| SECURITIES | SECURITIES Securities are classified as AFS, held-to-maturity (“HTM”) or trading. For additional information regarding AFS and HTM securities, see Note 12 on pages 214–218 of JPMorgan Chase’s 2010 Annual Report. Trading securities are discussed in Note 3 on pages 104–116 of this Form 10-Q. Securities gains and losses The following table presents realized gains and losses and credit losses that were recognized in income from AFS securities. | | | | | | | | | | | | | | | | Three months ended September 30, | | Nine months ended September 30, | (in millions) | 2011 |
| 2010 |
| | 2011 |
| 2010 |
| Realized gains | $ | 629 |
| $ | 162 |
| | $ | 1,662 |
| $ | 2,044 |
| Realized losses | (7 | ) | (60 | ) | | (58 | ) | (232 | ) | Net realized gains(a) | 622 |
| 102 |
| | 1,604 |
| 1,812 |
| Credit losses included in securities gains(b) | (15 | ) | — |
| | (58 | ) | (100 | ) | Net securities gains | $ | 607 |
| $ | 102 |
| | $ | 1,546 |
| $ | 1,712 |
|
| | (a) | Proceeds from securities sold were within approximately 4% of amortized cost. |
| | (b) | Includes other-than-temporary impairment losses recognized in income on certain prime mortgage-backed securities for the three and nine months ended September 30, 2011, and on certain prime mortgage-backed securities and obligations of U.S. states and municipalities for the nine months ended September 30, 2010. |
The amortized costs and estimated fair values of AFS and HTM securities were as follows for the dates indicated. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2011 | | December 31, 2010 | (in millions) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Available-for-sale debt securities | | | | | | | | | | | | Mortgage-backed securities: | | | | | | | | | | | | U.S. government agencies(a) | $ | 104,941 |
| $ | 5,063 |
| $ | 2 |
| | $ | 110,002 |
| | $ | 117,364 |
| $ | 3,159 |
| $ | 297 |
| | $ | 120,226 |
| Residential: | | | | | | | | | | | | Prime and Alt-A | 2,300 |
| 66 |
| 176 |
| (d) | 2,190 |
| | 2,173 |
| 81 |
| 250 |
| (d) | 2,004 |
| Subprime | 1 |
| — |
| — |
| | 1 |
| | 1 |
| — |
| — |
| | 1 |
| Non-U.S. | 57,498 |
| 249 |
| 530 |
| | 57,217 |
| | 47,089 |
| 290 |
| 409 |
| | 46,970 |
| Commercial | 6,934 |
| 418 |
| 77 |
| | 7,275 |
| | 5,169 |
| 502 |
| 17 |
| | 5,654 |
| Total mortgage-backed securities | 171,674 |
| 5,796 |
| 785 |
| | 176,685 |
| | 171,796 |
| 4,032 |
| 973 |
| | 174,855 |
| U.S. Treasury and government agencies(a) | 7,512 |
| 178 |
| — |
| | 7,690 |
| | 11,258 |
| 118 |
| 28 |
| | 11,348 |
| Obligations of U.S. states and municipalities | 14,223 |
| 1,132 |
| 33 |
| | 15,322 |
| | 11,732 |
| 165 |
| 338 |
| | 11,559 |
| Certificates of deposit | 4,972 |
| 1 |
| — |
| | 4,973 |
| | 3,648 |
| 1 |
| 2 |
| | 3,647 |
| Non-U.S. government debt securities | 35,536 |
| 338 |
| 52 |
| | 35,822 |
| | 20,614 |
| 191 |
| 28 |
| | 20,777 |
| Corporate debt securities(b) | 61,599 |
| 285 |
| 1,462 |
| | 60,422 |
| | 61,717 |
| 495 |
| 419 |
| | 61,793 |
| Asset-backed securities: | | | | | | | | | | | | Credit card receivables | 4,810 |
| 179 |
| — |
| | 4,989 |
| | 7,278 |
| 335 |
| 5 |
| | 7,608 |
| Collateralized loan obligations | 21,070 |
| 527 |
| 164 |
| | 21,433 |
| | 13,336 |
| 472 |
| 210 |
| | 13,598 |
| Other | 9,266 |
| 140 |
| 25 |
| | 9,381 |
| | 8,968 |
| 130 |
| 16 |
| | 9,082 |
| Total available-for-sale debt securities | 330,662 |
| 8,576 |
| 2,521 |
| (d) | 336,717 |
| | 310,347 |
| 5,939 |
| 2,019 |
| (d) | 314,267 |
| Available-for-sale equity securities | 2,556 |
| 64 |
| 1 |
| | 2,619 |
| | 1,894 |
| 163 |
| 6 |
| | 2,051 |
| Total available-for-sale securities | $ | 333,218 |
| $ | 8,640 |
| $ | 2,522 |
| (d) | $ | 339,336 |
| | $ | 312,241 |
| $ | 6,102 |
| $ | 2,025 |
| (d) | $ | 316,318 |
| Total held-to-maturity securities(c) | $ | 13 |
| $ | 1 |
| $ | — |
| | $ | 14 |
| | $ | 18 |
| $ | 2 |
| $ | — |
| | $ | 20 |
|
| | (a) | Includes total U.S. government-sponsored enterprise obligations with fair values of $91.9 billion and $94.2 billion at September 30, 2011, and December 31, 2010, respectively, which were predominantly mortgage-related. |
| | (b) | Consists primarily of bank debt including sovereign government-guaranteed bank debt. |
| | (c) | Consists primarily of mortgage-backed securities issued by U.S. government-sponsored enterprises. |
| | (d) | Includes a total of $93 million and $133 million (pretax) of unrealized losses related to prime mortgage-backed securities for which credit losses have been recognized in income at September 30, 2011, and December 31, 2010, respectively. These unrealized losses are not credit-related and remain reported in AOCI. |
Securities impairment The following tables present the fair value and gross unrealized losses for AFS securities by aging category at September 30, 2011, and December 31, 2010. | | | | | | | | | | | | | | | | | | | | | | Securities with gross unrealized losses | | Less than 12 months | | 12 months or more | | | September 30, 2011 (in millions) | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses | Available-for-sale debt securities | | | | | | | | Mortgage-backed securities: | | | | | | | | U.S. government agencies | $ | 2,769 |
| $ | 1 |
| | $ | 11 |
| $ | 1 |
| $ | 2,780 |
| $ | 2 |
| Residential: | | | | | | | | Prime and Alt-A | 591 |
| 2 |
| | 1,061 |
| 174 |
| 1,652 |
| 176 |
| Subprime | — |
| — |
| | — |
| — |
| — |
| — |
| Non-U.S. | 18,998 |
| 156 |
| | 22,563 |
| 374 |
| 41,561 |
| 530 |
| Commercial | 2,118 |
| 77 |
| | — |
| — |
| 2,118 |
| 77 |
| Total mortgage-backed securities | 24,476 |
| 236 |
| | 23,635 |
| 549 |
| 48,111 |
| 785 |
| U.S. Treasury and government agencies | — |
| — |
| | — |
| — |
| — |
| — |
| Obligations of U.S. states and municipalities | 712 |
| 28 |
| | 25 |
| 5 |
| 737 |
| 33 |
| Certificates of deposit | — |
| — |
| | — |
| — |
| — |
| — |
| Non-U.S. government debt securities | 7,945 |
| 35 |
| | 298 |
| 17 |
| 8,243 |
| 52 |
| Corporate debt securities | 21,146 |
| 887 |
| | 7,845 |
| 575 |
| 28,991 |
| 1,462 |
| Asset-backed securities: | | | | | | | | Credit card receivables | — |
| — |
| | — |
| — |
| — |
| — |
| Collateralized loan obligations | 5,335 |
| 58 |
| | 3,726 |
| 106 |
| 9,061 |
| 164 |
| Other | 2,406 |
| 23 |
| | 229 |
| 2 |
| 2,635 |
| 25 |
| Total available-for-sale debt securities | 62,020 |
| 1,267 |
| | 35,758 |
| 1,254 |
| 97,778 |
| 2,521 |
| Available-for-sale equity securities | 355 |
| 1 |
| | — |
| — |
| 355 |
| 1 |
| Total securities with gross unrealized losses | $ | 62,375 |
| $ | 1,268 |
| | $ | 35,758 |
| $ | 1,254 |
| $ | 98,133 |
| $ | 2,522 |
|
| | | | | | | | | | | | | | | | | | | | | | Securities with gross unrealized losses | | Less than 12 months | | 12 months or more | | | December 31, 2010 (in millions) | Fair value | Gross unrealized losses | | Fair value | Gross unrealized losses | Total fair value | Total gross unrealized losses | Available-for-sale debt securities | | | | | | | | Mortgage-backed securities: | | | | | | | | U.S. government agencies | $ | 14,039 |
| $ | 297 |
| | $ | — |
| $ | — |
| $ | 14,039 |
| $ | 297 |
| Residential: | | | | | | | | Prime and Alt-A | — |
| — |
| | 1,193 |
| 250 |
| 1,193 |
| 250 |
| Subprime | — |
| — |
| | — |
| — |
| — |
| — |
| Non-U.S. | 35,166 |
| 379 |
| | 1,080 |
| 30 |
| 36,246 |
| 409 |
| Commercial | 548 |
| 14 |
| | 11 |
| 3 |
| 559 |
| 17 |
| Total mortgage-backed securities | 49,753 |
| 690 |
| | 2,284 |
| 283 |
| 52,037 |
| 973 |
| U.S. Treasury and government agencies | 921 |
| 28 |
| | — |
| — |
| 921 |
| 28 |
| Obligations of U.S. states and municipalities | 6,890 |
| 330 |
| | 20 |
| 8 |
| 6,910 |
| 338 |
| Certificates of deposit | 1,771 |
| 2 |
| | — |
| — |
| 1,771 |
| 2 |
| Non-U.S. government debt securities | 6,960 |
| 28 |
| | — |
| — |
| 6,960 |
| 28 |
| Corporate debt securities | 18,783 |
| 418 |
| | 90 |
| 1 |
| 18,873 |
| 419 |
| Asset-backed securities: | | | | | | | | Credit card receivables | — |
| — |
| | 345 |
| 5 |
| 345 |
| 5 |
| Collateralized loan obligations | 460 |
| 10 |
| | 6,321 |
| 200 |
| 6,781 |
| 210 |
| Other | 2,615 |
| 9 |
| | 32 |
| 7 |
| 2,647 |
| 16 |
| Total available-for-sale debt securities | 88,153 |
| 1,515 |
| | 9,092 |
| 504 |
| 97,245 |
| 2,019 |
| Available-for-sale equity securities | — |
| — |
| | 2 |
| 6 |
| 2 |
| 6 |
| Total securities with gross unrealized losses | $ | 88,153 |
| $ | 1,515 |
| | $ | 9,094 |
| $ | 510 |
| $ | 97,247 |
| $ | 2,025 |
|
Other-than-temporary impairment (“OTTI”) The following table presents credit losses that are included in the securities gains and losses table above. | | | | | | | | | | | | | | | | Three months ended September 30, | | Nine months ended September 30, | (in millions) | 2011 |
| 2010 |
| | 2011 |
| 2010 |
| Debt securities the Firm does not intend to sell that have credit losses | | | | | | Total other-than-temporary impairment losses(a) | $ | — |
| $ | — |
| | $ | (27 | ) | $ | (94 | ) | Losses recorded in/(reclassified from) other comprehensive income | (15 | ) | — |
| | (31 | ) | (6 | ) | Total credit losses recognized in income(b) | $ | (15 | ) | $ | — |
| | $ | (58 | ) | $ | (100 | ) |
| | (a) | For initial OTTI, represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, represents additional declines in fair value subsequent to previously recorded OTTI, if applicable. |
| | (b) | Represents the credit loss component of certain prime mortgage-backed securities for the three and nine months ended September 30, 2011, and certain prime mortgage-backed securities and obligations of U.S. states and municipalities for the nine months ended September 30, 2010, that the Firm does not intend to sell. Subsequent credit losses may be recorded on securities without a corresponding further decline in fair value if there has been a decline in expected cash flows. |
Changes in the credit loss component of credit-impaired debt securities The following table presents a rollforward for the three and nine months ended September 30, 2011 and 2010, of the credit loss component of OTTI losses that have been recognized in income, related to debt securities that the Firm does not intend to sell. | | | | | | | | | | | | | | | | Three months ended September 30, | | Nine months ended September 30, | (in millions) | 2011 |
| 2010 |
| | 2011 |
| 2010 |
| Balance, beginning of period | $ | 675 |
| $ | 640 |
| | $ | 632 |
| $ | 578 |
| Additions: | | | | | | Newly credit-impaired securities | — |
| — |
| | 4 |
| — |
| Increase in losses on previously credit-impaired securities | — |
| — |
| | — |
| 94 |
| Losses reclassified from other comprehensive income on previously credit-impaired securities | 15 |
| — |
| | 54 |
| 6 |
| Reductions: | | | | | | Sales of credit-impaired securities | — |
| (8 | ) | | — |
| (31 | ) | Impact of new accounting guidance related to VIEs | — |
| — |
| | — |
| (15 | ) | Balance, end of period | $ | 690 |
| $ | 632 |
| | $ | 690 |
| $ | 632 |
|
Gross unrealized losses Gross unrealized losses have generally increased since December 31, 2010, including those that have been in an unrealized loss position for 12 months or more. As of September 30, 2011, the Firm does not intend to sell the securities with a loss position in AOCI, and it is not likely that the Firm will be required to sell these securities before recovery of their amortized cost basis. Except for the securities reported in the table above for which credit losses have been recognized in income, the Firm believes that the securities with an unrealized loss in AOCI are not other-than-temporarily impaired as of September 30, 2011. Following is a description of the Firm’s principal investment securities with the most significant unrealized losses that have been existing for 12 months or more as of September 30, 2011, and the key assumptions used in the Firm’s estimate of the present value of the cash flows most likely to be collected from these investments. Mortgage-backed securities – Prime and Alt-A nonagency As of September 30, 2011, gross unrealized losses related to prime and Alt-A residential mortgage-backed securities issued by private issuers were $176 million, of which $174 million related to securities that have been in an unrealized loss position for 12 months or more. Approximately 55% of the total portfolio (by amortized cost) are currently rated below investment-grade; the Firm has recorded OTTI losses on 65% of the below investment-grade positions. The majority of OTTI has been attributed to securities that are primarily backed by mortgages with higher credit risk characteristics based on collateral type, vintage and geographic concentration. The remaining securities that are below investment-grade that have not experienced OTTI generally either do not possess all of these characteristics or have sufficient credit enhancements to protect the investment. The average credit enhancements associated with the below investment-grade and investment-grade positions are 8% and 49%, respectively. In analyzing prime and Alt-A residential mortgage-backed securities for potential credit losses, the Firm uses a methodology that focuses on loan-level detail to estimate future cash flows, which are then allocated to the various tranches of the securities. The loan-level analysis primarily considers current home value, loan-to-value (“LTV”) ratio, loan type and geographical location of the underlying property to forecast prepayment, home price, default rate and loss severity. The forecasted weighted average underlying default rate on the positions was 23%, and the related weighted average loss severity was 50%. Based on this analysis, an OTTI loss of $15 million and $58 million was recognized for the three months and nine months ended September 30, 2011, respectively, on certain securities due to their higher loss assumptions. Overall unrealized losses have decreased since December 31, 2010, with the recovery in security prices resulting from increased demand for higher-yielding asset classes and a deceleration in the pace of home price declines due in part to the U.S. government programs to facilitate financing and to spur home purchases. The unrealized loss of $176 million is considered temporary, based on management’s assessment that the estimated future cash flows together with the credit enhancement levels for those securities remain sufficient to support the Firm’s investment. Mortgage-backed securities – Non-U.S. As of September 30, 2011, gross unrealized losses related to non-U.S. residential mortgage-backed securities were $530 million, of which $374 million related to securities that have been in an unrealized loss position for 12 months or more. Substantially all of these securities are rated “AAA,” “AA” or “A” and represent mortgage exposures to the United Kingdom and the Netherlands. The key assumptions used in analyzing non-U.S. residential mortgage-backed securities for potential credit losses include credit enhancements, recovery rates, default rates, and constant prepayment rates. Credit enhancement is primarily in the form of subordination, which is a form of structural credit enhancement where realized losses associated with assets held in an issuing vehicle are allocated to the various tranches of securities issued by the vehicle considering their relative seniority. Credit enhancement in the form of subordination was approximately 10% of the outstanding principal balance of securitized mortgage loans, compared with expected lifetime losses of 1.5% of the outstanding principal. In determining potential credit losses, assumptions included recovery rates of 60%, default rates of 0.25% to 0.5% and constant prepayment rates of 15% to 20%. The unrealized loss is considered temporary, based on management’s assessment that the estimated future cash flows together with the credit enhancement levels for those securities remain sufficient to support the Firm’s investment. Corporate debt securities As of September 30, 2011, gross unrealized losses related to corporate debt securities were $1.5 billion, of which $575 million related to securities that have been in an unrealized loss position for 12 months or more. Substantially all of the corporate debt securities are rated investment-grade, including those in an unrealized loss position. Various factors were considered in assessing whether the Firm expects to recover the amortized cost of corporate debt securities including, but not limited to, the strength of issuer credit ratings, the financial condition of guarantors and the length of time and the extent to which a security’s fair value has been less than its amortized cost. The fair values of securities in an unrealized loss position were on average within approximately 5% of amortized cost. Based on management’s assessment, the Firm expects to recover the entire amortized cost basis of all corporate debt securities that were in an unrealized loss position as of September 30, 2011. Asset-backed securities – Collateralized loan obligations As of September 30, 2011, gross unrealized losses related to CLOs were $164 million, of which $106 million related to securities that were in an unrealized loss position for 12 months or more. Overall losses have decreased since December 31, 2010, mainly as a result of lower default forecasts and spread tightening across various asset classes. Substantially all of these securities are rated “AAA,” “AA” or “A” and have an average credit enhancement of 30%. The key assumptions considered in analyzing potential credit losses were underlying loan and debt security defaults and loss severity. Based on current default trends for the collateral underlying the securities, the Firm assumed collateral default rates of 2% for the third quarter of 2011, and 4% thereafter. Further, loss severities were assumed to be 48% for loans and 82% for debt securities. Losses on collateral were estimated to occur approximately 18 months after default. The unrealized loss is considered temporary, based on management’s assessment that the estimated future cash flows together with the credit enhancement levels for those securities remain sufficient to support the Firm's investment.
Contractual maturities and yields The following table presents the amortized cost and estimated fair value at September 30, 2011, of JPMorgan Chase’s AFS and HTM securities by contractual maturity. | | | | | | | | | | | | | | | | | | September 30, 2011 | By remaining maturity (in millions) | Due in one year or less | Due after one year through five years | Due after five years through 10 years | Due after 10 years(c) | Total | Available-for-sale debt securities | | | | | | Mortgage-backed securities(a) | | | | | | Amortized cost | $ | 27 |
| $ | 908 |
| $ | 2,943 |
| $ | 167,796 |
| $ | 171,674 |
| Fair value | 27 |
| 916 |
| 3,008 |
| 172,734 |
| 176,685 |
| Average yield(b) | 4.86 | % | 3.66 | % | 2.44 | % | 3.70 | % | 3.68 | % | U.S. Treasury and government agencies(a) | | | | | | Amortized cost | $ | 4,276 |
| $ | 2,985 |
| $ | — |
| $ | 251 |
| $ | 7,512 |
| Fair value | 4,286 |
| 3,106 |
| — |
| 298 |
| 7,690 |
| Average yield(b) | 0.68 | % | 2.20 | % | — | % | 3.89 | % | 1.39 | % | Obligations of U.S. states and municipalities | | | | | | Amortized cost | $ | 83 |
| $ | 283 |
| $ | 1,067 |
| $ | 12,790 |
| $ | 14,223 |
| Fair value | 85 |
| 303 |
| 1,100 |
| 13,834 |
| 15,322 |
| Average yield(b) | 2.55 | % | 3.84 | % | 3.72 | % | 4.83 | % | 4.72 | % | Certificates of deposit | | | | | | Amortized cost | $ | 4,972 |
| $ | — |
| $ | — |
| $ | — |
| $ | 4,972 |
| Fair value | 4,973 |
| — |
| — |
| — |
| 4,973 |
| Average yield(b) | 4.67 | % | — | % | — | % | — | % | 4.67 | % | Non-U.S. government debt securities | | | | | | Amortized cost | $ | 14,922 |
| $ | 15,716 |
| $ | 4,659 |
| $ | 239 |
| $ | 35,536 |
| Fair value | 14,923 |
| 15,918 |
| 4,747 |
| 234 |
| 35,822 |
| Average yield(b) | 1.24 | % | 2.01 | % | 2.51 | % | 6.74 | % | 1.79 | % | Corporate debt securities | | | | | | Amortized cost | $ | 23,473 |
| $ | 29,319 |
| $ | 8,807 |
| $ | — |
| $ | 61,599 |
| Fair value | 23,628 |
| 28,588 |
| 8,206 |
| — |
| 60,422 |
| Average yield(b) | 2.12 | % | 2.71 | % | 4.42 | % | — | % | 2.73 | % | Asset-backed securities | | | | | | Amortized cost | $ | 61 |
| $ | 5,007 |
| $ | 16,547 |
| $ | 13,531 |
| $ | 35,146 |
| Fair value | 61 |
| 5,711 |
| 16,348 |
| 13,683 |
| 35,803 |
| Average yield(b) | 0.45 | % | 2.47 | % | 2.04 | % | 2.35 | % | 2.22 | % | Total available-for-sale debt securities | | | | | | Amortized cost | $ | 47,814 |
| $ | 54,218 |
| $ | 34,023 |
| $ | 194,607 |
| $ | 330,662 |
| Fair value | 47,983 |
| 54,542 |
| 33,409 |
| 200,783 |
| 336,717 |
| Average yield(b) | 1.98 | % | 2.48 | % | 2.81 | % | 3.68 | % | 3.15 | % | Available-for-sale equity securities | | | | | | Amortized cost | $ | — |
| $ | — |
| $ | — |
| $ | 2,556 |
| $ | 2,556 |
| Fair value | — |
| — |
| — |
| 2,619 |
| 2,619 |
| Average yield(b) | — | % | — | % | — | % | 0.38 | % | 0.38 | % | Total available-for-sale securities | | | | | | Amortized cost | $ | 47,814 |
| $ | 54,218 |
| $ | 34,023 |
| $ | 197,163 |
| $ | 333,218 |
| Fair value | 47,983 |
| 54,542 |
| 33,409 |
| 203,402 |
| 339,336 |
| Average yield(b) | 1.98 | % | 2.48 | % | 2.81 | % | 3.64 | % | 3.13 | % | Total held-to-maturity securities | | | | | | Amortized cost | $ | — |
| $ | 8 |
| $ | 4 |
| $ | 1 |
| $ | 13 |
| Fair value | — |
| 9 |
| 4 |
| 1 |
| 14 |
| Average yield(b) | — | % | 6.91 | % | 6.82 | % | 6.47 | % | 6.86 | % |
| | (a) | U.S. government agencies and U.S. government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase’s total stockholders’ equity at September 30, 2011. |
| | (b) | Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable. |
| | (c) | Includes securities with no stated maturity. Substantially all of the Firm’s residential mortgage-backed securities and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated duration, which reflects anticipated future prepayments based on a consensus of dealers in the market, is approximately three years for agency residential mortgage-backed securities, two years for agency residential collateralized mortgage obligations and five years for nonagency residential collateralized mortgage obligations. |
|