| SECURITIES |
Securities Securities are primarily classified as AFS or trading. Securities classified as trading assets are discussed in Note 3 on pages 196–214 of this Annual Report. Predominantly all of the AFS securities portfolio is held by CIO in connection with its asset-liability management objectives. At December 31, 2012, the average credit rating of the debt securities comprising the AFS portfolio was AA+ (based upon external ratings where available, and where not available, based primarily upon internal ratings which correspond to ratings as defined by S&P and Moody’s). AFS securities are carried at fair value on the Consolidated Balance Sheets. Unrealized gains and losses, after any applicable hedge accounting adjustments, are reported as net increases or decreases to accumulated other comprehensive income/(loss). The specific identification method is used to determine realized gains and losses on AFS securities, which are included in securities gains/(losses) on the Consolidated Statements of Income. Other-than-temporary impairment AFS debt and equity securities in unrealized loss positions are analyzed as part of the Firm’s ongoing assessment of other-than-temporary impairment (“OTTI”). For most types of debt securities, the Firm considers a decline in fair value to be other-than-temporary when the Firm does not expect to recover the entire amortized cost basis of the security. For beneficial interests in securitizations that are rated below “AA” at their acquisition, or that can be contractually prepaid or otherwise settled in such a way that the Firm would not recover substantially all of its recorded investment, the Firm considers an OTTI to have occurred when there is an adverse change in expected cash flows. For AFS equity securities, the Firm considers a decline in fair value to be other-than-temporary if it is probable that the Firm will not recover its amortized cost basis. Potential OTTI is considered using a variety of factors, including the length of time and extent to which the market value has been less than cost; adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a security; payment structure of the security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and the Firm’s intent and ability to hold the security until recovery. For debt securities, the Firm recognizes OTTI losses in earnings if the Firm has the intent to sell the debt security, or if it is more likely than not that the Firm will be required to sell the debt security before recovery of its amortized cost basis. In these circumstances the impairment loss is equal to the full difference between the amortized cost basis and the fair value of the securities. When the Firm has the intent and ability to hold AFS debt securities in an unrealized loss position, it evaluates the expected cash flows to be received and determines if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in income. Amounts relating to factors other than credit losses are recorded in OCI. The Firm’s cash flow evaluations take into account the factors noted above and expectations of relevant market and economic data as of the end of the reporting period. For securities issued in a securitization, the Firm estimates cash flows considering underlying loan-level data and structural features of the securitization, such as subordination, excess spread, overcollateralization or other forms of credit enhancement, and compares the losses projected for the underlying collateral (“pool losses”) against the level of credit enhancement in the securitization structure to determine whether these features are sufficient to absorb the pool losses, or whether a credit loss exists. The Firm also performs other analyses to support its cash flow projections, such as first-loss analyses or stress scenarios. For equity securities, OTTI losses are recognized in earnings if the Firm intends to sell the security. In other cases the Firm considers the relevant factors noted above, as well as the Firm’s intent and ability to retain its investment for a period of time sufficient to allow for any anticipated recovery in market value, and whether evidence exists to support a realizable value equal to or greater than the carrying value. Any impairment loss on an equity security is equal to the full difference between the amortized cost basis and the fair value of the security. Realized gains and losses The following table presents realized gains and losses and credit losses that were recognized in income from AFS securities. | | | | | | | | | | | | Year ended December 31, (in millions) | 2012 |
| | 2011 |
| 2010 |
| Realized gains | $ | 2,610 |
| | $ | 1,811 |
| $ | 3,382 |
| Realized losses | (457 | ) | | (142 | ) | (317 | ) | Net realized gains(a) | 2,153 |
| | 1,669 |
| 3,065 |
| OTTI losses |
|
| |
|
|
|
| Credit-related(b) | (28 | ) | | (76 | ) | (100 | ) | Securities the Firm intends to sell(c) | (15 | ) | (d) | — |
| — |
| Total OTTI losses recognized in income | (43 | ) | | (76 | ) | (100 | ) | Net securities gains | $ | 2,110 |
| | $ | 1,593 |
| $ | 2,965 |
|
| | (a) | Proceeds from securities sold were within approximately 4% of amortized cost in 2012 and 2011, and within approximately 3% of amortized cost in 2010. |
| | (b) | Includes other-than-temporary impairment losses recognized in income on certain prime mortgage-backed securities and obligations of U.S. states and municipalities for the year ended December 31, 2012; certain prime mortgage-backed securities for the year ended December 31, 2011; and certain prime mortgage-backed securities and obligations of U.S. states and municipalities for the year ended December 31, 2010. |
| | (c) | Represents the excess of the amortized cost over the fair value of certain non-U.S. corporate debt, and non-U.S. government debt securities the Firm intends to sell. |
| | (d) | Excludes realized 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. |
The amortized costs and estimated fair values of AFS and held-to-maturity (“HTM”) securities were as follows for the dates indicated. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | 2011 | December 31, (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) | $ | 93,693 |
| $ | 4,708 |
| $ | 13 |
| | $ | 98,388 |
| | $ | 101,968 |
| $ | 5,141 |
| $ | 2 |
| | $ | 107,107 |
| Residential: | | | | | | | | | | | | Prime and Alt-A | 1,853 |
| 83 |
| 3 |
| (c) | 1,933 |
| | 2,170 |
| 54 |
| 218 |
| (c) | 2,006 |
| Subprime | 825 |
| 28 |
| — |
| | 853 |
| | 1 |
| — |
| — |
| | 1 |
| Non-U.S. | 70,358 |
| 1,524 |
| 29 |
| | 71,853 |
| | 66,067 |
| 170 |
| 687 |
| | 65,550 |
| Commercial | 12,268 |
| 948 |
| 13 |
| | 13,203 |
| | 10,632 |
| 650 |
| 53 |
| | 11,229 |
| Total mortgage-backed securities | 178,997 |
| 7,291 |
| 58 |
| | 186,230 |
| | 180,838 |
| 6,015 |
| 960 |
| | 185,893 |
| U.S. Treasury and government agencies(a) | 12,022 |
| 116 |
| 8 |
| | 12,130 |
| | 8,184 |
| 169 |
| 2 |
| | 8,351 |
| Obligations of U.S. states and municipalities | 19,876 |
| 1,845 |
| 10 |
| | 21,711 |
| | 15,404 |
| 1,184 |
| 48 |
| | 16,540 |
| Certificates of deposit | 2,781 |
| 4 |
| 2 |
| | 2,783 |
| | 3,017 |
| — |
| — |
| | 3,017 |
| Non-U.S. government debt securities | 65,168 |
| 901 |
| 25 |
| | 66,044 |
| | 44,944 |
| 402 |
| 81 |
| | 45,265 |
| Corporate debt securities(b) | 37,999 |
| 694 |
| 84 |
| | 38,609 |
| | 63,607 |
| 216 |
| 1,647 |
| | 62,176 |
| Asset-backed securities: | | | | | | | | | | | | Collateralized loan obligations | 27,483 |
| 465 |
| 52 |
| | 27,896 |
| | 24,474 |
| 553 |
| 166 |
| | 24,861 |
| Other | 12,816 |
| 166 |
| 11 |
| | 12,971 |
| | 15,779 |
| 251 |
| 57 |
| | 15,973 |
| Total available-for-sale debt securities | 357,142 |
| 11,482 |
| 250 |
| (c) | 368,374 |
| | 356,247 |
| 8,790 |
| 2,961 |
| (c) | 362,076 |
| Available-for-sale equity securities | 2,750 |
| 21 |
| — |
| | 2,771 |
| | 2,693 |
| 14 |
| 2 |
| | 2,705 |
| Total available-for-sale securities | $ | 359,892 |
| $ | 11,503 |
| $ | 250 |
| (c) | $ | 371,145 |
| | $ | 358,940 |
| $ | 8,804 |
| $ | 2,963 |
| (c) | $ | 364,781 |
| Total held-to-maturity securities | $ | 7 |
| $ | 1 |
| $ | — |
| | $ | 8 |
| | $ | 12 |
| $ | 1 |
| $ | — |
| | $ | 13 |
|
| | (a) | Includes total U.S. government-sponsored enterprise obligations with fair values of $84.0 billion and $89.3 billion at December 31, 2012 and 2011, respectively, which were predominantly mortgage-related. |
| | (b) | Consists primarily of bank debt including sovereign government-guaranteed bank debt. |
| | (c) | Includes a total of $91 million (pretax) of unrealized losses related to prime mortgage-backed securities for which credit losses have been recognized in income at December 31, 2011. These unrealized losses are not credit-related and remain reported in AOCI. There were no such losses at December 31, 2012. |
Securities impairment The following tables present the fair value and gross unrealized losses for AFS securities by aging category at December 31, 2012 and 2011. | | | | | | | | | | | | | | | | | | | | | | Securities with gross unrealized losses | | Less than 12 months | | 12 months or more | | | December 31, 2012 (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 | $ | 2,440 |
| $ | 13 |
| | $ | — |
| $ | — |
| $ | 2,440 |
| $ | 13 |
| Residential: | | | | | | | | Prime and Alt-A | 218 |
| 2 |
| | 76 |
| 1 |
| 294 |
| 3 |
| Subprime | — |
| — |
| | — |
| — |
| — |
| — |
| Non-U.S. | 2,442 |
| 6 |
| | 734 |
| 23 |
| 3,176 |
| 29 |
| Commercial | 1,159 |
| 8 |
| | 312 |
| 5 |
| 1,471 |
| 13 |
| Total mortgage-backed securities | 6,259 |
| 29 |
| | 1,122 |
| 29 |
| 7,381 |
| 58 |
| U.S. Treasury and government agencies | 4,198 |
| 8 |
| | — |
| — |
| 4,198 |
| 8 |
| Obligations of U.S. states and municipalities | 907 |
| 10 |
| | — |
| — |
| 907 |
| 10 |
| Certificates of deposit | 741 |
| 2 |
| | — |
| — |
| 741 |
| 2 |
| Non-U.S. government debt securities | 14,527 |
| 21 |
| | 1,927 |
| 4 |
| 16,454 |
| 25 |
| Corporate debt securities | 2,651 |
| 10 |
| | 5,641 |
| 74 |
| 8,292 |
| 84 |
| Asset-backed securities: | | | | | | | | Collateralized loan obligations | 6,328 |
| 17 |
| | 2,063 |
| 35 |
| 8,391 |
| 52 |
| Other | 2,076 |
| 7 |
| | 275 |
| 4 |
| 2,351 |
| 11 |
| Total available-for-sale debt securities | 37,687 |
| 104 |
| | 11,028 |
| 146 |
| 48,715 |
| 250 |
| Available-for-sale equity securities | — |
| — |
| | — |
| — |
| — |
| — |
| Total securities with gross unrealized losses | $ | 37,687 |
| $ | 104 |
| | $ | 11,028 |
| $ | 146 |
| $ | 48,715 |
| $ | 250 |
|
| | | | | | | | | | | | | | | | | | | | | | Securities with gross unrealized losses | | Less than 12 months | | 12 months or more | | | December 31, 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 | $ | 2,724 |
| $ | 2 |
| | $ | — |
| $ | — |
| $ | 2,724 |
| $ | 2 |
| Residential: | | | | | | | | Prime and Alt-A | 649 |
| 12 |
| | 970 |
| 206 |
| 1,619 |
| 218 |
| Subprime | — |
| — |
| | — |
| — |
| — |
| — |
| Non-U.S. | 30,500 |
| 266 |
| | 25,176 |
| 421 |
| 55,676 |
| 687 |
| Commercial | 837 |
| 53 |
| | — |
| — |
| 837 |
| 53 |
| Total mortgage-backed securities | 34,710 |
| 333 |
| | 26,146 |
| 627 |
| 60,856 |
| 960 |
| U.S. Treasury and government agencies | 3,369 |
| 2 |
| | — |
| — |
| 3,369 |
| 2 |
| Obligations of U.S. states and municipalities | 147 |
| 42 |
| | 40 |
| 6 |
| 187 |
| 48 |
| Certificates of deposit | — |
| — |
| | — |
| — |
| — |
| — |
| Non-U.S. government debt securities | 11,901 |
| 66 |
| | 1,286 |
| 15 |
| 13,187 |
| 81 |
| Corporate debt securities | 22,230 |
| 901 |
| | 9,585 |
| 746 |
| 31,815 |
| 1,647 |
| Asset-backed securities: | | | | | | | | Collateralized loan obligations | 5,610 |
| 49 |
| | 3,913 |
| 117 |
| 9,523 |
| 166 |
| Other | 4,735 |
| 40 |
| | 1,185 |
| 17 |
| 5,920 |
| 57 |
| Total available-for-sale debt securities | 82,702 |
| 1,433 |
| | 42,155 |
| 1,528 |
| 124,857 |
| 2,961 |
| Available-for-sale equity securities | 338 |
| 2 |
| | — |
| — |
| 338 |
| 2 |
| Total securities with gross unrealized losses | $ | 83,040 |
| $ | 1,435 |
| | $ | 42,155 |
| $ | 1,528 |
| $ | 125,195 |
| $ | 2,963 |
|
Other-than-temporary impairment The following table presents OTTI losses that are included in the securities gains and losses table above. | | | | | | | | | | | | | | | Year ended December 31, (in millions) | | 2012 |
| | 2011 |
| | 2010 |
| | Debt securities the Firm does not intend to sell that have credit losses | | | | | | | | Total OTTI(a) | | $ | (113 | ) | | $ | (27 | ) | | $ | (94 | ) | | Losses recorded in/(reclassified from) AOCI | | 85 |
| | (49 | ) | | (6 | ) | | Total credit losses recognized in income(b) | | (28 | ) | (d) | (76 | ) | (f) | (100 | ) | (g) | Securities the Firm intends to sell(c) | | (15 | ) | (e) | — |
| | — |
| | Total OTTI losses recognized in income | | $ | (43 | ) | | $ | (76 | ) | | $ | (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) | 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. |
| | (c) | Represents the excess of the amortized cost over the fair value of certain non-U.S. corporate debt, and non-U.S. government debt securities the Firm intends to sell. |
| | (d) | Represents the credit loss component on certain prime mortgage-backed securities and obligations of U.S. states and municipalities for the year ended December 31, 2012, that the Firm does not intend to sell. At December 31, 2012, there were no unrealized losses remaining in AOCI on securities for which credit losses were recognized in income during 2012. |
| | (e) | Excludes realized 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. |
| | (f) | Represents the credit loss component on certain prime mortgage-backed securities for the year ended December 31, 2011, that the Firm did not intend to sell. |
| | (g) | Represents the credit loss component on certain prime mortgage-backed securities and obligations of U.S. states and municipalities for the year ended December 31, 2010 that the Firm did not intend to sell. |
Changes in the credit loss component of credit-impaired debt securities The following table presents a rollforward for the years ended December 31, 2012, 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. | | | | | | | | | | | Year ended December 31, (in millions) | 2012 |
| 2011 |
| 2010 |
| Balance, beginning of period | $ | 708 |
| $ | 632 |
| $ | 578 |
| Additions: | | | | Newly credit-impaired securities | 21 |
| 4 |
| — |
| Increase in losses on previously credit-impaired securities | — |
| — |
| 94 |
| Losses reclassified from other comprehensive income on previously credit-impaired securities | 7 |
| 72 |
| 6 |
| Reductions: | | | | Sales of credit-impaired securities | (214 | ) | — |
| (31 | ) | Impact of new accounting guidance related to VIEs | — |
| — |
| (15 | ) | Balance, end of period | $ | 522 |
| $ | 708 |
| $ | 632 |
|
Gross unrealized losses Gross unrealized losses have generally decreased since December 31, 2011, including those that have been in an unrealized loss position for 12 months or more. Except for certain securities that the Firm intends to sell for which the unrealized losses have been recognized in income, as of December 31, 2012, 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 December 31, 2012. Contractual maturities and yields The following table presents the amortized cost and estimated fair value at December 31, 2012, of JPMorgan Chase’s AFS and HTM securities by contractual maturity. | | | | | | | | | | | | | | | | | By remaining maturity December 31, 2012 (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 | $ | 102 |
| $ | 11,915 |
| $ | 10,568 |
| $ | 156,412 |
| $ | 178,997 |
| Fair value | 103 |
| 12,268 |
| 11,008 |
| 162,851 |
| 186,230 |
| Average yield(b) | 1.91 | % | 1.94 | % | 2.81 | % | 3.15 | % | 3.05 | % | U.S. Treasury and government agencies(a) | | | | | | Amortized cost | $ | 7,779 |
| $ | 1,502 |
| $ | 1,651 |
| $ | 1,090 |
| $ | 12,022 |
| Fair value | 7,805 |
| 1,558 |
| 1,653 |
| 1,114 |
| 12,130 |
| Average yield(b) | 0.51 | % | 2.29 | % | 1.17 | % | 0.78 | % | 0.85 | % | Obligations of U.S. states and municipalities | | | | | | Amortized cost | $ | 23 |
| $ | 436 |
| $ | 972 |
| $ | 18,445 |
| $ | 19,876 |
| Fair value | 23 |
| 471 |
| 1,033 |
| 20,184 |
| 21,711 |
| Average yield(b) | 3.45 | % | 5.52 | % | 4.08 | % | 6.02 | % | 5.91 | % | Certificates of deposit | | | | | | Amortized cost | $ | 2,730 |
| $ | 51 |
| $ | — |
| $ | — |
| $ | 2,781 |
| Fair value | 2,729 |
| 54 |
| — |
| — |
| 2,783 |
| Average yield(b) | 5.78 | % | 3.28 | % | — | % | — | % | 5.73 | % | Non-U.S. government debt securities | | | | | | Amortized cost | $ | 18,248 |
| $ | 21,937 |
| $ | 22,870 |
| $ | 2,113 |
| $ | 65,168 |
| Fair value | 18,254 |
| 22,172 |
| 23,386 |
| 2,232 |
| 66,044 |
| Average yield(b) | 1.23 | % | 2.03 | % | 1.40 | % | 1.65 | % | 1.57 | % | Corporate debt securities | | | | | | Amortized cost | $ | 5,605 |
| $ | 23,342 |
| $ | 8,899 |
| $ | 153 |
| $ | 37,999 |
| Fair value | 5,618 |
| 23,732 |
| 9,098 |
| 161 |
| 38,609 |
| Average yield(b) | 2.09 | % | 2.37 | % | 2.57 | % | 3.99 | % | 2.38 | % | Asset-backed securities | | | | | | Amortized cost | $ | 500 |
| $ | 3,104 |
| $ | 17,129 |
| $ | 19,566 |
| $ | 40,299 |
| Fair value | 501 |
| 3,145 |
| 17,468 |
| 19,753 |
| 40,867 |
| Average yield(b) | 1.08 | % | 2.10 | % | 1.75 | % | 2.09 | % | 1.93 | % | Total available-for-sale debt securities | | | | | | Amortized cost | $ | 34,987 |
| $ | 62,287 |
| $ | 62,089 |
| $ | 197,779 |
| $ | 357,142 |
| Fair value | 35,033 |
| 63,400 |
| 63,646 |
| 206,295 |
| 368,374 |
| Average yield(b) | 1.57 | % | 2.17 | % | 1.94 | % | 3.29 | % | 2.69 | % | Available-for-sale equity securities | | | | | | Amortized cost | $ | — |
| $ | — |
| $ | — |
| $ | 2,750 |
| $ | 2,750 |
| Fair value | — |
| — |
| — |
| 2,771 |
| 2,771 |
| Average yield(b) | — | % | — | % | — | % | 0.36 | % | 0.36 | % | Total available-for-sale securities | | | | | | Amortized cost | $ | 34,987 |
| $ | 62,287 |
| $ | 62,089 |
| $ | 200,529 |
| $ | 359,892 |
| Fair value | 35,033 |
| 63,400 |
| 63,646 |
| 209,066 |
| 371,145 |
| Average yield(b) | 1.57 | % | 2.17 | % | 1.94 | % | 3.25 | % | 2.67 | % | Total held-to-maturity securities | | | | | | Amortized cost | $ | — |
| $ | 6 |
| $ | 1 |
| $ | — |
| $ | 7 |
| Fair value | — |
| 7 |
| 1 |
| — |
| 8 |
| Average yield(b) | — | % | 6.85 | % | 6.64 | % | — | % | 6.83 | % |
| | (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 December 31, 2012. |
| | (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. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid. |
| | (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 four years for nonagency residential collateralized mortgage obligations. |
|