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Article by DailyStocks_admin    (05-01-13 11:30 PM)

Description

JPMorgan Chase & Co. Director JAMES S CROWN bought 436,859 shares on 04-19-2013 at $ 46.98.

BUSINESS OVERVIEW

Overview
JPMorgan Chase & Co. (“ JPMorgan Chase ” or the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.” or “United States”), with operations worldwide; the Firm had $2.4 trillion in assets and $204.1 billion in stockholders’ equity as of December 31, 2012 . The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management and private equity. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients.

JPMorgan Chase ’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“ JPMorgan Chase Bank, N.A. ”), a national bank with U.S. branches in 23 states, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national bank that is the Firm’s credit card–issuing bank. JPMorgan Chase ’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking firm. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. One of the Firm’s principal operating subsidiaries in the United Kingdom (“U.K.”) is J. P. Morgan Securities plc (formerly J.P. Morgan Securities Ltd.), a wholly-owned subsidiary of JPMorgan Chase Bank, N.A.

The Firm’s website is www.jpmorganchase.com. JPMorgan Chase makes available free of charge, through its website, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the U.S. Securities and Exchange Commission (the “SEC”). The Firm has adopted, and posted on its website, a Code of Ethics for its Chairman and Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and other senior financial officers.

Business segments

JPMorgan Chase’s activities are organized, for management reporting purposes, into four major reportable business segments, as well as a Corporate/Private Equity segment. The Firm’s consumer business is the Consumer & Community Banking segment. The Corporate & Investment Bank, Commercial Banking, and Asset Management segments comprise the Firm’s wholesale businesses.


Competition

JPMorgan Chase and its subsidiaries and affiliates operate in a highly competitive environment. Competitors include other banks, brokerage firms, investment banking companies, merchant banks, hedge funds, commodity trading companies, private equity firms, insurance companies, mutual fund companies, credit card companies, mortgage banking companies, trust companies, securities processing companies, automobile financing companies, leasing companies, e-commerce and other Internet-based companies, and a variety of other financial services and advisory companies. JPMorgan Chase ’s businesses generally compete on the basis of the quality and range of their products and services, transaction execution, innovation and price. Competition also varies based on the types of clients, customers, industries and geographies served. With respect to some of its geographies and products, JPMorgan Chase competes globally; with respect to others, the Firm competes on a regional basis. The Firm’s ability to compete also depends on its ability to attract and retain its professional and other personnel, and on its reputation.

The financial services industry has experienced consolidation and convergence in recent years, as financial institutions involved in a broad range of financial products and services have merged and, in some cases, failed. This convergence trend is expected to continue. Consolidation could result in competitors of JPMorgan Chase gaining greater capital and other resources, such as a broader range of products and services and geographic diversity. It is likely that competition will become even more intense as companies continue to expand their operations globally and as the Firm’s businesses continue to compete with other financial institutions that are or may become larger or better capitalized, that may have a stronger local presence in certain geographies or that operate under different rules and regulatory regimes than the Firm.

Supervision and regulation

The Firm is subject to regulation under state and federal laws in the United States, as well as the applicable laws of each of the various jurisdictions outside the United States in which the Firm does business.

Regulatory reform : On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which is intended to make significant structural reforms to the financial services industry. The Dodd-Frank Act instructs U.S. federal banking and other regulatory agencies to conduct approximately 285 rule-makings and 130 studies and reports. These regulatory agencies include the Commodity Futures Trading Commission (the “CFTC”); the


Part I

Securities and Exchange Commission (the “SEC”); the Board of Governors of the Federal Reserve System (the “Federal Reserve”); the Office of the Comptroller of the Currency (the “OCC”); the Federal Deposit Insurance Corporation (the “FDIC”); the Bureau of Consumer Financial Protection (the “CFPB”); and the Financial Stability Oversight Council (the “FSOC”). As a result of the Dodd-Frank Act rule-making and other regulatory reforms, the Firm is currently experiencing a period of unprecedented change in regulation and such changes could have a significant impact on how the Firm conducts business. The Firm continues to work diligently in assessing and understanding the implications of the regulatory changes it is facing, and is devoting substantial resources to implementing all the new regulations, while, at the same time, best meeting the needs and expectations of its clients. Given the current status of the regulatory developments, the Firm cannot currently quantify the possible effects on its business and operations of all of the significant changes that are currently underway.

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Comprehensive Capital Analysis and Review (“CCAR”) and stress testing . In December 2011, the Federal Reserve issued final rules regarding the submission of capital plans by bank holding companies with total assets of $50 billion or more. Pursuant to these rules, the Federal Reserve requires the Firm to submit a capital plan on an annual basis. In October 2012, the Federal Reserve and OCC issued rules requiring the Firm and certain of its bank subsidiaries to perform stress tests under one stress scenario created by the Firm as well as three scenarios (baseline, adverse and severely adverse) mandated by the Federal Reserve. If the Federal Reserve objects to the Firm’s capital plan, the Firm will be unable to make any capital distributions unless approved by the Federal Reserve.

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Resolution plan. In September 2011, the FDIC and the Federal Reserve issued, pursuant to the Dodd-Frank Act, a final rule that requires bank holding companies with assets of $50 billion or more and companies designated as systemically important by the FSOC to submit periodically to the Federal Reserve and the FDIC a plan for resolution under the Bankruptcy Code in the event of material distress or failure (a “resolution plan”). In January 2012, the FDIC also issued a final rule that requires insured depository institutions with assets of $50 billion or more to submit periodically to the FDIC a plan for resolution under the Federal Deposit Insurance Act in the event of failure. The timing of initial, annual and interim resolution plan submissions under both rules is the same. The Firm’s initial resolution plan submissions were filed by July 1, 2012, and annual updates will be due by July 1 each year.



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Derivatives . Under the Dodd-Frank Act, the Firm will be subject to comprehensive regulation of its derivatives business (including capital and margin requirements, central clearing of standardized over-the-counter derivatives and the requirement that they be traded on regulated trading platforms) and heightened supervision. Further, some of the rules for derivatives will apply extraterritorially to U.S. firms doing business with clients outside of the United States. The Dodd-Frank Act also requires banking entities, such as JPMorgan Chase, to significantly restructure their derivatives businesses, including changing the legal entities through which derivatives activities are conducted.

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Volcker Rule . The Firm will also be affected by the requirements of Section 619 of the Dodd-Frank Act, and specifically the provisions prohibiting proprietary trading and restricting the activities involving private equity and hedge funds (the “Volcker Rule”). On October 11, 2011, regulators proposed regulations to implement the Volcker Rule. These are currently expected to be finalized in 2013. Under the proposed rules, “proprietary trading” is defined as the trading of securities, derivatives, or futures (or options on any of the foregoing) as principal, where such trading is principally for the purpose of short-term resale, benefiting from actual or expected short-term price movements and realizing short-term arbitrage profits. The proposed rule’s definition of proprietary trading specifically excludes market-making-related activity, certain government issued securities trading and certain risk management activities. The Firm ceased some prohibited proprietary trading activities during 2010 and has since exited substantially all such activities.

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Money Market Fund Reform . In November 2012, the FSOC and the Financial Stability Board (the “FSB”) issued separate proposals regarding money market fund reform. Pursuant to Section 120 of the Dodd-Frank Act, the FSOC published proposed recommendations that the SEC proceed with structural reforms of money market funds, including, among other possibilities, requiring that money market funds adopt a floating net asset value, mandating a capital buffer and requiring a hold-back on redemptions for certain shareholders. On January 15, 2013, the FSOC announced that it had extended the comment period for the proposed recommendations at the request of the Chairman of the SEC. It is expected that the SEC will issue its own rule proposal on money market fund reform in the near future. The FSB endorsed and published for public consultation 15 policy recommendations proposed by the International Organization of Securities Commissions (“IOSCO”), including requiring money market funds to adopt a floating net asset value. The FSB has stated that it expects to publish final recommendations in September 2013 and, thereafter, work on procedures for the consistent implementation of the policy recommendations.

•

Capital . The treatment of trust preferred securities as Tier 1 capital for regulatory capital purposes will be phased out over a three year period, beginning in 2013. In addition, in June 2011, the Basel Committee and the FSB announced that certain global systemically important banks (“GSIBs”) would be required to maintain additional capital, above the Basel III Tier 1 common equity minimum, in amounts ranging from 1% to 2.5%, depending upon the bank’s systemic importance. In June 2012, the Federal Reserve, the OCC and FDIC issued final rules for implementing ratings alternatives for the computation of risk-based capital for market risk exposures, which will result in significantly higher capital requirements for many securitization exposures.

•

FDIC Deposit Insurance Fund Assessments. In February 2011, the FDIC issued a final rule changing the assessment base and the method for calculating the deposit insurance assessment rate. These changes became effective on April 1, 2011, and resulted in a substantial increase in the assessments that the Firm’s bank subsidiaries pay annually to the FDIC. For example, in 2011, these changes resulted in an increase of approximately $600 million in assessments.

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Bureau of Consumer Financial Protection . The Dodd-Frank Act established the CFPB as a new regulatory agency. The CFPB has authority to regulate providers of credit, payment and other consumer financial products and services. The CFPB has examination authority over large banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., with respect to the banks’ consumer financial products and services. The CFPB issued final regulations regarding mortgages, which will become effective in January 2014.

•

Heightened prudential standards for systemically important financial institutions . The Dodd-Frank Act creates a structure to regulate systemically important financial companies, and subjects them to heightened prudential standards.

•

Debit interchange. On October 1, 2011, the Federal Reserve adopted final rules implementing the “Durbin Amendment” provisions of the Dodd-Frank Act, which limit the amount the Firm can charge for each debit card transaction it processes.
Other proposals have been made internationally, including additional capital and liquidity requirements that will apply to non-U.S. subsidiaries of JPMorgan Chase, such as J.P.


consistent implementation of the policy recommendations.

•

Capital . The treatment of trust preferred securities as Tier 1 capital for regulatory capital purposes will be phased out over a three year period, beginning in 2013. In addition, in June 2011, the Basel Committee and the FSB announced that certain global systemically important banks (“GSIBs”) would be required to maintain additional capital, above the Basel III Tier 1 common equity minimum, in amounts ranging from 1% to 2.5%, depending upon the bank’s systemic importance. In June 2012, the Federal Reserve, the OCC and FDIC issued final rules for implementing ratings alternatives for the computation of risk-based capital for market risk exposures, which will result in significantly higher capital requirements for many securitization exposures.

•

FDIC Deposit Insurance Fund Assessments. In February 2011, the FDIC issued a final rule changing the assessment base and the method for calculating the deposit insurance assessment rate. These changes became effective on April 1, 2011, and resulted in a substantial increase in the assessments that the Firm’s bank subsidiaries pay annually to the FDIC. For example, in 2011, these changes resulted in an increase of approximately $600 million in assessments.
•

Bureau of Consumer Financial Protection . The Dodd-Frank Act established the CFPB as a new regulatory agency. The CFPB has authority to regulate providers of credit, payment and other consumer financial products and services. The CFPB has examination authority over large banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., with respect to the banks’ consumer financial products and services. The CFPB issued final regulations regarding mortgages, which will become effective in January 2014.

•

Heightened prudential standards for systemically important financial institutions . The Dodd-Frank Act creates a structure to regulate systemically important financial companies, and subjects them to heightened prudential standards. For more information, see “Systemically important financial institutions” below.

•

Debit interchange. On October 1, 2011, the Federal Reserve adopted final rules implementing the “Durbin Amendment” provisions of the Dodd-Frank Act, which limit the amount the Firm can charge for each debit card transaction it processes.
Other proposals have been made internationally, including additional capital and liquidity requirements that will apply to non-U.S. subsidiaries of JPMorgan Chase, such as J.P.

Systemically important financial institutions : The Dodd-Frank Act creates a structure to regulate systemically important financial institutions, and subjects them to heightened prudential standards, including heightened capital, leverage, liquidity, risk management, resolution plan, single-counterparty credit limits, and early remediation requirements. Systemically important financial institutions will be supervised by the Federal Reserve. Bank holding companies with over $50 billion in assets, including JPMorgan Chase, and certain nonbank financial companies that are designated by the FSOC, will be considered systemically important financial institutions subject to the heightened standards and supervision.
In addition, if the regulators determine that the size or scope of activities of the company pose a threat to the safety and soundness of the company or the financial stability of the United States, the regulators have the power to require such companies to sell or transfer assets and terminate activities.
On December 20, 2011, the Federal Reserve issued proposed rules to implement certain of these heightened prudential standards, including:

•

Risk management standards. The proposal would require oversight of enterprise-wide risk management by a stand-alone risk committee of the board of directors and a chief risk officer. Among other things, the risk committee of the board of directors of a bank holding company would be required to review and approve the liquidity costs, benefits, and risk of each significant new line of business and product.

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Liquidity stress testing. The proposal would require a company to conduct a liquidity stress test at least monthly.

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Stress tests. Stress tests would be conducted annually by the Federal Reserve, and semi-annually by the company.

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Single Counterparty Exposure Limits. The proposal would limit net credit exposure of a bank holding company to a single counterparty as a percentage of regulatory capital. There would be a two-tier counterparty credit limit: (1) a general limit that prohibits a bank holding company (including its subsidiaries) from having aggregate net credit exposure to any single unaffiliated counterparty (including its subsidiaries) in excess of 25% of the company’s capital stock and surplus; and (2) a more stringent limit between a bank holding company with over $500 billion in total assets, and all its subsidiaries, and any counterparty with over $500 billion in total assets, and all of its subsidiaries, of 10% of the company’s capital stock and surplus.


Permissible business activities : JPMorgan Chase elected to become a financial holding company as of March 13, 2000, pursuant to the provisions of the Gramm-Leach-Bliley Act. If a financial holding company or any depository institution controlled by a financial holding company ceases to meet certain capital or management standards, the Federal Reserve may impose corrective capital and/or managerial requirements on the financial holding company and place limitations on its ability to conduct the broader financial activities permissible for financial holding companies. In addition, the Federal Reserve may require divestiture of the holding company’s depository institutions if the deficiencies persist. Federal regulations also provide that if any depository institution controlled by a financial holding company fails to maintain a satisfactory rating under the Community Reinvestment Act, the Federal Reserve must prohibit the financial holding company and its subsidiaries from engaging in any additional activities other than those permissible for bank holding companies that are not financial holding companies.


Financial holding companies and bank holding companies are required to obtain the approval of the Federal Reserve before they may acquire more than five percent of the voting shares of an unaffiliated bank. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”), the Federal Reserve may approve an application for such an acquisition without regard to whether the transaction is prohibited under the law of any state, provided that the acquiring bank holding company, before or after the acquisition, does not control more than 10% of the total amount of deposits of insured depository institutions in the United States or more than 30% (or such greater or lesser amounts as permitted under state law) of the total deposits of insured depository institutions in the state in which the acquired bank has its home office or a branch. In addition, the Dodd-Frank Act restricts acquisitions by financial companies if, as a result of the acquisition, the total liabilities of the financial company would exceed 10% of the total liabilities of all financial companies. For non-U.S. financial companies, liabilities are calculated using only the risk-weighted assets of their U.S. operations. U.S. financial companies must include all of their risk-weighted assets (including assets held overseas). This could have the effect of allowing a non-U.S. financial company to grow to hold significantly more than 10% of the U.S. market without exceeding the concentration limit.


Dividend restrictions : Federal law imposes limitations on the payment of dividends by national banks. Dividends payable by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., as national bank subsidiaries of JPMorgan Chase, are limited to the lesser of the amounts calculated under a “recent earnings” test and an “undivided profits” test. Under the recent earnings test, a dividend may not be paid if the total of all dividends declared by a bank in any calendar year is in excess of the current year’s net income combined with the retained net income of the two preceding years, unless the national bank obtains the approval of the OCC. Under the undivided profits test, a dividend may not be paid in excess of a bank’s “undivided profits.” See Note 27 on page 306 for the amount of dividends that the Firm’s principal bank subsidiaries could pay, at January 1, 2013, to their respective bank holding companies without the approval of their banking regulators.

In addition to the dividend restrictions described above, the OCC, the Federal Reserve and the FDIC have authority to prohibit or limit the payment of dividends by the banking organizations they supervise, including JPMorgan Chase and its bank and bank holding company subsidiaries, if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization. Under proposed rules issued by the Federal Reserve, dividends are restricted once any one of three risk-based capital ratios (tier 1 common, tier 1 capital, or total capital) falls below their respective minimum capital ratio requirement (inclusive of the GSIB surcharge) plus 2.5%.

Moreover, the Federal Reserve has issued rules requiring bank holding companies, such as JPMorgan Chase, to submit to the Federal Reserve a capital plan on an annual basis and receive a notice of non-objection from the Federal Reserve before taking capital actions, such as paying dividends, implementing common equity repurchase programs or redeeming or repurchasing capital instruments. For more information, see “CCAR and stress testing” on pages 5–6 .
Capital requirements : Federal banking regulators have adopted risk-based capital and leverage guidelines that require the Firm’s capital-to-assets ratios to meet certain minimum standards.

The risk-based capital ratio is determined by allocating assets and specified off-balance sheet financial instruments into risk-weighted categories, with higher levels of capital being required for the categories perceived as representing greater risk. Under the guidelines, capital is divided into two tiers: Tier 1 capital and Tier 2 capital. The amount of Tier 2 capital may not exceed the amount of Tier 1 capital. Total capital is the sum of Tier 1 capital and Tier 2 capital. Under the guidelines, banking organizations are required to maintain a total capital ratio (total capital to risk-weighted assets) of 8% and a Tier 1 capital ratio of 4%.

CEO BACKGROUND

Nominees

Our Board of Directors has nominated 11 directors for election at this annual meeting to hold office until the next annual meeting and the election of their successors. All of the nominees are currently directors. Each has agreed to be named in this proxy statement and to serve if elected. All of the nominees are expected to attend the May 21, 2013 , annual meeting.
Although we know of no reason why any of the nominees would not be able to serve, if any nominee is unavailable for election, the proxies intend to vote your common stock for any substitute nominee proposed by the Board of Directors. The Board may also choose to reduce the number of directors to be elected, as permitted by our By-laws.

Nomination process

The Board’s Corporate Governance & Nominating Committee (the “Governance Committee”) is responsible for evaluating and recommending to the Board proposed nominees for election to the Board of Directors. The Governance Committee, in consultation with the Chief Executive Officer, periodically reviews the criteria for composition of the Board and evaluates potential new candidates for Board membership. The Governance Committee then makes recommendations to the Board. The Governance Committee also takes into account criteria applicable to Board committees.
As stated in the Corporate Governance Principles of the Board (the “Corporate Governance Principles”), in determining Board nominees, the Board wishes to balance the needs for professional knowledge, business expertise, varied industry knowledge, financial expertise, and CEO-level management experience. Following these principles, the Board seeks to select nominees who combine leadership and business management experience, experience in disciplines relevant to the Firm and its businesses, and personal qualities reflecting integrity, judgment, achievement, effectiveness, and willingness to appropriately challenge management.

The Board strives to ensure diversity of representation among its members. Of the 11 director nominees, two are women and one is African-American. Increasing diversity is a priority, and when considering prospects for possible recommendation to the Board, the Governance Committee reviews available information about the experience, qualifications, attributes and skills of prospects, as well as their gender, race and ethnicity.
The Governance Committee will consider director candidates recommended for consideration by members of the Board, by management and by shareholders, and will seek diverse slates when considering candidates. Shareholders wishing to recommend to the Governance Committee a candidate for director should write to the Secretary at: JPMorgan Chase & Co., Office of the Secretary, 270 Park Avenue, New York, New York 10017.
It is the policy of the Governance Committee that candidates recommended by shareholders will be considered in the same manner as other candidates and there are no additional procedures a shareholder must undertake in order for the Governance Committee to consider such shareholder recommendations.
Information about the nominees

Boards act collectively and, together, the members of the Board provide the Firm with a breadth of demonstrated senior leadership and management experience in large complex organizations, global marketing, services and operations, regulated industries, wholesale and retail businesses, financial controls and reporting, compensation, governance, management succession, strategic planning and risk management. The director nominees bring broad and varied skills and knowledge from positions in global businesses, not-for-profit organizations and government, and diverse perspectives from a broad spectrum of industries, community activities and other factors. Each possesses the personal characteristics needed for the responsibilities of a director: each has demonstrated significant achievement in his or her endeavors, can work cooperatively and productively in the interest of all shareholders, possesses high character and integrity, devotes the necessary time to discharge his or her duties, and, for non-management directors, is independent.

The following provides biographical information regarding each of the nominees, including their specific business experience, qualifications, attributes and skills that the Board considered, in addition to their prior service on the Board, when it determined to nominate them. Unless stated otherwise, all of the nominees have been continuously employed by their present employers for more than five years. The age indicated in each nominee’s biography is as of May 21, 2013 , and all other biographical information is as of the date of this proxy statement. Our directors are involved in various charitable and community activities and we have listed a number of these below.

James A. Bell, 64
Retired Executive Vice President of The Boeing Company, aerospace
Director since 2011

Mr. Bell was an Executive Vice President of The Boeing Company, the world’s largest aerospace company, from 2003 until his retirement in April 2012. He had been Corporate President from June 2008 until February 2012 and was Chief Financial Officer from November 2003 until February 2012. While Chief Financial Officer, he oversaw two key Boeing businesses, Boeing Capital Corporation, the company’s customer-financing subsidiary, and Boeing Shared Services, an 8,000-person, multi-billion dollar business unit that provides common internal services across Boeing’s global enterprise. He is a director of Dow Chemical Company (since 2005).
Prior to being named Chief Financial Officer in 2003, Mr. Bell held the position of Senior Vice President of Finance and Corporate Controller from 2000 and was Vice President of contracts and pricing for Boeing Space and Communications from 1996 to 2000. Before becoming Vice President at the operating group level in 1996, Mr. Bell served as director of business management of the Space Station Electric Power System at the Boeing Rocketdyne unit. Mr. Bell began his career with Rockwell in 1972.
Mr. Bell graduated California State University at Los Angeles with a degree in accounting. He is a member of the board of directors of the Chicago Urban League and the Chicago Economic Club.
Mr. Bell has had global business and leadership experience overseeing business performance and strategic growth initiatives at Boeing. His finance and accounting expertise included experience with and direct involvement and supervision in the preparation of financial statements and risk management. As CFO, he was responsible for overall financial management of the company, its financial reporting and transparency, and for multiple corporate functions including Controller, Treasury, long-range planning and corporate and strategic development. In his position as Senior Vice President of Finance and Corporate Controller he served as the company’s principal interface with the board’s audit committee.

Crandall C. Bowles, 65
Chairman of Springs Industries, Inc., window fashions
Director since 2006

Ms. Bowles has been Chairman of Springs Industries, Inc., a manufacturer of window products for the home, since 1998 and a member of its board since 1978. From 1998 until 2006, she was also Chief Executive Officer of Springs Industries, Inc. Subsequent to a spinoff and merger in 2006, she was Co-Chairman and Co-CEO of Springs Global Participacoes S.A., a textile home furnishings company based in Brazil, until July 2007. Ms. Bowles is a director of Deere & Company (since 1999 and previously from 1990 to 1994). She previously served as a director of Sara Lee Corporation (2008-2012) and of Wachovia Corporation (1991–1996). Ms. Bowles graduated from Wellesley College in 1969 and earned an MBA from Columbia University in 1973. She is a trustee of the Brookings Institution and is on the governing boards of the Packard Center at Johns Hopkins and The Wilderness Society.
Ms. Bowles has extensive experience managing large complex business organizations at Springs Industries, Inc. and Springs Global Participacoes S.A. At those companies, and through her current and prior service on other public company boards, she has dealt with a wide range of issues including audit and financial reporting, risk management, executive compensation, international business, and sales and marketing of consumer products and services. Her philanthropic activities give her valuable perspective on important societal and economic issues relevant to the Firm’s business.

Stephen B. Burke, 54
Chief Executive Officer of NBCUniversal, LLC and Executive Vice President of Comcast Corporation, television and entertainment
Director since 2004 and Director of Bank One Corporation from 2003 to 2004

Mr. Burke has been Chief Executive Officer of NBCUniversal, LLC and Executive Vice President of Comcast Corporation since January 2011. He had been Chief Operating Officer of Comcast Corporation, one of the nation’s leading providers of entertainment, information and communication products and services, from 2004 until 2011, and was President of Comcast Cable Communications, Inc. from 1998 until January 2010. Before joining Comcast, he served with The Walt Disney Company as President of ABC Broadcasting. Mr. Burke joined The Walt Disney Company in January 1986, where he helped to develop and found The Disney Store and helped to lead a comprehensive restructuring effort of Euro Disney S.A. Mr. Burke is a director of Berkshire Hathaway Inc. (since 2009).
Mr. Burke graduated from Colgate University in 1980 and received an MBA from Harvard Business School in 1982. He is Chairman of The Children’s Hospital of Philadelphia.
Mr. Burke’s roles at Comcast, ABC Broadcasting, and Euro Disney, have given him broad exposure to the challenges associated with managing a large and diverse business. In those roles he has dealt with a variety of issues including audit and financial reporting, risk management, executive compensation, sales and marketing, and technology and operations. In addition, Comcast and ABC Broadcasting have provided him with experience working in regulated industries and Euro Disney has given him international business experience.

David M. Cote, 60
Chairman and Chief Executive Officer of Honeywell International Inc., diversified technology and manufacturing
Director since 2007

Mr. Cote is Chairman and Chief Executive Officer of Honeywell International Inc., a diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; turbochargers; and specialty materials. He was elected President and Chief Executive Officer in February 2002, and was named Chairman of the Board in July 2002. Prior to joining Honeywell, he served as Chairman, President and Chief Executive Officer of TRW Inc., which he joined in 1999 after a 25 year career with General Electric. Mr. Cote is a director of Honeywell International Inc. (since 2002).
Mr. Cote graduated from the University of New Hampshire in 1976. In 2010, he was named by President Obama to serve on the bipartisan National Commission on Fiscal Responsibility and Reform. Mr. Cote was named co-chair of the U.S.-India CEO Forum by President Obama in 2009, and has served on the Forum since July 2005. Mr. Cote is a member of The Business Roundtable and serves on an advisory panel to Kohlberg Kravis Roberts & Co. At Honeywell and TRW, Mr. Cote gained experience dealing with a variety of issues relevant to the Firm’s business, including audit and financial reporting, risk management, executive compensation, sales and marketing of industrial and consumer goods and services, and technology matters. He also has extensive experience in international business issues and public policy matters. His record of public service further enhances his value to the Board.

James S. Crown, 59
President of Henry Crown and Company, diversified investments
Director since 2004 and Director of Bank One Corporation from 1991 to 2004

Mr. Crown joined Henry Crown and Company, a privately owned investment company which invests in public and private securities, real estate and operating companies, in 1985 as Vice President and became President in 2002. Mr. Crown is a director of General Dynamics Corporation (since 1987). He is also a director of JPMorgan Chase Bank, N.A., a wholly-owned subsidiary of the Firm (since 2010). He previously served as a director of Sara Lee Corporation (1998–2012).
Mr. Crown graduated from Hampshire College in 1976 and received his law degree from Stanford University Law School in 1980. Following law school, Mr. Crown joined Salomon Brothers Inc. and became a vice president of the Capital Markets Service Group in 1983. In 1985 he joined his family’s investment firm. He is a Trustee of the University of Chicago Medical Center, the Museum of Science and Industry, The Aspen Institute, the University of Chicago, and the Chicago Symphony Orchestra. He is a member of the American Academy of Arts and Sciences.
Mr. Crown’s position with Henry Crown and Company and his service on other public company boards have given him exposure to many issues encountered by the Firm’s Board, including audit and financial reporting, investment management, risk management, and executive compensation. His legal training gives him enhanced perspective on legal and regulatory issues. He is experienced in investment banking and capital markets matters through his prior work experience and subsequent responsibilities. The broad range of his philanthropic activities, in the Chicago area in particular, gives him important insight into the community concerns of one of the Firm’s largest markets.

James Dimon, 57

Chairman and Chief Executive Officer of JPMorgan Chase

Director since 2004 and Chairman of the Board of Bank One Corporation from 2000 to 2004

Mr. Dimon became Chairman of the Board on December 31, 2006, and has been Chief Executive Officer and President since December 31, 2005. He had been President and Chief Operating Officer since JPMorgan Chase’s merger with Bank One Corporation in July 2004. At Bank One he had been Chairman and Chief Executive Officer since March 2000. Prior to joining Bank One, Mr. Dimon had extensive experience at Citigroup Inc., the Travelers Group, Commercial Credit Company and American Express Company.
Mr. Dimon graduated from Tufts University in 1978 and received an MBA from Harvard Business School in 1982. He serves on the Board of Directors of Harvard Business School and Catalyst and is a member of The Business Council. He is also on the Board of Trustees of New York University School of Medicine. Mr. Dimon does not serve on the board of any publicly traded company other than JPMorgan Chase.
Mr. Dimon has many years of experience in the financial services business, both wholesale and retail, as well as international and domestic experience. As CEO, he is intimately familiar with all aspects of the Firm’s business activities. In addition to the JPMorgan Chase merger with Bank One, he led the Firm’s successful acquisition and integration of The Bear Stearns Companies Inc. and the banking operations of Washington Mutual Bank. His business experience and his former service on the board of the Federal Reserve Bank of New York have given him experience dealing with government officials and agencies and insight into the regulatory process.

Timothy P. Flynn, 56
Retired Chairman of KPMG International, professional services
Director since May 2012

Mr. Flynn was Chairman of KPMG International from 2007 until his retirement in October 2011. KPMG International is a professional services organization which provides audit, tax and advisory services in 152 countries. He was also Chairman (2005–2010) and Chief Executive Officer (2005–2008) of KPMG LLP, the U.S. and largest individual member firm of KPMG International. Mr. Flynn is a director of Wal-Mart Stores, Inc. (since 2012).
Mr. Flynn held a number of key leadership positions throughout his 32 years at KMPG, providing him with perspective on the issues facing major companies and the evolving business environment. Additionally, he has extensive experience in financial services and risk management. Prior to serving as Chairman and Chief Executive Officer, Mr. Flynn served, among other positions, as Vice Chairman, Audit and Risk Advisory Services, with operating responsibility for the audit practice, as well as the Risk Advisory and Financial Advisory Services practices.
Mr. Flynn holds a bachelors degree in accounting from The University of St. Thomas, St. Paul, Minnesota and is a member of their Board of Trustees. He has previously served as a trustee of the Financial Accounting Standards Board, a member of the World Economic Forum’s International Business Counsel, and a founding member of The Prince of Wales’ International Integrated Reporting Committee.
Mr. Flynn combines leadership and business experience in a global setting with experience in accounting, auditing, financial services, risk management and regulatory affairs.

Ellen V. Futter, 63
President and Trustee of the American Museum of Natural History
Director since 2001 and Director of J.P. Morgan & Co. Incorporated from 1997 to 2000

Ms. Futter became President of the American Museum of Natural History in 1993, prior to which she had been President of Barnard College since 1981. The Museum is one of the world’s preeminent scientific, educational and cultural institutions. Her career began at Milbank, Tweed, Hadley & McCloy where she practiced corporate law. Ms. Futter is a director of Consolidated Edison, Inc. (since 1997) and was previously a director of American International Group Inc. (1999–2008) and Viacom (2006–2007). She was a director of the Federal Reserve Bank of New York (1988–1993) and served as its Chairman (1992–1993).
Ms. Futter graduated from Barnard College in 1971 and earned a law degree from Columbia Law School in 1974. She is a member of the Board of Overseers and Managers of Memorial Sloan-Kettering Cancer Center, a Fellow of the American Academy of Arts and Sciences and a member of the Council on Foreign Relations. Ms. Futter is also a trustee of the Brookings Institution, and a director of The American Ditchley Foundation and NYC & Company.
Ms. Futter has managed large educational and not-for-profit organizations, Barnard College and the American Museum of Natural History, and in that capacity, she has dealt with many complex organizational issues. Such work and her service on public company boards and the board of the Federal Reserve Bank of New York have given her experience with regulated enterprises, in particular the financial services industry, and with risk management, executive compensation, and audit and financial reporting. In her role at the Federal Reserve Bank of New York she also acquired valuable experience dealing with government officials and agencies. Her years of practicing corporate law give her enhanced perspective on legal and regulatory issues. Her extensive experience with philanthropic organizations provides her with insights that are relevant to the Firm’s corporate responsibility initiatives.

Laban P. Jackson, Jr., 70
Chairman and Chief Executive Officer of Clear Creek Properties, Inc., real estate development
Director since 2004 and Director of Bank One Corporation from 1993 to 2004

Mr. Jackson has been Chairman of Clear Creek Properties, Inc., a real estate development company, since 1989. He is a director of J.P. Morgan Securities plc and of JPMorgan Chase Bank, N.A., wholly-owned subsidiaries of the Firm (since 2010). He previously served as director of The Home Depot (2004–2008).
Mr. Jackson graduated from the United States Military Academy in 1965. He was a director of the Federal Reserve Bank of Cleveland (1987–1992). Mr. Jackson is also a director of Markey Cancer Foundation.
Mr. Jackson has founded and managed businesses and is an experienced entrepreneur and manager. In that capacity, and through his current and prior service on other public company boards, he has dealt with a wide range of issues that are important to the Firm’s business, including audit and financial reporting, risk management, executive compensation, marketing and product development. His service on the board of the Federal Reserve Bank of Cleveland has given him experience dealing with government officials and agencies and further experience in financial services.
Mr. Jackson is a member of the Audit Committee Leadership Network (“ACLN”), a group of audit committee chairs from some of North America’s leading companies, committed to improving the performance of audit committees and helping to enhance trust in the financial markets.

Lee R. Raymond, 74
Retired Chairman and Chief Executive Officer of Exxon Mobil Corporation, oil and gas
Director since 2001 and Director of J.P. Morgan & Co. Incorporated from 1987 to 2000

Mr. Raymond was Chairman of the Board and Chief Executive Officer of ExxonMobil from 1999 until he retired in December 2005. ExxonMobil’s principal business is energy, involving exploration for and production of crude oil and natural gas, manufacture of petroleum and petrochemical products, and transportation and sale of crude oil, natural gas, petroleum and petrochemical products. He had been Chairman of the Board and Chief Executive Officer of Exxon Corporation from 1993 until its merger with Mobil Oil Corporation in 1999, having begun his career in 1963 with Exxon. He was a director of Exxon Mobil Corporation (1984–2005).
Mr. Raymond graduated from the University of Wisconsin in 1960 and received a Ph.D. from the University of Minnesota in Chemical Engineering in 1963. He is a director of the Business Council for International Understanding, a Trustee of the Wisconsin Alumni Research Foundation, a Trustee of the Mayo Clinic, a member of the Innovations in Medicine Leadership Council of UT Southwestern Medical Center, a member of the National Academy of Engineering and a member and past Chairman of the National Petroleum Council.
During his long tenure at Exxon Mobil and its predecessors, Mr. Raymond gained important experience in all aspects of business management, including audit and financial reporting, risk management, executive compensation, marketing, and operating in a regulated industry. He has extensive international business experience.

William C. Weldon, 64
Retired Chairman and Chief Executive Officer of Johnson & Johnson, health care products
Director since 2005

Mr. Weldon was Chairman and Chief Executive Officer of Johnson & Johnson from 2002. He retired as Chief Executive Officer in April 2012 and as Chairman in December 2012. He served as Vice Chairman from 2001 and Worldwide Chairman, Pharmaceuticals Group from 1998 until 2001. Johnson & Johnson is engaged worldwide in the research and development, manufacture and sale of a broad range of products in the health care field. The company conducts business in virtually all countries of the world with the primary focus on products related to human health and well-being. Mr. Weldon is a director of CVS Caremark Corporation (since March 29, 2013).
Mr. Weldon served in a number of other senior executive positions since joining Johnson & Johnson in 1971. In 1982 he was named manager, ICOM Regional Development Center in Southeast Asia. Mr. Weldon was appointed executive vice president and managing director of Korea McNeil, Ltd., in 1984 and managing director of Ortho-Cilag Pharmaceutical, Ltd., in the U.K. in 1986. In 1989, he was named vice president of sales and marketing at Janssen Pharmaceutica in the U.S., and in 1992 he was appointed president of Ethicon Endo-Surgery. Mr. Weldon was a director of Johnson & Johnson (2002 until December 2012).
Mr. Weldon graduated from Quinnipiac University in 1971. Mr. Weldon is a member of the CEO Roundtable on Cancer, a director of the US-China Business Council, a member of the Healthcare Leadership Council, and a member of the Sullivan Commission on Diversity in the Health Professions Workforce. Mr. Weldon also serves on the Liberty Science Center Chairman’s Advisory Council and as a member of the Board of Trustees for Quinnipiac University. He previously served as Chairman of the Pharmaceutical Research and Manufacturers of America.
Mr. Weldon has experience managing a large complex organization at Johnson & Johnson, where he has dealt with such issues as audit and financial reporting, risk management, and executive compensation. Through his role at various Johnson & Johnson entities, he has had extensive exposure to international business management and to operating in a regulated industry, and he has gained expertise in sales and marketing to consumers. His extensive record of charitable involvement and public service also brings an important perspective to his role on the Board.

MANAGEMENT DISCUSSION FROM LATEST 10K

Economic environment

The Eurozone crisis was center stage the beginning of the year, with social stresses and fears of breakup of the Euro. However, strong stands by Eurozone states and the European Central Bank (“ECB”) helped stabilize the Eurozone later in the year. The ECB’s Outright Monetary Transactions (“OMT”) program showed its commitment to provide a safety net for European nations. Eurozone member states also took crucial steps toward further fiscal integration by handing over power to the ECB to regulate the largest banks in the Euro area and by passing more budgetary authority to the European Union. Despite the easing of the crisis, the economies of many of the European Union member countries stalled in 2012.
Asia’s developing economies continued to expand in 2012, although growth was significantly slower than the previous year, reducing global inflationary pressures.

In the U.S., the economy grew at a modest pace and the unemployment rate declined to a four year low of 7.8% by the end of 2012 as U.S. labor market conditions continued to improve. The U.S. housing market turned the corner during 2012 as the sector continued to show signs of improvement: excess inventories were reduced, prices began to rise and home affordability improved in most areas of the country as household incomes stabilized and mortgage rates declined to historic lows. Homebuilder confidence improved to the highest level in six years and housing starts increased to the highest level in four years during 2012. At the same time, inflation remained below the Board of Governors of the Federal Reserve System’s (the “Federal Reserve”) 2% long-run goal.

The Federal Reserve maintained the target range for the federal funds rate at zero to one quarter percent and tied the interest rate forecasts to the evolution of the economy, in particular inflation and unemployment rates. Additionally, the Federal Reserve announced a new asset purchase program that would be open-ended and is intended to speed up the pace of the U.S. economic recovery and produce sustained improvement in the labor market.
Financial markets reacted favorably when the U.S. Congress reached an agreement to resolve the so-called “fiscal cliff” by passing the American Taxpayer Relief Act of 2012. This Act made permanent most of the tax cuts initiated in 2001 and 2003 and allowed the tax rate on the top income bracket, which was increased to $450,000 annually for joint tax filers, to revert to 39.6% from 35.0%. Spending and debt ceiling issues were postponed into 2013.
Going into 2013, the U.S. economy is likely to be affected by the continuing uncertainty about Europe’s financial crisis, the Federal Reserve’s monetary policy, and the ongoing fiscal debate over the U.S. debt limit, government spending and taxes.

Business overview

JPMorgan Chase reported full-year 2012 record net income of $21.3 billion, or $5.20 per share, on net revenue of $97.0 billion. Net income increased by $2.3 billion, or 12%, compared with net income of $19.0 billion, or $4.48 per share, in 2011. ROE for both 2012 and 2011 was 11%.
The increase in net income in 2012 was driven by a lower provision for credit losses, partially offset by higher noninterest expense. Net revenue was flat compared with 2011 as lower principal transactions revenue and lower net interest income were offset by higher mortgage fees and related income, higher other income, and higher securities gains. Principal transactions revenue for 2012 included losses from the synthetic credit portfolio. The increase in noninterest expense was driven by higher compensation expense.

The decline in the provision for credit losses reflected a lower consumer provision as net charge-offs decreased and the related allowance for credit losses was reduced by $5.5 billion in 2012. The decline in the consumer allowance reflected improved delinquency trends and reduced estimated losses in the real estate and credit card loan portfolios. The wholesale credit environment remained favorable throughout 2012. Firmwide, net charge-offs were $9.1 billion for the year, down $3.2 billion, or 26%, from 2011, and nonperforming assets at year-end were $11.7 billion, up $419 million, or 4%. The current year included the effect of regulatory guidance implemented during 2012, which resulted in the Firm reporting an additional $3.0 billion of nonperforming loans at December 31, 2012 (see Consumer, excluding credit card on pages 140–148 of this Annual Report for further information). Before the impact of these reporting changes, nonperforming assets would have been $8.7 billion at December 31, 2012. The total firmwide allowance for credit losses was $22.6 billion, resulting in a loan loss coverage ratio of 2.43% of total loans, excluding the purchased credit-impaired portfolio.

The Firm’s 2012 results reflected strong underlying performance across virtually all its businesses, with strong lending and deposit growth. Consumer & Business Banking within Consumer & 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 sales volume (excluding Commercial Card) was up 11% for the year. The Corporate & Investment Bank maintained its #1 ranking in Global Investment Banking Fees and reported record assets under custody of $18.8 trillion at December 31, 2012. Commercial Banking reported record net revenue of $6.8 billion and record net income of $2.6 billion in 2012. Commercial Banking loans increased to a record $128.2 billion, a 14% increase compared with the prior year. Asset Management reported record revenue in 2012 and achieved its fifteenth consecutive quarter of positive net long-term client flows into assets under management. Asset Management also increased loan balances to a record $80.2 billion at December 31, 2012.

JPMorgan Chase ended the year with a Basel I Tier 1 common ratio of 11.0%, compared with 10.1% at year-end 2011. The Firm estimated that its Basel III Tier 1 common ratio was approximately 8.7% at December 31, 2012, taking into account the impact of final Basel 2.5 rules and the proposals set forth in the Federal Reserve’s Notice of Proposed Rulemaking (“NPR”). Total deposits increased to $1.2 trillion, up 6% from the prior year. Total stockholders’ equity at December 31, 2012, was $204.1 billion. (The Basel I and III Tier 1 common ratios are non-GAAP financial measures, which the Firm uses along with the other capital measures, to assess and monitor its capital position.

During 2012, the Firm worked to help its customers, corporate clients and the communities in which it does business. The Firm provided credit and raised capital of more than $1.8 trillion for its clients during 2012; this included $20 billion lent to small businesses and $85 billion for nearly 1,500 non-profit and government entities, including states, municipalities, hospitals and universities. The Firm also originated more than 920,000 mortgages, and provided credit cards to approximately 6.7 million people. Since the beginning of 2009, the Firm has offered nearly 1.4 million mortgage modifications and of these approximately 610,000 have achieved permanent modifications.

In addition, despite the damage and disruption at many of its branches and facilities caused by Superstorm Sandy at the end of October 2012, the Firm continued to assist customers, clients and borrowers in the affected areas. The Firm continued to dispense cash through ATMs, loan money, provide liquidity to customers, and settle trades, and it waived a number of checking account and loan fees, including late payment fees, for the benefit of its customers.
Consumer & Community Banking net income increased compared to the prior year, reflecting higher net revenue and lower provision for credit losses, partially offset by higher noninterest expense. Net revenue increased, driven by higher noninterest revenue. Net interest income decreased, driven by lower deposit margins and lower loan balances due to net portfolio runoff, largely offset by the impact of higher deposit balances. Noninterest revenue increased, driven by higher mortgage fees and related income, partially offset by lower debit card revenue, reflecting the impact of the Durbin Amendment. The provision for credit losses in 2012 was $3.8 billion compared with $7.6 billion in the prior year. The current-year provision reflected a $5.5 billion reduction in the allowance for loan losses due to improved delinquency trends and lower estimated losses in the mortgage loan and credit card portfolios. The prior-year provision reflected a $4.2 billion reduction in the allowance for loan losses. Noninterest expense increased in 2012 compared with the prior year, driven by higher production expense reflecting higher volumes, investments in sales force and partially offset by lower marketing expense in Card. Return on equity for the year was 25% on $43.0 billion of average allocated capital.

Corporate & Investment Bank net income increased in 2012 compared with the prior year, reflecting slightly higher net revenue, lower noninterest expense and a larger benefit from the provision for credit losses. Net revenue for 2012 included a $930 million loss from debit valuation adjustments (“DVA”) on structured notes and derivative liabilities resulting from the tightening of the Firm’s credit spreads. The prior year net revenue included a $1.4 billion gain from DVA. The provision for credit losses was a larger benefit in 2012 compared with the prior year. The current-year benefit reflected recoveries and a net reduction in the allowance for credit losses both related to the restructuring of certain nonperforming loans, current credit trends and other portfolio activity. Noninterest expense was down slightly driven by lower compensation expense. Return on equity for the year was 18%, or 19% excluding DVA (a non-GAAP financial measure), on $47.5 billion of average allocated capital.

Commercial Banking reported record net income for 2012, reflecting an increase in net revenue and a decrease in the provision for credit losses, partially offset by higher noninterest expense. Net revenue was a record, driven by higher net interest income and higher noninterest revenue. Net interest income increased, driven by growth in loan and liability balances, partially offset by spread compression on loan and liability products. Noninterest revenue increased compared with the prior year, largely driven by increased investment banking revenue. Noninterest expense increased, primarily reflecting higher headcount-related expense. Return on equity for the year was 28% on $9.5 billion of average allocated capital.
Asset Management net income increased in 2012, driven by higher net revenue. Net revenue increased, driven by net inflows to products with higher margins and higher net interest income resulting from higher loan and deposit balances. Noninterest expense was flat compared with the prior year. Return on equity for the year was 24% on $7.0 billion of average allocated capital.

Corporate/Private Equity reported a net loss in 2012, compared with net income in the prior year driven by losses in Treasury and Chief Investment Office (“CIO”). Treasury and CIO net revenue included $5.8 billion of principal transactions losses from the synthetic credit portfolio in CIO during the first six months of 2012 and $449 million of losses during the third quarter of 2012 on the retained index credit derivative positions. During the third quarter, CIO effectively closed out the index credit derivative positions that were retained following the transfer of the remainder of the synthetic credit portfolio to CIB on July 2, 2012. Treasury and CIO net revenue also included securities gains of $2.0 billion for the year. The current-year net revenue also included $888 million of extinguishment gains related to the redemption of trust preferred securities. Net interest income was negative in 2012, and significantly lower than the prior year, primarily reflecting the impact of lower portfolio yields and higher deposit balances across the Firm.
Other Corporate reported a net loss in 2012. Noninterest revenue included a benefit of $1.1 billion as a result of the Washington Mutual bankruptcy settlement and a $665 million gain for the recovery on a Bear Stearns-related subordinated loan. Noninterest expense included an expense of $3.7 billion for additional litigation reserves, predominantly for mortgage-related matters. The prior year included expense of $3.2 billion for additional litigation reserves.

2013 Business outlook


JPMorgan Chase’s outlook for the full year 2013 should be viewed against the backdrop of the global and U.S. economies, financial markets activity, the geopolitical environment, the competitive environment, client activity levels, and regulatory and legislative developments in the U.S. and other countries where the Firm does business. Each of these linked factors will affect the performance of the Firm and its lines of business.
In the Consumer & Business Banking business within CCB, the Firm estimates that, given the current low interest rate environment, continued deposit spread compression could negatively impact annual net income by approximately $400 million in 2013. This decline may be offset by the impact of deposit balance growth, although the exact extent of any such deposit growth cannot be determined at this time.

In the Mortgage Banking business within CCB, management expects to continue to incur elevated default- and foreclosure-related costs, including additional costs associated with the Firm’s mortgage servicing processes, particularly its loan modification and foreclosure procedures. In addition, management believes that the high production margins experienced in recent quarters likely peaked in 2012 and will decline over time. Management also expects there will be continued elevated levels of repurchases of mortgages previously sold, predominantly to U.S. government-sponsored entities (“GSEs”). However, based on current trends and estimates, management believes that the existing mortgage repurchase liability is sufficient to cover such losses.

For Real Estate Portfolios within Mortgage Banking, management believes that total quarterly net charge-offs may be approximately $550 million, subject to economic conditions. If the positive credit trends in the residential real estate portfolio continue or accelerate and economic uncertainty declines, the related allowance for loan losses may be reduced over time. Given management’s current estimate of portfolio runoff levels, the residential real estate portfolio is expected to decline by approximately 10% to 15% in 2013 from year-end 2012 levels. The run-off in the residential real estate portfolio can be expected to reduce annual net interest income by approximately $600 million in 2013. Over time, the reduction in net interest income should be offset by an improvement in credit costs and lower expenses.

In Card Services within CCB, the Firm expects that, if current positive credit trends continue, the card- related allowance for loan losses could be reduced by up to $1 billion over the course of 2013.

The currently a nticipated results for CCB described above could be adversely affected if economic conditions, including U.S. 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 influenced by capital markets activity, market levels, the performance of the broader economy and investment-specific issues.

For Treasury and CIO, within the Corporate/Private Equity segment, management expects a quarterly net loss of approximately $300 million with that amount likely to vary driven by the implied yield curve and management decisions related to the positioning of the investment securities portfolio.
For Other Corporate, within the Corporate/Private Equity segment, management expects quarterly net income, excluding material litigation expense and significant items, if any, to be approximately $100 million, but this amount is also likely to vary each quarter.

Management expects the Firm's net interest income to be generally flat during 2013, as modest pressure on the net yield on interest-earning assets is expected to be generally offset by anticipated growth in interest-earning assets.

The Firm continues to focus on expense discipline and is targeting expense for 2013 to be approximately $1 billion lower than in 2012 (not taking into account, for such purposes, any expenses in each year related to corporate litigation and foreclosure-related matters).

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Business Overview

JPMorgan Chase reported record third-quarter 2012 net income of $5.7 billion, or a record $1.40 per share, on net revenue of $25.1 billion. Net income increased by $1.4 billion, or 34%, compared with net income of $4.3 billion, or $1.02 per share, in the third quarter of 2011. ROE for the quarter was 12%, compared with 9% for the prior-year quarter. Results in the third quarter of 2012 included the following significant items: $900 million pretax benefit ($0.14 per share after-tax increase in earnings) from a reduction in the allowance for loan losses in Real Estate Portfolios; $825 million pretax incremental charge-offs ($0.13 per share after-tax decrease in earnings) due to regulatory guidance on certain residential loans in Real Estate Portfolios; $888 million pretax benefit ($0.14 per share after-tax increase in earnings) due to extinguishment gains on redeemed trust preferred capital debt securities in Corporate; $684 million pretax expense ($0.11 per share after-tax decrease in earnings) for additional litigation reserves in Corporate. The tax rate used for each of the above significant items is 38%; for additional information.


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

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

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

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

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

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

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

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

JPMorgan Chase serves clients, consumers, companies, and communities around the globe. The Firm provided credit and raised capital of over $1.3 trillion for commercial and consumer clients during the first nine months of 2012. This included more than $15 billion of credit provided for U.S. small businesses, an increase of 21% compared with the same period last year; and $52 billion of capital raised and credit provided so far this year for more than 1,300 nonprofit and government entities, including states, municipalities, hospitals and universities.

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

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

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

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

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

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

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

CONF CALL

Lyne B. Andrich - Chief Financial Officer, Executive Vice President and Director of Cobiz Insurance Inc

All right, thank you. And good morning, everyone. Before we commence with management comments today, I do need to remind everyone of our Safe Harbor disclosures.

Certain of the matters discussed in this presentation may constitute forward-looking statements for the purposes of the federal securities laws and, as such, may involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of CoBiz to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Additional information concerning factors that could cause our results to be materially different than those in the forward-looking statements can be found in the company's filings with the SEC, including forms 10-K, 10-Q and other reports and statements we have filed with the SEC. All forward-looking statements are expressly qualified in their entirety by these cautionary statements.

Also on today's call, our speakers may reference certain non-GAAP financial measures, which we believe provide useful information for our investors. Reconciliation of these non-GAAP numbers to GAAP results are included in our earnings release, which is available on our -- in Investor Relations website.

I would now like to introduce Steve Bangert, Chairman and CEO of CoBiz.
Steven Bangert - Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of Cobiz Bank NA, Director of Cobiz Gmb Inc, Director of Financial Designs Ltd, Director of Colorado Business Leasing Inc, Director of Cobiz Insurance Inc and Director of Alexander Capital Management Group LLC

Thanks, Lyne. And welcome, everybody, to our First Quarter Conference Call. I'll have a few comments, and then I'll turn it back to Lyne to do a deeper dive into the financials, and also ask Jon Lorenz, our CEO, who's sitting with us, to give you an overview of kind of activities that we're seeing in the marketplace as well as at the bank itself.

Last night, we reported $0.14 per share. That's comparable to $0.10 per share same quarter last year. We reported $0.14 -- or $0.17 in the fourth quarter of last year, but our fourth quarter typically has seasonally high fee income, as it did last year also. In many ways, this quarter is typical first quarter for CoBiz. We'd typically start kind of slow out of the gates and gain momentum as the year progresses, and that is, our fee income picks up. And also, lending activity is expected to pick up considerably as the year progresses.

For comparison purposes, fee income in 2012 was unusually high because of investments in the mezzanine income. But other than that, I think, when you compare our first quarter this year to first quarter last year, I think you can see that we're making some progress. And I'm feeling pretty good about where we're at today.

Loans, although they were flat for the quarter, we really emptied the pipeline in the fourth quarter. Those of you that remember the fourth quarter, we had an exceptional fourth quarter, and that really -- at the time, I think we said in the last conference call that we had emptied the pipeline and we're starting to build it again. I feel pretty good about where both pipelines are in both states today, and I'm looking forward to growth over the next 3 quarters on that.

Still very competitive. I'm sure Jon will talk about that but in -- in that it seems to be consistent with what I've heard from other bank reports, as they've reported during the week, and that nothing's changed as far as the competitive market is concerned. It's still very, very competitive out there.

Our fee income, I think you'll see that continue to grow as the year progresses. Wealth Management had an excellent first quarter, as far as gathering assets. Our employee benefit group has really had an exceptional year. You'll see their revenues improve as the year proceeds. Investment Banking, unfortunately no closed transactions during the quarter, but we are anticipating their revenues to continue to grow significantly as the year progresses. But once again, it could be heavily weighted towards the third and fourth quarter this year.

I thought that -- probably the thing that pleased us the most was the margin. You saw, instead of margin compression that we've been experiencing over the last few quarters, and that seems to be typical for our industry, we actually had some NIM expansion. I think it was about 5 basis points. But I -- looking forward, I still think margins can be our biggest challenge as we head into the rest of the year and that, will we be able to grow the loan portfolio sufficiently enough to offset the continued competitive pressure that we're feeling on our yields on new loan activity as well as payoffs from our existing portfolio.

We also benefited from the exceptional loan growth that we had in the fourth quarter, so we carried a much larger average of loan balance into the fourth -- first quarter, and that certainly was a big benefit for us and helped us with the margin expansion. But we also got some benefit from the investment portfolio. You may have noticed that the yields on our investment portfolio had widened during the quarter. I don't know that that's something that I would count on it on a going-forward basis. It was kind of an unusual quarter.

We purchased about $21 million of investments during the quarter. Some of it was some senior banknotes. I think there was 1 small TruPS that we were able to acquire. The average yield on that was around 5%. But we really didn't have any of our TruPS called away during the -- well, very little. I think, maybe $6 million was called away in the first quarter. So paydowns and maturities were about $32 million. The average yield on that was about 2.5%. So we were actually investing at higher yields than we were being called away on. I don't know whether that's something I'm going to plan on going forward. We have seen a little bit of our TruPS being called away already in the first -- second quarter now. About $9 million of our JPMorgan was called away. That had about -- above a 6.5% yield on it. We've had about $7 million of Citi called with about a 7% yield on it. We've replaced most of that, but we're replacing it at around 4%. How much more of that is -- and at what pace it gets called away, I'm not quite sure in that. But so far, we've been pretty good as far as trying to find replacements along the way. But there's fewer and fewer, smaller and smaller portfolio of TruPS for us to replace it with. There's just not an awful lot of deals out there trading on a daily basis. We're in the market everyday looking for potential investments in that.

I would tell you, on the $16.5 million that I know that's being called in April already, we probably have about a $500,000 gain off of that from discount. We'll wait and see if -- what else may be called as the year progresses. We still have some fixed-rate TruPS in our portfolio. A lot of it, at least 1/3 of it, has some yield maintenance on it, which means it's not likely to be called but probably 2/3 of it has a -- certainly has the potential. And we've talked about this for a year, and yet it really has not peeled off nearly as fast as I thought it was going to. And we've been very successful as far as replacing it.

So credit quality continues to improve and was responsible for our negative provision expense this quarter. NPAs were up, I know Jon will probably talk about that. I'm not concerned with it. Looking forward, I think loan growth will be critical for us, but I'm confident that the pipeline from our -- from the bank as far as loan activity, as well as fee income, will continue to expand as the year progresses in that. The economy is still sluggish in both states, but I think the -- both states, I'd say, continue to improve at a very slow pace. But we continue to find opportunities to grab some market business. And really, all of our businesses, I'm feeling pretty good about where they all are situated today as we head into the rest of the year.

I also want to remind everybody that we will be benefiting from the 1% SBLF coupon in the second quarter. Hopefully, we'll be able to maintain that going forward in that. I'm sure Lyne will talk a little bit about that.

So overall, I felt real good about the first quarter. As I said, it's a typical first quarter for CoBiz. It's not unusual for us, for our business owners, to dividend a lot of the deposits out. And during the first quarter, you saw some -- you saw that happen. Loan activity typically starts slow out of the gates but, I think, even more so because of the exceptional fourth quarter that we had. We really closed everything. But as I look at the pipeline of business as we've had meetings with, really, all of our business lines over the last 10 days in that, I'm feeling pretty good about where we're situated and how our results will play out over the next 3 quarters.

With that, I'm going to turn it over to Lyne and let Lyne give a deeper dive into the financials.
Lyne B. Andrich - Chief Financial Officer, Executive Vice President and Director of Cobiz Insurance Inc

All right. Thank you, Steve.

As Steve mentioned, our first quarter results tend to be seasonally softer, so it's not unusual to see the drop-off in activities in the fourth quarter. And for that reason, I find comparing year-over-year results a little bit more meaningful. So looking at the first quarter versus last year, we continue to see some really good momentum. Steve mentioned EPS improved to $0.14 per share versus $0.10 in the prior year quarter. And driving that improvement was another quarter of negative provision, which is a direct reflection of the continued improvement we're seeing in our classified loan levels.

Overall for the quarter, we reported an ROA of 94 basis points and our return on average equity was 9.43%, which compares against 75 basis points and 8.12% for the prior year quarter.

Top line revenue, if you look at that on a tax equivalent basis, it is good to see that, that has stabilized. As Steve mentioned, while our outstanding loans at the end of -- from the end of 2012 were flat, the strong loan growth we saw in the fourth quarter which, if you remember came on really late in the period, did drive an increase in our average loan balances. The result was an improvement in our average earning asset mix, which did expand the NIM by 5 basis points on a linked quarter. Overall, average earning assets increased $18 million, but if you look at the blend, loans on average were up $83 million, which allowed us to bleed off some of the excess liquidity we were carrying at the end of 2012. On average, we saw fed funds sold and our cash balances decrease $42 million and average investments decrease $23 million, which was augmented by the growth in the average loans being up $83 million.

On the liability side, we also saw a decline in customer funding of about $67 million from the end of the year. However, looking at it, the decrease was really due to seasonal decreases that we historically see in our deposit base. And it wasn't attributed to any loss of any significant banking relationship.

Looking at deposits, on average, they were down about $2 million for the quarter. The other thing I would note is that, on average, though, we were able to maintain our DDA-total deposits at 40%, both from year end and the first quarter. With the yield pressure we have been seeing on the asset side, we are continuing to focus on decreasing our core deposit interest costs. On average, the cost of interest-bearing deposits decreased 4 basis points on a linked quarter, bringing our total cost of deposits to 25 basis points in comp for the first quarter of 2013.

Looking at credit metrics. We did report an increase in nonperforming loans. However, the level of classified loans continued to improve, and we saw a decline of nearly 17% on a linked quarter basis. Due to the improvement in our asset quality levels, our allowance methodology did calculate a reversal of $1.6 million of provision expense for the period. We also recorded about $400,000 in net charge-offs, that's about 2 basis points of average loans. So between the provisioning levels and the charge-offs, it drove our allowance to $44.9 million as of the end of March or 2.3% of total loans, which is still a pretty conservative coverage of 146% of our nonperforming loans.

Looking at noninterest income. We recognized $6.5 million in noninterest income in the first quarter versus $10.7 million in the fourth quarter and $6.9 million in the first quarter of 2012. As Steve mentioned, the linked quarter decrease was really primarily due to Investment Banking. As well, if you remember, we had outside [ph] fees in the fourth quarter of 2012 from the sale of interest rate swaps to our customers. The drop-off in other income on a year-over-year basis, though, was really attributed to lower equity investment income. As some of you may know, in the past, we've talked about the partnership interest we have in several SBIC mezzanine funds, which typically generate $1 million to $1.250 million of annual revenue for us. However, in the first quarter of last year, we recorded $1.4 million in revenue for that quarter alone from our mezz fund revenues. Versus the first quarter of 2013, it was more in line with what historically we recognize. We had about $275,000 of mezz revenue in the first quarter. Now excluding the mezz fund income as well as Investment Banking, we are not seeing some nice increases across-the-board in most of our fee income categories.

Looking at noninterest expenses. We've talked about in the past, we haven't really launched a formal branded cost-cutting program, but we've been working pretty diligently with our line managers on trying to contain our overhead expenses in places where we believe they won't compromise business development or customer service. I was pleased to see that we continued to see some progress, with most of our controllable expenses being held flat or down from the prior year period. Overall, our noninterest expenses has decreased both linked quarter and year-over-year.

Fixed base salaries run about $10.250 million a quarter for us, which was down from the end of the fourth quarter, and it's only up about 1% on the prior year, and that's after consideration of annual merit increases that we do every April 1 of every year.

FTEs at the end of March were about 500. That does adjust for, if you recall the, disc ops [ph] that we announced at the end of last year, so those personnel are -- have been pulled out. So right now, we're running about 500 full-time equivalents. That is down from about 503 at the end of the year and 507 at the end of March 2012. So we continue to be pretty focused on managing our personnel count.

We've also had -- experienced a reduction in loan workout and OREO expenses, which has helped and that's being commensurate with the improvement we've seen in our overall asset quality. And the other thing is that we haven't had any OREO or investment losses and we're actually in a modest gain position again this quarter, so we haven't had those headwinds in terms of marks on our OREO or investment losses.

And then lastly, looking at capital, you did see our shareholders' equity increase to $263.5 million at the end of March, with the increase we saw in our retained earnings and on a slightly smaller balance sheet. You saw our TCE ratio increased to 7.75% from 7.4% at the end of the year, so I'm glad to see that ratio improve.

Regarding the SBLF dividend that Steve mentioned, we did announce last quarter that we were successful in achieving the growth needed to drive the dividend rate to 1%. If you remember, that's always in arrears and that won't take effect till the second quarter. So in the first quarter, you saw our preferred dividend, about $514,000, which is about 3.6%. It will go down to 1% in the second quarter, which is about $145,000 per quarter. So we'll see that savings continue for the rest of this year. And the SBLF qualified growth that we had in the -- on the first quarter, we still saw some modest growth there even though loans were flat, so we continue to have a respectable cushion in terms of maintaining that 1% dividend rate.

And then lastly, just to -- in the release itself, we also reported that the Board of Directors again declared a $0.03 cash dividend to -- on our common stock for the second quarter.

With that, I'll turn it over to Jon.
Jonathan C. Lorenz - Chief Executive Officer of Colorado Business Bank and Chief Executive Officer of Arizona Business Bank

Thank you, Lyne.

Well, just to give you a little more detail on the loan portfolio. While it was about even from the fourth quarter, there was quite a bit going on within the loan portfolio in the first quarter. You'll notice, and I'm sure you saw it, that our C&I portfolio did continue to grow in the first quarter, so I think that was very positive that we had about $13 million in growth in our C&I portfolio. And where we lost loans in the first quarter were in our Land A&D category and real estate construction, so thought I'd touch on those.

On the Land A&D, we had 2 large criticized loans within that portfolio that were paid off during the quarter. So that really accounted for almost all that $15 million decrease in the Land A&D were the payouts of 2 loans that we would just assume not having them in the portfolio because of their -- they were stable but still adversely graded. So that was the decline there. And you've seen over -- quarter-over-quarter, we've continued to bring down that Land Acquisition and Development portfolio to where, today, it's a fairly nominal $38 million out of our total $1.9 billion portfolio.

And then on the Construction side, it was really again 2 large credits, both which were in the Construction portfolio but, in the first quarter, moved into the term real estate portfolio, both owner-occupied properties. So we had about $24 million in those 2 credits that didn't move off the balance sheet, just moved from our Construction loan category to our term real estate category. So actually, we were -- other than those 2 credits, we were up a little bit in real estate construction loans in the first quarter. And if you look at those that are commitments in our Construction loans, it actually steadily increased over the last year. We're up 40% in construction loan commitments from a year ago, from $93 million in commitments to $131 million in commitments. So those -- they've drawn down at a slower pace, I think, than what we anticipated, but the commitments are still growing quarter to quarter. And we will see funding on those commitments going forward.

On the -- and another thing to point out, I think, on the first quarter, you don't see it in the total numbers where we're even: Arizona loans were actually up $15 million for the quarter, which correspondingly means Colorado was down $15 million. But again, just those 2 large A&D credits, which were both in Colorado, really account for the amount that Colorado was down during the quarter. And we did see 18 -- or I'm sorry, $15 million in growth in Arizona in the quarter. So I think that was a positive and not surprising on the Colorado portfolios given, as we've already talked about, the significant bookings that we had in the fourth quarter in Colorado.

Steve mentioned briefly the pipelines. We are seeing the pipeline for both states increase. We update our loan pipeline reports once a month, and we did see a significant increase in potential credits from the March report to the April report. So I think that hopefully will bode well as we move through the second quarter and into the third quarter in terms of potential bookings that are going to occur as we move through the balance of this year.

So that's kind of the look at the loan portfolio. I can talk further at some point, if anyone's interested, on the competition, but Steve says -- as Steve said, we're continuing to see further pricing pressure. We're continuing to see amortizations particularly lengthening out. But I think we're also still seeing our share of business opportunities that we think we can get. And we're really trying to stay out of bid situations and focus on a consistent calling effort and really focusing on those businesses that give us not only loan opportunities, but treasury management and deposit opportunities. And I think we'll continue to get our fair share as we move through the year in spite of the highly competitive environment.

On -- touching on the loan quality. I don't think there's really much to -- additional to say there beyond what Lyne said. It was 2 large credits that were already adversely graded that moved into nonperforming status in the quarter. So they were already identified problems and problems that just had some further slippage that we felt that putting them on nonperforming status was appropriate. But as Lyne said, classified loans continued to decline nicely. We ended the quarter with virtually no past dues. I think we were about 14 basis points in past dues at the end of the quarter. So overall, the portfolio continues to move in a positive direction, from a credit quality standpoint.

Steve mentioned some success on cross-sell. Particularly in the wealth area, we had 3 significant new additions to assets under managements in wealth that came from business owners in Arizona whose companies have sold over the last few months. And 1 of those 3 was represented by GMB and was a closing they had last year in terms of the sale of the business. And as we've talked about in the past, ideally, as our business owners sell their companies, we want to be positioned to then manage those assets once the sale has occurred. And we had 3 large inflows into our Wealth Management group in the first quarter as a result of business owners placing monies with us to invest after the sale of their businesses. So I think a real positive boost to wealth and assets under management in the first quarter.

Economies in both states continue to improve. Arizona, I think, is accelerating in terms of the improvement. Unemployment now is down to 6.5%, growing jobs at 2.5% to 3%. People are moving back into Arizona. We're seeing some good inflow there, and the forecasts are for accelerated population growth in Arizona in 2013. Commercial office space is finally being absorbed in Arizona. They had -- it was net absorption of about 2.2 million feet last year in commercial office space. So I think we are seeing some acceleration of recovery in Arizona and continued recovery in Colorado.

And then finally, Lyne mentioned a couple of comments on headcount. And I think we are effectively managing headcount. And when you look at all the growth that we experienced in 2012, we really did that with a net reduction of a couple of anchors overall and used up some capacity that we had. We are at a point where, a couple of things: One, we do think we're going to see increasing opportunities as we move through this year; and we're also seeing some good bankers that we've been talking to, in most cases, for an extended period of time that we potentially could -- can move over to the franchise. So I think you will see us selectively recruit a few bankers this year if we can land the right ones. And we think the opportunities will be out there for those bankers to hit the ground running and generate some good business for us as we move through 2013.
Steven Bangert - Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of Cobiz Bank NA, Director of Cobiz Gmb Inc, Director of Financial Designs Ltd, Director of Colorado Business Leasing Inc, Director of Cobiz Insurance Inc and Director of Alexander Capital Management Group LLC

[indiscernible]. No, I -- that's pretty good overview, Jon. I'm just going to open it up for questions now, Kayla.

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