
    Consolidated statements of income Year ended December 31, (in millions, except per share data) Revenue Investment banking fees Principal transactions Lending- and deposit-related fees Asset management, administration and commissions Securities gains(a) Mortgage fees and related income Card income ...

  • Page 179
    Consolidated statements of comprehensive income Year ended December 31, (in millions) Net income Other comprehensive income, after-tax Unrealized gains on AFS securities Translation adjustments, net of hedges Cash flow hedges Defined benefit pension and OPEB plans Total other comprehensive income, ...

  • Page 180
    Consolidated balance sheets December 31, (in millions, except share data) Assets Cash and due from banks Deposits with banks Federal funds sold and securities purchased under resale agreements (included $24,258 and $22,191 at fair value) Securities borrowed (included $10,177 and $15,308 at fair ...

  • Page 181
    Consolidated statements of changes in stockholders' equity Year ended December 31, (in millions, except per share data) Preferred stock Balance at January 1 Issuance of preferred stock Redemption of preferred stock Balance at December 31 Common stock Balance at January 1 and December 31 Capital ...

  • Page 182
    ... received from/(used in) business acquisitions or dispositions All other investing activities, net Net cash (used in)/provided by investing activities Financing activities Net change in: Deposits Federal funds purchased and securities loaned or sold under repurchase agreements Commercial paper and...

  • Page 183
    ...Firm is a leader in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity. For a discussion of the Firm's business segments, see Note 33 on pages 326-329 of this Annual Report. The accounting...

  • Page 184
    ... employee benefit plans Employee stock-based incentives Securities Securities financing activities Loans Allowance for credit losses Variable interest entities Goodwill and other intangible assets Premises and equipment Long-term debt Income taxes Off-balance sheet lending-related financial...

  • Page 185
    ... the Firm's commodities business can serve and has enabled the Firm to offer clients more products in more regions of the world. Purchase of remaining interest in J.P. Morgan Cazenove On January 4, 2010, JPMorgan Chase purchased the remaining interest in J.P. Morgan Cazenove, an investment banking...

  • Page 186
    ...functions. No adjustments are applied to the quoted market price for instruments classified within JPMorgan Chase & Co./2012 Annual Report Subsequent events Mortgage foreclosure settlement agreement with the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve...

  • Page 187
    ... verification process described above is applied to the inputs to those models. The Firm's Model Risk function within the Firm's Model Risk and Development Group, which in turn reports to the Chief Risk Officer, reviews and approves valuation models used by the Firm. Model reviews consider a number...

  • Page 188
    ... rates)) • Estimated prepayments • Servicing costs • Market liquidity For information regarding the valuation of loans measured at collateral value, see Note 14 on pages 250-275 of this Annual Report. Credit card receivables Valuations are based on discounted cash flows, which consider: Level...

  • Page 189
    ... Credit rating data Valued using observable market prices or data Exchange-traded derivatives that are actively traded and valued using the exchange price, and over-the-counter contracts where quoted prices are available in an active market. Classifications in the valuation hierarchy Level 1 Level...

  • Page 190
    ... Annual Report. Private equity direct investments Private equity direct investments Fair value is estimated using all available information and considering the range of potential inputs, including: • Transaction prices • Trading multiples of comparable public companies • Operating performance...

  • Page 191
    ...-sale securities Loans Mortgage servicing rights Other assets: Private equity investments(f) All other Total other assets Total assets measured at fair value on a recurring basis Deposits Federal funds purchased and securities loaned or sold under repurchase agreements Other borrowed funds Trading...

  • Page 192
    ... to consolidated financial statements December 31, 2011 (in millions) Federal funds sold and securities purchased under resale agreements Securities borrowed Trading assets: Debt instruments: Mortgage-backed securities: U.S. government agencies(a) Residential - nonagency Commercial - nonagency Total...

  • Page 193
    ...the private equity investment portfolio totaled $8.4 billion and $9.5 billion at December 31, 2012 and 2011, respectively. Includes investments in hedge funds, private equity funds, real estate and other funds that do not have readily determinable fair values. The Firm uses net asset value per share...

  • Page 194
    ... financial instruments, see pages 196-200 of this Note. Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed...

  • Page 195
    ... Option pricing Option pricing Option pricing Discounted cash flows Mortgage servicing rights ("MSRs") Private equity direct investments Private equity fund investments Long-term debt, other borrowed funds, and deposits(e) 7,614 Discounted cash flows 5,231 Market comparables 1,950 Net asset value...

  • Page 196
    ... FICO scores, loan to value ratios for residential mortgages and the nature of the property and/or any tenants for commercial mortgages. For CLOs, credit spread reflects the market's implied risk premium based on several factors including the subordination of the investment, the credit quality of...

  • Page 197
    ...range of levels within or across asset classes over time, particularly in volatile market conditions. For the Firm's derivatives and structured notes positions classified within level 3, the equity, foreign exchange and interest rate correlation inputs used in estimating fair value were concentrated...

  • Page 198
    ...rate Credit Foreign exchange Equity Commodity Total net derivative receivables Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments All other Fair value at January 1, 2012 Purchases...

  • Page 199
    ... Credit Foreign exchange Equity Commodity Total net derivative receivables Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments All other (a) Fair value at January 1, 2011 Purchases...

  • Page 200
    ... rate Credit Foreign exchange Equity Commodity Total net derivative receivables Available-for-sale securities: Asset-backed securities Other Total available-for-sale securities Loans Mortgage servicing rights Other assets: Private equity investments All other Fair value at January 1, 2010 Total...

  • Page 201
    ..., see Changes in level 3 recurring fair value measurements rollforward tables on pages 207-210 of this Annual Report. 2012 • $1.3 billion of net gains on trading assets - debt and equity instruments, largely driven by tightening of credit spreads and fluctuation in foreign exchange rates; and...

  • Page 202
    ... results managed by the credit portfolio and other lines of business within the CIB. (b) Structured notes are measured at fair value based on the Firm's election under the fair value option. For further information on these elections, see Note 4 on pages 214-216 of this Annual Report. • The...

  • Page 203
    ...used to estimate their fair v alue, see pages 196-200 of this Note. 2012 Estimated fair value hierarchy December 31, (in billions) Financial assets Cash and due from banks Deposits with banks Accrued interest and accounts receivable Federal funds sold and securities purchased under resale agreements...

  • Page 204
    ... lending-related commitments, see page 198 of this Note. Trading assets and liabilities Trading assets include debt and equity instruments owned by JPMorgan Chase ("long" positions) that are held for client market-making and client-driven activities, as well as for certain risk management activities...

  • Page 205
    ...associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of such risk management instruments. (c) Reported in mortgage fees and related income. (d) Reported in other income. JPMorgan Chase & Co./2012 Annual Report...

  • Page 206
    ...earnings during 2012, 2011 and 2010, which were attributable to changes in instrument-specific credit risk, were determined. • Loans and lending-related commitments: For floatingrate instruments, all changes in value are attributed to instrument-specific credit risk. For fixed-rate instruments, an...

  • Page 207
    ..., (in millions) Total consumer, excluding credit card(a) Total credit card Total consumer Wholesale-related Real estate Banks and finance companies Healthcare Oil and gas State and municipal governments Consumer products Asset managers Utilities Retail and consumer services Central government Metals...

  • Page 208
    ...However, JPMorgan Chase does not seek to apply hedge accounting to all of the derivatives involved in the Firm's risk management activities. For example, the Firm does not apply hedge accounting to purchased credit default swaps used to manage the credit risk of loans and lending-related commitments...

  • Page 209
    ... accounting relationships: Interest rate Credit Credit(a) Commodity Interest rate and foreign exchange • Various • Various Manage the risk of the mortgage pipeline, warehouse loans and MSRs Specified risk management Manage the credit risk of wholesale lending exposures Manage the credit risk...

  • Page 210
    ... interest rate contracts Credit derivatives(a) Foreign exchange contracts Cross-currency swaps Spot, futures and forwards Written options Purchased options Total foreign exchange contracts Equity contracts Swaps Futures and forwards Written options Purchased options Total equity contracts Commodity...

  • Page 211
    ...(a) Balances exclude structured notes for which the fair value option has been elected. See Note 4 on pages 214-216 of this Annual Report for further information. (b) Excludes $11 million of foreign currency-denominated debt designated as a net investment hedge at December 31, 2011. Foreign currency...

  • Page 212
    ... ended December 31, 2012 (in millions) Contract type Interest rate(a) Foreign exchange(b) Commodity(c) Total Hedged items $ Total income statement impact 641 (102) (1,399) 1,879 $ 2,925 1,131 5,935 $ (860) $ Gains/(losses) recorded in income Year ended December 31, 2011 (in millions) Contract...

  • Page 213
    ... in AOCI at December 31, 2012, related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are hedged is 8 years, and such transactions primarily relate to core lending and borrowing activities. JPMorgan Chase & Co./2012 Annual Report 223

  • Page 214
    ... interest rate risks associated with the mortgage pipeline, warehouse loans and MSRs. Gains and losses were recorded predominantly in mortgage fees and related income. (b) Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm's wholesale businesses...

  • Page 215
    ... with the current presentation. The following table shows the impact of a single-notch and two-notch ratings downgrade to JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association (" JPMorgan Chase Bank, N.A."), at December 31, 2012 and 2011, related to...

  • Page 216
    ... Firm actively manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. Second, as an end-user, the Firm uses credit derivatives to manage credit risk associated with lending exposures (loans...

  • Page 217
    ... JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below. Protection sold - credit derivatives and credit-related notes ratings(a)/maturity profile December 31, 2012 (in millions) Risk rating of reference entity Investment-grade Noninvestment-grade Total $ (409...

  • Page 218
    ... of the Firm's client-driven marketmaking activities. Year ended December 31, (in millions) Trading revenue by risk exposure Interest rate(a) Credit(b) Foreign exchange Equity Commodity(c) Total trading revenue Private equity gains/(losses)(d) Principal transactions (e) 2012 $ 3,922 (5,460...

  • Page 219
    ... credit card programs. The terms of these agreements generally range from three to 10 years. The Firm typically makes incentive payments to the partners based on new account originations, charge volumes and the cost of the partners' marketing activities and awards. Payments based on new account...

  • Page 220
    ... follows. Year ended December 31, (in millions) Interest income Loans Securities Trading assets Federal funds sold and securities purchased under resale agreements Securities borrowed Deposits with banks Other assets(a) Total interest income Interest expense Interest-bearing deposits Short-term and...

  • Page 221
    ... defined benefit pension plans to qualifying employees in certain non-U.S. locations based on factors such as eligible compensation, age and/or years of service. It is the Firm's policy to fund the pension plans in amounts sufficient to meet the requirements under applicable laws. The Firm does...

  • Page 222
    ... Employee contributions Benefits paid Foreign exchange impact and other Fair value of plan assets, end of year Funded/(unfunded) status(a) Accumulated benefit obligation, end of year $ $ 10,472 1,292 31 1,809 - (592) - $ 13,012 1,534 $ (11,447) (b)(c) U.S. 2012 $ (9,043) (272) (466) - (1,425) NA...

  • Page 223
    ... Changes in plan assets and benefit obligations recognized in other comprehensive income Net (gain)/loss arising during the year Prior service credit arising during the year Amortization of net loss Amortization of prior service (cost)/credit Settlement loss/(gain) Foreign exchange impact and other...

  • Page 224
    ... benefit pension and OPEB plan assets is a blended average of the investment advisor's projected long-term (10 years or more) returns for the various asset classes, weighted by the asset allocation. Returns on asset classes are developed using a forward-looking approach and are not strictly based...

  • Page 225
    ... company and are invested in equity and fixed income index funds. The investment policy for the Firm's U.S. defined benefit pension plan assets is to optimize the risk-return relationship as appropriate to the needs and goals using a global portfolio of various asset classes diversified by market...

  • Page 226
    ... securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities. Alternatives primarily include limited partnerships. Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded. 236 JPMorgan Chase & Co./2012 Annual Report

  • Page 227
    ... goods Banks and finance companies Business services Energy Materials Real Estate Other Total equity securities Common/collective trust funds(a) Limited partnerships:(b) Hedge funds Private equity Real estate Real assets(c) Total limited partnerships Corporate debt securities(d) U.S. federal, state...

  • Page 228
    ...securities: Capital equipment Consumer goods Banks and finance companies Business services Energy Materials Real estate Other Total equity securities Common/collective trust funds Limited partnerships:(b) Hedge funds Private equity Real estate Real assets(c) Total limited partnerships Corporate debt...

  • Page 229
    ... value measurements using significant unobservable inputs Year ended December 31, 2012 (in millions) U.S. defined benefit pension plans Equities Common/collective trust funds Limited partnerships: Hedge funds Private equity Real estate Real assets Total limited partnerships Corporate debt securities...

  • Page 230
    ... trust funds Limited partnerships: Hedge funds Private equity Real estate Real assets Total limited partnerships Corporate debt securities Other Total U.S. plans Non-U.S. defined benefit pension plans Other Total non-U.S. plans OPEB plans COLI Total OPEB plans (a) $ $ $ $ $ Purchases, sales...

  • Page 231
    ...this Annual Report. Under the LTI Plans, stock options and stock appreciation rights ("SARs") have generally been granted with an exercise price equal to the fair value of JPMorgan Chase's common stock on the grant date. The Firm typically awards SARs to certain key employees once per year; the Firm...

  • Page 232
    ...expense related to employee stock-based incentive plans 2012 2011 $ 1,986 2010 $ 2,479 $ 1,810 735 689 $ 2,675 772 $ 3,251 Cash flows and tax benefits Income tax benefits related to stock-based incentive arrangements recognized in the Firm's Consolidated Statements of Income for the years ended...

  • Page 233
    ...the years ended December 31, 2012, 2011 and 2010, under the Black-Scholes valuation model. Year ended December 31, Weighted-average annualized valuation assumptions Risk-free interest rate Expected dividend yield(a) Expected common stock price volatility Expected life (in years) 2012 2011 2010 Note...

  • Page 234
    ...losses of $24 million on sales of non-U.S. corporate debt, non-U.S. government debt and certain asset-backed securities that had been previously reported as an OTTI loss due to the intention to sell the securities during the year ended December 31, 2012. 244 JPMorgan Chase & Co./2012 Annual Report

  • Page 235
    ...: Prime and Alt-A Subprime Non-U.S. Commercial Total mortgage-backed securities U.S. Treasury and government agencies(a) Obligations of U.S. states and municipalities Certificates of deposit Non-U.S. government debt securities Corporate debt securities(b) Asset-backed securities: Collateralized loan...

  • Page 236
    ...: Prime and Alt-A Subprime Non-U.S. Commercial Total mortgage-backed securities U.S. Treasury and government agencies Obligations of U.S. states and municipalities Certificates of deposit Non-U.S. government debt securities Corporate debt securities Asset-backed securities: Collateralized loan...

  • Page 237
    ... of $24 million on sales of non-U.S. corporate debt, non-U.S. government debt and certain asset-backed securities that had been previously reported as an OTTI loss due to the intention to sell the securities during the year ended December 31, 2012. (f) Represents the credit loss component on certain...

  • Page 238
    ... of deposit Amortized cost Fair value Average yield(b) Non-U.S. government debt securities Amortized cost Fair value Average yield(b) Corporate debt securities Amortized cost Fair value Average yield(b) Asset-backed securities Amortized cost Fair value Average yield(b) Total available-for-sale debt...

  • Page 239
    ...the Firm did not hold any reserves for credit impairment with respect to these agreements as of December 31, 2012 and 2011. For further information regarding assets pledged and collateral received in securities financing agreements, see Note 30 on pages 315-316 of this Annual Report. JPMorgan Chase...

  • Page 240
    ... standards established by the Federal Financial Institutions Examination Council ("FFIEC"). Residential real estate loans, non-modified credit card loans and scored business banking loans are generally charged off at 180 days past due. In the second quarter of 2012, the Firm revised its policy to...

  • Page 241
    ... of liquid securities, the fair value is based on quoted market prices or broker quotes. For illiquid securities or other financial assets, the fair value of the collateral is estimated using a discounted cash flow model. For residential real estate loans, collateral values are based upon external...

  • Page 242
    Notes to consolidated financial statements Loans at fair value Loans used in a market-making strategy or risk managed on a fair value basis are measured at fair value, with changes in fair value recorded in noninterest revenue. For these loans, the earned current contractual interest payment is ...

  • Page 243
    ...Auto(b) • Business banking(b) • Student and other Residential real estate - PCI • Home equity • Prime mortgage • Subprime mortgage • Option ARMs Credit card • Credit card loans Wholesale(c) • Commercial and industrial • Real estate • Financial institutions • Government agencies...

  • Page 244
    ..., the Firm manages its exposure to credit risk. Selling loans is one way that the Firm reduces its credit exposures. 2012 Years ended December 31, (in millions) Purchases Sales Retained loans reclassified to held-for-sale Consumer, excluding credit card $ Credit card Wholesale 827 $ 3,423 504 Total...

  • Page 245
    ... below provides information about retained consumer loans, excluding credit card, by class. December 31, (in millions) Residential real estate - excluding PCI Home equity: Senior lien Junior lien Mortgages: Prime, including option ARMs Subprime Other consumer loans Auto Business banking Student and...

  • Page 246
    ... the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent...

  • Page 247
    ...) Mortgages Prime, including option ARMs 2012 2011 $ 61,439 3,237 11,580 76,256 3.97% - 10,625 3,445 $ 59,855 3,475 12,866 76,196 4.96% - 11,516 3,462 $ Subprime 2012 6,673 $ 727 855 8,255 $ 19.16% - $ - 1,807 2011 7,585 820 1,259 9,664 21.51% - - 1,781 $ Total residential real estate - excluding...

  • Page 248
    .... (b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty or when the collateral does not support the loan amount. Home equity lines of credit ("HELOCs") within...

  • Page 249
    ... loans on a cash basis(a) 2012 12 $ 16 28 31 87 $ 2011 1 $ 2 14 16 33 $ 2010 1 1 14 19 35 (in millions) 2012 2011 2010 Home equity Senior lien $ 610 $ 287 $ 207 Junior lien 848 521 266 Mortgages Prime, including option ARMs 5,989 3,859 1,530 Subprime 3,494 3,083 2,539 Total residential real estate...

  • Page 250
    ... Program ("2MP")) or one of the Firm's proprietary modification programs. For further information on the global settlement, see Global settlement on servicing and origination of mortgages in Note 2 on page 195 of this Annual Report. Modifications of residential real estate loans, excluding PCI loans...

  • Page 251
    ... loans, 3,800 prime mortgage, including option ARMs, and 3,800 subprime mortgages. Home equity Senior lien Year ended December 31, Number of loans approved for a trial modification, but not permanently modified Number of loans permanently modified Concession granted:(a) Interest rate reduction Term...

  • Page 252
    ... 30 days or more past due. At December 31, 2012, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were 6 years for senior lien home equity, 7 years for junior lien home equity, 10 years for prime mortgage, including...

  • Page 253
    ... 31, 2012 and 2011, respectively. These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of insured amounts is proceeding normally. For risk-rated business banking and auto loans, the primary credit quality...

  • Page 254
    ...fees or costs; and unamortized discounts or premiums on purchased loans. (e) There were no impaired student and other loans at December 31, 2012 and 2011. The following table presents average impaired loans for the periods presented. Year ended December 31, (in millions) Auto Business banking Total...

  • Page 255
    ... term or payment extensions - before TDR Weighted-average remaining contractual term (in years) of loans with term or payment extensions - after TDR 2012 12.64% 4.83 NM NM 2011 12.45% 5.70 NM NM Business banking 2012 7.33% 5.49 1.4 2.4 2011 7.55% 5.52 1.4 2.6 JPMorgan Chase & Co./2012 Annual Report...

  • Page 256
    ... Firm's results of operations primarily through: (i) contribution to net interest margin; (ii) expense related to defaults and servicing resulting from the liquidation of the loans; and (iii) any provision for loan losses. The PCI loans acquired in the Washington Mutual transaction were funded based...

  • Page 257
    ... real estate - PCI loans The table below sets forth information about the Firm's consumer, excluding credit card, PCI loans. December 31, (in millions, except ratios) Carrying value(a) Related allowance for loan losses(b) Loan delinquency (based on unpaid principal balance) Current 30-149 days...

  • Page 258
    ... closed. Predominantly all of these loans have been modified into fixed-rate amortizing loans. The table below sets forth the accretable yield activity for the Firm's PCI consumer loans for the years ended December 31, 2012, 2011 and 2010, and represents the Firm's estimate of gross interest income...

  • Page 259
    ... % of 90+ days past due to total retained loans Credit card loans by geographic region California New York Texas Illinois Florida New Jersey Ohio Pennsylvania Michigan Virginia All other Total retained credit card loans Percentage of portfolio based on carrying value with estimated refreshed FICO...

  • Page 260
    ...a short-term modification program. The Firm continues to report these loans as TDRs since the borrowers' credit lines remain closed. Financial effects of modifications and redefaults The following table provides information about the financial effects of the concessions granted on credit card loans...

  • Page 261
    Wholesale loan portfolio Wholesale loans include loans made to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals. The primary credit quality indicator for wholesale loans is the risk rating assigned each loan. Risk ratings are used to ...

  • Page 262
    ... and loans to priv ate banking clients. See Note 1 on pages 193-194 of this Annual Report for additional information on SPEs. The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment for the periods indicated. The real estate class...

  • Page 263
    ...and development 2012 $ 2,989 119 3.98% $ 21 0.70% $ $ 2011 3,148 304 9.66% 69 2.19% $ $ 2012 5,053 189 3.74% 43 0.85% $ $ Other 2011 4,568 422 9.24% 121 2.65% $ $ Total real estate loans 2012 60,740 4,377 7.21% 520 0.86% $ $ 2011 54,684 6,370 11.65% 886 1.62% JPMorgan Chase & Co./2012 Annual Report...

  • Page 264
    ...loan fees or costs; and unamortized discount or premiums on purchased loans. The following table presents the Firm's average impaired loans for the years ended 2012, 2011 and 2010. Year ended December 31, (in millions) Commercial and industrial Real estate Financial institutions Government agencies...

  • Page 265
    ... sales and paydowns, but also includes performing loans restructured at market rates that were removed from the reported TDR balance of $44 million and $152 million during the years ended December 31, 2012 and 2011, respectively. (b) Includes loans to Financial institutions, Government agencies...

  • Page 266
    Notes to consolidated financial statements Note 15 - Allowance for credit losses JPMorgan Chase's allowance for loan losses covers the consumer, including credit card, portfolio segments (primarily scored); and wholesale (risk-rated) portfolio, and represents management's estimate of probable credit...

  • Page 267
    ... could impact the risk rating assigned by the Firm to that loan. PD estimates are based on observable external through-the-cycle data, using creditrating agency default statistics. LGD estimates are based on the Firm's history of actual credit losses over more than one credit cycle. Management...

  • Page 268
    ... Annual Report. (b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. (c) Consumer, excluding credit card, charge-offs for the year ended December 31, 2012, included $747 million of charge-offs for Chapter 7 residential real estate loans...

  • Page 269
    ... page) 2011 Consumer, excluding credit card $ 16,471 - 5,419 (547) 4,872 4,670 25 $ 16,294 $ $ Credit card 11,034 - 8,168 (1,243) 6,925 2,925 (35) 6,999 $ $ Wholesale 4,761 $ - 916 (476) 440 17 (22) 4,316 $ Total 32,266 - 14,503 (2,266) 12,237 7,612 (32) 27,609 $ $ Consumer, excluding credit card 14...

  • Page 270
    ... and commercial mortgages, automobile and student loans Assist clients in accessing the financial markets in a cost-efficient manner and structures transactions to meet investor needs Annual Report page reference 281 281-283 281-283 281-283 284-285 285-286 286-288 The Firm's other business segments...

  • Page 271
    ... and student loans) primarily in its CIB and CCB businesses. Depending on the particular transaction, as well as the respective business involved, the Firm may act as the servicer of the loans and/or retain certain beneficial interests in the securitization trusts. JPMorgan Chase & Co./2012 Annual...

  • Page 272
    ... retained from loans sales to U.S. government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 6 on pages 218-227 of this Annual Report for further information on derivatives); senior and...

  • Page 273
    ... and trading activities involving the securities issued by securitization trusts. CIB may retain unsold senior and/or subordinated interests in commercial mortgage securitizations at the time of securitization but , generally, the Firm does not service commercial loan securitizations. For commercial...

  • Page 274
    ... in structuring transactions, the Firm makes decisions regarding asset types and credit quality, and manages the commercial paper funding needs of the conduits. The Firm's interests that could potentially be significant to the VIEs include the fees received as administrative agent and liquidity and...

  • Page 275
    ...-related commitments. For more information on offbalance sheet lending-related commitments, see Note 29 on pages 308-315 of this Annual Report. VIEs associated with investor intermediation activities As a financial intermediary, the Firm creates certain types of VIEs and also structures transactions...

  • Page 276
    ... scale is based on the Firm's internal risk ratings and is presented on an S&P-equivalent basis. Credit-related note and asset swap vehicles Credit-related note vehicles The Firm structures transactions with credit-related note vehicles in which the VIE purchases highly rated assets, such as asset...

  • Page 277
    ... Firm has a senior claim on the collateral of the VIE and reports such derivatives on its Consolidated Balance Sheets at fair value. Substantially all of the assets purchased by such VIEs are investment-grade. Exposure to nonconsolidated credit-related note and asset swap VIEs at December 31, 2012...

  • Page 278
    ...vehicles. The Firm did not consolidate any asset swap vehicles at December 31, 2012 and 2011. VIEs sponsored by third parties VIE used in FRBNY transaction In conjunction with the Bear Stearns merger in June 2008, the Federal Reserve Bank of New York ("FRBNY") took control, through an LLC formed for...

  • Page 279
    .... For a limited number of loan sales, the Firm is obligated to share a portion of the credit risk associated with the sold loans with the purchaser. See Note 29 on pages 308-315 of this Annual Report for additional information about the Firm's loan sales- and securitization-related indemnifications...

  • Page 280
    ... 2012 and 2011, respectively. Substantially all of these loans and real estate owned are insured or guaranteed by U.S. government agencies and reimbursement is proceeding normally. For additional information, refer to Note 14 on pages 250-275 of this Annual Report. (a) The Firm's interests in prime...

  • Page 281
    ... are reviewed by the Firm's Operating Committee. The following table presents goodwill attributed to the business segments. December 31, (in millions) Consumer & Community Banking Corporate & Investment Bank Commercial Banking Asset Management Corporate/Private Equity Total goodwill 2012 2011 2010...

  • Page 282
    ... higher levels of risk or uncertainty associated with the business or management's forecasts and assumptions). To assess the reasonableness of the discount rates used for each reporting unit management compares the discount rate to the estimated cost of equity for publicly traded institutions with...

  • Page 283
    ... servicing rights transferred to an agencysponsored trust in exchange for stripped mortgage backed securities ("SMBS"). A portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired and has retained the remaining balance of those SMBS as trading assets. 2012 2011...

  • Page 284
    ... the impact of MSR risk management activities) for the years ended December 31, 2012, 2011 and 2010. Year ended December 31, (in millions) Mortgage fees and related income Net production revenue: Production revenue Repurchase losses Net production revenue Net mortgage servicing revenue Operating...

  • Page 285
    ... expense related to credit card relationships, core deposits and other intangible assets. December 31, (in millions) Purchased credit card relationships Other credit card-related intangibles Core deposit intangibles Other intangibles Total amortization expense 2012 $ 309 265 239 144 957 $ 2011 295...

  • Page 286
    ... financial statements Note 18 - Premises and equipment Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation and amortization. JPMorgan Chase computes depreciation using the straight-line method over the estimated useful life of an asset...

  • Page 287
    ...exclude structured notes accounted for at fair value. Included long-term debt of $48.0 billion and $23.8 billion secured by assets totaling $112.8 billion and $89.4 billion at December 31, 2012 and 2011, respectively. The amount of long-term debt secured by assets does not include amounts related to...

  • Page 288
    ...to consolidated financial statements The weighted-average contractual interest rates for total long-term debt excluding structured notes accounted for at fair value were 3.09% and 3.57% as of December 31, 2012 and 2011, respectively. In order to modify exposure to interest rate and currency exchange...

  • Page 289
    ... trust, including unamortized original-issue discount. The principal amount of debentures issued to the trusts includes the impact of hedging and purchase accounting fair value adjustments that were recorded on the Firm's Consolidated Financial Statements. JPMorgan Chase & Co./2012 Annual Report...

  • Page 290
    ...a capital treatment event, as described in the terms of that series. Any redemption of the Firm's preferred stock is subject to nonobjection from the Federal Reserve. Note 23 - Common stock At December 31, 2012 and 2011, JPMorgan Chase was authorized to issue 9.0 billion shares of common stock with...

  • Page 291
    ...Part II, Item 5: Market for registrant's common equity, related stockholder matters and issuer purchases of equity securities, on pages 22-23 of JPMorgan Chase's 2012 Form 10-K. The Firm may, from time to time, enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934...

  • Page 292
    ... the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit) related to the Firm's defined benefit pension and OPEB plans. Year ended December 31, (in millions) Balance at December 31, 2009 Cumulative effect of changes in accounting principles...

  • Page 293
    ..., the Firm's final tax-related assets and liabilities may ultimately be different from those currently reported. The components of income tax expense/(benefit) included in the Consolidated Statements of Income were as follows for each of the years ended December 31, 2012, 2011, and 2010. Income tax...

  • Page 294
    Notes to consolidated financial statements A reconciliation of the applicable statutory U.S. income tax rate to the effective tax rate for each of the years ended December 31, 2012, 2011 and 2010, is presented in the following table. Effective tax rate Year ended December 31, Statutory U.S. federal ...

  • Page 295
    ...New York State and City JPMorgan Chase - California 2003 - 2005 2006 - 2010 2006 - 2008 2006 - 2010 2005 - 2007 2006 - 2008 After-tax interest expense/(benefit) and penalties related to income tax liabilities recognized in income tax expense were $147 million, $184 million and $(54) million in 2012...

  • Page 296
    ... the market risk related to applicable trading assets-debt and equity instruments, and foreign exchange and commodity derivatives. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets. Under the risk-based capital guidelines...

  • Page 297
    ...and the Tier 1 capital ratio would be 11.8% and 10.2%, respectively. At December 31, 2012, Chase Bank USA, N.A. had no trust preferred securities. (b) Includes off-balance sheet risk-weighted assets at December 31, 2012, of $304.5 billion, $297.1 billion and $16 million, and at December 31, 2011, of...

  • Page 298
    ...carrying values of off-balance sheet lending-related financial instruments, guarantees and other commitments at December 31, 2012 and 2011. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has...

  • Page 299
    ... net asset value as discussed in Note 3 on pages 196-214 of this Annual Report. In addition, at December 31, 2012 and 2011, included letters of credit hedged by derivative transactions and managed on a market risk basis of $4.5 billion and $3.9 billion, respectively. (h) For lending-related products...

  • Page 300
    ... and acquisition finance activities, which were $8.8 billion and $6.1 billion at December 31, 2012 and 2011, respectively. For further information, see Note 3 and Note 4 on pages 196-214 and 214-216 respectively, of this Annual Report. In addition, the Firm acts as a clearing and custody bank in...

  • Page 301
    ... ratings profiles of the Firm's customers, as of December 31, 2012 and 2011. Standby letters of credit, other financial guarantees and other letters of credit 2012 December 31, (in millions) Investment-grade(a) Noninvestment-grade(a) Total contractual amount Allowance for lending-related commitments...

  • Page 302
    ... related to repurchase demands associated with all of the private-label securitizations is separately evaluated by the Firm in establishing its litigation reserves. For additional information regarding litigation, see Note 31 on pages 316- 325 of this Annual Report. 312 JPMorgan Chase & Co./2012...

  • Page 303
    ... and $632 million, for the years ended December 31, 2012, 2011 and 2010, respectively. (c) Includes $112 million, $52 million and $47 million of provision related to new loan sales for the years ended December 31, 2012, 2011 and 2010, respectively. JPMorgan Chase & Co./2012 Annual Report 313

  • Page 304
    Notes to consolidated financial statements Loans sold with recourse The Firm provides servicing for mortgages and certain commercial lending products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit risk to the Firm is the cost of temporary servicing advances ...

  • Page 305
    ... on the Firm's securities financing activities and long-term debt, see Note 13 on page 249, and Note 21 on pages 297-299, respectively, of this Annual report. The significant components of the Firm's pledged assets were as follows. December 31, (in billions) Securities Loans Trading assets and other...

  • Page 306
    ... ARS purchased from J.P. Morgan Securities LLC, Chase Investment Services Corp. and Bear, Stearns & Co. Inc. by individual investors, charities and small- to medium-sized businesses. The Firm also agreed to a substantively similar settlement in principle with the Office of Financial Regulation for...

  • Page 307
    ...OCC, the Federal Reserve, the U.S. Department of Justice (the "DOJ"), the Securities and Exchange Commission (the "SEC"), the Commodity Futures Trading Commission (the "CFTC"), the UK Financial Services Authority, the State of Massachusetts and other government agencies. The Firm is cooperating with...

  • Page 308
    ... out of the Federal Reserve's and the OCC's reviews of the CIO, including the synthetic credit portfolio previously held by the CIO. The Consent Orders relate to risk management, model governance and other control functions related to CIO and certain other trading activities at the Firm. Many of the...

  • Page 309
    ... residential real estate collateral. Plaintiffs claim that JPMorgan Investment Management is liable for losses of more than $1 billion in market value of these securities. In the case filed by Assured Guaranty (U.K.) and the case filed by Ambac Assurance UK Limited in New York state court, discovery...

  • Page 310
    ... 2012. The Firm is awaiting the Court's decision. Separately, J.P. Morgan Trust Company (Cayman) Limited, JPMorgan (Suisse) SA, J.P. Morgan Securities plc, Bear Stearns Alternative Assets International Ltd., J.P. Morgan Clearing Corp., J.P. Morgan Bank Luxembourg SA, and J.P. Morgan Markets Limited...

  • Page 311
    ... class actions filed by purchasers of MF Global's publicly traded securities, including the securities issued pursuant to MF Global's June 2010 secondary offering of common stock and February 2011 and August 2011 convertible note offerings. The actions have been consolidated before the United States...

  • Page 312
    ...financial statements MBS trusts, against the Firm and the FDIC based on MBS issued by Washington Mutual Bank and its affiliates; that case is described in the Washington Mutual Litigations section below. The other actions are at various initial stages of litigation in the New York and Delaware state...

  • Page 313
    ... agreement with the OCC and the Federal Reserve providing for the termination of the Independent Foreclosure Review programs that had been required under the Consent Orders with such banking regulators relating to each bank's residential mortgage servicing, foreclosure and loss-mitigation activities...

  • Page 314
    ... States District Court for the Southern District of New York brought by participants in the Firm's securities lending business. The action concerns investments of approximately $500 million in Lehman Brothers medium-term notes. The Court granted the Firm's motion to dismiss all claims in April 2012...

  • Page 315
    ...legal proceedings each quarter to assess its litigation reserves, and makes adjustments in such reserves, upwards or downwards, as appropriate, based on management's best judgment after consultation with counsel. During the years ended December 31, 2012, 2011 and 2010, the Firm incurred $5.0 billion...

  • Page 316
    ... a line of business basis. There are four major reportable business segments - Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset Management. In addition, there is a Corporate/Private Equity segment. The business segments are determined based on the products and...

  • Page 317
    ... processing services to merchants, and provides auto and student loan services. Corporate & Investment Bank CIB offers a broad suite of investment banking, marketmaking, prime brokerage, and treasury and securities products and services to a global client base of corporations, investors, financial...

  • Page 318
    ...common equity Total assets Return on average common equity Overhead ratio (a) (b) Consumer & Community Banking 2012 $ 20,795 29,150 49,945 3,774 28,790 Corporate & Investment Bank 2012 $ 23,104 11,222 34,326 (479) 21,850 Commercial Banking 2012 $ 2,283 4,542 6,825 41 2,389 $ Asset Management 2012...

  • Page 319
    ... continued from previous page) Corporate/Private Equity 2012 $ 208 $ (1,360) (1,152) (37) 4,596 Reconciling Items(b) 2012 $ (2,116) $ (743) (2,859) - - Total 2012 $ 52,121 44,910 97,031 3,385 64,729 $ 2011 3,629 $ 506 4,135 (36) 4,108 2010 5,351 2,063 7,414 14 6,310 2011 (2,003) $ (530) (2,533...

  • Page 320
    ...income of subsidiaries and affiliates(a) Parent company net loss Cash dividends from subsidiaries and affiliates(a) Other, net Net cash provided by operating activities Investing activities Net change in: Deposits with banking subsidiaries Available-for-sale securities: Purchases Proceeds from sales...

  • Page 321
    ...(b) Return on assets Return on risk-weighted assets(d) Overhead ratio Deposits-to-loans ratio Tier 1 capital ratio Total capital ratio Tier 1 leverage ratio Tier 1 common capital ratio(e) Selected balance sheet data (period-end) Trading assets Securities Loans Total assets Deposits Long-term debt...

  • Page 322
    ... Annual Report. Share prices shown for JPMorgan Chase's common stock are from the New York Stock Exchange. JPMorgan Chase's common stock is also listed and traded on the London Stock Exchange and the Tokyo Stock Exchange. Return on Basel I risk-weighted assets is the annualized earnings of the Firm...

  • Page 323
    ... Associate trainees, who advise clients on investment options, including annuities, mutual funds, stock trading services, etc., sold by the Firm or by third party vendors through retail branches, Chase Private Client branches and other channels. Client investment managed accounts: Assets actively...

  • Page 324
    ... selling appropriate banking products and services. Portfolio activity: Describes changes to the risk profile of existing lending-related exposures and their impact on the allowance for credit losses from changes in customer profiles and inputs used to estimate the allowances. Pre-provision profit...

  • Page 325
    ...including Business Bankers, Relationship Managers and Loan Officers, who specialize in marketing and sales of various business banking products (i.e., business loans, letters of credit, deposit accounts, Chase Paymentech, etc.) and mortgage products to existing and new clients. Seed capital: Initial...

  • Page 326
    ... Beijing, The People's Republic of China Gérard Mestrallet Chairman and Chief Executive Officer GDF SUEZ Paris la Défense, France Akio Mimura Director, Member of the Board and Senior Advisor Nippon Steel & Sumitomo Metal Corporation Tokyo, Japan 336 JPMorgan Chase & Co./2012 Annual Report

  • Page 327
    ... Advisory Board Ronald J. Kramer Chief Executive Officer Griffon Corporation John Morphy Former Senior Vice President, Chief Financial Officer and Secretary Paychex, Inc. Richard W. Kunes Former Chief Financial Officer The Estée Lauder Companies JPMorgan Chase & Co./2012 Annual Report 337

  • Page 328
    ... Lake Chief Financial Officer Gordon A. Smith CEO, Consumer & Community Banking Mary Callahan Erdoes Michael J. Cavanagh Co-CEO, Corporate & Investment Bank CEO, Asset Management Douglas B. Petno CEO, Commercial Banking Matthew E. Zames Co-Chief Operating Officer Other Corporate Officers Joseph...

  • Page 329
    ... China CEO Europe, Middle East, Africa Daniel E. Pinto Emilio Saracho, Deputy CEO Latin America Martin G. Marron Senior Country Officers Asia Pacific ASEAN Australia/New Zealand Robert C. Priestley Indonesia Haryanto T. Budiman Malaysia Steve R. Clayton Philippines Roberto L. Panlilio Singapore...

  • Page 330
    ... To contact any of the Board members or committee chairs, the Presiding Director or the non-management directors as a group, please mail correspondence to: JPMorgan Chase & Co. Attention (Board member(s)) Office of the Secretary 270 Park Avenue New York, NY 10017-2070 The Corporate Governance...

  • Page 331
    ...the beginning of 2009, JPMorgan Chase & Co. has distributed shareholder information under the U.S. Securities and Exchange Commission "Notice and Access" rule. As a result, the firm prints 700,000 fewer Annual Reports and Proxy Statements, which saves on an annual basis approximately 6,400 trees and...

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