UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM ~~10-Q~~

10–Q

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


For the Quarterly Period Ended~~March 31,~~June 30, 2005		Commission file number1-5805

JPMORGAN CHASE & CO.

(Exact name of registrant as specified in its charter)



~~JPMORGAN CHASE & CO.~~
~~(Exact name of registrant as specified in its charter)~~


Delaware		13-2624428
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~incorporation or organization)~~		~~Identification No.)~~

270 Park Avenue, New York, New York		10017
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No []

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X] No []


Common Stock, $1 Par Value		~~3,518,702,996~~3,512,844,100

Number of shares outstanding of each of the issuer’s classes of common stock on ~~April 30,~~July 31, 2005.

FORM 10-Q

TABLE OF CONTENTS


		Page
~~Page~~Part I – Financial information

Item 1	Consolidated Financial Statements — JPMorgan Chase & Co.:

~~Part I – Financial information~~

~~Item 1~~	~~Consolidated Financial Statements – JPMorgan Chase & Co.:~~

	Consolidated statements of income (unaudited) for the three and six months ended ~~March 31,~~June 30, 2005, and ~~March 31,~~June 30, 2004	55	64

	Consolidated balance sheets (unaudited) at ~~March 31,~~June 30, 2005, and December 31, 2004	56	65

	Consolidated statements of changes in stockholders’ equity (unaudited) for the ~~three~~six months ended ~~March 31,~~June 30, 2005, and ~~March 31,~~June 30, 2004	57	66

	Consolidated statements of cash flows (unaudited) for the ~~three~~six months ended ~~March 31,~~June 30, 2005, and ~~March 31,~~June 30, 2004	58	67

	Notes to consolidated financial statements (unaudited)	59	68

	Consolidated average balance sheet, interest and rates (unaudited) for the three and six months ended ~~March 31,~~June 30, 2005, and ~~March 31,~~June 30, 2004	76	89

	Glossary of Terms and Line of Business Metrics	77	91

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations:

	Consolidated Financial Highlights		3

	Introduction		4

	Executive Overview		6

	Consolidated Results of Operations		8

	Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures		10

	Business Segment Results	13	14

	Balance Sheet Analysis	34	41

	Capital Management	35	42

	Off-Balance Sheet Arrangements and Contractual Cash Obligations	38	44

	Risk Management	39	45

	Supervision and Regulation	52	61

	Critical Accounting Estimates Used by the Firm	52	62

	Accounting and Reporting Developments	53	63

Item 3	Quantitative and Qualitative Disclosures About Market Risk	81	95

Item 4	Controls and Procedures	81��	95

Part II – Other information

Item 1	Legal Proceedings	81	95

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	82	96

Item 3	Defaults Upon Senior Securities	82	96

Item 4	Submission of Matters to a Vote of Security Holders	82	96

Item 5	Other Information	82	96

Item 6	Exhibits	82	96

JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS


(in millions, except per share, ratio and headcount data)										Heritage JPMC only						(in millions, except per share, ratio and headcount data)																Six months ended June 30,
As of or for the period ended(a)	1Q 2005		^(a)	4Q 2004		^(a)	3Q 2004		^(a)	2Q 2004			1Q 2004				2Q 2005			1Q 2005			4Q 2004			3Q 2004			2Q 2004			2005			2004

Selected income statement data
Net interest income	$	5,225		$	5,329		$	5,452		$	2,994		$	2,986			$	5,001		$	5,225		$	5,329		$	5,452		$	2,994		$	10,226		$	5,980
Noninterest revenue		8,422			7,621			7,053			5,637			6,025				7,742			8,422			7,621			7,053			5,637			16,164			11,662

Total net revenue		13,647			12,950			12,505			8,631			9,011				12,743			13,647			12,950			12,505			8,631			26,390			17,642
Provision for credit losses		427			1,157			1,169			203			15				587			427			1,157			1,169			203			1,014			218
Noninterest expense before Merger costs and Litigation reserve charge		8,892			8,863			8,625			5,713			6,093				8,748			8,892			8,863			8,625			5,713			17,640			11,806
Merger costs		145			523			752			90			—				279			145			523			752			90			424			90
Litigation reserve charge		900			—			—			3,700			—				1,872			900			—			—			3,700			2,772			3,700

Total noninterest expense		9,937			9,386			9,377			9,503			6,093				10,899			9,937			9,386			9,377			9,503			20,836			15,596

Income (loss) before income tax expense (benefit)		3,283			2,407			1,959			(1,075	)		2,903				1,257			3,283			2,407			1,959			(1,075	)		4,540			1,828
Income tax expense (benefit)		1,019			741			541			(527	)		973				263			1,019			741			541			(527	)		1,282			446

Net income (loss)	$	2,264		$	1,666		$	1,418		$	(548	)	$	1,930			$	994		$	2,264		$	1,666		$	1,418		$	(548	)	$	3,258		$	1,382
Per common share
Net income (loss) per share:
Basic	$	0.64		$	0.47		$	0.40		$	(0.27	)	$	0.94			$	0.28		$	0.64		$	0.47		$	0.40		$	(0.27	)	$	0.93		$	0.67
Diluted		0.63			0.46			0.39			(0.27	)		0.92				0.28			0.63			0.46			0.39			(0.27	)		0.91			0.65
Cash dividends declared per share		0.34			0.34			0.34			0.34			0.34				0.34			0.34			0.34			0.34			0.34			0.68			0.68
Book value per share		29.78			29.61			29.42			21.52			22.62				29.95			29.78			29.61			29.42			21.52
Common shares outstanding (average)
Basic		3,518			3,515			3,514			2,043			2,032				3,493			3,518			3,515			3,514			2,043			3,505			2,038
Diluted		3,570			3,602			3,592			2,043			2,093				3,548			3,570			3,602			3,592			2,043			3,559			2,096
Common shares at period-end		3,525			3,556			3,564			2,088			2,082				3,514			3,525			3,556			3,564			2,088
Selected ratios
Return on common equity (“ROE”)^(b)		9	%		6	%		5	%		NM			17	%			4	%		9	%		6	%		5	%	NM				6	%		6	%
Return on assets (“ROA”)^(b)(c)		0.79			0.57			0.50			NM			1.01				0.34			0.79			0.57			0.50		NM				0.56			0.35
Tier 1 capital ratio		8.6			8.7			8.6			8.2	%		8.4				8.2			8.6			8.7			8.6			8.2	%
Total capital ratio		11.9			12.2			12.0			11.2			11.4				11.3			11.9			12.2			12.0			11.2
Tier 1 leverage ratio		6.3			6.2			6.5			5.5			5.9				6.2			6.3			6.2			6.5			5.5
Selected balance sheet data (period-end)
Total assets	$	1,178,305		$	1,157,248		$	1,138,469		$	817,763		$	801,078			$	1,171,283		$	1,178,305		$	1,157,248		$	1,138,469		$	817,763
Securities		75,251			94,512			92,816			64,915			70,747				58,573			75,251			94,512			92,816			64,915
Total loans		402,669			402,114			393,701			225,938			217,630				416,025			402,669			402,114			393,701			225,938
Deposits		531,379			521,456			496,454			346,539			336,886				534,640			531,379			521,456			496,454			346,539
Long-term debt		99,329			95,422			91,754			52,981			50,062				101,182			99,329			95,422			91,754			52,981
Common stockholders’ equity		105,001			105,314			104,844			44,932			47,092				105,246			105,001			105,314			104,844			44,932
Total stockholders’ equity		105,340			105,653			105,853			45,941			48,101				105,385			105,340			105,653			105,853			45,941
Credit quality metrics
Allowance for credit losses	$	7,423		$	7,812		$	8,034		$	4,227		$	4,417			$	7,233		$	7,423		$	7,812		$	8,034		$	4,227		$	7,233		$	4,227
Nonperforming assets		2,949			3,231			3,637			2,482			2,882				2,832			2,949			3,231			3,637			2,482			2,832			2,482
Allowance for loan losses to total loans^(d)		1.83	%		1.94	%		2.01	%		1.92	%		2.08	%			1.76	%		1.83	%		1.94	%		2.01	%		1.92	%		1.76	%		1.92	%
Net charge-offs	$	816		$	1,398		$	865		$	392		$	444			$	773		$	816		$	1,398		$	865		$	392		$	1,589		$	836
Net charge-off rate^(b)(e)		0.88	%		1.47	%		0.93	%		0.77	%		0.92	%			0.83	%		0.88	%		1.47	%		0.93	%		0.77	%		0.86	%		0.84	%
Wholesale net charge-off rate^(b)(e)		(0.03	)		0.21			(0.08	)		0.29			0.50
Wholesale net charge-off (recovery) rate^(b)(e)																		(0.17	)		(0.03	)		0.21			(0.08	)		0.29			(0.10	)		0.39
Managed Card net charge-off rate^(b)		4.83			5.24			4.88			5.85			5.81				4.87			4.83			5.24			4.88			5.85			4.85			5.83
Headcount		164,381			160,968			162,275			94,615			96,010				168,461			164,381			160,968			162,275			94,615
Share price^(f)
High	$	39.69		$	40.45		$	40.25		$	42.57		$	43.84			$	36.50		$	39.69		$	40.45		$	40.25		$	42.57		$	39.69		$	43.84
Low		34.32			36.32			35.50			34.62			36.30				33.35			34.32			36.32			35.50			34.62			33.35			34.62
Close		34.60			39.01			39.73			38.77			41.95				35.32			34.60			39.01			39.73			38.77			35.32			38.77

(a)		~~Quarterly results~~Results for each quarter commencing with the third quarter of 2004, and for the six months ended June 30, 2005, include ~~three months of~~ the combined Firm’s ~~results.~~results; results for the second quarter of 2004 and six months ended June 30, 2004, reflect the results of heritage JPMorgan Chase only.

(b)		Based on annualized amounts.

(c)		Represents Net income divided by Total average assets.

(d)		Excluded from this ratio were loans ~~held for sale.~~held-for-sale.

(e)		Excluded from this ratio were average loans ~~held for sale.~~held-for-sale.

(f)		JPMorgan Chase’s common stock is listed and traded on the New York Stock Exchange, the London Stock Exchange Limited and the Tokyo Stock Exchange. The high, low and closing prices of JPMorgan Chase’s common stock are from The New York Stock Exchange Composite Transaction Tape.
~~NM – Not meaningful due to net loss.~~

NM – Not meaningful due to net loss.

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

This section of thisForm 10–Q provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of JPMorgan Chase. See the Glossary of terms on pages ~~77–78~~91–92 for a definition of terms used throughout thisForm 10–Q.Q. The MD&A included in this Form 10–Q contains statements that are forward looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that could cause JPMorgan Chase’s results to differ materially from those described in the forward-looking statements can be found in the JPMorgan Chase Quarterly Report onForm 10–Q for the quarter ended March 31, 2005, and the 2004 Annual Report onForm 10–K for the year ended December 31, 2004, each filed with the U.S. Securities and Exchange Commission and available at the Securities and Exchange Commission’s Internet site ~~(http:~~( http://~~www.sec.gov).~~www.sec.gov ).

INTRODUCTION

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, with $1.2 trillion in assets, $105 billion in stockholders’ equity and operations in more than 50 countries. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing, ~~investment~~asset and wealth management ~~private banking~~ and private equity. Under the JPMorgan, Chase and Bank One brands, the Firm serves ~~more than 90 million~~millions of customers ~~including consumers nationwide~~in the United States and many of the world’s most prominent ~~wholesale~~corporate, institutional and government clients.

JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank”), a national banking association with branches in 17 states; and Chase Bank USA, National Association, a national bank headquartered in Delaware that is the Firm’s credit card issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities Inc. (“JPMSI”), its U.S. investment banking firm.

The headquarters for JPMorgan Chase is in New York City. The retail banking business, which includes the consumer banking, small business banking and consumer lending activities (with the exception of credit card), is headquartered in Chicago. Chicago also serves as the headquarters for the commercial banking business.

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

Investment Bank

JPMorgan Chase is one of the world’s leading investment banks, as evidenced by the breadth of its client relationships and product capabilities. The Investment Bank (“IB”) has extensive relationships with corporations, financial institutions, governments and institutional investors worldwide. The Firm provides a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital raising in equity and debt markets, sophisticated risk management, and market-making in cash securities and derivative instruments. The IB also commits the Firm’s own capital to proprietary investing and trading activities.

Retail Financial Services

Retail Financial Services (“RFS”) includes Home Finance, Consumer & Small Business Banking, Auto & Education Finance and Insurance. Through this group of businesses, the Firm provides consumers and small businesses with a broad range of financial products and services including deposits, investments, loans and insurance. Home Finance is a leading provider of consumer real estate loan products and is one of the largest originators and servicers of home mortgages. Consumer & Small Business Banking offers one of the largest branch networks in the United States, covering 17 states with ~~2,517~~2,539 branches and ~~6,687~~6,961 automated teller machines. Auto & Education Finance is the largest bank originator of automobile loans as well as a top provider of loans for college students. Through its Insurance operations, the Firm sells and underwrites an extensive range of financial protection products and investment alternatives, including life insurance, annuities and debt protection products.

Card Services

Card Services (“CS”) is the largest issuer of general purpose credit cards in the United States, with ~~approximately 94~~over 95 million cards in circulation, and is the largest merchant acquirer. CS offers a wide variety of products to satisfy the needs of its cardmembers, including cards issued on behalf of many well-known partners, such as major airlines, hotels, universities, retailers and other financial institutions.

Commercial Banking

Commercial Banking (“CB”) serves more than 25,000 corporations, municipalities, financial institutions and not-for-profit entities, with annual revenues generally ranging from $10 million to $2 billion. A local market presence and a strong customer service model, coupled with a focus on risk management, provide a solid infrastructure for CB to provide the Firm’s complete product set – lending, treasury services, investment banking and investment ~~management – to both corporate~~management. CB clients ~~and their executives. CB’s clients~~ benefit ~~greatly~~ from the Firm’s ~~extensive~~retail branch network and ~~often use~~commercial banking offices, including locations in 10 out of the ~~Firm exclusively to meet their financial services needs.~~

top 15 major metropolitan areas in the U.S.

Treasury & Securities Services

Treasury & Securities Services (“TSS”) is a global leader in providing transaction, investment and information services to support the needs of corporations, issuers and institutional investors worldwide. TSS is the largest cash management provider in the world and ~~the~~a leading global custodian. The Treasury Services (“TS”) business provides clients with a broad range of capabilities, including U.S. dollar and multi-currency clearing, ACH, trade, and short-term liquidity and working capital tools. The Investor Services (“IS”) business provides a wide range of capabilities, including custody, funds services, securities lending, and performance measurement and execution products. The Institutional Trust Services (“ITS”) business provides trustee, depository and administrative services for debt and equity issuers. Treasury Services partners with the Commercial Banking, Consumer & Small Business Banking and Asset & Wealth Management segments to serve clients firmwide. As a result, certain Treasury Services revenues are included in other segments’ results. ~~On April 18, 2005,~~ TSS ~~announced that it~~has combined ~~its investor and issuer services capabilities under~~ the ~~name Worldwide Securities Services. The integrated franchise brought together~~management of the ~~former~~ Investor Services and Institutional Trust Services businesses ~~and~~under the name Worldwide Securities Services to create an integrated franchise which will provide custody and investor services as well as securities clearance and trust services to clients globally.

Asset & Wealth Management

Asset & Wealth Management (“AWM”) provides investment management to retail and institutional investors, financial intermediaries and high-net-worth families and individuals globally. For retail investors, AWM provides investment management products and services, including a global mutual fund franchise, retirement plan administration and brokerage services. AWM delivers investment management to institutional investors across all asset classes. The Private Bank and Private Client Services businesses provide integrated wealth management services to ultra-high-net-worth and high-net-worth clients, respectively.

MERGER WITH BANK ONE CORPORATION

The results of operations of Bank One ~~Corporation’s~~Corporation (“Bank One”) ~~results of operations~~ were included in the Firm’s results beginning July 1, 2004. Therefore, results of operations for the ~~three~~six months ended ~~March 31,~~June 30, 2005, reflect ~~three~~six months of operations of the combined Firm, while the results of operations for the ~~three~~six months ended ~~March 31,~~June 30, 2004, reflect the operations of heritage JPMorgan Chase only.

For the quarter ended June 30, 2005, approximately $440 million (pre-tax) of merger savings have been realized, which is an annualized rate of $1.8 billion. Management ~~expects~~continues to estimate that ~~as a result of the Merger, cost~~annual merger savings of approximately $3.0 billion (pre-tax) will be achieved by the end of 2007; approximately two-thirds of the savings are anticipated to be realized by the end of 2005. ~~During~~Merger costs of approximately $279 million (pre-tax) were expensed during the ~~first~~second quarter of 2005, ~~approximately $380~~bringing the total amount expensed year-to-date to $424 million ~~of merger savings were realized, which is an annualized run rate of $1.5 billion. Management currently expects one-time merger costs to combine the operations of JPMorgan Chase~~ and Bank One to range from approximately $4.0 billion to $4.5 billion (pre-tax). Of these costs, approximately $1.0 billion, specifically related to Bank One, were accounted for as purchase accounting adjustments and were recorded as an increase to goodwill in 2004. Of the approximately $3.0 billion to $3.5 billion in remaining Merger-related costs, $145 million (pre-tax) were incurred during the first quarter of 2005, and $1.4$1.8 billion (pre-tax) ~~were incurred in 2004; these costs have been charged~~cumulative since the merger announcement. Management continues to ~~income. Additional~~estimate remaining merger costs of ~~approximately $1.3~~$1.2 billion to $1.7 billion (pre-tax), which are expected to be ~~incurred in 2005, and~~expensed over the ~~remaining costs are expected to be incurred in 2006.~~next two years. These estimated Merger-related charges will result from actions taken with respect to both JPMorgan Chase’s and Bank One’s operations, facilities and employees. The charges will be recorded based on the nature and timing of these integration actions.

OTHER BUSINESS EVENTS
~~Cazenove~~
On February 28, 2005, JPMorgan Chase and Cazenove Group plc (“Cazenove”) formed a joint venture partnership which combined Cazenove’s investment banking business and JPMorgan Chase’s United Kingdom-based investment banking business in order to provide investment banking services in the United Kingdom and Ireland. The new company is called JPMorgan Cazenove Holdings.
~~JPMorgan Partners~~
On March 1, 2005, the Firm announced that the management team of JPMorgan Partners, LLC, a private equity unit of the Firm, will become independent when it completes the investment of the current $6.5 billion Global Fund, which it advises. The independent management team intends to raise a new fund as a successor to the Global Fund. JPMorgan Chase has committed to invest 24.9% of the limited partnership interests, up to $1 billion, in the new fund.
5
~~WorldCom litigation settlement~~
On March 17, 2005, JPMorgan Chase settled, for $2.0 billion (pre-tax), the WorldCom, Inc. class action litigation. In connection with the settlement, JPMorgan Chase increased its Litigation reserve by $900 million (pre-tax).
Vastera

On April 1, 2005, JPMorgan Chase acquired Vastera, a provider of global trade management solutions, for approximately $129 million. Vastera’s business was combined with the Logistics and Trade Services businesses of TSS’s Treasury Services unit. Vastera automates trade management processes associated with the physical movement of goods internationally; the acquisition enables Treasury Services to offer management of information and processes in support of physical goods movement, together with financial settlement.

Enron litigation settlement

On June 14, 2005, JPMorgan Chase announced that it had reached an agreement in principle to settle, for $2.2 billion (pre-tax), the Enron class action litigation entitledNewby v. Enron Corp. The Firm also recorded a nonoperating charge of $1.9 billion (pre-tax) to cover the settlement and to increase its reserves for certain other remaining material legal matters.

Neovest Holdings, Inc.

On June 23, 2005, JPMorgan Chase agreed to acquire Neovest Holdings, Inc., a provider of high-performance equity trading technology and direct market access. Neovest’s electronic execution and order management capabilities provide investors with access to electronic communication networks (ECNs), exchanges, floor brokers, block desks and algorithmic products. With this transaction, the Investment Bank will offer a leading, broker-neutral trading platform across asset classes to institutional investors, asset managers and hedge funds. The transaction is expected to close in the third quarter of 2005.

EXECUTIVE OVERVIEW

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

Business overview

The Firm reported 2005 second-quarter net income ~~for the first quarter~~ of ~~2005 of $2.3~~$1.0 billion, or ~~$0.63~~$0.28 per share, compared with ~~$1.9 billion,~~a net loss of $548 million, or ~~$0.92~~$0.27 per share, infor the ~~first~~second quarter of 2004. Return on common equity for the quarter was 9%4%. Results included ~~$648 million~~$1.3 billion of after-tax charges, or ~~$0.18~~$0.38 per share, ~~which included~~composed of a nonoperating litigation reserve charge of ~~$558 million~~$1.2 billion and Merger costs of ~~$90~~$173 million. The nonoperating litigation charge was related to the Firm’s settlement of the Enron class action as well as to certain of its other material legal proceedings. Excluding ~~these charges,~~this charge and the Merger costs, operating earnings were ~~$2.9~~$2.3 billion, or ~~$0.81~~$0.66 per share, and return on common equity was ~~11%~~9%.

Net income for the first six months of 2005 was $3.3 billion, or $0.91 per share, compared with $1.4 billion, or $0.65 per share, in the comparable period last year. The increase is primarily attributable to the Merger. Return on common equity was 6%. ~~Operating earnings represent business~~The results ~~without merger-related costs and the~~include after-tax nonoperating litigation reserve ~~charge.~~
charges of $1.7 billion and Merger costs of $263 million. In addition to the ~~first~~aforementioned litigation charge in the second quarter of 2005, ~~both~~ the ~~global~~first-half nonoperating litigation charge also included a $558 million charge for the settlement costs of the WorldCom class action litigation. Excluding these litigation charges and ~~U.S. economies~~Merger costs, operating earnings were $5.2 billion, or $1.47 per share, and return on common equity was 10%.

Global economic and market conditions affect performance in each of the Firm’s businesses. Early in the quarter, investor concerns over a slowing economy, outsized inflation readings, continued high energy prices and slowing corporate profits affected the markets. At the same time, the auto industry’s problems triggered debt downgrades and turmoil in the derivatives markets, and downbeat European economic news drove the dollar higher relative to the euro. This challenging environment had an adverse impact on the Investment Bank’s trading results. In addition, the yield curve continued to ~~expand although the pace of growth slowed later in the quarter. The U.S. economy experienced a continued rise in short-term interest rates, driven by~~flatten as two quarter-point increases in the federal funds rate drove short-term rates higher while long-term rates remained at historic lows. Nevertheless, certain of the Firm’s consumer businesses benefited from ~~2.25% to 2.75%. This led to continued yield curve flattening,~~a shift in consumer sentiment, as ~~long-term interest rates~~concerns about high oil prices and pending bankruptcy legislation were ~~relatively stable. Equity markets, both domestic~~offset by an improving job market and ~~international, enjoyed~~low levels of inflation. Consumer spending rebounded over the quarter, which had a positive ~~returns versus~~impact on credit card charge volume. Economic data at the ~~prior-quarter and prior-year. However, equity markets did weaken noticeably late in~~end of the ~~quarter. The U.S. consumer sector showed positive trends during the first~~ quarter ~~but spending growth appeared to be moderating following strong gains in~~left a more favorable impression of conditions going into the second half of ~~2004. New hiring and income gains offset higher energy prices.~~
the year.

The following discussion of each line of business results compares the second quarter of 2005 to the comparable period in the prior year, unless otherwise noted. On an operating basis, net income in each of the Firm’s business segments ~~in comparison to 2004,~~ was affected significantly by the Merger. The ~~following discussion~~summary below highlights factors other than the Merger that affected operating results.

Investment ~~Banking~~Bank earnings declined, as significantly lower trading revenues ~~benefited from increased~~more than offset strength in investment banking fees ~~with strength~~(particularly advisory) and continued improvement in ~~debt underwriting, advisory and equity underwriting. Offsetting this improved performance were lower net interest income and slightly lower trading revenues, compared to record results~~credit quality, which resulted in ~~the prior year. The~~a greater reduction in the allowance for credit ~~losses~~losses. Trading performance reflected a challenging market environment which resulted in weak portfolio management results, lower proprietary trading revenues and reduced client flows. Advisory revenues represented the highest quarter since 2000. Reduced performance-based incentive compensation expense was ~~primarily related to the improved quality of the loan portfolio, resulting~~offset by increased staff costs from ~~turnover in the mix of the loan portfolio towards higher-rated clients and from net recoveries. Higher expenses were related to performance-based compensation accruals.~~
higher headcount levels.

Retail Financial Services ~~revenues~~earnings benefited from ~~higher net interest income due to~~ wider ~~deposit~~ spreads ~~growth in~~on deposits, increased deposit balances, ~~and~~ growth in retained ~~home equity loan balances,~~consumer real estate loans and improved mortgage servicing right (“MSR”) risk management results. These benefits were partially offset by several loan portfolio sales. Revenues also benefited from improved MSR asset risk management results and secondary marketing activities in Home Finance. Partially offsetting these benefits was a decrease inreduced revenue ~~due~~related to lower prime mortgage originations and a ~~write-down~~lack of securitization gains related to the ~~transfer of auto loans~~decision to ~~held-for-sale. The provision~~retain subprime mortgage loans. Continued strength in credit quality and lower net charge-offs led to a reduction in the Allowance for credit losses. Increased operating efficiencies in nearly all businesses offset ongoing investments in retail banking distribution and sales.

Card Services earnings growth reflected lower Provision for credit losses, ~~benefited from improving credit quality in all portfolios~~higher revenue and ~~reductions in the allowance~~merger saves. These benefits were partially offset by higher marketing spend and an operating charge to increase litigation reserves. The Provision for credit losses ~~reflecting~~was reduced by lower contractual net charge-offs, but adversely affected by increased bankruptcy losses from accelerated filings due to the ~~sale of recreational vehicle loans~~pending change in bankruptcy legislation and the ~~transfer~~acquisition of ~~auto loans to held-for-sale. Expenses decreased~~a private label portfolio. Managed credit ratios remained strong, benefiting from a continued low level of delinquencies. Revenue increased due to ~~merger-related savings~~higher loan balances and ~~ongoing efficiency improvements,~~increased interchange income from higher charge volume, partially offset by ~~continued expansion of the retail distribution network and a charge related to the dissolution of a student loan joint venture.~~
~~Card Services revenue benefited from~~ higher ~~loan balances, which resulted in higher net interest income. Additionally, higher customer charge volume generated increased interchange income. Partially offsetting these revenue improvements were~~ volume-driven ~~increases in~~ payments to partners and higher ~~reward payments. The provision~~rewards expense. Strong new account originations led to an increase in balances in their introductory periods, resulting in margin compression.

Commercial Banking earnings declined as a result of increased Provision for credit losses, ~~benefited from lower net charge-offs reflecting lower bankruptcies~~which reflected higher reserves, primarily due to refinements in the data used to estimate the Allowance for credit losses and ~~delinquencies, partially offset by additions~~not to a deterioration in the ~~allowance for loan losses related to growth in on-balance sheet loans. Expenses benefited from lower compensation and processing costs,~~credit quality of the portfolio, which remained strong. Underlying business trends were ~~partially offset by increased marketing spend.~~
~~Commercial Banking revenues benefited from~~positive: wider spreads on higher liability balances (which include deposits and deposits swept into on-balance sheet liabilities), increased ~~liability balances. These benefits~~loan balances, and strong investment banking revenue resulted in increased revenues. Offsetting these improvements were ~~partially offset by~~ lower fees in lieu of compensating balances, narrower loan spreads and lower gains on the ~~sale~~sales of assets acquired in the satisfaction of debt. ~~Credit quality remained strong, allowing the provision for credit losses to be a slight net benefit.~~ Expenses ~~increased due to higher Treasury Services product-unit costs.~~
were essentially flat.

Treasury & Securities Services ~~revenues benefited from wider~~produced triple-digit earnings growth and significantly improved its pre-tax margin. Revenue increases were driven by widening spreads on ~~increased~~ liability balances, ~~growth in assets under custody~~improved fee-based revenue and ~~broad-based growth in product revenues.~~liability balance growth. Expenses increased due to charges to terminate a client contract, the Vastera acquisition and onboarding fund accounting clients. These ~~benefits~~expense increases were partially offset by lower ~~service charges on deposits. Expenses~~allocations of Corporate segment expenses and increased ~~due to compensation and technology-related costs, but were partially offset by higher product-unit~~product unit costs charged to other lines of business.

Asset & Wealth Management ~~revenues were positively affected by~~produced double-digit earnings growth and improved its pre-tax margin as well. Higher fee revenue resulted from the acquisition of a majority interest in Highbridge Capital Management, LLC, net asset inflows (particularly in equity and alternative asset classes) and global equity market ~~appreciation~~appreciation. Expense increases reflected the acquisition of Highbridge and ~~deposit growth. Provision for credit losses improved~~increased compensation expense primarily due to higher performance-based incentives which were driven by improved investment results.

Corporate segment earnings declined. Compared with the second quarter of 2004, the decline in revenue was due primarily to declining net interest income resulting from the repositioning of the treasury portfolio and lower ~~charge-offs, and expenses increased~~private equity gains. Compared with the first half of 2004, the decline was primarily due to ~~Highbridge and higher performance-based compensation.~~
~~Performance in the Corporate segment was negatively affected by~~ securities losses related to repositioning the ~~repositioning of~~treasury portfolio, compared with gains in the ~~investment securities portfolio. Private Equity results were strong and included two large~~prior period; this decline more than offset the significant increase in private equity gains.

The Firm’s balance sheet ~~remains~~remained strong, with total stockholders’ equity of $105 billion and a Tier 1 capital ratio at ~~March 31,~~June 30, 2005 of ~~8.6%~~8.2%. The Firm repurchased ~~$1.3 billion,~~$594 million, or 3616.8 million shares, of common stock during the ~~quarter.~~
quarter and $1.9 billion, or 52.8 million shares, of common stock during the first half of the year.

Business outlook

The Investment Bank ~~entered~~anticipates continued strength in investment banking fees, reflecting a pipeline at June 30, 2005, ~~with~~that is similar to that of the first half of the year. Trading conditions were difficult in April and May, but in June and July the IB saw a ~~strong pipeline for advisory and underwriting business and, at March 31, 2005, the pipeline remained at these levels. In addition, the Investment Bank continues~~return to ~~focus on growing its client-driven~~more normal markets. Nevertheless, trading ~~business, although overall trading revenues~~markets are difficult to predict, and ~~can be volatile from period to period. Trading~~third-quarter investment banking and trading revenues have historically been ~~seasonally stronger in~~negatively affected by the ~~first quarter, and trading conditions have been less favorable in April. Compared with 2004, the Investment Bank~~quieter summer months. The IB expects ~~a reduction in~~ credit portfolio revenues to decline from first-half levels as ~~both net interest income on loans and~~ gains from loan workouts ~~are likely~~and loan sales decrease. The ratio of compensation expense to ~~decrease.~~
~~Card Services expects~~revenue in the second quarter was 43%, bringing the year-to-date ratio to ~~maintain a relatively stable net interest margin with loan repricing opportunities offset by higher funding costs. Marketing spend~~41%, which is ~~also expected to increase from the first quarter level. Within~~reflective of current market conditions.

In Retail Financial Services, ~~net~~a flatter yield curve and rising short term interest ~~income will be negatively affected by recent loan portfolio sales. Home Finance will continue~~rates may lead to ~~be affected by the market-driven decline~~tighter deposit margins in ~~mortgage originations and the volatility of MSR risk management revenues.~~coming quarters for Consumer & Small Business ~~Banking~~Banking. Favorable MSR risk management results recorded in the first two quarters of the year are not anticipated in the second half of the year given the unpredictability of certain market factors. The business expects pressure to remain on auto loan originations, although efforts continue to reduce the expense base and improve returns on new business. There is no indication that credit quality trends will deviate from current levels, although seasonal increases are possible. The business anticipates continued ~~growth~~investment in ~~core deposits~~retail banking distribution and ~~associated revenue, partially~~sales.

In Card Services, favorable response to marketing initiatives significantly increased new account originations and, therefore, increased the number of balances in their introductory period. This, coupled with the competitive environment in which Card Services operates, could put some pressure on margins in the coming quarters. Marketing spend is currently expected to remain stable in the third quarter and experience a seasonal drop in the fourth quarter. The business anticipates, based on current indicators of credit quality, that credit costs for the second half of 2005 will be stable, primarily driven by strong performance, as well as an anticipated stabilization of bankruptcy filing trends subsequent to the October, 2005 legislative change. These positive trends may be offset by ~~ongoing investments~~minimum payment changes in ~~the branch distribution network. New branch openings are expected to accelerate during the remainder of the year.~~
~~The revenue outlook for the~~ 2006.

Private ~~Equity business is directly related to the strength of~~ equity ~~market conditions. Given the large~~ gains in the first ~~quarter, it is expected that~~half totaled $1.1 billion. Although results can be volatile, given the occurrence of several large realized gains in the first half, management expects the level of ~~quarterly~~ gains ~~for~~in the ~~remainder~~second half of the year ~~will~~to be in the range of ~~$150 million to $200 million, although results can be volatile from quarter to quarter.~~
It is expected that, over time, the provision for credit losses will return to a more normal level for the wholesale businesses. The consumer provision for credit losses should reflect generally stable credit quality, increased balances and the lack of allowance reductions related to portfolio sales. The Firm plans to begin implementing new minimum-payment rules in the Card Services business during the third quarter of 2005 that will result in higher required payments from some customers. It is anticipated that this may increase delinquency and net charge-off rates in 2006. The magnitude of the impact is currently being assessed. The Firm expects the level of bankruptcy filings to accelerate prior to the October effective date of the bankruptcy legislation signed into law on April 20, 2005. Bankruptcy filings subsequent to the October effective date are expected to normalize.
Expenses in the first quarter, excluding performance-based compensation, were down because merger-related saves and other efficiencies more than offset incremental spending and increased expenses related to acquisitions. Expenses, excluding performance-based compensation, are expected to increase in the second quarter over the first quarter by approximately $200 million to $250 million. This increase is expected to include $200 million to $250 million per quarter.

The Firm anticipates wholesale credit costs returning to more normal levels over the next several quarters.

Management continues to expect to realize annualized merger savings of ~~incremental spending related to technology, marketing and distribution network expansion and $70 million~~approximately $2.2 billion by the end of ~~acquisition-related expenses, partially offset by~~2005, compared with an annualized rate of approximately $1.8 billion at the end of the second quarter. Incremental merger savings in the second quarter were $60 million ~~of incremental merger saves. For the full year, expenses, excluding performance-based compensation,~~and are ~~expected~~anticipated to be ~~essentially flat to 2004, as increases related to acquisitions and incremental spending are expected to be offset by incremental merger saves.~~
approximately $110 million in the second half of 2005.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides a discussion of JPMorgan Chase’s consolidated results of operations on a reported basis. Factors that are primarily related to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical accounting estimates used by the Firm that affect the Consolidated results of operations, see ~~pages 52–53~~page 62 of this Form 10–Q, and pages 77–79 of the JPMorgan Chase 2004 Annual Report.

The following table presents the components of Total net revenue:

Three months ended March 31,^(a) (in millions) 2005 2004 Change
Total net revenue^(a) Three months ended June 30, Six months ended June 30,
(in millions) 2005 2004 Change 2005 2004 Change

Investment banking fees $ 993 $ 692 43 % $ 961 $ 893 8 % $ 1,954 $ 1,585 23 %
Trading revenue 1,859 1,720 8 387 873 (56 ) 2,246 2,593 (13 )
Lending & deposit related fees 820 414 98 851 412 107 1,671 826 102
Asset management, administration and commissions 2,455 1,771 39 2,541 1,814 40 5,039 3,650 38
Securities/private equity gains (losses) (45 ) 432 NM 407 460 (12 ) 362 892 (59 )
Mortgage fees and related income 405 259 56 336 294 14 698 488 43
Credit card income 1,734 605 187 1,763 631 179 3,497 1,236 183
Other income 201 132 52 496 260 91 697 392 78

Noninterest revenue 8,422 6,025 40 7,742 5,637 37 16,164 11,662 39
Net interest income 5,225 2,986 75 5,001 2,994 67 10,226 5,980 71

Total net revenue $ 13,647 $ 9,011 51 % $ 12,743 $ 8,631 48 % $ 26,390 $ 17,642 50 %

~~(a)~~
(a) 2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
~~2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.~~
Total net revenues ~~at $13.6 billion,~~ rose by ~~$4.6~~$4.1 billion, or ~~51%~~48%, ~~primarily due to~~from the second quarter of 2004 and $8.7 billion, or 50%, from the first half of 2004, resulting mainly from the Merger, which affected most revenue categories. Additional factors that contributed to the revenue growth were significantly higher Investment banking fees, reflecting continued strong levels of advisory and underwriting activities with particular strength in Europe; higher Asset management, administration and commissions, which benefited from an increase in the value of assets under management, supervision and custody, the result of global equity market appreciation, net asset inflows and an acquisition; private equity gains, driven by two large transactions; and consumer-related revenues stemming from stronger demand for credit products, higher credit card charge volume and growth in deposit levels. Partially offsetting these increases were securities losses on Treasury’s investment portfolio, the result of repositioning the investment portfolio; and, in RFS, lower prime mortgage originations and write-downs of auto loans that were transferred to the held-for-sale portfolio. The discussion that follows highlights factors other than the Merger that affected the comparison of the results of the three and six months ended ~~March 31,~~June 30, 2005 and 2004.
~~The increase in~~

Investment banking fees ~~reflected continued strong levels of~~were up 8% from last year’s second quarter and up significantly on a year-to-date basis, reflecting strength in advisory and debt underwriting, advisory and equity underwriting. Investment banking fees from European deals more than doubled from last year. Higher Trading revenue was driven by strong client activity and portfolio management performance in the credit and interest rate markets across most major asset classes, partially offset by declines in equity underwriting fees due to reduced levels of market volumes. European investment banking fees were particularly strong in the first half of 2005. Trading revenues for both the second quarter and first half of 2005, were lower ~~equity revenue from lower~~than comparable periods in 2004. A challenging market environment in the second quarter resulted in weak portfolio management ~~results.~~results, lower proprietary trading revenues due to fewer market opportunities and reduced client flows. Second quarter trading results drove the first half decline in trading revenues as well. For a further discussion of Investment banking fees and Trading revenue, which are primarily recorded in the IB, see the IB segment results on pages ~~14–16~~15-19 of this Form 10–Q.

Lending & deposit related fees ~~rose due to~~increased significantly from the ~~Merger, but~~2004 second quarter and year-to-date periods as a result of the ~~increase was partially offset~~Merger. Absent the merger, these fees would have declined in both periods, driven primarily by lower fees in lieu of compensating balances ~~as a result of~~due to rising interest rates. ~~Throughout 2004 and the first quarter of 2005,~~In a rising interest rate environment, customers earn more credit from their deposit balances ~~grew.~~and thus compensate the Firm using balances instead of fees. For a further discussion on liability balances and deposits, see page 3542 of this Form 10-Q.

The ~~increase~~increases in Asset management, administration and commissions ~~was attributable to global equity market appreciation, net asset inflows~~for the second quarter and ~~growth in custody, securities lending and trust products,~~first half of 2005 were driven by incremental fees from several recent investments, including ~~collateralized debt obligation (“CDO”) administration. In addition, asset management and administration fees rose as a result of the acquisition of~~ a majority interest in Highbridge Capital Management, inLLC, a joint venture with Cazenove Group plc (“Cazenove”) and the ~~fourth quarter~~acquisition of ~~2004.~~Vastera. In addition, organic business growth, global equity market appreciation and net asset inflows contributed to the improvement. For additional information on these fees and commissions, see the segment discussions for AWM on pages ~~29–32,~~35-38, TSS on pages ~~27–29~~32-34 and RFS on pages ~~17–23~~20-27 of this Form 10–Q.

The decline in Securities/private equity gains (losses) ~~were affected by~~compared with the second quarter of 2004 reflected lower private equity gains resulting primarily from higher mark-to-market losses on the portfolio. For the first half of the year, the decrease in Securities/private equity gains (losses) was mainly attributable to the net impact of two significant items recognized in the first quarter of 2005: securities losses of $822 million primarily related to ~~Treasury’s~~the repositioning of the ~~investment~~Treasury portfolio to manage exposure to rising interest rates, ~~and Private~~partially offset by significantly higher private equity gains ~~of $777 million. The increase in Private equity gains of $471 million from the prior year was~~due primarily ~~due~~ to two large transactions. For a further discussion of Securities/private equity gains (losses), which are primarily recorded in the Firm’s Treasury and Private Equity businesses, see the Corporate segment discussion on pages ~~32–34~~38-40 of this Form 10–Q.
~~The increase in~~

Mortgage fees and related income ~~reflected an increase~~rose from the second quarter and first six months of 2004 largely due to improvements in risk management results related to the ~~mortgage servicing rights (“MSRs”) asset and secondary marketing activities. These increases were~~MSR asset. The increase for both periods was offset in part by a reduction in revenue related to lower prime mortgage ~~originations.~~originations and the decision to retain subprime mortgage loans rather than securitize. Mortgage fees and related income excludes the impact of NII and AFS securities gains related to home mortgage activities. For a discussion of Mortgage fees and related income, which is primarily recorded in RFS’s Home Finance business, see the Home Finance discussion on pages ~~18–20~~22-24 of this Form 10–Q.

Credit card income increased, ~~due to~~compared with the second quarter and first half of 2004, primarily as a result of higher ~~charge volume, which resulted in increased~~ interchange income associated with growth in charge volume. This was partially offset by higher volume-driven payments to partners and higher rewards expense. For a further discussion of Credit card income, see CS’s segment results on pages ~~23–25~~27-29 of this Form ~~10-Q.~~
10–Q.

The increase in Other income ~~reflected~~from the second quarter of 2004 was driven by higher net results from corporate and bank-owned life insurance policies and higher gains on ~~sales of~~ securities from loan workouts and loan sales. Other income for the first six months of 2005 was up due to higher net results from the aforementioned insurance policies, revenues from loan workouts and loan sales, and a gain on ~~the~~ sale of ~~RFS’s~~the recreational vehicle loan ~~portfolio.~~portfolio in the first quarter of 2005. These ~~gains~~revenues were partially offset ~~in part~~ by write-downs ~~related to~~on auto loans that were transferred to the held-for-sale portfolio in ~~RFS.~~
RFS in the first quarter of 2005.

Net interest income ~~was also favorably affected by~~rose from the 2004 second quarter and first six months, principally as a result of wider spreads on consumer deposits and wholesale liability balances, and growth in consumer loan and ~~wholesale~~ deposit ~~balances and spreads; higher consumer loans outstanding;~~balances. In addition, 2005 first half results benefited from the ~~acquisition~~absence of ~~a private-label portfolio in CS; and~~ a $40 million charge taken in the first quarter of 2004 related to auto lease residuals. These ~~increases~~favorable items were partially offset by ~~lower~~the reduced level of the Treasury portfolio, tighter wholesale loan ~~balances and~~ spreads and the absence of the $4 billion manufactured home loan portfolio that was sold in late 2004. The Firm’s total average interest-earning assets for the three months ended ~~March 31,~~June 30, 2005, were ~~$898~~$912 billion, up 49% from ~~March 31,~~June 30, 2004, primarily as a result of the Merger. The net interest yield on these assets, on a fully taxable-equivalent basis, was ~~2.39%~~2.24%, an increase of 3826 basis points from the prior year.
The Firm’s total average interest-earning assets for the six months ended June 30, 2005, were $905 billion, up 49% from June 30, 2004, primarily as a result of the Merger. The net interest yield on these assets, on a fully taxable-equivalent basis, was 2.31%, an increase of 31 basis points from the prior year.

Provision for credit losses

The Provision for credit losses rose from the second quarter and first six months of ~~$427 million~~2004. This rise was ~~up $412 million compared with the prior year. The increase was the result of~~primarily due to the Merger and ~~growth in consumer loan balances in RFS and CS. These increases were partially offset by reductions~~an increase in the ~~allowance reflecting improved credit quality in the wholesale and RFS loan portfolios, and lower loan balances~~consumer provision as a result of increased credit card bankruptcy losses from accelerated filings. Credit quality in the ~~sale~~card portfolio remained strong, however, with managed net charge-off ratios declining from the levels in both the second quarter and first six months of ~~the recreational vehicle loan portfolio and the transfer of auto loans~~2004. In addition, there was higher provision expense related to the ~~held-for-sale portfolio.~~decision to retain subprime mortgage loans rather than securitize, partially offset by a reduction in other RFS allowances for loan losses due to lower net charge offs and improved credit trends. The net increase in the consumer provision was partially offset by a benefit in the wholesale provision, reflecting continued improvement in credit quality. For further information about the Provision for credit losses and the Firm’s management of credit risk, see the Credit risk management discussion on pages ~~41–49~~48-58 of this Form ~~10–Q.~~
10-Q.

Noninterest expense

The following table presents the components of Noninterest expense:

Three months ended March 31,^(a) (in millions) 2005 2004 Change
Three months ended June 30, Six months ended June 30,
(in millions)^(a) 2005 2004 Change 2005 2004 Change

Compensation expense $ 4,702 $ 3,302 42 % $ 4,266 $ 2,943 45 % $ 8,968 $ 6,245 44 %
Occupancy expense 525 431 22 580 440 32 1,105 871 27
Technology and communications expense 920 819 12 896 786 14 1,816 1,605 13
Professional & outside services 1,074 816 32 1,130 752 50 2,204 1,568 41
Marketing 483 199 143 537 202 166 1,020 401 154
Other expense 805 447 80 954 511 87 1,759 958 84
Amortization of intangibles 383 79 385 385 79 387 768 158 386

Total noninterest expense before merger costs and litigation reserve charge 8,892 6,093 46 8,748 5,713 53 17,640 11,806 49
Merger costs 145 — NM 279 90 210 424 90 371
Litigation reserve charge 900 — NM 1,872 3,700 (49 ) 2,772 3,700 (25 )

Total noninterest expense $ 9,937 $ 6,093 63 % $ 10,899 $ 9,503 15 % $ 20,836 $ 15,596 34 %

~~(a)~~
(a) 2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
~~2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.~~
Total Noninterest expense was ~~$9.9~~$10.9 billion for the three months ended ~~March 31,~~June 30, 2005, up ~~$3.8~~$1.4 billion, or ~~63%~~15%, ~~primarily due to~~from the ~~Merger.~~second quarter of 2004. Excluding ~~$145 million of~~ Merger costs and ~~the $900 million~~nonoperating Litigation reserve ~~charge,~~charges in the second quarters of 2004 and 2005, Noninterest expense would have been ~~$8.9~~$8.7 billion, up ~~46%~~53% from the prior year. Total Noninterest expense for the first six months of 2005 was $20.8 billion, up 34% from the same period last year. Excluding Merger costs and nonoperating Litigation reserve charges, Noninterest expense for the first half would have been $17.6 billion, up 49%. ~~In addition~~The increases from 2004 were due primarily to the Merger, and litigation charges, expenses increased due to higher performance-based incentives and investments in employees and technology to support the businesses, including acquisitions. These were partially offset by ongoing efficiency improvements and merger-related savings. Eachwhich affected each category of Noninterest ~~expense was affected by the Merger.~~expense. The discussion that follows highlights factors other than the Merger that affected the comparison of results.

The increases in Compensation expense from the ~~results~~second quarter and first half of 2004 were primarily the result of additional headcount due to the insourcing of the ~~three months ended March 31, 2005 and 2004.~~
~~Compensation expense rose partially as a result of higher performance-related incentive accruals. The Firm added to its headcount as a result of insourcing its~~Firm’s global technology infrastructure (effective December 31, 2004, JPMorgan Chase terminated its outsourcing agreement with IBM), and ~~as a result~~the impact of several ~~acquisitions,~~investments, including ~~Highbridge.~~Highbridge, Cazenove and Vastera. These ~~increases~~ were partially offset by ~~ongoing efficiency improvements,~~ merger-related savings throughout the ~~Firm and a reduction in pension costs. The decline in pension costs was primarily attributable to the increase~~Firm.

Occupancy expense included charges for excess real estate of $35 million in the ~~expected return on plan assets from a discretionary $1.1 billion contribution to~~second quarter of 2005, compared with charges of $26 million in the ~~Firm’s defined benefit pension plan in April 2004, as well as changes in actuarial assumptions for 2005. For a detailed discussion~~same period of ~~pension and other postretirement benefit costs, see Note 5 on page 61 of this Form 10-Q.~~
last year.

The ~~Merger-related increase~~increases in Technology and communications expense ~~was~~from both periods last year, primarily as a result of the Merger, were partially offset by the lower costs associated with insourcing the support for the Firm’s global technology ~~infrastructure support.~~
infrastructure.

Professional & outside services rose from the second quarter and first six months of 2004, reflecting ~~the costs of improving~~upgrades to the Firm’s systems and technology, the termination of the aforementioned IBM outsourcing agreement and ~~increased~~the impact of business growth. These expense increases were partially offset by the benefits of vendor contract negotiations and other expense management initiatives.
9

Marketing expense ~~increased~~was up from both periods of 2004 due to the costs of acquiring new credit card ~~and retail banking~~ accounts and of launching the new Chase brand.

The increases in Other expense ~~was~~from the second quarter and first half of 2004 reflected higher ~~reflecting~~operating charges for several legal matters, incremental expenses of several recent investments, including Highbridge, Cazenove and Vastera, charges of $93 million (pre-tax) in the 2005 second quarter to terminate a client contract in Treasury & Securities Services and a $40 million (pre-tax) charge taken in the first quarter of 2005 related to the dissolution of a student loan joint ~~venture, and incremental expenses associated with several acquisitions, including Highbridge.~~venture. These ~~increases~~items were partially offset by merger-related ~~savings.~~
savings and other efficiencies. In addition, the prior-year quarter included software impairment write-offs of $67 million (pre-tax) recorded at Treasury & Securities Services.

For a discussion of Amortization of intangibles and Merger costs, refer to Note 14 and Note 7 on pages ~~69–71~~81–83 and ~~62,~~73, respectively, of this Form ~~10-Q.~~
~~In March 2005,~~10–Q.

The Firm recorded a $1.9 billion ($1.2 billion after-tax) nonoperating litigation charge related to its settlement of the ~~Firm recorded~~Enron class action litigation as well as to certain of its other material legal proceedings, compared with a $900 million ($558 million after-tax) nonoperating litigation charge in ~~connection with its~~the first quarter of 2005 for the settlement costs of the WorldCom class action litigation. In the second quarter of 2004, the Firm took a $3.7 billion ($2.3 billion after-tax) nonoperating litigation charge to increase litigation reserves. For a further discussion of litigation, refer to Note 17 on page ~~72,~~84, and Part II, Item 1, Legal Proceedings, on pages ~~81–82~~95–96 of this Form ~~10-Q.~~
10–Q.

Income tax expense

The Firm’s Income (loss) before income tax expense (benefit), Income tax expense (benefit) and effective tax rate were as follows for each of the periods indicated:

Three months ended March 31,^(a) (in millions, except rate) 2005 2004

Income before income tax expense $ 3,283 $ 2,903
Income tax expense 1,019 973
Effective tax rate 31.0 % 33.5 %

Six months ended June 30,
(in millions, except rate)^(a) 2Q05 2Q04 2005 2004

Income (loss) before income tax expense (benefit) $ 1,257 $ (1,075 ) $ 4,540 $ 1,828
Income tax expense (benefit) 263 (527 ) 1,282 446
Effective tax rate 20.9 % 49.0 % 28.2 % 24.4 %

~~(a)~~
(a) 2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
~~2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.~~
The reduction in the effective tax rate from the second quarter of 2004 was the result of changes in the level and proportion of income subject to federal, state and local taxes, including a higher level of tax-exempt income and business tax credits. The ~~Merger costs~~increase in the effective tax rate for the first half of 2005, as compared with the prior year period, was principally the result of higher reported pre-tax income, combined with changes in the proportion of income subject to federal, state and ~~Litigation~~local taxes. The nonoperating litigation reserve ~~charge~~charges in the first ~~quarter~~half of 2005 and 2004, reflecting tax benefits at a 38% marginal tax rate, also contributed to the ~~reduction in the 2005 effective~~low tax ~~rate.~~
rate for both periods.

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

The Firm prepares its Consolidated financial statements using accounting principles generally accepted in the United States of America (“U.S. GAAP”); these financial statements appear on pages ~~55–58~~64–67 of this Form 10–Q. That presentation, which is referred to as “reported basis,” provides the reader with an understanding of the Firm’s results that can be consistently tracked from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.

In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s and the lines of business’ results on an “operating basis,” which is a non-GAAP financial measure. The definition of operating basis starts with the reported U.S. GAAP results. In the case of the IB, noninterest revenue on an operating basis includes, in Trading revenue, Net interest income related to trading activities. Trading activities generate revenues, which are recorded for U.S. GAAP purposes in two line items on the income statement: Trading revenue, which includes the mark-to-market gains or losses on trading positions; and Net interest income, which includes the interest income or expense related to those positions. Combining both the Trading revenue and related Net interest income enables management to evaluate IB’s trading activities, by considering all revenue related to these activities, and facilitates operating comparisons to other competitors.

In the case of CS, operating, or managed, basis excludes the impact of credit card securitizations on total net revenue, the Provision for credit losses, net charge-offs and loan receivables. Through securitization the Firm transforms a portion of its credit card receivables into securities, which are sold to investors. The credit card receivables are removed from the Consolidated balance sheet through the transfer of principal credit card receivables to a trust, and the sale of undivided interests in the trusts to investors that entitle the investors to specific cash flows generated from the credit card receivables. The Firm retains the remaining undivided interests in the trust as seller’s interests, which are recorded in Loans on the Consolidated balance sheet. A gain or loss on the sale of credit card receivables to investors is recorded in Other income. Securitization also affects the Firm’s Consolidated income statement by reclassifying as Credit card income, interest income, certain fee revenue, ~~and~~ recoveries in excess of interest paid to the investors, gross credit losses and other trust expenses related to the securitized receivables. For a reconciliation of reported to managed basis of CS results, see page 2529 of this Form 10–Q. For information regarding loans and residual interests sold and securitized, see Note 12 on pages ~~65–68~~76–79 of this Form 10–Q. JPMorgan Chase uses the concept of “managed receivables” to evaluate the credit performance and overall financial performance of ~~the~~its underlying credit card loans, both sold and not sold: as the same borrower is continuing to use the credit card for ongoing charges, a borrower’s credit performance will affect both the loan receivables sold under SFAS 140 and those not sold. Thus, in its disclosures regarding managed loan receivables, JPMorgan Chase treats the sold receivables as if they were still on the balance sheet in order to disclose the credit performance (such as net charge-off rates) of the entire managed credit card portfolio. In addition, CS operations are funded, operating results are evaluated, and decisions about allocating resources such as employees and capital are based on managed financial information.

Operating basis also excludes Merger costs, litigation reserve charges deemed nonoperating and ~~the Litigation reserve charge,~~accounting policy conformity adjustments, as management believes these items are not part of the Firm’s normal daily business operations (and, therefore, are not indicative of trends) and do not provide meaningful comparisons with other periods.
10
For additional detail on nonoperating litigation charges, see the Glossary of Terms on page 92 of this Form 10–Q.

Finally, commencing with the first quarter of 2005, Operating revenue (Noninterest Revenue and Net interest income) for each of the segments and the Firm is presented on a tax-equivalent basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits are presented in the operating results on a basis comparable to taxable securities and investments. This allows management to assess the comparability of revenues arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these items is recorded within Income tax expense. ~~In the first quarter of 2005, the~~The Corporate sector’s and the Firm’s operating revenue and income tax expense for the periods prior to the first quarter of 2005 have been restated to be similarly presented on a tax-equivalent basis. Previously, only the segments’ operating results were presented on a tax-equivalent basis, and the impact of the segments’ tax-equivalent adjustments was eliminated in the Corporate sector. This restatement had no impact on the Corporate sector’s or the Firm’s operating earnings.

Management also uses certain non-GAAP financial measures at the segment level. Management believes these non-GAAP financial measures provide information to investors in understanding the underlying operational performance and trends of the particular business segment and facilitate a comparison of the business segment with the performance of competitors.

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


Three months ended March 31,^(a)	2005
(in millions, except per share and ratio data)	Reported			Trading			Credit			Merger			Litigation			Tax-equivalent			Operating
	results			reclass^(c)			card^(d)			costs^(e)			charge^(e)			adjustments			basis
Three months ended June 30,^(a)																						2005
(in millions, except per share and																						Reported		Trading			Credit			Merger			Litigation			Tax-equivalent		Operating
ratio data)																						results		reclass^(c)			card^(d)			costs^(e)			charge^(e)			adjustments		basis

Revenue
Investment banking fees	$	993		$	—		$	—		$	—		$	—		$	—		$	993		$	961	$	—		$	—		$	—		$	—		$	—	$	961
Trading revenue		1,859			328			—			—			—			—			2,187			387		198			—			—			—			—		585
Lending & deposit related fees		820			—			—			—			—			—			820			851		—			—			—			—			—		851
Asset management, administration and commissions		2,455			—			—			—			—			—			2,455			2,541		—			—			—			—			—		2,541
Securities/private equity gains (losses)		(45	)		—			—			—			—			—			(45	)		407		—			—			—			—			—		407
Mortgage fees and related income		405			—			—			—			—			—			405			336		—			—			—			—			—		336
Credit card income		1,734			—			(815	)		—			—			—			919			1,763		—			(728	)		—			—			—		1,035
Other income		201			—			—			—			—			115			316			496		—			—			—			—			143		639

Noninterest revenue		8,422			328			(815	)		—			—			115			8,050			7,742		198			(728	)		—			—			143		7,355
Net interest income		5,225			(328	)		1,732			—			—			61			6,690			5,001		(198	)		1,658			—			—			84		6,545

Total net revenue		13,647			—			917			—			—			176			14,740			12,743		—			930			—			—			227		13,900
Provision for credit losses		427			—			917			—			—			—			1,344			587		—			930			—			—			—		1,517
Noninterest expense
Merger costs		145			—			—			(145	)		—			—			—			279		—			—			(279	)		—			—		—
Litigation reserve charge		900			—			—			—			(900	)		—			—			1,872		—			—			—			(1,872	)		—		—
All other noninterest expense		8,892			—			—			—			—			—			8,892			8,748		—			—			—			—			—		8,748

Total noninterest expense		9,937			—			—			(145	)		(900	)		—			8,892			10,899		—			—			(279	)		(1,872	)		—		8,748

Income before income tax expense		3,283			—			—			145			900			176			4,504			1,257		—			—			279			1,872			227		3,635
Income tax expense		1,019			—			—			55			342			176			1,592			263		—			—			106			711			227		1,307

Net income	$	2,264		$	—		$	—		$	90		$	558		$	—		$	2,912		$	994	$	—		$	—		$	173		$	1,161		$	—	$	2,328

Earnings per share – diluted	$	0.63		$	—		$	—		$	0.03		$	0.15		$	—		$	0.81

Return on common equity		9	%		—	%		—	%		—	%		2	%		—	%		11	%
Return on equity – goodwill^(b)		15			—			—			1			3			—			19

Return on assets		0.79			NM			NM			NM			NM			NM			0.96

Overhead ratio		73			NM			NM			NM			NM			NM			60

Effective income tax rate		31			NM			NM			38			38			100			35

Earnings per share – diluted $ 0.65 $ — $ — $ 0.03 $ 1.09 $ — $ 1.77

Return on common equity 6 % — % — % — % 10 % — % 16 %
Return on equity – goodwill^(b)
7 — — — 13 — 20

Return on assets 0.35 NM NM NM NM NM 0.92

Overhead ratio 88 NM NM NM NM NM 63

Effective income tax rate 24 NM NM 33 38 100 35

(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		Net income applicable to common stock divided by Total average common equity (net of goodwill). The Firm uses return on equity less goodwill, a non-GAAP financial measure, to evaluate the operating performance of the Firm. The Firm utilizes this measure to facilitate operating comparisons to other competitors.

(c)		The reclassification of trading-related net interest income from Net interest income to Trading revenue primarily impacts the Investment Bank segment results. ~~See page 10 of this Form 10–Q for further information.~~

(d)		The impact of credit card securitizations affects ~~CS.~~Card Services. See pages ~~23–25~~27–29 of this Form 10–Q for further information.

(e)		The impact of Merger costs and nonoperating Litigation reserve charges are excluded from Operating earnings, as management believes these items are not part of the Firm’s normal daily business operations ~~and,~~(and, therefore, are not indicative of ~~trends~~trends), and do not provide meaningful comparisons with other periods. ~~There were no such items in 2004.~~
NM	—	~~Not meaningful.~~


Three months ended March 31,^(a)	2005						2004
Three months ended June 30,^(a)													2005						2004
(in millions)	Reported		Securitized		Managed		Reported		Securitized		Managed		Reported		Securitized		Managed		Reported		Securitized		Managed

Loans – Period-end	$	402,669	$	67,328	$	469,997	$	217,630	$	34,478	$	252,108	$	416,025	$	68,808	$	484,833	$	225,938	$	34,138	$	260,076
Total assets – average		1,162,818		67,509		1,230,327		771,318		33,357		804,675		1,176,033		66,226		1,242,259		802,870		33,026		835,896

Six months ended June 30,^(a) 2005 2004
(in millions) Reported Securitized Managed Reported Securitized Managed

Loans – Period-end $ 416,025 $ 68,808 $ 484,833 $ 225,938 $ 34,138 $ 260,076
Total assets – average 1,169,462 66,864 1,236,326 787,094 33,191 820,285

(a)

2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

BUSINESS SEGMENT RESULTS

The Firm is managed on a line-of-business basis. The business segment financial results presented reflect the ~~current~~ organization of JPMorgan Chase. ~~There~~Currently, there are six major reportable business segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services and Asset & Wealth Management, as well as a Corporate segment. The segments are based on the products and services provided, or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on an operating basis. For a further discussion of Business segment results, see pages 28–29 of JPMorgan Chase’s 2004 Annual Report.

Segment results for ~~periods prior to July 1,~~the three and six months ended June 30, 2004, reflect heritage JPMorgan Chase–only ~~results~~ and have been restated to reflect the current business segment organization and reporting classifications. The following table summarizes the business segment results for the periods indicated:

Segment results – Operating basis^(a) Return on Return on
Three months ended March 31,^(b) Total net revenue Noninterest expense Operating earnings equity-goodwill
Three months ended June 30,^(b) Total net revenue Noninterest expense Operating earnings equity–goodwill
(in millions, except ratios) 2005 2004 Change 2005 2004 Change 2005 2004 Change 2005 2004 2005 2004 Change 2005 2004 Change 2005 2004 Change 2005 2004

Investment Bank $ 4,180 $ 3,764 11 % $ 2,525 $ 2,326 9 % $ 1,325 $ 1,017 30 % 27 % 27 % $ 2,750 $ 2,939 (6 )% $ 2,178 $ 2,056 6 % $ 606 $ 644 (6 )% 12 % 18 %
Retail Financial Services 3,847 1,611 139 2,162 1,241 74 988 206 380 31 16 3,799 1,835 107 2,126 1,131 88 980 396 147 30 32
Card Services 3,779 1,557 143 1,313 599 119 522 162 222 18 19 3,886 1,587 145 1,383 565 145 542 176 208 18 21
Commercial Banking 850 322 164 458 209 119 243 74 228 29 37 900 334 169 473 203 133 174 65 168 21 35
Treasury & Securities Services 1,482 1,012 46 1,065 867 23 245 98 150 52 12 1,588 1,093 45 1,194 944 26 229 101 127 48 13
Asset & Wealth Management 1,361 848 60 934 649 44 276 122 126 47 9 1,343 828 62 917 681 35 283 99 186 47 7
Corporate (759 ) 418 NM 435 202 115 (687 ) 251 NM NM NM (366 ) 560 NM 477 133 259 (486 ) 325 NM NM NM

Total $ 14,740 $ 9,532 55 % $ 8,892 $ 6,093 46 % $ 2,912 $ 1,930 51 % 19 % 21 % $ 13,900 $ 9,176 51 % $ 8,748 $ 5,713 53 % $ 2,328 $ 1,806 29 % 15 % 19 %

14

Return on
Six months ended June 30,^(b) Total net revenue Noninterest expense Operating earnings equity–goodwill
(in millions, except ratios) 2005 2004 Change 2005 2004 Change 2005 2004 Change 2005 2004

Investment Bank $ 6,930 $ 6,703 3 % $ 4,703 $ 4,382 7 % $ 1,931 $ 1,661 16 % 19 % 23 %
Retail Financial Services 7,646 3,446 122 4,288 2,372 81 1,968 602 227 30 24
Card Services 7,665 3,144 144 2,696 1,164 132 1,064 338 215 18 20
Commercial Banking 1,750 656 167 931 412 126 417 139 200 25 36
Treasury & Securities Services 3,070 2,105 46 2,259 1,811 25 474 199 138 50 13
Asset & Wealth Management 2,704 1,676 61 1,851 1,330 39 559 221 153 47 8
Corporate (1,125 ) 978 NM 912 335 172 (1,173 ) 576 NM NM NM

Total $ 28,640 $ 18,708 53 % $ 17,640 $ 11,806 49 % $ 5,240 $ 3,736 40 % 17 % 20 %

(a)		Represents reported results excluding the impact of credit card securitizations, ~~and, in 2005,~~ Merger costs and ~~significant~~ litigation reserve ~~charges.~~charges deemed nonoperating.

(b)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

Description of business segment reporting methodology

Results of the business segments are intended to reflect each segment as if it were essentially a stand-alone business. The management reporting process that derives these results allocates income and expense using market-based methodologies. At the time of the Merger, several of the allocation methodologies were revised, effective July 1, 2004. For a further discussion of those methodologies, see page 29 of JPMorgan Chase’s 2004 Annual Report. In addition, during the first quarter of 2005, the Firm refined cost allocation methodologies related to certain corporate functions and technology and operations expense in order to provide better consistency in reporting across business segments. Prior periods have not been revised to reflect these new cost allocation methodologies. The Firm intends to continue to assess the assumptions, methodologies and reporting reclassifications used for segment reporting, and it is anticipated that further refinements may be implemented in future periods.
13

INVESTMENT BANK

For a discussion of the business profile of the IB, see pages 30–32 of JPMorgan Chase’s 2004 Annual Report.

Selected income statement data(b) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except ratios) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Revenue

Investment banking fees:
Advisory $ 263 $ 147 79 % $ 359 $ 268 34 % $ 622 $ 415 50 %
Equity underwriting 239 177 35 104 221 (53 ) 343 398 (14 )
Debt underwriting 483 366 32 502 402 25 985 768 28

Total investment banking fees
985 690 43 965 891 8 1,950 1,581 23
Trading-related revenue:^(b)

Trading-related revenue:
Fixed income and other 1,915 1,885 2 940 1,293 (27 ) 2,855 3,178 (10 )
Equities 225 335 (33 ) (280 ) (86 ) (226 ) (55 ) 249 NM
Credit portfolio 59 56 5 (46 ) 29 NM 13 85 (85 )

Total trading-related revenue^(b)
2,199 2,276 (3 )
Total trading-related revenue^(c)
614 1,236 (50 ) 2,813 3,512 (20 )
Lending & deposit related fees 157 96 64 146 112 30 303 208 46
Asset management, administration and commissions 408 393 4 413 348 19 821 741 11
Other income 127 14 NM 270 45 500 397 59 NM

Noninterest revenue
3,876 3,469 12 2,408 2,632 (9 ) 6,284 6,101 3
Net interest income^(b)
304 295 3
Net interest income^(c)
342 307 11 646 602 7

Total net revenue^(c)
4,180 3,764 11
Total net revenue^(d)
2,750 2,939 (6 ) 6,930 6,703 3
Provision for credit losses (366 ) (188 ) (95 ) (343 ) (128 ) (168 ) (709 ) (316 ) (124 )
Credit reimbursement from TSS^(d)
38 2 NM
Credit reimbursement from TSS^(e)
38 2 NM 76 4 NM
Noninterest expense

Compensation expense 1,616 1,386 17 1,192 1,126 6 2,808 2,512 12
Noncompensation expense 909 940 (3 ) 986 930 6 1,895 1,870 1

Total noninterest expense
2,525 2,326 9 2,178 2,056 6 4,703 4,382 7

Operating earnings before income tax expense
2,059 1,628 26 953 1,013 (6 ) 3,012 2,641 14
Income tax expense 734 611 20 347 369 (6 ) 1,081 980 10

Operating earnings
$ 1,325 $ 1,017 30 $ 606 $ 644 (6 ) $ 1,931 $ 1,661 16

Financial ratios

ROE 27 % 27 % — bp
ROA 0.95 0.97 (2 )
Overhead ratio 60 62 (200 )
Compensation expense as % of total net revenue 39 37 200

15

Financial ratios
ROE 12 % 18 % (600 )bp 19 % 23 % (400 )bp
ROA 0.41 0.59 (18 ) 0.67 0.78 (11 )
Overhead ratio 79 70 900 68 65 300
Compensation expense as % of total net revenue 43 38 500 41 37 400

Revenue by business^(f)
Investment banking fees $ 965 $ 891 8 % $ 1,950 $ 1,581 23 %
Fixed income markets 1,418 1,572 (10 ) 3,707 3,669 1
Equities markets 72 161 (55 ) 628 793 (21 )
Credit portfolio 295 315 (6 ) 645 660 (2 )

Total net revenue $ 2,750 $ 2,939 (6 ) $ 6,930 $ 6,703 3

Revenue by region
Americas $ 1,833 $ 1,497 22 $ 4,057 $ 3,450 18
Europe/Middle East/Africa 554 1,032 (46 ) 2,089 2,328 (10 )
Asia/Pacific 363 410 (11 ) 784 925 (15 )

Total net revenue $ 2,750 $ 2,939 (6 ) $ 6,930 $ 6,703 3

(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		For a discussion of selected lines of business metrics, see page 93 of thisForm 10–Q.

(c)		Trading revenue, on a reported basis, excludes the impact of net interest income related to the IB’s trading activities; this income is recorded in Net interest income. However, in this presentation, to assess the profitability of the IB’s trading business, the Firm combines these revenues for segment reporting. The amount reclassified from Net interest income to Trading revenue was ~~$324~~$207 million and ~~$581~~$427 million for the three months ended ~~March 31,~~June 30, 2005 and 2004, respectively, and $531 million and $1.0 billion for the six months ended June 30, 2005 and 2004, respectively.

~~(c)~~(d)		Total net revenue includes tax-equivalent adjustments, primarily due to tax-exempt income from municipal bonds and income tax credits related to affordable housing investments, of ~~$155~~$206 million and ~~$44~~$54 million for the three months ended ~~March 31,~~June 30, 2005 and 2004, respectively and $361 million and $98 million for the six months ended June 30, 2005 and 2004, respectively.

~~(d)~~(e)		TSS is charged a credit reimbursement related to certain exposures managed within the IB credit portfolio on behalf of clients shared with TSS. For a further discussion, see Credit reimbursement on page 29 of the JPMorgan Chase 2004 Annual Report.

(f)		See account details of Fixed Income Markets, Equities Markets and Credit Portfolio in the Composition of Revenues table on page 19.

Quarterly results

Operating earnings were ~~$1.3 billion, an increase of $308~~$606 million, down $38 million, or ~~30%~~6%, from the prior year. ~~Results were driven~~The lower performance was due to decreased trading revenues, partially offset by the ~~Merger, increased Investment~~Merger. Trading revenues for the quarter were $614 million, down $622 million, or 50%, from the prior year. The disappointing trading performance reflected a challenging market environment. This resulted in weak portfolio management results, lower proprietary trading revenues due to fewer market opportunities and reduced client flows. In addition, there were specific losses that affected equity trading results. Trading revenues were generally weaker in Europe than in the United States and Asia. Partially offsetting the weak trading results were strong investment banking fees and ~~an increased benefit from the Provision for~~continued improvement in credit ~~losses, partially offset by lower Net interest income and higher compensation expense. Compared to the prior quarter, operating earnings doubled, primarily due to higher trading revenues.~~
~~Revenues~~quality.

Total net revenues of ~~$4.2~~$2.8 billion were ~~up $416~~down $189 million, or ~~11%~~6%, compared towith the prior year. Investment banking fees of ~~$985~~$965 million ~~increased by $295~~remained strong, increasing $74 million, or ~~43%~~8%, compared towith the prior ~~year, reflecting continued strong levels~~year. Advisory revenues of ~~debt underwriting, advisory and equity underwriting fees and the Merger. European investment banking fees~~$359 million were ~~very strong, more than doubling~~up 34% from the prior year and ~~up nearly 50%~~represent the highest quarter since 2000. Debt underwriting revenues of $502 million increased 25% from the prior ~~quarter.~~year driven by higher levels of loan syndication fees, while equity underwriting fees of $104 million were down 53% reflecting reduced levels of market volumes. European investment banking fees remained particularly strong increasing by 33% from the prior year. Fixed Income Markets revenues of ~~$2.3~~$1.4 billion were ~~up 9%~~down $154 million, or 10% from the prior year. The decline was driven by weaker trading performance in credit and interest rate markets, reflecting weak portfolio management results within client-related market-making activities, as well as reduced proprietary trading results, partially offset by the Merger and increased securities gains. Equity Markets revenues of $72 million decreased $89 million, or 55%, versus the prior year. The decline was due to poor portfolio management trading results, primarily related to losses from a few concentrated client-driven positions and a write-down in trade receivables in connection with a disputed claim with a creditworthy entity. Credit Portfolio revenues of $295 million were down 6% compared with the prior year, reflecting lower trading revenues from hedging activity and lower net interest income from reduced loan balances and commitments, partially offset by the Merger and gains from workouts and loan sales.

Compared with the first quarter of 2005, second quarter average total trading and credit portfolio value-at-risk increased $31.9 million, from $70.0 million to $101.9 million for the three months ended June 30, 2005. This increase was driven by higher levels of value-at-risk in fixed income and equity, the latter driven primarily by a few concentrated client-related positions. In July, value-at-risk levels returned to levels consistent with those in the first quarter of 2005.

year, primarily driven by the Merger, and up 50% from the prior quarter on strength in trading revenues in credit and interest rate markets. Equity Markets revenues of $556 million were down 12% from the prior year reflecting reduced trading results, but increased significantly from the prior quarter. Credit Portfolio revenues of $350 million were up marginally from the prior year, reflecting the Merger and gains from loan workouts offset by lower loan balances and spreads.

The ~~Provision~~provision for credit losses was a benefit of ~~$366~~$343 million, compared towith a benefit of ~~$188~~$128 million in the prior year. The increased benefit was primarily attributable to a greater reduction in the allowance for credit losses ~~reflecting~~due to continued improvement in credit quality as a result of the ~~turnover~~change in ~~the mix of~~ the loan portfolio ~~towards higher-rated~~mix toward higher rated clients and net ~~recoveries.~~
recoveries, as well as refinements in the data used to estimate the allowance for credit losses.

Expenses of ~~$2.5~~$2.2 billion were up ~~$199~~$122 million, or 9%6%, from the prior year primarily due to the Merger and the impact of the Cazenove joint venture, largely offset by lower performance-based compensation.

Year-to-date results

Year-to-date operating earnings of $1.9 billion increased $270 million, or 16%, from the prior year primarily attributable to the Merger. The increase in performance was a result of an increased benefit in the Provision for credit losses of $393 million and an increase in Investment banking fees of $369 million, partially offset by reduced Trading revenues. On a year-to-date basis, return on equity was 19%.

Total net revenues of $6.9 billion were up $227 million, or 3%, over the prior year. Investment banking fees remained strong, increasing 23% from the prior year. Advisory revenues of $622 million were up 50% from prior year driven by the strong second quarter performance, which was the highest quarter since 2000. Debt underwriting revenues of $985 million increased by 28%, driven primarily by an increase in loan syndication fees. Fixed Income Markets revenues of $3.7 billion were up marginally from the prior year’s first six months, primarily due to the Merger and increased securities gains. Equity markets revenues of $628 million decreased by $165 million, or 21%, driven by poor portfolio management trading results primarily related to losses from a few concentrated client-driven positions and a write-down in trade receivables in connection with a disputed claim with a creditworthy entity. Credit portfolio revenues of $645 million were down $15 million, or 2%, reflecting reduced trading revenues and lower net interest income from reduced loan balances and commitments, partially offset by the Merger and gains from workouts and loan sales.

The provision for credit losses was a benefit of $709 million, compared with a benefit of $316 million in the prior year. The increased benefit was primarily attributable to a greater reduction in the allowance for credit losses due to continued improvement in credit quality as a result of the change in the loan portfolio mix toward higher rated clients and net recoveries, as well as refinements in the data used to estimate the allowance for credit losses.

Expenses of $4.7 billion increased by $321 million, or 7%, from the prior year, due to the Merger and increased compensation ~~costs.~~expense. The increase in compensation expense reflected ~~higher incentive compensation accruals to recognize improved financial performance.~~

Selected metrics
Three months ended March 31,^(a)(b)
(in millions, except headcount and ratio data) 2005 2004 Change

Revenue by business

Investment banking fees $ 985 $ 690 43 %
Fixed income markets 2,289 2,097 9
Equities markets 556 632 (12 )
Credit portfolio 350 345 1

Total net revenue $ 4,180 $ 3,764 11

Revenue by region

Americas $ 2,224 $ 1,953 14
Europe/Middle East/Africa 1,535 1,296 18
Asia/Pacific 421 515 (18 )

Total net revenue $ 4,180 $ 3,764 11

Selected balance sheet data (average)

Total assets $ 566,778 $ 422,151 34
Trading assets–debt and equity instruments^(c)
225,367 176,788 27
Trading assets–derivatives receivables 63,574 57,042 11
Loans^(d)
47,468 38,199 24
Adjusted assets^(e)
445,840 367,525 21
Equity^(f)
20,000 15,085 33

Headcount
17,993 14,930 21

Credit data and quality statistics

Net charge-offs $ (5 ) $ 34 NM
Nonperforming assets:
Nonperforming loans^(g)
814 1,498 (46 )
Other nonperforming assets 242 357 (32 )
Allowance for loan losses 1,191 855 39
Allowance for lending-related commitments 296 215 38

Net charge-off (recovery) rate^(d)
(0.05 )% 0.41 % (46 )bp
Allowance for loan losses to average loans^(d)
3.03 2.59 44
Allowance for loan losses to nonperforming loans^(g)
147 58 8,900
Nonperforming loans to average loans 1.71 3.92 (221 )
Market risk–average trading and credit portfolio VAR^(h)(i)

Trading activities:
Fixed income^(h)
$ 57 $ 73 (22 )%
Foreign exchange 23 22 5
Equities 18 40 (55 )
Commodities and other 10 8 25
Diversification (43 ) (49 ) 12

Total trading VAR 65 94 (31 )
Credit portfolio VAR⁽ⁱ⁾
13 15 (13 )
Diversification (8 ) (7 ) (14 )

Total trading and credit portfolio VAR $ 70 $ 102 (31 )

the Cazenove joint venture, net investments in technology and operations staffing, and onboarding of previously externally-contracted staff.

Selected metrics^(a) Three months ended June 30, Six months ended June 30,
(in millions, except headcount and
ratio data) 2005 2004 Change 2005 2004 Change

Selected balance sheets data (average)

Total assets $ 592,383 $ 439,166 35 % $ 579,651 $ 430,658 35 %
Trading assets–debt and equity instruments 232,980 186,975 25 229,194 181,881 26
Trading assets–derivatives receivables 56,436 51,925 9 59,985 54,484 10
Loan
Credit portfolio 30,435 26,192 16 29,838 26,956 11
Other loans^(b)
20,967 12,537 67 19,608 11,508 70

Total loans^(c)
51,402 38,729 33 49,446 38,464 29
Adjusted assets^(d)
453,895 373,461 22 449,845 370,493 21
Equity^(e)
20,000 14,015 43 20,000 14,550 37
Headcount
19,269 15,829 22 19,269 15,829 22
Credit data and quality statistics

Net charge-offs (recovery) $ (47 ) $ 15 NM $ (52 ) $ 49 NM
Nonperforming assets:
Nonperforming loans^(f)
711 1,202 (41 ) 711 1,202 (41 )
Other nonperforming assets 235 339 (31 ) 235 339 (31 )
Allowance for loan losses 971 742 31 971 742 31
Allowance for lending-related commitments 225 183 23 225 183 23
Net charge-off (recovery) rate^(c)
(0.56 )% 0.18 % (74 )bp (0.29 )% 0.30 % (59 )bp
Allowance for loan losses to average loans^(c)
2.90 2.21 69 2.67 2.23 44
Allowance for loan losses to nonperforming loans^(f)
137 62 7,500 137 62 7,500
Nonperforming loans to average loans 1.38 3.10 (172 ) 1.44 3.13 (169 )
17

Market risk–average trading and credit portfolio VAR^(g)(h)

Trading activities:
Fixed income^(g)
$ 82 $ 77 6 % $ 70 $ 75 (7 )%
Foreign exchange 21 16 31 22 19 16
Equities 45 29 55 32 35 (9 )
Commodities and other 15 8 88 12 8 50
Diversification (61 ) (42 ) (45 ) (52 ) (46 ) (13 )

Total trading VAR 102 88 16 84 91 (8 )
Credit portfolio VAR^(h)
13 15 (13 ) 13 15 (13 )
Diversification (13 ) (9 ) (44 ) (11 ) (8 ) (38 )

Total trading and credit portfolio VAR $ 102 $ 94 9 % $ 86 $ 98 (12 )%

(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		~~For a discussion~~Other Loans consists of ~~selected line~~loans not directly managed by the Credit Portfolio Group and include (i) warehouse loans held as part of ~~business metrics, see page 79~~the IB’s mortgage-backed, asset-backed and other securitization businesses; (ii) loans held for proprietary investing purposes and (iii) certain other extension of ~~this Form 10-Q.~~loans that are directly managed outside of the Credit Portfolio Group.

(c)		~~2004 has been restated to conform with current presentation.~~

~~(d)~~
Loans include loans ~~held for sale~~held-for-sale of ~~$8.2~~$17.9 billion and $5.2 billion for the ~~first quarters of~~periods ended June 30, 2005 and 2004, respectively. The year-to-date average loans held-for-sale were $13.0 billion and $5.2 billion for the periods ended June 30, 2005 and 2004, respectively. These amounts are not included in the allowance coverage ratios and net charge-off rates. See page 41 for a discussion of the change in loan balances.
~~(e)~~(d)
Adjusted assets, a non-GAAP financial measure, equals total ~~average~~ assets minus ~~(1)~~(i) securities purchased under resale agreements and securities borrowed less securities sold, not yet purchased; ~~(2)~~(ii) assets of variable interest entities (VIEs) consolidated under FIN 46R; ~~(3)~~(iii) cash and securities segregated and on deposit for regulatory and other purposes; and ~~(4)~~(iv) goodwill and intangibles. The amount of adjusted assets is presented to assist the reader in comparing the IB’s asset and capital levels to other investment banks in the securities industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a company’s capital adequacy. The IB believes an adjusted asset amount, which excludes certain assets considered to have a low-risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry. See Capital management on pages ~~35–37~~42–44 of this Form 10–Q for a discussion of the Firm’s overall capital adequacy and capital management.
~~(f)~~(e)
Equity includes ~~$13.8~~$15.1 billion of economic risk capital assigned to the IB for the quarter ended ~~March 31,~~June 30, 2005.
~~(g)~~(f)
Nonperforming loans include loans ~~held for sale~~held-for-sale of $2 million ~~and $30 million~~ as of ~~March 31,~~both June 30, 2005 and 2004, respectively. These amounts are not included in the allowance coverage ratios.
~~(h)~~(g)
Includes all mark-to-market trading activities, plus available-for-sale securities held for proprietary purposes.
~~(i)~~(h)
Includes VAR on derivative credit valuation adjustments, credit valuation adjustment hedges and mark-to-market loan hedges, which are reported in Trading revenue. This VAR does not include the accrual loan portfolio, which is not marked to market.

According to Thomson Financial, the Firm maintained its #1 ranking in Global and U.S. Syndicated Loans, and improved its ranking to #4 from #6#5 in U.S. Debt, Equity and Equity-Related. The Firm continued to build its franchise by maintaining a top 3 ranking in Global Announced M&A, improving its Global Equity and Equity-related ~~category, while improving its~~ market share to #4 from ~~6% to 10%. In~~#6, and its U.S. ~~Equities, momentum was sustained with a #4 ranking in~~ Equity and ~~Equity-related category and a~~Equity-Related to #5 ~~ranking in IPO’s. The Firm maintained its 25% market share of Global Announced M&A with a #4 ranking compared with #3 in the prior year. In Europe~~from #6.

Based on Dealogic data, the Firm ~~realized significant market share gains resulting~~ranked first of all investment banks in ~~M&A ranking rising to #3~~total fees earned from ~~#6, Equity~~underwriting and ~~Equity-related up to #2 from #7 and Convertibles up to #1 from #2.~~

Market shares and rankings^(a) First Quarter 2005 Full Year 2004
Market Share Rankings Market Share Rankings

Global debt, equity and equity-related 6 % #5 7 % # 3
Global syndicated loans 13 #1 19 # 1
Global long-term debt 6 #5 7 # 2
Global equity and equity-related 10 #4 6 # 6
Global announced M&A 25 #4 25 # 3
U.S. debt, equity and equity-related 7 #4 8 # 5
U.S. syndicated loans 27 #1 32 # 1
U.S. long-term debt 7 #4 12 # 2
U.S. equity and equity-related 11 #4 8 # 6
U.S. announced M&A 22 #6 33 #1

advisory for the first half of 2005.

Six months ended June 30, 2005 Full Year 2004
Market shares and rankings^(a) Market Share Rankings Market Share Rankings

Global debt, equity and equity-related 6 % #5 7 % # 3
Global syndicated loans 17 #1 19 # 1
Global long-term debt 6 #4 7 # 2
Global equity and equity-related 9 #4 6 # 6
Global announced M&A 22 #3 25 # 2
U.S. debt, equity and equity-related 7 #4 8 # 5
U.S. syndicated loans 31 #1 32 # 1
U.S. long-term debt 10 #2 12 # 2
U.S. equity and equity-related 8 #5 8 # 6
U.S. announced M&A 18 #6 32 #1

(a)
Source: Thomson Financial Securities data. Global announced M&A is based on rank value; all other rankings are based on proceeds, with full credit to each book manager/equal if joint. Because of joint assignments, market share of all participants will add up to more than 100%. The market share and rankings for the year ended December 31, 2004 are presented on a combined basis, as if the merger of JPMorgan Chase and Bank One had been in effect during the period.
18

COMPOSITION OF ~~REVENUE~~REVENUES

Asset Asset
Three months ended March 31,^(a) Investment Trading- Lending & management,
banking related deposit administration Other Total net
Investment Trading- Lending & management,
Three months ended June 30,^(a) banking related deposit administration Other Total net
(in millions) fees revenue related fees and commissions income NII revenue fees revenue related fees and commissions income NII revenue

2005

Investment banking fees
$ 985 $ — $ — $ — $ — $ — $ 985 $ 965 $ — $ — $ — $ — $ — $ 965
Fixed income markets
— 1,915 65 64 104 141 2,289 — 940 61 50 192 175 1,418
Equities markets
— 225 — 333 (20 ) 18 556 — (280 ) — 350 (17 ) 19 72
Credit portfolio
— 59 92 11 43 145 350 — (46 ) 85 13 95 148 295

Total
$ 985 $ 2,199 $ 157 $ 408 $ 127 $ 304 $ 4,180 $ 965 $ 614 $ 146 $ 413 $ 270 $ 342 $ 2,750

2004
Investment banking fees $ 690 $ — $ — $ — $ — $ — $ 690 $ 891 $ — $ — $ — $ — $ — $ 891
Fixed income markets — 1,885 26 60 49 77 2,097 — 1,293 28 59 63 129 1,572
Equities markets — 335 — 325 (47 ) 19 632 — (86 ) — 279 (52 ) 20 161
Credit portfolio — 56 70 8 12 199 345 — 29 84 10 34 158 315

Total $ 690 $ 2,276 $ 96 $ 393 $ 14 $ 295 $ 3,764 $ 891 $ 1,236 $ 112 $ 348 $ 45 $ 307 $ 2,939

Asset
Investment Trading- Lending & management,
Six months ended June 30,^(a) banking related deposit administration Other Total net
(in millions) fees revenue related fees and commissions income NII revenue

2005

Investment banking fees
$ 1,950 $ — $ — $ — $ — $ — $ 1,950
Fixed income markets
— 2,855 126 114 296 316 3,707
Equities markets
— (55 ) — 683 (37 ) 37 628
Credit portfolio
— 13 177 24 138 293 645

Total
$ 1,950 $ 2,813 $ 303 $ 821 $ 397 $ 646 $ 6,930

2004
Investment banking fees $ 1,581 $ — $ — $ — $ — $ — $ 1,581
Fixed income markets — 3,178 54 119 112 206 3,669
Equities markets — 249 — 604 (99 ) 39 793
Credit portfolio — 85 154 18 46 357 660

Total $ 1,581 $ 3,512 $ 208 $ 741 $ 59 $ 602 $ 6,703

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
19
16

RETAIL FINANCIAL SERVICES

For a discussion of the business profile of RFS and each of its businesses, see pages 33–38 of JPMorgan Chase’s 2004 Annual Report.

Selected income statement data(a) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except ratios) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Revenue

Lending & deposit related fees $ 340 $ 121 181 % $ 358 $ 124 189 % $ 698 $ 245 185 %
Asset management, administration and commissions 351 95 269
Asset management, administration and commissions^(b)
369 132 180 763 277 175
Securities/private equity gains (losses) 10 — NM — — NM 10 — NM
Mortgage fees and related income 411 255 61
Mortgage fees and related income^(b)
341 333 2 709 538 32
Credit card income 94 19 395 105 25 320 199 44 352
Other income (12 ) (24 ) 50 68 10 NM 56 (14 ) NM

Noninterest revenue
1,194 466 156 1,241 624 99 2,435 1,090 123
Net interest income 2,653 1,145 132 2,558 1,211 111 5,211 2,356 121

Total net revenue
3,847 1,611 139 3,799 1,835 107 7,646 3,446 122
Provision for credit losses 94 54 74 94 78 21 188 132 42
Noninterest expense

Compensation expense 822 509 61 820 450 82 1,642 959 71
Noncompensation expense 1,215 731 66 1,181 680 74 2,396 1,411 70
Amortization of intangibles 125 1 NM 125 1 NM 250 2 NM

Total noninterest expense
2,162 1,241 74 2,126 1,131 88 4,288 2,372 81

Operating earnings before income tax expense
1,591 316 403 1,579 626 152 3,170 942 237
Income tax expense 603 110 448 599 230 160 1,202 340 254

Operating earnings
$ 988 $ 206 380 % $ 980 $ 396 147 % $ 1,968 $ 602 227 %

Financial ratios

ROE 31 % 16 % 1,500 bp 30 % 32 % (200 )bp 30 % 24 % 600 bp
ROA 1.78 0.59 119 1.74 1.09 65 1.76 0.85 91
Overhead ratio 56 77 (2,100 ) 56 62 (600 ) 56 69 (1,300 )

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Reflects the transfer of certain insurance revenues from Mortgage fees and related income to Asset management, administration and commissions in the second quarter of 2005. Prior periods have been restated to reflect the current presentation.
Quarterly results
Operating earnings were ~~$988~~$980 million, up ~~$782~~$584 million from the prior year. The increase was largely due to the Merger, but also reflected ~~improved risk management results in Home Finance,~~ wider spreads on deposits, increased deposit balances, growth in retained consumer real estate loans and ~~lower expenses due to merger-related savings in all businesses.~~improved MSR risk management results. These ~~improvements~~benefits were partially offset by a reduction in revenue related to lower prime mortgage ~~originations.~~
~~Total net~~originations and the decision to retain subprime mortgage loans rather than securitize.
Net revenue increased to $3.8 billion, up ~~$2.2~~$2.0 billion from the prior year. Net interest income of ~~$2.7~~$2.6 billion increased ~~$1.5~~$1.3 billion as a result of the Merger, ~~as well as from~~ wider spreads on deposits, and increased deposit balances, as well as growth in retained ~~home equity loans, and the absence of a $40 million charge taken in the first quarter of 2004 related to auto lease residuals.~~consumer real estate loans. These benefits were partially offset by the impact of lower first mortgage warehouse balances in the Home Finance business, lower production volumes in Auto & Education Finance, and the absence of ~~net interest revenue from the $4 billion manufactured home~~ loan ~~portfolio that was~~portfolios sold in late ~~2004.~~2004 and the first quarter of 2005. Noninterest revenue of $1.2 billion increased ~~$728~~$617 million due to the Merger ~~improved Home Finance~~and better MSR risk management ~~results and a gain of $24 million on the sale of a recreational vehicle loan portfolio.~~results. These increases were offset partially by ~~lower revenue related to~~ a ~~decline~~drop in prime mortgage originations and ~~an $88 million write-down on $2.7 billion~~the absence of ~~auto loans transferred to held-for-sale.~~
subprime mortgage loan securitization gains.
The ~~Provision~~provision for credit losses totaled $94 million, up ~~$40~~$16 million from last year. The increase was largely due to the ~~Merger. Both~~Merger, but also reflected higher provision expense related to the ~~prior year and current quarter included~~decision to retain subprime mortgage loans. These increases were partially offset by reductions in the allowance for loan losses due to lower net charge-offs and improved credit trends in most consumer lending portfolios.
Expenses rose to $2.1 billion, an increase of $1.0 billion from the prior year, primarily due to the Merger. Results also included ongoing investments in retail banking distribution and sales. These costs were more than offset by expense savings in nearly all businesses.
20

Year-to-date results
Operating earnings were $2.0 billion, up $1.4 billion from the prior year. The increase was largely due to the Merger, but also reflected wider spreads on deposits, increased deposit balances and growth in retained consumer real estate loans. Results also benefited from improved risk management results in the Home Finance business. These benefits were partially offset by a reduction in revenue related to lower prime mortgage originations, the absence of loan portfolios sold in late 2004 and the first quarter of 2005, and a net loss associated with securitization of $2.3 billion of auto loans.

Net revenue increased to $7.6 billion, up $4.2 billion from the prior year. Net interest income of $5.2 billion increased $2.9 billion as a result of the Merger, wider spreads on deposits, increased deposit balances, as well as growth in retained consumer real estate loans. These benefits were partially offset by lower first mortgage warehouse balances in Home Finance, the absence of loan portfolios sold in late 2004 and the first quarter of 2005, and lower production volumes in Auto & Education Finance. Noninterest revenue of $2.4 billion increased $1.3 billion due to the Merger and better risk management results. These increases were offset in part by lower prime mortgage originations, the auto loan securitization loss and the absence of subprime mortgage loan securitization gains.

The provision for credit losses totaled $188 million, up $56 million from last year. The increase was largely due to the Merger, but also reflected higher provision expense related to the decision to retain subprime mortgage loans. These increases were partially offset by reductions in the allowance for loan losses due to lower net charge-offs and improved credit trends in most consumer lending portfolios. Results also included the benefit of reductions in the allowance for loan losses ~~totaling $20 million~~ related to the sale of the recreational vehicle loan portfolio and the ~~transfer of~~ auto ~~loans to held-for-sale. These benefits were partially offset by an increase in provision expense related to the decision to retain subprime mortgage loans rather than securitize.~~
loan securitization.

Expenses rose to ~~$2.2~~$4.3 billion, an increase of ~~$921 million, primarily~~$1.9 billion from the prior year due to the Merger. Results also included continued investment in ~~the~~ retail banking distribution ~~system~~and sales, and a $40 million charge related to the dissolution of a student loan joint venture in the Education Finance segment. These increases were more than offset by ~~merger-related~~expense savings inacross all businesses.
17

Selected metrics(a) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except headcount and ratios) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Selected balance sheet (ending)

Selected balance sheets (ending)

Total assets $ 224,562 $ 138,747 62 % $ 223,391 $ 148,682 50 % $ 223,391 $ 148,682 50 %
Loans^(b)
199,215 123,923 61 197,927 131,712 50 197,927 131,712 50
Core deposits^(c)(d)
162,241 81,392 99
Total deposits^(d)
187,225 91,478 105
Core deposits^(c)
159,702 80,100 99 159,702 80,100 99
Total deposits 185,558 79,937 132 185,558 79,937 132

Selected balance sheet (average)

Selected balance sheets (average)

Total assets $ 225,120 $ 139,727 61 $ 225,574 $ 146,693 54 $ 225,348 $ 143,210 57
Loans^(e)
198,494 121,357 64
Core deposits^(c)(d)
159,682 79,801 100
Total deposits^(d)
184,336 88,788 108
Loans^(d)
197,707 128,225 54 198,098 124,791 59
Core deposits^(c)
161,044 84,897 90 160,367 82,189 95
Total deposits 186,523 93,565 99 185,435 91,000 104
Equity 13,100 5,177 153 13,250 5,005 165 13,175 5,091 159

Headcount
59,322 31,377 89 59,631 30,480 96 59,631 30,480 96

Credit data and quality statistics

Net charge-offs $ 152 $ 85 79 $ 114 $ 80 43 $ 266 $ 165 61
Nonperforming loans^(f)
1,150 546 111
Nonperforming loans^(e)
1,132 519 118 1,132 519 118
Nonperforming assets 1,351 736 84 1,319 693 90 1,319 693 90
Allowance for loan losses 1,168 1,063 10 1,135 1,061 7 1,135 1,061 7

Net charge-off rate^(e)
0.34 % 0.32 % 2 bp
Net charge-off rate^(d)
0.25 % 0.29 % (4 )bp 0.29 % 0.30 % (1 )bp
Allowance for loan losses to ending loans^(b)
0.64 0.97 (33 ) 0.61 0.90 (29 ) 0.61 0.90 (29 )
Allowance for loan losses to nonperforming loans^(f)
104 214 NM
Allowance for loan losses to nonperforming loans^(e)
103 223 (12,000 ) 103 223 (12,000 )
Nonperforming loans to total loans 0.58 0.44 14 0.57 0.39 18 0.57 0.39 18

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
~~End-of-period~~Includes loans ~~include loans held for sale~~held-for-sale of ~~$16,532~~$13,112 million and ~~$14,334~~$14,217 million at ~~March 31,~~June 30, 2005 and 2004, respectively. These amounts are not included in the allowance coverage ratios.
(c)
Includes demand and savings deposits.
~~(d)~~
~~Reflects the transfer of certain consumer deposits from Retail Financial Services to Asset & Wealth Management.~~
~~(e)~~(d)
Average loans include loans ~~held for sale~~held-for-sale of ~~$15,861~~$14,620 million and ~~$15,311~~$15,638 million for the ~~first quarter of~~three months ended June 30, 2005 and 2004, respectively, and $15,237 million and $15,475 million for the six months ended June 30, 2005 and 2004, respectively. These amounts are not included in the net charge-off rate.
~~(f)~~(e)
Nonperforming loans include loans ~~held for sale~~held-for-sale of ~~$31~~$26 million and ~~$50~~$44 million at ~~March 31,~~June 30, 2005 and 2004, respectively. These amounts are not included in the allowance coverage ratios.
21

HOME FINANCE

Three months ended March 31,^(a)
Selected income statement data^(a) Three months ended June 30, Six months ended June 30,
(in millions) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Prime production and servicing

Production $ 228 $ 178 28 % $ 135 $ 186 (27 )% $ 363 $ 364 — %
Servicing:
Mortgage servicing revenue, net of amortization 146 155 (6 ) 142 193 (26 ) 288 348 (17 )
MSR risk management results 106 61 74 166 86 93 272 147 85

Total net revenue 480 394 22 443 465 (5 ) 923 859 7
Noninterest expense 229 289 (21 ) 229 264 (13 ) 458 553 (17 )
Operating earnings 158 65 143 136 128 6 294 193 52

Consumer real estate lending

Total net revenue $ 713 $ 435 64 $ 707 $ 512 38 $ 1,420 $ 947 50
Provision for credit losses 30 (9 ) NM 38 38 — 68 29 134
Noninterest expense 238 203 17 234 172 36 472 375 26
Operating earnings 284 156 82 277 193 44 561 349 61

Total Home Finance

Total net revenue $ 1,193 $ 829 44 $ 1,150 $ 977 18 $ 2,343 $ 1,806 30
Provision for credit losses 30 (9 ) NM 38 38 — 68 29 134
Noninterest expense 467 492 (5 ) 463 436 6 930 928 —
Operating earnings 442 221 100 413 321 29 855 542 58

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
18
~~Operating~~
Quarterly results
Home Finance operating earnings were ~~$442~~$413 million, up ~~$221~~$92 million compared towith the prior year. Operating earnings for the Prime Production & Servicing segment of ~~$158~~$136 million were up ~~$93 million from the prior year.~~$8 million. Results ~~benefited from an increase in~~reflected improved MSR risk management ~~revenue associated with the MSR asset~~results and ~~secondary marketing activities, as well as~~ lower expenses. Secondary marketing involves the sale of mortgage loans into the secondary market and risk management of this activity from the point of loan commitment to customers through loan closing and subsequent sale. These were partiallyexpenses, offset by ~~a decrease~~reduced production revenue given the decline in ~~revenue due to lower~~ prime mortgage originations. Earnings for the Consumer Real Estate Lending segment of ~~$284~~$277 million were up ~~$128 million from the prior year.~~$84 million. Growth was largely due to the Merger, but also reflected higher retained ~~home equity~~ loan balances, Merger-related expense savings and ~~merger-related~~lower credit costs. These increases were partially offset by the absence of subprime loan securitization gains and the $4 billion manufactured home loan portfolio sold in late 2004.
Year-to-date results
Operating earnings for the Prime Production & Servicing segment totaled $294 million, up $101 million from the prior year. Performance reflected an increase in net revenue to $923 million, up $64 million, due to improved risk management results, partially offset by lower prime mortgage originations. Expenses of $458 million decreased $95 million, reflecting production-related expense savings.
Operating earnings for the Consumer Real Estate Lending segment increased to $561 million, up $212 million. Net revenues of $1.4 billion were up $473 million primarily due to the Merger and higher retained loan balances. These ~~increases~~benefits were partially offset by the absence of the $4 billion manufactured home loan portfolio ~~that was sold in late 2004.~~

Selected metrics
Three months ended March 31,^(a)(b)
(in millions, except ratios and where otherwise noted) 2005 2004 Change

Origination volume by channel (in billions)

Retail $ 18.3 $ 15.2 20 %
Wholesale 10.7 9.5 13
Correspondent 2.3 5.3 (57 )
Correspondent negotiated transactions 7.2 7.7 (6 )

Total $ 38.5 $ 37.7 2

Origination volume by business (in billions)

Mortgage $ 26.6 $ 31.0 (14 )
Home equity 11.9 6.7 78

Total $ 38.5 $ 37.7 2

Business metrics (in billions)

Loans serviced – Mortgage (ending)^(c)
$ 495.8 $ 450.4 10
MSR net carrying value (ending) 5.7 4.2 36
End of period loans owned
Mortgage loans held for sale $ 9.6 $ 12.8 (25 )
Mortgage loans retained 46.0 36.5 26
Home equity and other loans 68.8 26.3 162

Total end of period loans owned $ 124.4 $ 75.6 65

Average loans owned
Mortgage loans held for sale $ 11.4 $ 12.9 (12 )
Mortgage loans retained 44.3 35.8 24
Home equity and other loans 66.5 24.1 176

Total average loans owned $ 122.2 $ 72.8 68

Overhead ratio 39 % 59 % (2,000 )bp

Credit quality statistics

30+ day delinquency rate 1.15 % 1.32 % (17 )bp
Net charge-offs
Mortgage $ 6 $ 3 100 %
Home equity and other loans 35 25 40

Total net charge-offs 41 28 46
Net charge-off rate
Mortgage 0.05 % 0.03 % 2 bp
Home equity and other loans 0.21 0.42 (21 )
Total net charge-off rate^(d)
0.15 0.19 (4 )
Nonperforming assets $ 841 $ 516 63 %

and subprime loan securitization gains. The provision for credit losses totaled $68 million, up $39 million from the prior year, largely due to the Merger and the decision to retain subprime mortgage loans. Lower net charge-offs and favorable credit trends provided a partial offset. Expenses rose $97 million to $472 million, primarily due to the Merger. These costs were partially offset by Merger-related expense savings.

Selected metrics^(a)(b) Three months ended June 30, Six months ended June 30,
(in millions, except ratios and where otherwise noted) 2005 2004 Change 2005 2004 Change

Origination volume by channel (in billions)

Retail $ 22.8 $ 20.8 10 % $ 41.1 $ 36.0 14 %
Wholesale 13.2 15.7 (16 ) 23.9 25.2 (5 )
Correspondent 3.6 7.9 (54 ) 5.9 13.2 (55 )
Correspondent negotiated transactions 7.1 12.5 (43 ) 14.3 20.2 (29 )

Total $ 46.7 $ 56.9 (18 ) $ 85.2 $ 94.6 (10 )

Origination volume by business (in billions)

Mortgage $ 30.9 $ 47.1 (34 ) $ 57.5 $ 78.1 (26 )
Home equity 15.8 9.8 61 27.7 16.5 68

Total $ 46.7 $ 56.9 (18 ) $ 85.2 $ 94.6 (10 )

22

Business metrics (in billions)

Loans serviced – Mortgage (ending)^(c)
$ 501.7 $ 464.6 8 $ 501.7 $ 464.6 8
MSR net carrying value (ending) 5.0 5.7 (12 ) 5.0 5.7 (12 )
End of period loans owned
Mortgage loans held-for-sale $ 11.2 $ 13.6 (18 ) $ 11.2 $ 13.6 (18 )
Mortgage loans retained 47.4 40.5 17 47.4 40.5 17
Home equity and other loans 72.3 29.8 143 72.3 29.8 143

Total end of period loans owned $ 130.9 $ 83.9 56 $ 130.9 $ 83.9 56
Average loans owned
Mortgage loans held-for-sale $ 10.5 $ 14.6 (28 ) $ 10.9 $ 13.8 (21 )
Mortgage loans retained 47.0 38.2 23 45.7 37.0 24
Home equity and other loans 69.1 27.0 156 67.8 25.6 165

Total average loans owned $ 126.6 $ 79.8 59 $ 124.4 $ 76.4 63

Overhead ratio 40 % 45 % (500 )bp 40 % 51 % (1,100 )bp

Credit quality statistics

30+ day delinquency rate^(d)
1.17 % 1.18 % (1 )bp 1.17 % 1.18 % (1 )bp
Net charge-offs
Mortgage $ 8 $ 5 60 % $ 14 $ 8 75 %
Home equity and other loans 30 23 30 65 48 35

Total net charge-offs 38 28 36 79 56 41
Net charge-off rate
Mortgage 0.07 % 0.05 % 2 bp 0.06 % 0.04 % 2 bp
Home equity and other loans 0.17 0.34 (17 ) 0.19 0.38 (19 )
Total net charge-off rate^(e)
0.13 0.17 (4 ) 0.14 0.18 (4 )
Nonperforming assets $ 799 $ 468 71 % $ 799 $ 468 71 %

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
For a discussion of selected line of business metrics, see page 7993 of this Form ~~10-Q.~~10–Q.
(c)
Includes prime first mortgage loans and subprime loans.
(d)
Excludes delinquencies related to loans eligible for repurchase as well as loans repurchased from GNMA pools that are insured by government agencies of $0.7 billion and $1.1 billion for June 30, 2005 and 2004, respectively. These amounts are excluded as reimbursement is proceeding normally.
(e)
Excludes mortgage loans ~~held for sale.~~held-for-sale.
19
The table below reconciles management’s disclosure of Home Finance’s revenue to the reported U.S. GAAP line items shown on the Consolidated statements of income and in the related Notes to Consolidated financial statements:

Three months ended March 31,^(a) Prime production Consumer real
and servicing estate lending Total revenue
Prime production Consumer real
Three months ended June 30,^(a) and servicing estate lending Total revenue

(in millions) 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Net interest income $ 115 $ 182 $ 678 $ 397 $ 793 $ 579 $ 111 $ 202 $ 673 $ 410 $ 784 $ 612
Securities / private equity gains (losses) 2 (4 ) — — 2 (4 ) 1 — — — 1 —
Mortgage fees and related income^(b)
363 216 35 38 398 254 331 263 34 102 365 365

Total $ 480 $ 394 $ 713 $ 435 $ 1,193 $ 829 $ 443 $ 465 $ 707 $ 512 $ 1,150 $ 977

Prime production Consumer real
Six months ended June 30,^(a) and servicing estate lending Total revenue

(in millions) 2005 2004 2005 2004 2005 2004

Net interest income $ 226 $ 384 $ 1,351 $ 807 $ 1,577 $ 1,191
Securities / private equity gains (losses) 3 (4 ) — — 3 (4 )
Mortgage fees and related income^(b)
694 479 69 140 763 619

Total $ 923 $ 859 $ 1,420 $ 947 $ 2,343 $ 1,806

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Includes activity reported elsewhere as Other income.
23
The following table details the MSR risk management results in the Home Finance business:
~~MSR Risk Management Results~~

Three months ended March 31,^(a)
MSR Risk Management Results^(a) Three months ended June 30, Six months ended June 30,
(in millions) 2005 2004 2005 2004 2005 2004

Reported amounts:
MSR valuation adjustments^(b)
$ 551 $ (625 ) $ (703 ) $ 1,221 $ (152 ) $ 596
Derivative valuation adjustments and other risk management gains (losses)^(c)
(445 ) 686 869 (1,135 ) 424 (449 )

MSR risk management results $ 106 $ 61 $ 166 $ 86 $ 272 $ 147

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Excludes subprime loan MSR activity of ~~$(3)~~$2 million for the three months ended June 30, 2005, and $(1) million and $4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2005 and 2004, respectively. There was no subprime MSR loan activity during the second quarter of 2004.
(c)
Includes gains, losses, and interest income associated with derivatives, both designated and not designated, as a SFAS 133 hedge, and securities classified as both trading and available-for-sale.
Home Finance uses a combination of derivatives, AFS securities and trading securities to manage changes in the fair value of the MSR asset. These risk management activities are intended to protect the economic value of the MSR asset by providing offsetting changes in the fair value of ~~the~~ related risk management instruments. The type and amount of hedging instruments used in this risk management activity change over time as market conditions and ~~risk management approaches~~approach dictate.
~~MSR valuation adjustments~~
During the second quarter of ~~$551 million were partially offset by $445 million of aggregate risk management losses, including net interest earned on securities. In 2004,~~2005, negative MSR valuation adjustments of ~~$625~~$703 million were more than offset by ~~$686~~$869 million of aggregate risk management gains, including net interest earned on AFS securities. In the second quarter of 2004, MSR valuation adjustments of $1.2 billion were partially offset by $1.1 billion of aggregate risk management losses, including net interest earned on AFS securities. There were no unrealized gains/(losses) on AFS securities at June 30, 2005. Unrealized gains/(losses) on AFS securities were ~~$(4) million and $(71)~~$(221) million at ~~March 31, 2005 and 2004, respectively.~~June 30, 2004. For a further discussion of MSRs, see ~~Note 14 on pages 69–71 of this Form 10–Q, and~~ Critical accounting estimates on page ~~79,~~62 and Note 1514 on pages ~~109–111~~81-83 of ~~JPMorgan Chase’s 2004 Annual Report.~~
this Form 10–Q.
CONSUMER & SMALL BUSINESS BANKING

Selected income statement data(a) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)
(in millions) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Noninterest revenue $ 729 $ 198 268 % $ 741 $ 222 234 % $ 1,470 $ 420 250 %
Net interest revenue 1,428 391 265
Net interest income 1,364 393 247 2,792 784 256

Total net revenue 2,157 589 266 2,105 615 242 4,262 1,204 254
Provision for credit losses 36 27 33 25 20 25 61 47 30
Noninterest expense 1,339 647 107 1,362 593 130 2,701 1,240 118
Operating earnings (loss) 477 (49 ) NM 437 2 NM 914 (47 ) NM

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
20
~~Operating~~
Quarterly results
Consumer & Small Business operating earnings totaled ~~$477~~$437 million, up ~~$526~~$435 million from the prior ~~year. While growth was~~year largely ~~due to~~driven by the ~~Merger, the results~~merger. Results also benefited from wider spreads on deposits, increased ~~deposit~~ balances, and ~~merger-related expense savings.~~cost savings initiatives. These benefits were partially offset by continued investment in the branch distribution network. ~~Compared to~~
Year-to-date results
Operating earnings totaled $914 million, up $961 million from the prior ~~quarter, operating earnings~~year. While growth largely reflected the merger, results also included wider spreads on deposits and higher deposit balances. These factors contributed to net revenues rising to $4.3 billion for the six months ended June 30, 2005, from $1.2 billion for the six months ended June 30, 2004. The provision for credit losses of $61 million increased from $47 million ~~or 11%, primarily~~a year ago due to the ~~seasonal impact of tax-refund anticipation lending.~~merger. The increase in expenses to $2.7 billion reflected the merger and continued investment in branch distribution and sales, partially offset by cost savings initiatives.
24

Selected metrics(b) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)(b)
(in millions, except ratios and where otherwise noted) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Business metrics (in billions)
End-of-period balances

Business metrics (in billions)

End-of-period balances

Small business loans $ 12.4 $ 2.2 464 % $ 12.5 $ 2.2 468 % $ 12.5 $ 2.2 468 %
Consumer and other loans^(c)
2.2 2.0 10 1.8 1.9 (5 ) 1.8 1.9 (5 )

Total loans 14.6 4.2 248 14.3 4.1 249 14.3 4.1 249
Core deposits^(d)(e)
150.8 69.5 117
Total deposits^(e)
175.7 79.6 121
Core deposits^(d)
147.9 69.7 112 147.9 69.7 112
Total deposits 173.7 79.5 118 173.7 79.5 118

Average balances

Small business loans 12.4 2.2 464 12.4 2.2 464 12.4 2.2 464
Consumer and other loans^(c)
2.6 2.0 30 1.9 1.9 — 2.3 2.0 15

Total loans 15.0 4.2 257 14.3 4.1 249 14.7 4.2 250
Core deposits^(d)(e)
149.3 70.3 112
Total deposits^(e)
173.9 79.2 120
Core deposits^(d)
149.3 72.1 107 149.3 71.1 110
Total deposits 174.8 80.7 117 174.4 79.8 119

Number of:

Branches 2,517 564 1,953 # 2,539 569 1,970 # 2,539 569 1,970 #
ATMs 6,687 1,927 4,760 6,961 1,921 5,040 6,961 1,921 5,040
Personal bankers^(f)
5,798 1,763 4,035 6,258 1,705 4,553 6,258 1,705 4,553
Personal checking accounts (in thousands) 7,445 1,984 5,461 7,662 1,982 5,680 7,662 1,982 5,680
Business checking accounts (in thousands) 905 350 555 918 352 566 918 352 566
Active online customers (in thousands) 3,671 NA NM 4,053 NA NM 4,053 NA NM
Debit cards issued (in thousands) 8,596 2,368 6,228 8,834 2,430 6,404 8,834 2,430 6,404

Overhead ratio 62 % 110 % (4,800 )bp 65 % 96 % (3,100 )bp 63 % 103 % (4,000 )bp

Retail brokerage business metrics

Investment sales volume $ 2,870 $ 944 204 % $ 2,907 $ 1,047 178 % $ 5,777 $ 1,991 190 %
Number of dedicated investment sales representatives 1,352 377 259 1,422 390 265 1,422 390 265

Credit quality statistics

Net charge-offs
Small business $ 19 $ 9 111 $ 25 $ 12 108 $ 44 $ 21 110
Consumer and other loans 9 8 13 4 9 (56 ) 13 17 (24 )

Total net charge-offs 28 17 65 29 21 38 57 38 50
Net charge-off rate
Small business 0.62 % 1.65 % (103 )bp 0.81 % 2.19 % (138 )bp 0.72 % 1.92 % (120 )bp
Consumer and other loans 1.40 1.61 (21 ) 0.84 1.91 (107 ) 1.14 1.71 (57 )
Total net charge-off rate 0.76 1.63 (87 ) 0.81 2.06 (125 ) 0.78 1.82 (104 )
Nonperforming assets $ 293 $ 80 266 % $ 284 $ 85 234 % $ 284 $ 85 234 %

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
For a discussion of selected line of business metrics, see page 7993 of this Form ~~10-Q.~~10–Q.
(c)
Primarily community development loans.
(d)
Includes demand and savings deposits.
~~(e)~~
~~Reflects the transfer of certain deposits from Retail Financial Services to Asset & Wealth Management.~~
~~(f)~~
~~Reflects realignment of job families and responsibilities.~~
~~NA—Data is not available on a comparable basis.~~
21
AUTO & EDUCATION FINANCE

Selected income statement data(a) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)
(in millions) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Total net revenue $ 324 $ 166 95 % $ 395 $ 218 81 % $ 719 $ 384 87 %
Provision for credit losses 28 36 (22 ) 31 20 55 59 56 5
Noninterest expense 205 81 153 170 80 113 375 161 133
Operating earnings 55 30 83 118 71 66 173 101 71

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
~~Operating~~
Quarterly results
Auto & Education Finance operating earnings of ~~$55~~$118 million were up ~~$25~~$47 million from last year. Growth was primarily due to the merger. Results reflected lower production volumes due to the competitive nature of the operating environment, and the absence of the $2 billion recreational vehicle loan portfolio sold in early 2005.
25
Year-to-date results
Operating earnings were $173 million, up $72 million from the prior year. The current ~~quarter results~~period included a ~~$78~~net loss of $83 million ~~loss~~ associated with the auto ~~loans transferred to held-for-sale,~~loan securitization, a $40 million charge related to the dissolution of ~~the~~a student loan joint venture and a benefit of $34 million arising from the sale of a $2 billion recreational vehicle loan portfolio. The prior year results included a $40 million charge related to auto lease residuals. Excluding the after-tax impact of these ~~four~~ items, operating earnings ~~would have~~ increased ~~$51~~by $102 million over the prior year, primarily due to the Merger and improved credit quality. Results continued to reflect lower production volumes and narrower ~~margins, due to~~spreads, a function of the competitive nature of the operating environment.

Selected metrics(a) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except ratios and where otherwise noted) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Business metrics (in billions)

End of period loans and lease receivables

Loans outstanding $ 52.8 $ 34.9 51 % $ 46.2 $ 34.9 32 % $ 46.2 $ 34.9 32 %
Lease receivables 7.0 9.1 (23 ) 6.1 8.6 (29 ) 6.1 8.6 (29 )

Total end-of-period loans and lease receivables 59.8 44.0 36 52.3 43.5 20 52.3 43.5 20

Average loans and lease receivables

Loans outstanding (average)^(b)
$ 53.3 $ 35.0 52 $ 49.8 $ 35.2 41 $ 51.5 $ 35.1 47
Lease receivables (average) 7.6 9.3 (18 ) 6.6 8.9 (26 ) 7.1 9.1 (22 )

Total average loans and lease receivables^(b)
60.9 44.3 37 56.4 44.1 28 58.6 44.2 33

Overhead ratio 63 % 49 % 1,400 bp 43 % 37 % 600 bp 52 % 42 % 1,000 bp

Credit quality statistics

30+ day delinquency rate 1.33 % 1.05 % 28 bp 1.46 % 1.04 % 42 bp 1.46 % 1.04 % 42 bp
Net charge-offs
Loans $ 74 $ 28 164 %
Net charge-offs
Loans $ 45 $ 23 96 % $ 119 $ 51 133 %
Lease receivables 9 12 (25 ) 2 8 (75 ) 11 20 (45 )

Total net charge-offs 83 40 108 47 31 52 130 71 83
Net charge off rate
Loans^(b)
0.61 % 0.35 % 26 bp 0.39 % 0.27 % 12 bp 0.51 % 0.31 % 20 bp
Lease receivables 0.48 0.52 (4 ) 0.12 0.36 (24 ) 0.31 0.44 (13 )
Total net charge-off rate^(b)
0.60 0.38 22 0.36 0.29 7 0.48 0.34 14
Nonperforming assets $ 217 $ 140 55 % $ 236 $ 140 69 % $ 236 $ 140 69 %

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Average loans include loans ~~held for sale~~held-for-sale of ~~$4.5~~$4.1 billion and ~~$2.4~~$1.1 billion for the ~~first~~second quarter of 2005 and 2004, respectively, and $4.3 billion and $1.7 billion for the six months ended June 30, 2005 and 2004, respectively. These are not included in the net charge-off rate.
INSURANCE

Selected income statement data(a) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)
(in millions) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Total net revenue $ 173 $ 27 NM $ 149 $ 25 496 % $ 322 $ 52 NM
Noninterest expense 151 21 NM 131 22 495 282 43 NM
Operating earnings 14 4 250 % 12 2 500 26 6 333 %

Memo: Consolidated gross insurance-related revenue^(b)
416 176 136 404 165 145 820 341 140

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Includes revenue reported in the results of other businesses.
22
Quarterly results
Insurance operating earnings of $12 million were up $10 million from the prior year on net revenues of $149 million. The increase was primarily due to the Merger.
Year-to-date results
Operating earnings totaled ~~$14~~$26 million on net revenues of ~~$173~~$322 million. The increase ~~over the prior year~~ was primarily due to the Merger. Results also reflected an increase in ~~commissions on~~ proprietary annuity sales commissions paid and investments in technology infrastructure.
26

Selected metrics(b) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)(b)
(in millions, except where otherwise noted) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Business metrics – ending balances

Invested assets $ 7,349 $ 1,710 330 % $ 7,641 $ 1,729 342 % $ 7,641 $ 1,729 342 %
Policy loans 394 — NM 394 — NM 394 — NM
Insurance policy and claims reserves 7,337 1,193 NM 7,562 1,255 NM 7,562 1,255 NM
Term premiums – first year annualized 14 — NM
Term life premiums – first year annualized 16 — NM 30 — NM
Term life premiums – first year annualized and renewals 122 — NM 232 — NM
Proprietary annuity sales 119 76 57 282 58 386 401 134 199
Number of policies in force – direct/assumed (in thousands) 2,540 622 308 2,454 608 304 2,454 608 304
Insurance in force – direct/assumed 280,082 33,161 NM 280,176 33,772 NM 280,176 33,772 NM
Insurance in force – retained 83,799 33,161 153 83,324 33,772 147 83,324 33,772 147
A.M. Best rating A A A A A A

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
For a discussion of selected line of business metrics, see page 7993 of this Form ~~10-Q.~~10–Q.
CARD SERVICES
For a discussion of the business profile of CS, see pages 39–40 of JPMorgan Chase’s 2004 Annual Report.
JPMorgan Chase uses the concept of “managed receivables” to evaluate the credit performance of ~~the~~its underlying credit card loans, both sold and not sold. For further information, see Explanation and reconciliation of the Firm’s use of non-GAAP financial measures on ~~page 10~~pages 10–11 of this Form ~~10-Q.~~10–Q. Operating results exclude the impact of credit card securitizations on total net revenue, the provision for credit losses, net charge-offs and loan receivables. Securitization does not change reported net income versus operating earnings; however, it does affect the classification of items on the Consolidated statements of income.

Selected income statement data – managed basis(a) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except ratios) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Revenue

Asset management, administration and commissions $ — $ 24 NM $ — $ 25 NM $ — $ 49 NM
Credit card income 761 238 220 % 868 271 220 % 1,629 509 220 %
Other income 11 22 (50 ) 42 20 110 53 42 26

Noninterest revenue
772 284 172 910 316 188 1,682 600 180
Net interest income 3,007 1,273 136 2,976 1,271 134 5,983 2,544 135

Total net revenue
3,779 1,557 143 3,886 1,587 145 7,665 3,144 144

Provision for credit losses 1,636 706 132 1,641 748 119 3,277 1,454 125

Noninterest expense

Compensation expense 285 156 83 291 150 94 576 306 88
Noncompensation expense 839 381 120 904 353 156 1,743 734 137
Amortization of intangibles 189 62 205 188 62 203 377 124 204

Total noninterest expense
1,313 599 119 1,383 565 145 2,696 1,164 132

Operating earnings before income tax expense
830 252 229 862 274 215 1,692 526 222
Income tax expense 308 90 242 320 98 227 628 188 234

Operating earnings
$ 522 $ 162 222 $ 542 $ 176 208 $ 1,064 $ 338 215

Financial metrics

ROE 18 % 19 % (100 )bp 18 % 21 % (300 )bp 18 % 20 % (200 )bp
Overhead ratio 35 38 (300 ) 36 36 — 35 37 (200 )

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
Quarterly results
Operating earnings of ~~$522~~$542 million increased ~~$360~~$366 million from the prior year due to the ~~Merger, higher Net interest income,~~merger, lower ~~Provision~~provision for credit losses and ~~lower expenses,~~higher revenue, partially offset by higher marketing ~~spend.~~
spend and an operating charge to increase litigation reserves.
Total revenues of ~~$3.8~~$3.9 billion increased ~~$2.2~~$2.3 billion, primarily due to the ~~Merger.~~merger. Net interest income of $3.0 billion increased $1.7 billion, primarily due to the ~~Merger,~~merger, including the acquisition of a private label portfolio and higher loan ~~balances.~~balances, partially offset by an increase in balances in their introductory period driven by a significant increase in new account originations. Noninterest
27
revenue of ~~$772~~$910 million increased ~~$488~~$594 million, primarily due to the ~~Merger~~merger and increased interchange income from higher charge volume, ~~which resulted in increased interchange income,~~ partially offset by higher volume-driven payments to partners and higher rewards expense.
23
The managed ~~Provision~~provision for credit losses of $1.6 billion increased ~~$930~~$893 million, primarily due to the ~~Merger,~~merger, including the acquisition of a private label portfolio, and increased bankruptcy losses from accelerated filings due to the pending change in bankruptcy legislation, partially offset by lower contractual net charge-offs. Managed credit ratios remained strong, benefiting from the continued low level of delinquencies. The managed net charge-off rate for the quarter was 4.87%, down from 5.85% in the prior year. The 30-day managed delinquency rate was 3.34%, down from 4.26% in the prior year.
Expenses of $1.4 billion increased $818 million, primarily due to the merger, including the acquisition of a private label portfolio. Additionally, increased marketing spend and an operating charge to increase litigation reserves were primarily offset by merger saves, including lower processing costs and compensation expenses.
Year-to-date results
Operating earnings of $1.1 billion increased $726 million from the prior year due to the merger, higher revenue, lower provision for credit losses, partially offset by higher marketing spend and an operating charge to increase litigation reserves.
Total revenues of $7.7 billion increased $4.5 billion, primarily due to the merger. Net interest income of $6.0 billion increased $3.4 billion, primarily due to the merger, including the acquisition of a private label portfolio, higher loan balances, partially offset by an increase in balances in their introductory period driven by a significant increase in new account originations. Noninterest revenue of $1.7 billion increased $1.1 billion, primarily due to the merger, and increased interchange income from higher charge volume, partially offset by higher volume-driven payments to partners and higher rewards expense.
The managed provision for credit losses of $3.3 billion increased $1.8 billion, primarily due to the merger, including the acquisition of a private label portfolio, increased bankruptcy losses from accelerated filings due to the pending change in the bankruptcy legislation and additions to the Allowance for loan losses related to growth in on-balance sheet loans, partially offset by lower contractual net charge-offs. Managed credit ratios remained strong, benefiting from ~~lower bankruptcies and a~~the continued low level of delinquencies. The year-to-date managed net charge-off rate ~~for the quarter~~ was ~~4.83%~~4.85%, down from ~~5.81%~~5.83% in the prior year. The 30-day managed delinquency rate was ~~3.54%~~3.34%, down from ~~4.41%~~4.26% in the prior year.
Expenses of ~~$1.3~~$2.7 billion increased ~~$714 million,~~$1.5 billion, primarily due to the ~~Merger,~~merger, including the acquisition of a private label portfolio. ~~Merger~~Additionally, merger saves, including lower ~~compensation and~~ processing costs and compensation expenses, were partially offset by higher marketing ~~spend.~~spend and an operating charge to increase litigation reserves.

Selected metrics(b) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)(b)
(in millions, except headcount, ratios and where otherwise noted) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Net securitization gains (amortization) $ (12 ) $ (2 ) (500 )% $ 15 $ (4 ) NM $ 3 $ (6 ) NM

% of average managed outstandings:
Net interest income 9.13 % 9.95 % (82 )bp 8.83 % 9.98 % (115 )bp 8.98 % 9.97 % (99 )bp
Provision for credit losses 4.97 5.52 (55 ) 4.87 5.88 (101 ) 4.92 5.70 (78 )
Noninterest revenue 2.34 2.22 12 2.70 2.48 22 2.52 2.35 17
Risk adjusted margin^(c)
6.51 6.65 (14 ) 6.66 6.59 7 6.58 6.62 (4 )
Noninterest expense 3.99 4.68 (69 ) 4.10 4.44 (34 ) 4.05 4.56 (51 )
Pre-tax income 2.52 1.97 55 2.56 2.15 41 2.54 2.06 48
Operating earnings 1.58 1.27 31 1.61 1.38 23 1.60 1.32 28

Business metrics

Charge volume (in billions) $ 70.3 $ 21.5 227 % $ 75.6 $ 23.5 222 % $ 145.9 $ 45.0 224 %
Net accounts opened (in thousands) 2,744 1,026 167 2,789 1,013 175 5,533 2,039 171
Credit cards issued (in thousands) 94,367 35,239 168 95,465 35,529 169 95,465 35,529 169
Number of registered internet customers (in millions) 10.9 4.1 166 12.0 4.5 167 12.0 4.5 167

Merchant acquiring business
Bank card volume (in billions) $ 125.1 $ 65.0 92 $ 141.2 $ 71.8 97 $ 266.3 $ 136.8 95
Total transactions (in millions) 4,285 1,757 144 4,735 1,875 153 9,020 3,632 148

Selected ending balances

Loans:
Loans on balance sheet $ 66,053 $ 16,639 297
Loans on balance sheets $ 68,510 $ 17,182 299 $ 68,510 $ 17,182 299
Securitized loans 67,328 34,478 95 68,808 34,138 102 68,808 34,138 102

Managed loans $ 133,381 $ 51,117 161 $ 137,318 $ 51,320 168 $ 137,318 $ 51,320 168

Selected average balances

Managed assets $ 138,512 $ 51,749 168
Loans:
Loans on balance sheet $ 64,218 $ 17,037 277
Securitized loans 69,370 34,425 102

Managed loans $ 133,588 $ 51,462 160

Equity 11,800 3,392 248

Headcount
20,137 10,838 86

Credit quality statistics

Net charge-offs $ 1,590 $ 743 114
Net charge-off rate 4.83 % 5.81 % (98 )bp

Delinquency ratios
30+ days 3.54 % 4.41 % (87 )
90+ days 1.71 2.15 (44 )

Allowance for loan losses $ 3,040 $ 1,188 156 %
Allowance for loan losses to period-end loans 4.60 % 7.14 % (254 )bp
28

Selected average balances

Managed assets $ 140,741 $ 51,510 173 $ 139,632 $ 51,630 170
Loans:
Loans on balance sheets $ 67,131 $ 17,155 291 $ 65,683 $ 17,096 284
Securitized loans 68,075 34,052 100 68,718 34,239 101

Managed loans $ 135,206 $ 51,207 164 $ 134,401 $ 51,335 162

Equity 11,800 3,346 253 11,800 3,369 250

Headcount
20,647 9,975 107 20,647 9,975 107

Credit quality statistics

Net charge-offs $ 1,641 $ 745 120 $ 3,231 $ 1,488 117
Net charge-off rate 4.87 % 5.85 % (98 )bp 4.85 % 5.83 % (98 )bp

Delinquency ratios
30+ days 3.34 % 4.26 % (92 ) 3.34 % 4.26 % (92 )
90+ days 1.54 1.94 (40 ) 1.54 1.94 (40 )

Allowance for loan losses $ 3,055 $ 1,191 157 % $ 3,055 $ 1,191 157 %
Allowance for loan losses to period-end loans 4.46 % 6.93 % (247 )bp 4.46 % 6.93 % (247 )bp

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
For a discussion of selected line of business metrics, see ~~pages 79-80~~page 94 of this Form ~~10-Q.~~10–Q.
(c)
Represents Total net revenue less Provision for credit losses.
24
The financial information presented below reconciles reported basis and managed basis to disclose the effect of securitizations.

Three months ended March 31,^(a)
Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004 Change 2005 2004 Change

Income statement data

Credit card income
Reported data for the period $ 1,576 $ 564 $ 1,596 $ 578 176 % $ 3,172 $ 1,142 178 %
Securitization adjustments (815 ) (326 ) (728 ) (307 ) (137 ) (1,543 ) (633 ) (144 )

Managed credit card income $ 761 $ 238 $ 868 $ 271 220 $ 1,629 $ 509 220

Other income
Reported data for the period $ 11 $ 61 $ 42 $ 65 (35 ) $ 53 $ 126 (58 )
Securitization adjustments — (39 ) — (45 ) NM — (84 ) NM

Managed other income $ 11 $ 22 $ 42 $ 20 110 $ 53 $ 42 26

Net interest income
Reported data for the period $ 1,275 $ 435 $ 1,318 $ 433 204 $ 2,593 $ 868 199
Securitization adjustments 1,732 838 1,658 838 98 3,390 1,676 102

Managed net interest income $ 3,007 $ 1,273 $ 2,976 $ 1,271 134 $ 5,983 $ 2,544 135

Total net revenue^(b)

Reported data for the period $ 2,862 $ 1,084 $ 2,956 $ 1,101 168 $ 5,818 $ 2,185 166
Securitization adjustments 917 473 930 486 91 1,847 959 93

Managed total net revenue^(b)
$ 3,779 $ 1,557 $ 3,886 $ 1,587 145 $ 7,665 $ 3,144 144

Provision for credit losses
Reported data for the period $ 719 $ 233 $ 711 $ 262 171 $ 1,430 $ 495 189
Securitization adjustments 917 473 930 486 91 1,847 959 93

Managed provision for credit losses $ 1,636 $ 706 $ 1,641 $ 748 119 $ 3,277 $ 1,454 125

Balance sheet – average balances

Balance sheets – average balances

Total average assets
Reported data for the period $ 71,003 $ 18,392 $ 74,515 $ 18,484 303 $ 72,768 $ 18,439 295
Securitization adjustments 67,509 33,357 66,226 33,026 101 66,864 33,191 101

Managed average assets $ 138,512 $ 51,749 $ 140,741 $ 51,510 173 $ 139,632 $ 51,630 170

Credit quality statistics

Net charge-offs
Reported net charge-offs data for the period $ 673 $ 270 $ 711 $ 259 175 $ 1,384 $ 529 162
Securitization adjustments 917 473 930 486 91 1,847 959 93

Managed net charge-offs $ 1,590 $ 743 $ 1,641 $ 745 120 $ 3,231 $ 1,488 117

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Includes Credit card income, Other income and Net interest income.
29
25

COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 41–42 of JPMorgan Chase’s 2004 Annual Report.

Selected income statement data(a) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except ratios) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Revenue

Lending & deposit related fees $ 142 $ 65 118 % $ 143 $ 67 113 % $ 285 $ 132 116 %
Asset management, administration and commissions 15 4 275 15 4 275 30 8 275
Other income^(b)
68 26 162 94 29 224 162 55 195

Noninterest revenue
225 95 137 252 100 152 477 195 145
Net interest income 625 227 175 648 234 177 1,273 461 176

Total net revenue
850 322 164 900 334 169 1,750 656 167

Provision for credit losses (6 ) (13 ) 54 142 19 NM 136 6 NM

Noninterest expense

Compensation expense 163 71 130 160 65 146 323 136 138
Noncompensation expense 278 138 101 296 138 114 574 276 108
Amortization of intangibles 17 — NM 17 — NM 34 — NM

Total noninterest expense
458 209 119 473 203 133 931 412 126

Operating earnings before income tax expense
398 126 216 285 112 154 683 238 187
Income tax expense 155 52 198 111 47 136 266 99 169

Operating earnings
$ 243 $ 74 228 $ 174 $ 65 168 $ 417 $ 139 200

Financial ratios

ROE 29 % 37 % (800 )bp 21 % 35 % (1,400 )bp 25 % 36 % (1,100 )bp
ROA 1.79 1.83 (4 ) 1.25 1.51 (26 ) 1.51 1.67 (16 )
Overhead ratio 54 65 (1,100 ) 53 61 (800 ) 53 63 (1,000 )

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
IB-related and commercial card revenues are ~~includes~~included in Other income.
Quarterly results
Operating earnings were ~~$243~~$174 million, an increase of ~~$169~~$109 million from the prior ~~year,~~year. The increase in results was primarily due to the ~~Merger.~~
Merger, partially offset by increased provision for credit losses. The larger provision reflects higher reserves, primarily due to refinements in the data used to estimate the allowance for credit losses. Despite this increase, credit quality of the portfolio remains strong.
Revenues were ~~$850~~$900 million, an increase of ~~$528~~$566 million, primarily due to the Merger. In addition, ~~Net~~net interest income of ~~$625~~$648 million was positively affected by ~~higher~~wider spreads on liability balances and ~~spreads,~~increases in loan and liability balances, partially offset by ~~margin compression on loans. Liability balances include deposits and deposits “swept” to on-balance sheet liabilities.~~narrower loan spreads. Noninterest revenue of ~~$225~~$252 million ~~reflected~~was negatively affected by lower fees in lieu of compensating balances and lower gains on the sales of assets acquired in the satisfaction of debt, partially offset by strong investment banking revenue.
Provision for credit losses was $142 million for the quarter, compared to $19 million in the prior year. The higher provision reflects refinements in the data used to estimate the allowance for credit losses, not a deterioration of credit quality. The credit quality of the portfolio remains strong with net recoveries of $3 million for the quarter compared to net charge-offs of $30 million in the prior year.
Expenses increased $270 million to $473 million, primarily related to the Merger. In addition, there was an increase in unit costs for Treasury Services products, partially offset by lower compensation-related and other expenses.
Year-to-date results
Earnings of $417 million increased $278 million, primarily due to the Merger.
Revenues of $1.8 billion increased 167% or $1.1 billion, primarily as a result of the Merger. In addition, net interest income increased to $1.3 billion, driven by wider spreads on liability balances and increases in loan and liability balances, partially offset by narrower loan spreads. Noninterest income of $477 million was negatively affected by lower fees in lieu of compensating balances and lower gains on the sale of assets acquired in the satisfaction of debt.
30
Provision for credit losses of $136 million, an increase of $130 million, was adriven by the Merger and higher reserves, primarily due to refinements in the data used to estimate the allowance for credit losses. The credit quality of the portfolio remains strong with net ~~benefit~~recoveries of $6$1 million ~~for the quarter,~~ compared to a net ~~benefit~~charge-offs of ~~$13~~$29 million in the prior year. ~~Net charge-offs for the quarter were $2 million.~~
Expenses of $931 million increased ~~$249 million to $458~~126%, or $519 million, primarily related to the Merger, and ~~higher allocations of~~from an increase in unit costs for Treasury Services ~~product unit costs due to methodology changes.~~products.

Selected metrics(b) Three months ended June 30, Six months ended June 30,
Three months ended March 31,^(a)(b)
(in millions, except headcount and ratio data) 2005 2004 Change 2005 2004 Change 2005 2004 Change

Revenue by product:

Lending $ 269 $ 84 220 % $ 285 $ 86 231 % $ 554 $ 170 226 %
Treasury services 542 219 147 558 221 152 1,100 440 150
Investment banking 40 15 167 62 20 210 102 35 191
Other (1 ) 4 NM (5 ) 7 NM (6 ) 11 NM

Total Commercial Banking revenue $ 850 $ 322 164 $ 900 $ 334 169 $ 1,750 $ 656 167

Revenue by business:

Middle market $ 572 $ 185 209 $ 594 $ 192 209 $ 1,166 $ 377 209
Corporate banking 123 57 116 138 59 134 261 116 125
Real estate 119 52 129 131 60 118 250 112 123
Other 36 28 29 37 23 61 73 51 43

Total Commercial Banking revenue $ 850 $ 322 164 $ 900 $ 334 169 $ 1,750 $ 656 167

Selected balance sheet data (average)

Total assets $ 55,963 $ 17,281 224 $ 55,524 $ 16,760 231
Loans and leases 51,184 14,717 248 50,580 14,241 255
Liability balances^(c)
72,498 38,058 90 72,058 37,327 93
Equity 3,400 747 355 3,400 771 341

Memo:

Loans by business:
Middle market $ 31,051 $ 5,203 497 $ 30,636 $ 5,156 494
Corporate banking 6,239 2,608 139 6,015 2,579 133
Real estate 10,169 4,330 135 10,256 3,970 158
Other 3,725 2,576 45 3,673 2,536 45

Total Commercial Banking loans $ 51,184 $ 14,717 248 $ 50,580 $ 14,241 255

Headcount
4,474 1,690 165 4,474 1,690 165

Credit data and quality statistics

Net charge-offs (recoveries) $ (3 ) $ 30 NM $ (1 ) $ 29 NM
Nonperforming loans 434 132 229 434 132 229
Allowance for loan losses 1,431 107 NM 1,431 107 NM
Allowance for lending-related commitments 196 24 NM 196 24 NM

Net charge-off (recovery) rate (0.02 )% 0.82 % (84 )bp — % 0.41 % (41 )bp
Allowance for loan losses to average loans 2.80 0.73 207 2.83 0.75 208
Allowance for loan losses to nonperforming loans 330 81 NM 330 81 NM
Nonperforming loans to average loans 0.85 0.90 (5 ) 0.86 0.93 (7 )

26

Selected balance sheet data (average)

Total assets $ 55,080 $ 16,239 239
Loans and leases 49,969 13,764 263
Liability balances^(c)
71,613 36,596 96
Equity 3,400 795 328

Memo:

Loans by business:
Middle market $ 30,216 $ 5,109 491
Corporate banking 5,788 2,549 127
Real estate 10,345 3,610 187
Other 3,620 2,496 45

Total Commercial Banking loans $ 49,969 $ 13,764 263

Headcount
4,495 1,701 164

Credit quality statistics

Net charge-offs (recoveries) $ 2 $ (1 ) NM
Nonperforming loans 433 165 162
Allowance for loan losses 1,312 111 NM
Allowance for lending-related commitments 170 28 NM

Net charge-off (recovery) rate 0.02 % (0.03 )% 5 bp
Allowance for loan losses to average loans 2.63 0.81 182
Allowance for loan losses to nonperforming loans 303 67 NM
Nonperforming loans to average loans 0.87 1.20 (33 )
(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
For a discussion of selected line of business metrics, see page 8094 of this Form ~~10-Q.~~10–Q.
(c)
Liability balances include deposits and deposits that are swept to on-balance sheet liabilities.

TREASURY & SECURITIES SERVICES

For a discussion of the business profile of TSS, see pages 43–44 of JPMorgan Chase’s 2004 Annual Report.


Selected income statement data(a)										Three months ended June 30,									Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except ratios)	2005			2004			Change			2005			2004			Change			2005			2004			Change

Revenue
Lending & deposit related fees	$	170		$	118			44	%	$	197		$	111			77	%	$	367		$	229			60	%
Asset management, administration and commissions		692			582			19			736			633			16			1,428			1,215			18
Other income		124			69			80			145			98			48			269			167			61

Noninterest revenue		986			769			28			1,078			842			28			2,064			1,611			28
Net interest income		496			243			104			510			251			103			1,006			494			104

Total net revenue		1,482			1,012			46			1,588			1,093			45			3,070			2,105			46

Provision for credit losses		(3	)		1		NM				2			3			(33	)		(1	)		4			NM
Credit reimbursement to IB^(b)		(38	)		(2	)	NM				(38	)		(2	)		NM			(76	)		(4	)		NM

Noninterest expense
Compensation expense		504			339			49			522			347			50			1,026			686			50
Noncompensation expense		532			512			4			642			582			10			1,174			1,094			7
Amortization of intangibles		29			16			81			30			15			100			59			31			90

Total noninterest expense		1,065			867			23			1,194			944			26			2,259			1,811			25

Operating earnings before income tax expense		382			142			169			354			144			146			736			286			157
Income tax expense		137			44			211			125			43			191			262			87			201

Operating earnings	$	245		$	98			150	%	$	229		$	101			127	%	$	474		$	199			138	%

Financial ratios
ROE		52	%		12	%	4,000		bp		48	%		13	%		3,500	bp		50	%		13	%		3,700	bp
Overhead ratio		72			86			(1,400	)		75			86			(1,100	)		74			86			(1,200	)
Pre-tax margin ratio^(c)		26			14			1,200			22			13			900			24			14			1,000
Memo
Treasury Services firmwide overhead ratio^(d)		56			69			(1,300	)
Treasury & Securities Services firmwide overhead ratio^(d)		63			78			(1,500	)


(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)
TSS is charged a credit reimbursement related to certain exposures managed within the IB credit portfolio on behalf of clients shared with TSS. For a further discussion, see Credit reimbursement on page 29 of the JPMorgan Chase 2004 Annual Report.
(c)
Pre-tax margin represents operating earnings before income tax divided by total net revenue, which is a comprehensive measure of pre-tax performance and is another basis by which TSS management evaluates its performance and that of its competitors. Pre-tax margin is an effective measure of TSS’s earnings after all operating costs are taken into consideration.
~~(d)~~
TSS and TS firmwide overhead ratios have been calculated based on the firmwide revenues described in footnote (c) on page 29 of this Form 10–Q and TSS and TS expenses, respectively, including those allocated to certain other lines of business. Foreign Exchange (“FX”) revenues and expenses recorded in the IB for TSS-related FX activity are not included in this ratio.

Quarterly results
Operating earnings for the quarter were ~~$245~~$229 million, an increase of ~~$147~~$128 million, ~~primarily related~~due to ~~the Merger.~~
~~TSS net revenues of $1.5 billion were up $470 million, or 46%. Revenue growth reflected the benefit of the Merger, wider~~widening spreads on liability balances, ~~(which~~improved fee-based revenue, liability balance growth and the Merger. Current period results include ~~deposits~~charges of $58 million (after-tax) to terminate a client contract. Prior year results include a software impairment charge of $42 million (after-tax) and ~~deposits “swept” to on–balance sheet liabilities), improved product revenues, and growth in average liability balances and assets under custody.~~a gain of $10 million (after-tax) on the sale of a business.

TSS net revenue of $1.6 billion increased $495 million, or 45%. Net interest income grew to ~~$496~~$510 million, up ~~$253~~$259 million, as a result of the Merger, wider spreads on foreign and noninterest bearing liability balances, and average liability balance growth of ~~49%~~43% to ~~$155~~$164 billion. ~~Growth in~~ Noninterest revenue of $1.1 billion increased $236 million, or 28%. This improvement was ~~driven largely by~~due to the Merger, ~~and~~ an increase in assets under custody to $10.2 trillion. Beginning March 31, 2005, assets under custody include an estimated $400 billion of Institutional Trust Services’ assets under custody. Excluding this amount, assets under custody increased $1.8 trillion ~~or 22%, attributable to~~driven by new business ~~increased volumes~~ and market value ~~appreciation. Also contributing to Noninterest revenue improvement was~~appreciation, the acquisition of Vastera and growth in ~~commercial card products,~~ securities lending ~~trade~~ and ~~trust products, including CDO administration.~~wholesale cards. Partially offsetting ~~these improvements~~this revenue growth were lower service charges on ~~deposits.~~
deposits and the absence, in the current period, of a gain on the sale of a business.

Treasury Services net revenue grew to ~~$618~~$682 million, Investor Services to ~~$508~~$544 million and Institutional Trust Services to ~~$356~~$362 million. TSS firmwide net revenue, which includes Treasury Services net revenue recorded in other lines of business, grew to ~~$2.1~~$2.2 billion, up ~~$841~~$876 million, or ~~67%, primarily as a result of~~65%. In the ~~Merger. TS~~aggregate, Treasury Services firmwide net revenue grew to ~~$1.2~~$1.3 billion, up ~~$632~~$697 million, or ~~104%, primarily as a result of the Merger.~~
113%.

Credit reimbursement to the Investment Bank was $38 million, upan increase of $36 million, ~~principally due to~~primarily as a result of the ~~Merger and a Merger-related change in methodology.~~Merger. TSS is charged a credit reimbursement related to certain exposures managed within the Investment Bank credit portfolio on behalf of clients shared with TSS.

Noninterest expense of ~~$1.1~~$1.2 billion was up ~~$198~~$250 million, or ~~23%~~26%, due to the Merger, ~~increased compensation~~charges to terminate a client contract, the Vastera acquisition and ~~technology-related expenses. Offsetting~~onboarding fund accounting clients. Partially offsetting these increases were lower allocations of Corporate segment expenses and ~~higher product-unit~~increased product unit costs charged to other lines of business, primarily Commercial ~~Banking, due to segment reporting methodology changes.~~
~~Vastera~~
~~On April 1, 2005, JPMorgan Chase acquired Vastera,~~Banking. The prior year included a ~~provider~~software impairment charge of ~~global trade management solutions, for approximately $129 million. Vastera’s business was combined with the Logistics and Trade Services businesses of TSS’s Treasury Services unit.~~$67 million (pre-tax).

~~Worldwide Securities Services~~
On April 18, 2005, TSS announced that it combined its investor and issuer services capabilities under the name Worldwide Securities Services. The integrated franchise brought together the former Investor Services and Institutional Trust Services businesses, and will provide custody and investor services as well as securities clearance and trust services to clients globally.

Selected metrics
Three months ended March 31,^(a)(b)
(in millions, except headcount and where otherwise noted) 2005 2004 Change

Revenue by business

Treasury Services^(c)
$ 618 $ 357 73 %
Investor Services 508 398 28
Institutional Trust Services 356 257 39

Total net revenue
$ 1,482 $ 1,012 46

Memo

Treasury Services firmwide revenue^(c)
$ 1,237 $ 605 104
Treasury & Securities Services firmwide revenue^(c)
2,101 1,260 67

Business metrics

Assets under custody (in billions)^(d)
$ 10,154 $ 8,001 27
Corporate trust securities under administration (in billions)^(e)
6,745 6,373 6

Selected balance sheet data (average)

Total assets $ 27,033 $ 19,241 40
Loans 10,091 6,137 64
Liability balances^(f)
154,673 103,467 49
Equity 1,900 3,189 (40 )

Memo

Treasury Services firmwide liability balances^(g)
$ 133,770 $ 74,817 79
Treasury & Securities Services firmwide liability balances^(g)
226,286 140,063 62
Headcount
23,073 15,341 50
Year-to-date results
Operating earnings for the first six months of 2005 were $474 million, an increase of $275 million, or 138%. Widening spreads on liability balances, improved fee-based revenue, liability balance growth and the Merger were the primary drivers of this improvement. Current period results included charges of $58 million (after-tax) to terminate a client contract. First half of 2004 results included a software impairment charge of $42 million (after-tax) and a gain of $10 million (after-tax) on the sale of a business.
TSS net revenue of $3.1 billion increased $965 million, or 46%. Net interest income grew to $1 billion, up $512 million, as a result of the Merger, wider spreads on liability balances and average liability balance growth. Noninterest revenue of $2.1 billion increased $453 million, or 28%. This improvement was due to an increase in assets under custody to $10.2 trillion driven by new business and market value appreciation, and by growth in wholesale cards, securities lending and trade products. Also contributing to the increase in noninterest revenue was the acquisition of Vastera. Partially offsetting this growth were lower service charges on deposits and the absence, in the current period, of a gain on the sale of a business.
Treasury Services net revenue grew to $1.3 billion, Investor Services to $1.1 billion and Institutional Trust Services to $718 million. TSS firmwide net revenue, which includes Treasury Services net revenue recorded in other lines of business, grew to $4.3 billion, up $1.7 billion, or 66%. In the aggregate, Treasury Services firmwide net revenue grew to $2.6 billion, up $1.3 billion, or 109%.
Credit reimbursement to the Investment Bank was $76 million, an increase of $72 million, primarily as a result of the Merger. TSS is charged a credit reimbursement related to certain exposures managed within the Investment Bank credit portfolio on behalf of clients shared with TSS.
Noninterest expense of $2.3 billion was up $448 million, or 25%, due to the Merger, charges to terminate a client contract and increased compensation due in part to the Vastera acquisition and onboarding fund accounting clients. Partially offsetting these increases were lower allocations of Corporate segment expenses and increased product unit costs charged to other lines of business, primarily Commercial Banking. The prior year period included a software impairment charge of $67 million (pre-tax).

Selected metrics^(a)(b) Three months ended June 30, Six months ended June 30,
(in millions, except headcount and where otherwise noted) 2005 2004 Change 2005 2004 Change

Revenue by business

Treasury Services (“TS”) $ 682 $ 366 86 % $ 1,300 $ 723 80 %
Investor Services (“IS”) 544 453 20 1,052 851 24
Institutional Trust Services (“ITS”) 362 274 32 718 531 35

Total net revenue
$ 1,588 $ 1,093 45 $ 3,070 $ 2,105 46

Business metrics

Assets under custody (in billions)^(c)
$ 10,190 $ 7,980 28 $ 10,190 $ 7,980 28
Corporate trust securities under administration (in billions)^(d)
6,704 6,241 7 6,704 6,241 7

Number of:
ACH transactions originated (in millions) 727 341 113 1,426 650 119
Total US$ clearing volume (in thousands) 24,200 18,727 29 45,905 36,791 25
Total non-US$ clearing volume (in thousands) 13,372 9,866 36 24,959 19,891 25
Wholesale check volume (in millions) 921 NA NM 1,798 NA NM
Wholesale cards issued (in thousands)^(e)
12,075 9,420 28 23,909 18,379 30

Selected balance sheets (average)

Total assets $ 26,437 $ 21,040 26 $ 26,733 $ 20,141 33
Loans 9,956 6,783 47 10,023 6,460 55
Liability balances^(f)
164,036 114,624 43 159,380 109,046 46
Equity 1,900 3,203 (41 ) 1,900 3,196 (41 )

Headcount
23,871 15,023 59 23,871 15,023 59
33

(in millions, except headcount and where otherwise noted)
Firmwide disclosures

Treasury Services firmwide revenue^(g)
$ 1,314 $ 617 113 $ 2,551 $ 1,222 109
Treasury & Securities Services firmwide revenue^(g)
2,220 1,344 65 4,321 2,604 66
Treasury Services firmwide overhead ratio^(h)
54 % 65 % (1,100 )bp 55 % 67 % (1,200 )bp
Treasury & Securities Services firmwide overhead ratio^(h)
66 79 (1,300 ) 64 79 (1,500 )
Treasury Services firmwide liability balances⁽ⁱ⁾
$ 138,058 $ 79,448 74 % $ 135,926 $ 77,133 76 %
Treasury & Securities Services firmwide liability balances⁽ⁱ⁾
236,534 152,682 55 231,438 146,373 58


(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		For a discussion of selected line of business metrics, see page 8094 of this Form ~~10-Q.~~10–Q.
~~(c)~~		TSS and TS firmwide revenues include TS revenues recorded in certain other lines of business and exclude FX revenues recorded in the IB for TSS-related FX activity. Revenue associated with TS’ customers who are also customers of the Commercial Banking, Consumer & Small Business Banking and Asset & Wealth Management lines of business are reported in these other lines of business and are excluded from TS, as follows:

2005 2004 Change

Treasury Services revenue reported in Commercial Banking $ 542 $ 219 147 %
Treasury Services revenue reported in other lines of business 77 29 166

		TSS firmwide FX revenues, which include FX revenues recorded in TSS and FX revenues associated with TSS customers who are FX customers of the IB, were $90 million for the quarter ended March 31, 2005.
~~(d)~~(c)		Beginning March 31, 2005, assets under custody include an estimated $400 billion of ITS assets under custody that have not been included previously. ~~Assets under custody was increased by~~At June 30, 2005, approximately ~~$160 billion for the quarter ended March 31, 2005 to include~~5% of total assets under custody ~~transferred from AWM.~~were trust related.

~~(e)~~(d)		Corporate trust securities under administration include debt held in trust on behalf of third parties and debt serviced as agent.

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

(f)		Liability balances include deposits and deposits swept to on-balance sheet liabilities.

Firmwide Disclosures
Treasury & Securities Services firmwide metrics include certain TSS product revenues and liability balances reported in other lines of business for customers who are also customers of those lines of business. In order to capture the firmwide impact of TS and TSS products and revenues, management reviews firmwide metrics such as liability balances, revenues and overhead ratios in assessing financial performance for TSS. Firmwide metrics are necessary in order to understand the aggregate TSS business.

(g)		Firmwide revenue includes TS revenue recorded in the Commercial Banking, Consumer & Small Business Banking and Asset & Wealth Management lines of business (see below) and exclude FX revenue recorded in the IB for TSS-related FX activity. TSS firmwide FX revenue, which include FX revenue recorded in TSS and FX revenue associated with TSS customers who are FX customers of the IB, was $96 million for the quarter ended June 30, 2005, and $186 million for the six months ended June 30, 2005.

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

(i)		Firmwide liability balances include TS’ liability balances recorded in certain ~~other~~ lines of business. Liability balances associated with TS customers who are also customers of the Commercial Banking line of business are ~~reported~~not included in ~~that line of business and are excluded from TS.~~TS liability balances.

Three months ended June 30, Six months ended June 30,
2005 2004 Change 2005 2004 Change

Treasury Services revenue reported in Commercial Banking $ 558 $ 221 152 % $ 1,100 $ 440 150 %
Treasury Services revenue reported in other lines of business 74 30 147 151 59 156

ASSET & WEALTH MANAGEMENT

For a discussion of the business profile of AWM, see pages 45–46 of JPMorgan Chase’s 2004 Annual Report.


Selected income statement data(a)										Three months ended June 30,									Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except ratios)	2005			2004			Change			2005			2004			Change			2005			2004			Change

Revenue
Lending & deposit related fees	$	9		$	4			125	%	$	6		$	4			50	%	$	15		$	8			88	%
Asset management, administration and commissions		975			672			45			994			657			51			1,969			1,329			48
Other income		95			50			90			69			50			38			164			100			64

Noninterest revenue		1,079			726			49			1,069			711			50			2,148			1,437			49
Net interest income		282			122			131			274			117			134			556			239			133

Total net revenue		1,361			848			60			1,343			828			62			2,704			1,676			61

Provision for credit losses		(7	)		10		NM				(20	)		(4	)		(400	)		(27	)		6			NM

Noninterest expense
Compensation expense		538			325			66			509			343			48			1,047			668			57
Noncompensation expense		371			322			15			383			335			14			754			657			15
Amortization of intangibles		25			2		NM				25			3			NM			50			5			NM

Total noninterest expense		934			649			44			917			681			35			1,851			1,330			39

Operating earnings before income tax expense		434			189			130			446			151			195			880			340			159
Income tax expense		158			67			136			163			52			213			321			119			170

Operating earnings	$	276		$	122			126		$	283		$	99			186		$	559		$	221			153


Financial ratios
ROE		47	%		9	%	3,800bp				47	%		7	%		4,000	bp		47	%		8	%		3,900	bp
Overhead ratio		69			77			(800	)		68			82			(1,400	)		68			79			(1,100	)
Pre-tax margin ratio^(b)		32			22			1,000			33			18			1,500			33			20			1,300


(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		Pre-tax margin represents ~~operating~~Operating earnings before income ~~taxes~~tax expense divided by Total net revenue, which is a comprehensive measure of pre-tax performance and is another basis by which AWM management evaluates its performance and that of its competitors. Pre-tax margin is an effective measure of AWM’s earnings, after all ~~operating~~ costs are taken into consideration.

Quarterly results
Operating earnings were ~~$276~~$283 million, up ~~$154~~$184 million from the prior year, ~~primarily~~ due to the ~~Merger. In addition, performance was driven by~~Merger and increased revenue, ~~and decreased Provision for credit losses,~~ partially offset by higher compensation expense.
29

Total revenue was ~~$1.4~~$1.3 billion, up ~~$513~~$515 million, ~~primarily~~or 62%. Noninterest revenue, principally fees and commissions, of $1.1 billion was up $358 million due to the ~~Merger. In addition, fees and commissions increased due to~~Merger, the acquisition of a majority interest in Highbridge Capital Management, LLC, in the fourth quarter of ~~2004;~~2004, net asset inflows ~~primarily in brokerage and equities products;~~ and global equity market appreciation. Net interest income ~~increased~~of $274 million was up $157 million due to higher deposit ~~product balances.~~
balances and an improved loan mix.

The ~~Provision~~provision for credit losses was a benefit of $7$20 million, an improvement of ~~$17~~$16 million, driven by refinements in the data used to estimate the allowance for credit losses and increased recoveries.

Expenses of $917 million increased $236 million, or 35%, reflecting the Merger, the acquisition of Highbridge and increased compensation expense primarily due to ~~lower net charge-offs and the overall improvement in credit quality.~~
~~Expenses increased to $934~~higher performance-based incentives, which were driven by improved investment results.

Year-to-date results
Operating earnings were $559 million, up ~~$285~~$338 million from the prior year, due to the Merger and increased revenue, partially offset by higher compensation expense.

Total revenue was $2.7 billion, up $1.0 billion, or 61%. Noninterest revenue, principally fees and commissions, of $2.1 billion were up $711 million due to the Merger, the acquisition of a majority interest in Highbridge Capital Management, LLC in the fourth quarter of 2004, net asset inflows and global equity market appreciation. Net interest income of $556 million was up $317 million due to higher deposit and loan balances.

The provision for credit losses was a benefit of $27 million, an improvement of $33 million, driven by refinements in the external data used to estimate the allowance for credit losses and increased recoveries.

Expenses of $1.9 billion increased $521 million, or 39%, reflecting the Merger, the acquisition of Highbridge and increased compensation expense primarily ~~related~~due to ~~incentives and the acquisition of Highbridge.~~higher performance-based incentives.


Selected metrics(b)										Three months ended June 30,									Six months ended June 30,
Three months ended March 31,^(a)(b)
(in millions, except ratio, headcount and ranking data, and where otherwise noted)	2005			2004			Change			2005			2004			Change			2005			2004			Change

Revenue by client segment
Private bank	$	422		$	376			12	%	$	409		$	368			11	%	$	831		$	744			12	%
Retail^(c)		346			265			31
Institutional^(c)		322			187			72
Retail											363			269			35			709			534			33
Institutional											313			172			82			635			359			77
Private client services		271			20		NM				258			19			NM			529			39			NM

Total net revenue	$	1,361		$	848			60		$	1,343		$	828			62		$	2,704		$	1,676			61


Business metrics
Number of:
Client advisors^(c)		1,390			647			115	%		1,409			629			124	%		1,409			629			124	%
Brown Co. average daily trades		29,753			36,470			(18	)		26,267			28,702			(8	)		28,010			32,586			(14	)
Retirement Plan Services participants		1,181,000			816,000			45
Retirement plan services participants											1,210,000			844,000			43			1,210,000			844,000			43

Star rankings^(d)
Star rankings:^(c)
% of customer assets in funds ranked 4 or better		48	%		49	%		(2	)		50	%		48	%		4			50	%		48	%		4
% of customer assets in funds ranked 3 or better		79	%		74	%		7			80	%		78	%		3			80	%		78	%		3
Funds quartile ranking (1 year):^(d)
% of AUM in 1^stand 2^nd quartiles											75	%		49	%		53			75	%		49	%		53

Selected balance sheet data (average)
Total assets	$	39,716		$	35,295			13		$	42,001		$	35,083			20		$	40,865		$	35,189			16
Loans		26,357			17,097			54			26,572			17,620			51			26,465			17,359			52
Deposits^(e)		42,043			23,109			82			40,774			24,069			69			41,405			23,589			76
Equity		2,400			5,471			(56	)		2,400			5,370			(55	)		2,400			5,420			(56	)

Headcount		12,378			8,554			45			12,455			8,690			43			12,455			8,690			43

Credit quality statistics
Net charge-offs	$	(6	)	$	55		NM
Net charge-offs (recoveries)										$	(2	)	$	6			NM		$	(8	)	$	61			NM
Nonperforming loans		78			115			(32	)		100			102			(2	)		100			102			(2	)
Allowance for loan losses		214			86			149			195			76			157			195			76			157
Allowance for lending-related commitments		5			3			67			3			2			50			3			2			50

Net charge-off (recovery) rate		(0.09	)%		1.29	%	(138		)bp		(0.03	)%		0.14	%		(17	)bp		(0.06	)%		0.71	%		(77	)bp
Allowance for loan losses to average loans		0.81			0.50			31			0.73			0.43			30			0.74			0.44			30
Allowance for loan losses to nonperforming loans		274			75		NM				195			75			12,000			195			75			12,000
Nonperforming loans to average loans		0.30			0.67			(37	)		0.38			0.58			(20	)		0.38			0.59			(21	)


(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		For a discussion of selected line of business metrics, see page 8094 of this Form ~~10-Q.~~10–Q.
~~(c)~~		~~2004 has been restated to conform with the current presentation.~~
~~(d)~~(c)		Derived from Morningstar for the United States; Micropal for the United Kingdom, Luxembourg, Hong Kong and Taiwan; and Nomura for Japan.

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

(e)		Reflects the transfer of certain consumer deposits from Retail Financial Services to Asset & Wealth Management.

Assets under supervision
Assets under supervision (“AUS”) at ~~March 31,~~June 30, 2005, were $1.1 trillion, up ~~36%~~37% from the prior year, and Assets under management (“AUM”) were ~~$790~~$783 billion, up ~~34%~~36% from the prior year. The increases were primarily the result of the Merger, as well as global equity market appreciation, net asset inflows, primarily in ~~equities~~equity-related products, and the acquisition of a majority interest in Highbridge Capital ~~Management.~~Management, LLC. The Firm also has a 43% interest in American Century Companies, Inc., whose AUM totaled ~~$96~~$98 billion and ~~$90~~$91 billion at ~~March 31,~~June 30, 2005 and 2004, respectively. Custody, brokerage, administration, and deposits were ~~$302 million,~~$310 billion, up 40%, primarily due to the Merger, as well as net asset inflows and market ~~appreciation and net inflows, primarily in brokerage.~~appreciation.

ASSETS UNDER SUPERVISION^(a)(b)
June 30, (in billions) 2005 2004

Asset class

Liquidity $ 223 $ 152
Fixed income 171 117
Equities & balanced 323 261
Alternatives 66 45

Assets under management 783 575
Custody/brokerage/administration/deposits 310 221

Total Assets under supervision
$ 1,093 $ 796

Client segment

Private bank

Assets under management $ 135 $ 139
Custody/brokerage/administration/deposits 165 138

Assets under supervision 300 277
Retail

Assets under management 141 101
Custody/brokerage/administration/deposits 97 80

Assets under supervision 238 181
Institutional

Assets under management 455 328
Custody/brokerage/administration/deposits 3 —

Assets under supervision 458 328
Private client services

Assets under management 52 7
Custody/brokerage/administration/deposits 45 3

Assets under supervision 97 10

Total Assets under supervision
$ 1,093 $ 796

Geographic region

Americas

Assets under management $ 535 $ 370
Custody/brokerage/administration/deposits 270 189

Assets under supervision 805 559
International

Assets under management 248 205
Custody/brokerage/administration/deposits 40 32

Assets under supervision 288 237

Total Assets under supervision
$ 1,093 $ 796

Memo:

Mutual fund assets:

Liquidity $ 174 $ 117
Fixed income 41 30
Equity, balanced & alternatives 114 74

Total mutual funds assets $ 329 $ 221

ASSETS UNDER SUPERVISION^(a)
March 31,^(b) (in billions) 2005 2004

Asset class

Liquidity $ 228 $ 159
Fixed income 171 120
Equities & balanced 326 266
Alternatives 65 44

Assets under management 790 589
Custody/brokerage/administration/deposits 302 216

Total Assets under supervision^(c)
$ 1,092 $ 805

Client segment

Private bank

Assets under management $ 138 $ 141
Custody/brokerage/administration/deposits 161 135

Assets under supervision 299 276
Retail

Assets under management 138 106
Custody/brokerage/administration/deposits 94 78

Assets under supervision 232 184
Institutional

Assets under management 462 335
Custody/brokerage/administration/deposits 5 —

Assets under supervision 467 335
Private client services

Assets under management 52 7
Custody/brokerage/administration/deposits 42 3

Assets under supervision 94 10

Total Assets under supervision^(c)
$ 1,092 $ 805

Geographic region

Americas

Assets under management $ 558 $ 377
Custody/brokerage/administration/deposits 263 186

Assets under supervision 821 563
International

Assets under management 232 212
Custody/brokerage/administration/deposits 39 30

Assets under supervision 271 242

Total Assets under supervision^(c)
$ 1,092 $ 805

Memo:

Mutual fund assets:

Liquidity $ 175 $ 119
Fixed income 45 31
Equity, balanced & alternatives 106 87

Total mutual funds assets^(c)
$ 326 $ 237

Three months ended June 30, Six months ended June 30,
Assets under management rollforward 2005 2004 2005 2004

Beginning balance $ 790 $ 589 $ 791 $ 561
Liquidity net asset flows (5 ) (7 ) (11 ) (4 )
Fixed income net asset flows (2 ) — 2 (1 )
Equity, balanced & alternative net asset flows 8 3 9 10
Market/other impacts^(c)
(8 ) (10 ) (8 ) 9

Ending balance
$ 783 $ 575 $ 783 $ 575

Custody/brokerage/administration/deposits rollforward

Beginning balance $ 302 $ 216 $ 315 $ 203
Custody / brokerage / administration net asset flows (1 ) 3 6 9
Market/other impacts 9 2 (11 ) 9

Ending balance
$ 310 $ 221 $ 310 $ 221

Assets under supervision rollforward

Beginning balance $ 1,092 $ 805 $ 1,106 $ 764
Net asset flows — (1 ) 6 14
Market/other impacts^(c)
1 (8 ) (19 ) 18

Ending balance
$ 1,093 $ 796 $ 1,093 $ 796

31

Assets under management rollforward

Beginning balance $ 791 $ 561
Liquidity net asset flows (6 ) 3
Fixed income net asset flows 4 (1 )
Equity, balanced & alternative net asset flows 1 7
Market/other impacts — 19

Ending balance
$ 790 $ 589

Custody/brokerage/administration/deposits rollforward

Beginning balance $ 315 $ 203
Custody/brokerage/administration net asset flows 7 6
Market/other impacts (20 ) 7

Ending balance
$ 302 $ 216

Assets under supervision rollforward

Beginning balance $ 1,106 $ 764
Net asset flows 6 15
Market/other impacts (20 ) 26

Ending balance
$ 1,092 $ 805
(a)
Excludes Assets under management of American Century.
(b)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(c)
~~2004 has been restated~~Includes AWM’s strategic decision to ~~conform with current presentation.~~exit the Institutional Fiduciary business in the second quarter of 2005 ($12 billion).

CORPORATE

For a discussion of the business profile of Corporate, see pages 47–48 of JPMorgan Chase’s 2004 Annual Report.


SELECTED INCOME STATEMENT DATA										Three months ended June 30,^(a)(b)									Six months ended June 30,^(a)(b)
Three months ended March 31,^(a)(b)
(in millions)	2005			2004			Change			2005			2004			Change			2005			2004			Change

Revenue
Securities/private equity gains (losses)	$	(130	)	$	419		NM			$	310		$	436			(29	)%	$	180		$	855			(79	)%
Other income		48			42			14	%		87			104			(16	)		135			146			(8	)

Noninterest revenue		(82	)		461		NM				397			540			(26	)		315			1,001			(69	)
Net interest income		(677	)		(43	)	NM				(763	)		20			NM			(1,440	)		(23	)		NM

Total net revenue		(759	)		418		NM				(366	)		560			NM			(1,125	)		978			NM

Provision for credit losses		(4	)		(82	)		95			1			(27	)		NM			(3	)		(109	)		97

Noninterest expense
Compensation expense		774			516			50			772			462			67			1,546			978			58
Noncompensation expense		996			870			14			1,042			857			22			2,038			1,727			18

Subtotal		1,770			1,386			28			1,814			1,319			38			3,584			2,705			32
Net expenses allocated to other businesses		(1,335	)		(1,184	)		(13	)		(1,337	)		(1,186	)		(13	)		(2,672	)		(2,370	)		(13	)

Total noninterest expense		435			202			115			477			133			259			912			335			172

Operating earnings before income tax expense		(1,190	)		298		NM				(844	)		454			NM			(2,034	)		752			NM
Income tax expense (benefit)		(503	)		47		NM				(358	)		129			NM			(861	)		176			NM

Operating earnings (loss)	$	(687	)	$	251		NM			$	(486	)	$	325			NM		$	(1,173	)	$	576			NM


(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		In the first quarter of 2005, the Corporate sector’s and the Firm’s operating revenue and income tax expense have been restated to be presented on a tax-equivalent basis. Previously, only the business segments’ operating revenue and income tax expense were presented on a tax-equivalent basis, and the impact of the business segments’ tax-equivalent adjustments was eliminated in the Corporate sector. This restatement had no impact on the Corporate sector’s or the Firm’s operating earnings.

Quarterly results
Operating earnings were a loss of ~~$687~~$486 million, down from ~~earnings of $251~~$325 million in the prior year.

Net revenues of negative ~~$759~~$366 million were down $1.2 billion from the prior year. Noninterest revenue of negative $82 million declined $543 million and included Treasury investment securities losses of $918 million and Private Equity gains of $789 million. The Treasury investment securities losses were the result of repositioning the investment portfolio to manage exposure to rising interest rates. Private Equity gains were $789 million, an increase of $493$926 million from the prior year. Net interest income was
32
negative ~~$677~~$763 million compared to ~~negative $43~~$20 million in the prior year. The decline was driven primarily by actions and policies adopted in conjunction with the ~~Merger.~~
Merger and the repositioning of the Treasury portfolio. Noninterest revenue of $397 million declined $143 million and included private equity gains of $300 million, a decrease of $92 million from the prior year.

Noninterest expenses were ~~$435~~$477 million, up ~~$233~~$344 million from the prior year, primarily due to the Merger, partially offset by ~~merger related~~Merger-related saves, expense efficiencies and further refinements to certain cost allocation methodologies in order to provide ~~better~~ consistency in reporting across business segments.

Year-to-date results
Operating earnings were a loss of $1.2 billion, down from earnings of $576 million in the prior year.

Net revenues of negative $1.1 billion were down $2.1 billion from the prior year. Noninterest revenue of $315 million declined $686 million and included securities losses in the Treasury portfolio of $912 million. These losses were the result of repositioning the portfolio to manage exposure to rising interest rates. Private Equity gains were $1.1 billion, an increase of $401 million from the prior year. Net interest income was negative $1.4 billion compared to negative $23 million in the prior year. The decline was driven primarily by actions and policies adopted in conjunction with the Merger and the repositioning of the Treasury portfolio.

Noninterest expenses were $912 million, up $577 million from the prior year, primarily due to the Merger, partially offset by Merger-related saves, expense efficiencies and further refinements to certain cost allocation methodologies in order to provide consistency in reporting across business segments.

On September 15, 2004, JPMorgan Chase and IBM announced the Firm’s plans to reintegrate the portions of its technology infrastructure –— including data centers, help desks, distributed computing, data networks and voice networks –— that were previously outsourced to IBM. In January 2005, approximately 3,100 employees and 800 contract employees were transferred to the Firm.


Selected metrics(a)									Three months ended June 30,							Six months ended June 30,
Three months ended March 31,^(a)
(in millions)	2005			2004		Change			2005		2004		Change			2005			2004		Change

Selected average balance sheet
Short-term investments^(b)	$	13,164		$	2,592		408	%	$	16,779	$	9,903		69	%	$	14,982		$	6,248		140	%
Investment portfolio^(c)		71,021			56,755		25			50,751		58,043		(13	)		62,707			58,240		8
Goodwill^(d)		43,306			346	NM				43,524		342		NM			43,415			344		NM
Total assets		178,089			120,273		48			159,160		125,122		27			168,572			122,697		37

Headcount		26,983			13,269		103			28,114		12,928		117			28,114			12,928		117

Treasury
Securities gains (losses)^(e)	$	(918	)	$	120	NM			$	6	$	41		(85	)	$	(912	)	$	161		NM
Investment portfolio (average)		65,646			50,580		30			43,652		51,509		(15	)		54,588			51,044		7
Investment portfolio (ending)										34,319		49,133		(30	)		34,319			49,133		(30	)


(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		Represents Federal funds sold, Securities borrowed, Trading assets – debt and equity instruments, and Trading assets – derivative receivables.

(c)		Represents investment securities and private equity investments.

(d)		Effective with the third quarter of 2004, all goodwill is allocated to the Corporate line of business. Prior to the third quarter of 2004, goodwill was allocated to the various lines of business.

(e)		Losses in the first quarter of 2005 were primarily due to the sale of $20 billion of investment securities during the month of March 2005. Excludes gains/losses on securities used to manage risk associated with MSRs.

Selected income statement and balance sheet data – Private equity
Three months ended March 31,^(a)
(in millions) 2005 2004 Change

Private equity gains (losses)

Direct investments
Realized gains $ 633 $ 302 110 %
Write-ups / (write-downs) 206 (23 ) NM
Mark-to-market gains (losses) (89 ) 25 NM

Total direct investments 750 304 147
Third-party fund investments 39 (8 ) NM

Total private equity gains (losses)
789 296 167
Other income 5 12 (58 )
Net interest income (50 ) (59 ) 15

Total net revenue 744 249 199
Total noninterest expense 62 69 (10 )

Operating earnings before income tax expense 682 180 279
Income tax expense 245 64 283

Operating earnings
$ 437 $ 116 277

Private equity portfolio information^(b)
Direct investments March 31, 2005 December 31, 2004 Change

Publicly-held securities

Carrying value $ 1,149 $ 1,170 (2 )%
Cost 808 744 9
Quoted public value 1,713 1,758 (3 )

Privately-held direct securities

Carrying value 5,490 5,686 (3 )
Cost 6,689 7,178 (7 )

Third-party fund investments^(c)

Carrying value 550 641 (14 )
Cost 934 1,042 (10 )

Total private equity portfolio

Carrying value $ 7,189 $ 7,497 (4 )
Cost $ 8,431 $ 8,964 (6 )

Selected income statement and balance sheet data – Private equity
Three months ended June 30,^(a) Six months ended June 30,^(a)

(in millions) 2005 2004 Change 2005 2004 Change

Private equity gains (losses)

Direct investments
Realized gains $ 555 $ 402 38 % $ 1,188 $ 704 69 %
Write-ups / (write-downs) (133 ) (27 ) (393 ) 73 (50 ) NM
Mark-to-market gains (losses) (153 ) (1 ) NM (242 ) 24 NM

Total direct investments 269 374 (28 ) 1,019 678 50
Third-party fund investments 31 18 72 70 10 NM

Total private equity gains (losses)
300 392 (23 ) 1,089 688 58
Other income 11 11 — 16 23 (30 )
Net interest income (56 ) (53 ) (6 ) (106 ) (112 ) 5

Total net revenue 255 350 (27 ) 999 599 67
Total noninterest expense 66 67 (1 ) 128 136 (6 )

Operating earnings before income tax expense 189 283 (33 ) 871 463 88
Income tax expense 67 96 (30 ) 312 160 95

Operating earnings
$ 122 $ 187 (35 ) $ 559 $ 303 84

Private equity portfolio information^(b)
Direct investments June 30, 2005 December 31, 2004 Change

Publicly-held securities

Carrying value $ 761 $ 1,170 (35 )%
Cost 580 744 (22 )
Quoted public value 1,082 1,758 (38 )

Privately-held direct securities

Carrying value 5,037 5,686 (11 )
Cost 6,362 7,178 (11 )

Third-party fund investments^(c)

Carrying value 552 641 (14 )
Cost 921 1,042 (12 )

Total private equity portfolio

Carrying value $ 6,350 $ 7,497 (15 )
Cost $ 7,863 $ 8,964 (12 )

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
For further information on the Firm’s policies regarding the valuation of the private equity portfolio, see Note 9 on pages 98–100 of JPMorgan Chase’s 2004 Annual Report.
(c)
Unfunded commitments to private third-party equity funds were ~~$494~~$434 million and $563 million at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
The carrying value of the Private Equity portfolio at ~~March 31,~~June 30, 2005 was ~~$7.2~~$6.4 billion, a decrease of ~~$308 million~~$1.1 billion from December 31, 2004. The decrease was primarily the result of sales of investments, consistent with management’s intention to reduce over time the capital committed to private equity.
40

BALANCE SHEET ANALYSIS

Selected balance sheet data(in millions) March 31, 2005 December 31, 2004

Assets

Cash and due from banks $ 37,593 $ 35,168
Deposits with banks and Federal funds sold 29,867 28,958
Securities purchased under resale agreements and Securities borrowed 170,389 141,504
Trading assets – debt and equity instruments 230,725 222,832
Trading assets – derivative receivables 60,388 65,982
Securities:
Available-for-sale 75,150 94,402
Held-to-maturity 101 110
Loans, net of allowance 395,734 394,794
Other receivables 38,046 31,086
Goodwill and other intangible assets 58,320 57,887
All other assets 81,992 84,525

Total assets $ 1,178,305 $ 1,157,248

Liabilities

Deposits $ 531,379 $ 521,456
Securities sold under repurchase agreements 118,370 105,912
Trading liabilities – debt and equity instruments 96,090 87,942
Trading liabilities – derivative payables 57,626 63,265
Long-term debt 99,329 95,422
All other liabilities 170,171 177,598

Total liabilities 1,072,965 1,051,595
Stockholders’ equity
105,340 105,653

Total liabilities and stockholders’ equity $ 1,178,305 $ 1,157,248

Selected balance sheet data(in millions) June 30, 2005 December 31, 2004

Assets

Cash and due from banks $ 35,092 $ 35,168
Deposits with banks and Federal funds sold 10,440 28,958
Securities purchased under resale agreements and Securities borrowed 187,882 141,504
Trading assets – debt and equity instruments 235,803 222,832
Trading assets – derivative receivables 55,015 65,982
Securities:
Available-for-sale 58,481 94,402
Held-to-maturity 92 110
Loans, net of allowance 409,231 394,794
Other receivables 37,876 31,086
Goodwill and other intangible assets 57,410 57,887
All other assets 83,961 84,525

Total assets $ 1,171,283 $ 1,157,248

Liabilities

Deposits $ 534,640 $ 521,456
Securities sold under repurchase agreements and securities lent 128,743 112,347
Trading liabilities – debt and equity instruments 83,011 87,942
Trading liabilities – derivative payables 51,269 63,265
Long-term debt and capital securities 113,180 105,718
All other liabilities 155,055 160,867

Total liabilities 1,065,898 1,051,595
Stockholders’ equity
105,385 105,653

Total liabilities and stockholders’ equity $ 1,171,283 $ 1,157,248

Balance sheet overview
At ~~March 31,~~June 30, 2005, the Firm’s total assets were $1.2 trillion, an increase of ~~$21~~$14.0 billion, or 2%1%, from December 31, 2004. Growth was primarily in securities purchased under resale agreements and securities borrowed, wholesale loans and indebt and equity trading assets, partially offset by declines in ~~derivative receivables and~~ available-for-sale (“AFS”) ~~securities.~~
34
securities, deposits with banks and federal funds sold, and derivative receivables trading assets.

At ~~March 31,~~June 30, 2005, the Firm’s total liabilities were $1.1 trillion, an increase of ~~$21~~$14.3 billion, or 2%1%, from December 31, 2004. Growth was primarily driven by U.S. ~~interest-bearing~~noninterest-bearing deposits, ~~trading liabilities,~~ securities sold under repurchase agreements and securities lent, and long-term debt and capital debt securities. This growth was partially offset by a decline in derivative ~~payables.~~
payables and debt and equity trading liabilities.

Trading assets and liabilities – debt and equity instruments
The Firm’s debt and equity trading instruments consist primarily of fixed income securities (including government and corporate debt) and cash equity and convertible instruments used for both market-making and proprietary risk taking activities. The increase in assets over December 31, 2004, was primarily due to growth in client-driven market-making activities across interest rate, credit and equity markets, as well as an increase in proprietary trading activities.
For additional information, refer to Note 3 on page 70 of this Form 10–Q.

Trading assets and liabilities – derivative receivables and payables
The Firm uses various interest rate, foreign exchange, equity, credit and commodity derivatives for market-making, proprietary risk-taking and risk management purposes. The decline from year-end 2004 was primarily due to appreciation of the dollar. For additional information, refer to Credit risk management and Note 3 on pages ~~41–49~~48–58 and ~~60,~~70, respectively, of this Form ~~10-Q.~~
10–Q.

Securities
The AFS portfolio declined ~~by $19.3~~$35.9 billion from 2004 year-end, primarily due to security sales as a result of ~~securities sales that occurred during the month of March 2005. These sales were the result of a management~~management’s decision to reposition the investment portfolio to manage exposure to rising interest rates. For additional information related to securities, refer to Note 8 on ~~page 63~~pages 73–74 of this Form ~~10-Q.~~
10–Q.

Loans
~~Loans, net of allowance, were $395.7~~The $14 billion ~~at March 31, 2005, an~~ increase ~~of $940 million from the 2004 year-end. The increase during the first quarter of 2005~~in loans was primarily due to ~~slight~~a $15 billion increase in the wholesale portfolio, partially offset by a $1 billion decrease in consumer loans. The increase in Wholesale loans was primarily from the IB, reflecting higher balances of loans held-for-sale (“HFS”) related to securitization and syndication activities, and to a lesser extent, growth in the ~~CS and wholesale portfolios and a reduction in the Allowance for loan losses; these~~Middle Market segment of Commercial Banking. Wholesale HFS loans were ~~partially offset by RFS’s sale~~$17.9 billion as of ~~its $2~~June 30, 2005, compared to $7.7 billion ~~recreational vehicle loan portfolio.~~as of December 31, 2004. For a more detailed discussion of the loan portfolio and the Allowance for loan losses, refer to Credit risk management on pages ~~41–49~~48–58 of this Form ~~10-Q.~~10–Q.

Goodwill and other intangible assets
The ~~$433~~$477 million ~~increase~~decline in Goodwill and other intangible assets ~~from December 31, 2004~~ was primarily the result of an increase in goodwill related to the joint venture with Cazenove, and the positive impact on the MSR asset of risk management results and a decline in the related valuation allowance; partially offsetting these increases was the amortization of ~~intangibles, primarily~~ purchased credit card relationships and core deposit intangibles. Partially offsetting the decline was an increase in goodwill resulting from the Cazenove joint venture and Vastera acquisition. For additional information, see Note 14 on pages ~~69–71~~81–83 of this Form ~~10-Q.~~
10–Q.

Deposits

Deposits increased by 2%3% from December 31, 2004. Retail ~~deposit~~deposits increased, reflecting new account acquisition growth ~~reflected successful marketing programs~~ and the ongoing expansion of the branch distribution network. Wholesale deposits were higher, driven by growth in business volumes. For more information on deposits, refer to the RFS segment discussion and the Liquidity risk management discussion on pages ~~17–23~~20–27 and ~~39–40,~~45–47, respectively, of this Form ~~10-Q.~~10–Q. For more information on liability balances, refer to the CB and TSS segment discussions on pages ~~26–27~~30–31 and ~~27–29,~~32–34, respectively, of this Form ~~10-Q.~~10–Q.
Long-term debt and capital securities

Long-term debt and capital securities increased by ~~$3.9~~$7.5 billion, or 4%7%, from December 31, 2004, primarily due to net new debt issuances. For additional information on the Firm’s long-term debt activity, see the Liquidity risk management discussion on pages ~~39–40~~45–47 of this Form ~~10-Q.~~10–Q.
Stockholders’ equity
Total stockholders’ equity decreased ~~$313~~$268 million from year-end 2004, to ~~$105.3~~$105.4 billion at ~~March 31,~~June 30, 2005. Net income for the first half of 2005 was more than offset by cash dividends and stock ~~repurchases~~repurchases. Additionally, $200 million of preferred stock was redeemed in the ~~quarter.~~first half of 2005. For a further discussion of capital, see the Capital management ~~on pages 35–37 of this Form 10-Q.~~
section that follows.
CAPITAL MANAGEMENT
The following discussion of JPMorgan Chase’s Capital Management highlights developments since December 31, 2004, and should be read in conjunction with pages 50-52 of JPMorgan Chase’s 2004 Annual Report.
The Firm’s capital management framework is intended to ensure that there is capital sufficient to support the underlying risks of the Firm’s business activities, measured by economic risk capital, and to maintain “well-capitalized” status under regulatory requirements. In addition, the Firm holds capital above these requirements in amounts deemed appropriate to achieve management’s debt rating objectives. The Firm’s capital framework is integrated into the process of assigning equity to the lines of business. The Firm may refine its methodology for assigning equity to the lines of business as the merger integration process continues.
35
Line of Business Equity
Equity for a line of business represents the amount the Firm believes the business would require if it were operating independently, incorporating sufficient capital to address economic risk measures, regulatory capital requirements, and capital levels for similarly rated peers. Return on equity is measured and internal targets for expected returns are established as a primary measure of a business segment’s performance.
For performance management purposes, the Firm does not allocate goodwill to the lines of business because it believes that the accounting-driven allocation of goodwill could distort ~~assessment~~assessments of relative returns. In management’s view, this approach fosters better comparison of returns among the lines of business, as well as a better comparison of a line of ~~business’~~business returns with external peers. The Firm assigns an amount of equity capital equal to the then current book value of the Firm’s goodwill to the Corporate segment. The return on invested capital related to the Firm’s goodwill assets is managed within the Corporate segment. In accordance with SFAS 142, the Firm allocates goodwill to the lines of business based on the underlying fair values of the businesses and then performs the required impairment testing. For a further discussion of goodwill and impairment testing, see Note 14 on pages ~~69–71~~81–83 of this Form ~~10-Q,~~10–Q, and Critical accounting estimates on page 79 of JPMorgan Chase’s 2004 Annual Report.
The current methodology used to assign line of business equity is not comparable to equity assigned to the lines of business prior to July 1, 2004. The increase in average common equity in the table below from 2004 was primarily attributable to the Merger.

(in billions) Quarterly Averages Quarterly Averages
Line of business equity^(a) 1Q05 1Q04 2Q05 2Q04

Investment Bank $ 20.0 $ 15.1 $ 20.0 $ 14.0
Retail Financial Services 13.1 5.2 13.3 5.0
Card Services 11.8 3.4 11.8 3.3
Commercial Banking 3.4 0.8 3.4 0.7
Treasury & Securities Services 1.9 3.2 1.9 3.2
Asset & Wealth Management 2.4 5.5 2.4 5.4
Corporate^(b)
52.7 12.6 52.5 15.3

Total common stockholders’ equity $ 105.3 $ 45.8 $ 105.3 $ 46.9

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
~~First~~Second quarter of 2005 includes ~~$43.3~~$43.5 billion of equity to offset goodwill and ~~$9.4~~$9.0 billion of equity primarily related to Treasury, Private Equity and the Corporate Pension Plan.
42

Economic Risk Capital
JPMorgan Chase assesses its capital adequacy relative to the underlying risks of the Firm’s business activities utilizing internal risk-assessment methodologies. The Firm assigns economic capital based primarily on five risk factors: credit risk, market risk, operational risk and business risk for each business; and private equity risk, principally for the Firm’s private equity business.


(in billions)	Quarterly Averages				Quarterly Averages
Economic risk capital^(a)	1Q05		1Q04		2Q05		2Q04

Credit risk	$	23.1	$	9.5	$	23.2	$	8.2
Market risk		8.7		5.6		9.6		5.8
Operational risk		5.3		3.4		5.6		3.2
Business risk		2.1		1.7		2.1		1.7
Private equity risk		4.1		4.5		3.9		4.2

Economic risk capital		43.3		24.7		44.4		23.1
Goodwill		43.3		8.7		43.5		8.7
Other^(b)		18.7		12.4		17.4		15.1

Total common stockholders’ equity	$	105.3	$	45.8	$	105.3	$	46.9


(a)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		Additional capital required to meet internal regulatory/debt rating objectives.

Regulatory Capital
The Firm’s federal banking regulator, the Federal Reserve Board (“FRB”), establishes capital requirements, including well-capitalized standards for the consolidated financial holding company. The Office of the Comptroller of the Currency (“OCC”) establishes similar capital requirements and standards for the Firm’s national banks, including JPMorgan Chase Bank ~~National Association (“JPMorgan Chase Bank”)~~ and Chase Bank USA, National Association.

On March 1, 2005, the FRB issued a final rule, which became effective April 11, 2005, that continues the inclusion of trust preferred securities in Tier 1 capital, subject to stricter quantitative ~~limits.~~limits and revised qualitative standards. The rule provides for a five-year transition period. ~~The Firm continues~~As an internationally active bank holding company, JPMorgan Chase is subject to ~~assess~~ the ~~impact~~rule’s limitation on restricted core capital elements, including trust preferred securities, to 15% of total core capital elements, net of goodwill less any associated deferred tax liability. At June 30, 2005, JPMorgan Chase’s restricted core capital elements were 17.1% of total core capital elements. JPMorgan Chase expects to be in compliance with the ~~final rule, which became effective on April 11, 2005.~~
36
15% limit by the March 31, 2009 implementation date.

On July 20, 2004, the federal banking regulatory agencies issued a final rule that excludes assets of asset-backed commercial paper programs that are consolidated as a result of FIN 46R from risk-weighted assets for purposes of computing Tier 1 and Total risk-based capital ratios. The final rule also requires that capital be held against short-term liquidity facilities supporting asset-backed commercial paper programs. The final rule became effective September 30, 2004. Adoption of the rule did not have a material effect on the capital ratios of the Firm. In addition, under the final rule, both short- and long-term liquidity facilities will be subject to certain asset quality tests effective September 30, 2005.

The following tables show that JPMorgan Chase maintained a well-capitalized position based on Tier 1 and Total capital ratios at ~~March 31,~~June 30, 2005, and December 31, 2004.


							Adjusted
	Tier 1		Total		Risk-weighted		average		Tier 1			Total			Tier 1			Tier 1		Total		Risk-weighted		Adjusted average		Tier 1			Total			Tier 1
(in millions, except ratios)	capital		capital		assets^(b)		assets^(c)		capital ratio			capital ratio			leverage ratio			capital		capital		assets^(b)		assets^(c)		capital ratio			capital ratio			leverage ratio

March 31, 2005
June 30, 2005
JPMorgan Chase & Co.^(a)	$	69,435	$	96,378	$	811,822	$	1,110,058		8.6	%		11.9	%		6.3	%	$	69,782	$	96,089	$	850,241	$	1,123,609		8.2	%		11.3	%		6.2	%
JPMorgan Chase Bank, N.A.		56,608		78,982		679,743		945,391		8.3			11.6			6.0			57,747		79,926		719,344		944,727		8.0			11.1			6.1
Chase Bank USA, N.A.		9,308		11,781		86,946		75,503		10.7			13.5			12.3			9,416		11,883		86,633		74,662		10.9			13.7			12.6

December 31, 2004
JPMorgan Chase & Co.^(a)	$	68,621	$	96,807	$	791,373	$	1,102,456		8.7	%		12.2	%		6.2	%	$	68,621	$	96,807	$	791,373	$	1,102,456		8.7	%		12.2	%		6.2	%
JPMorgan Chase Bank, N.A.		55,489		78,478		670,295		922,877		8.3			11.7			6.0			55,489		78,478		670,295		922,877		8.3			11.7			6.0
Chase Bank USA, N.A.		8,726		11,186		86,955		71,797		10.0			12.9			12.2			8,726		11,186		86,955		71,797		10.0			12.9			12.2

Well capitalized ratios^(d)										6.0	%		10.0	%		5.0	%^(e)										6.0	%		10.0	%		5.0	%^(e)
Minimum capital ratios^(d)										4.0			8.0			3.0	^(f)										4.0			8.0			3.0	^(f)


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

(b)		Includes off–balance sheet risk-weighted assets in the amounts of ~~$249.9~~$274.6 billion, ~~$228.2~~$254.6 billion and $15.1 billion, respectively at ~~March 31,~~June 30, 2005, and $250.3 billion, $229.6 billion and $15.5 billion, respectively, at December 31, 2004.

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

(d)		As defined by the regulations issued by the FRB, Federal Deposit Insurance Corporation (“FDIC”), and OCC.

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

(f)		The minimum Tier 1 leverage ratio is 3% at the Bank Holding Company level, and 3% or 4% at the Bank level as specified in regulations issued by the FRB and OCC.

Tier 1 capital was ~~$69.4~~$69.8 billion at ~~March 31,~~June 30, 2005, compared with $68.6 billion at December 31, 2004, an increase of ~~$814 million.~~$1.2 billion. The increase was primarily due to net income of ~~$2.3~~$3.3 billion, ~~and $1.0~~$1.5 billion of additional qualifying trust preferred ~~securities;~~securities and net common stock issued under employee plans of $872 million. Offsetting these increases were ~~partially offset by~~ dividends ~~paid~~declared of ~~$1.2~~$2.4 billion, ~~and~~ common share repurchases of ~~$1.3 billion.~~
$1.9 billion, an increase in the deduction for goodwill of $334 million and the redemption of $200 million of preferred stock.

Dividends
The Firm’s common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain an adequate capital level and alternative investment opportunities. In the ~~first~~second quarter of 2005, JPMorgan Chase declared a quarterly cash dividend on its common stock of $0.34 per share, payable ~~April 30,~~July 31, 2005, to stockholders of record at the close of business ~~April~~on July 6, 2005. The Firm has targeted a common stock dividend payout ratio of approximately 30%-40% of the Firm’s operating earnings over time.

Stock repurchases
On July 20, 2004, the Board of Directors approved an initial stock repurchase program in the aggregate amount of $6.0 billion. This amount includes shares to be repurchased to offset issuances under the Firm’s employee stock-based plans. The actual amount of shares repurchased will be subject to various factors, including market conditions; legal considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account goodwill and intangibles); internal capital generation; and alternative potential investment opportunities. ~~During the first quarter of 2005, under~~Under the stock repurchase program, the Firm repurchased 3616.8 million shares and 52.8 million shares for ~~$1.3~~$594 million and $1.9 billion at an average price per share of ~~$36.57.~~$35.32 and $36.17 for the three and six months ended June 30, 2005, respectively. The Firm did not repurchase any shares of its common stock during the first ~~quarter~~half of 2004. As of June 30, 2005, $3.4 billion authorized repurchase capacity remains. For additional information regarding repurchases of the Firm’s equity securities, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on page 8296 of this Form ~~10-Q.~~
37
10–Q.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS

Special-purpose entities
JPMorgan Chase is involved with several types of off-balance sheet arrangements including special purpose entities (“SPEs”), lines of credit and loan commitments. The principal uses of SPEs are to obtain sources of liquidity for JPMorgan Chase and its clients by securitizing their respective financial assets, and to create investment products for clients. These arrangements are an important part of the financial markets, providing market liquidity by facilitating investors’ access to specific portfolios of assets and risks.

JPMorgan Chase is involved with SPEs in three broad categories of transactions: loan securitizations, multi-seller conduits and client intermediation. Capital is held, as appropriate, against all SPE-related transactions and related exposures, such as derivative transactions and lending-related commitments. For a further discussion of SPEs and the Firm’s accounting for them, see Note 12 on pages ~~65–68~~76–79 and Note 13 on pages ~~68–69~~79–80 of this Form 10–Q, and Off-balance sheet arrangements and contractual cash obligations on pages 52–53, Note 1 on page 88, Note 13 on pages 103–106 and Note 14 on pages 106–109 of JPMorgan Chase’s 2004 Annual Report.

For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the credit rating of JPMorgan Chase Bank were downgraded below specific levels, primarily P-1, A-1 and F1 for Moody’s, Standard & Poor’s and Fitch, respectively. The amount of these liquidity commitments was ~~$77.5~~$72.6 billion and $79.4 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively. Alternatively, if JPMorgan Chase Bank were downgraded, the Firm could be replaced by another liquidity provider in lieu of funding under the liquidity commitment, or, in certain circumstances, could facilitate the sale or refinancing of the assets in the SPE in order to provide liquidity.

Of the ~~$77.5~~$72.6 billion of liquidity commitments to SPEs at ~~March 31,~~June 30, 2005, ~~$49.1~~$45.2 billion was included in the Firm’s total other unfunded commitments to extend credit, included in the table below. Of the $79.4 billion of liquidity commitments to SPEs at December 31, 2004, $47.7 billion was included in the Firm’s total other unfunded commitments to extend credit. As a result of the Firm’s consolidation of multi-seller conduits in accordance with FIN 46R, ~~$28.4~~$27.4 billion of the ~~March 31,~~June 30, 2005, commitments were excluded from the table, as the underlying assets of the SPEs have been included on the Firm’s Consolidated balance sheets; this compares with $31.7 billion of commitments that were excluded at December 31, 2004.

The following table summarizes certain revenue information related to variable interest entities (“VIEs”) with which the Firm has significant involvement, and qualifying SPEs (“QSPEs”). For a further discussion of VIEs and QSPEs, see Note 1 on page 88 of JPMorgan Chase’s 2004 Annual Report.
The revenue reported in the table below primarily represents servicing and custodial fee income.

Revenue from VIEs and QSPEs


Three months ended March 31,^(a)
							Three months ended June 30,^(a)						Six months ended June 30,^(a)
(in millions)	VIEs^(b)		QSPEs		Total		VIEs^(b)		QSPEs		Total		VIEs^(b)		QSPEs		Total

2005	$	57	$	404	$	461	$	53	$	388	$	441	$	110	$	792	$	902
2004		23		265		288		20		290		310		43		555		598


(a)		2005 activity includes ~~three~~six months of combined Firm’s activity, while 2004 reflects the results of heritage JPMorgan Chase only.

(b)		Includes VIE-related revenue (i.e., revenue associated with consolidated and significant interests in nonconsolidated VIEs).

~~The revenue reported in the table above primarily represents servicing and custodial fee income.~~

The Firm also has exposure to certain SPEs arising from derivative transactions; these transactions are recorded at fair value on the Firm’s Consolidated balance sheets, with changes in fair value (i.e., mark-to-market (“MTM”) gains and losses) recorded in Trading revenue. Such MTM gains and losses are not included in the revenue amounts reported in the table above.

The accompanying table summarizes JPMorgan Chase’s off–balance sheet lending-related financial instruments by remaining maturity, at ~~March 31,~~June 30, 2005.


Off-balance sheet lending-related financial instruments
By remaining maturity at March 31, 2005	Under		1–3		3–5		After
																					Dec. 31,
Off–balance sheet lending-related financial instruments											June 30, 2005										2004
By remaining maturity											Under		1–3		3–5		After
(in millions)	1 year		years		years		5 years		Total		1 year		years		years		5 years		Total		Total

Consumer	$	562,871	$	3,498	$	4,670	$	43,910	$	614,949	$	557,692	$	3,998	$	3,931	$	42,792	$	608,413	$	601,196
Wholesale:
Other unfunded commitments to extend credit^(a)(b)		118,275		66,170		36,495		9,498		230,438		92,078		66,297		59,571		14,676		232,622		225,152
Standby letters of credit and guarantees^(a)		33,611		29,250		13,379		2,869		79,109
Standby letters of credit and guarantees^(a)(c)												28,552		19,611		21,598		5,073		74,834		78,084
Other letters of credit^(a)		5,679		869		162		25		6,735		3,494		2,846		219		19		6,578		6,163

Total wholesale		157,565		96,289		50,036		12,392		316,282		124,124		88,754		81,388		19,768		314,034		309,399

Total off–balance sheet lending-related financial instruments	$	720,436	$	99,787	$	54,706	$	56,302	$	931,231	$	681,816	$	92,752	$	85,319	$	62,560	$	922,447	$	910,595


(a)		Represents contractual amount net of risk participations totaling ~~$25.8~~$27.0 billion at ~~March~~June 30, 2005, and $26.4 billion at December 31, ~~2005.~~2004.

(b)
Includes unused advised lines of credit totaling ~~$22.9~~$23.6 billion at ~~March~~June 30, 2005, and $22.8 billion at December 31, ~~2005,~~2004, which are not legally binding. In regulatory filings with the FRB, unused advised lines are not reportable.
(c)
Includes unused commitments to issue standby letters of credit of $34.8 billion at June 30, 2005, and $38.4 billion at December 31, 2004.

RISK MANAGEMENT

Risk is an inherent part of JPMorgan Chase’s business activities. The Firm’s risk management framework and governance structure is intended to provide comprehensive controls and ongoing management of its major risks. In addition, this framework recognizes the diversity among the Firm’s core businesses, which helps reduce the impact of volatility in any particular area on the Firm’s operating results as a whole. There are seven major risk types identified in the business activities of the Firm: liquidity risk, credit risk, market risk, operational risk, legal and reputation risk, fiduciary risk, and principal risk.

For a further discussion of these risks see pages 54–76 of JPMorgan Chase’s 2004 Annual Report.

LIQUIDITY RISK MANAGEMENT

The following discussion of JPMorgan Chase’s liquidity management framework highlights developments since December 31, 2004, and should be read in conjunction with pages 55–56 of JPMorgan Chase’s 2004 Annual Report. Liquidity risk arises from the general funding needs of the Firm’s activities and in the management of its assets and liabilities. JPMorgan Chase’s liquidity management framework is intended to maximize liquidity access and minimize funding costs. Through active liquidity management, the Firm seeks to preserve stable, reliable and cost-effective sources of funding. ~~Management~~This enables the Firm to replace maturing obligations when due and fund assets at appropriate maturities and rates in all market environments. To accomplish this, management uses a variety of liquidity risk measures that take into consideration market conditions, prevailing interest rates, liquidity needs and the desired maturity profile of liabilities. JPMorgan Chase uses its funding to service debt obligations, pay dividends to its stockholders, support organic growth, fund acquisitions and repurchase its shares in the market or otherwise.

Funding

Sources of funds
Consistent with its liquidity management policy, the Firm has raised funds at the parent holding company sufficient to cover obligations maturing over the next 12 months. Long-term funding needs for the parent holding company over the next several quarters are expected to be consistent with prior periods.

As of June 30, 2005, the Firm’s liquidity position remains strong, based on all of its liquidity metrics. JPMorgan Chase’s long dated funding, including core deposits, exceeds illiquid assets, and the Firm believes its obligations can be met if access to funding is impaired.

The diversity of the Firm’s funding sources enhances financial flexibility and limits dependence on any one source, thereby minimizing the cost of funds. A ~~major~~stable and consistent source of ~~liquidity~~funding for JPMorgan Chase Bank is provided by its ~~large~~RFS, CB and TSS deposit base. As of June 30, 2005, total deposits for the Firm were $534.6 billion, which represents 66% of the Firm’s funding liabilities. A significant portion of the Firm’s retail deposits are core ~~deposit base.~~deposits, which are less sensitive to interest rate changes and therefore are considered more stable than market-based deposits. Core deposits include all U.S. deposits insured by the FDIC, up to the legal limit of $100,000 per depositor. InThroughout the first ~~quarter~~half of 2005, core ~~bank~~ deposits remained at approximately the same level as at the 2004 year-end.
In addition to core deposits, the Firm benefits from substantial, geographically diverse corporate liability balances originated by TSS and CB through the normal course of business. These franchise-generated liability balances are also a stable and consistent source of funding due to the nature of the businesses from which they are generated. For a further discussion of deposit and liability balance trends, see Business Segment Results and Balance Sheet Analysis on pages 14–40 and 41–42 of this Form 10–Q.

Additional sources of funds include a variety of both short- and long-term instruments, including federal funds purchased, commercial paper, bank notes, medium- and long-term debt, and capital securities. This funding is managed centrally, using regional expertise and local market access, to ensure active participation in the global financial markets while maintaining consistent global pricing. These markets serve as a cost-effective and diversified source of funds and are a critical component of the Firm’s liquidity management. Decisions concerning the timing and tenor of accessing these markets are based on relative costs, general market conditions, prospective views of balance sheet growth and a targeted liquidity profile.

Finally, funding flexibility is provided by the Firm’s ability to access the ~~repurchase~~repo and asset securitization markets. ~~At March 31, 2005, $76.5 billion of securities were available for repurchase agreements, and $36.9 billion of credit card, automobile and mortgage loans were available for securitizations.~~ These ~~alternatives~~markets are evaluated on an ongoing basis to achieve an appropriate balance of secured and unsecured funding. The ability to securitize loans, and the associated gains on those securitizations, are principally dependent on the credit quality and yields of the assets securitized and are generally not dependent on the credit ratings of the issuing entity. Transactions between the Firm and its securitization structures are reflected in JPMorgan Chase’s consolidated financial statements; these relationships include retained interests in securitization trusts, liquidity facilities and derivative transactions. For further details, see Notes 12 and 13 on pages ~~65–68~~76–79 and ~~68–69,~~79–80, respectively, of this Form 10–Q.
The Firm is an active participant in the global financial markets. These markets serve as a cost-effective source of funds and are a critical component of the Firm’s liquidity management. Decisions concerning the timing and tenor of accessing these markets are based on relative costs, general market conditions, prospective views of balance sheet growth and a targeted liquidity profile.

Issuance
Corporate credit spreads ~~narrowed to~~widened in the second quarter of 2005 from the historically tight levels reached earlier in the ~~first two months of 2005 providing JPMorgan Chase with global access~~year. In April and May, liquidity in the markets decreased, and credit spreads were volatile, as name- and sector-specific credit events influenced the market. During this period, the Firm accessed less volatile retail and foreign currency markets to ~~funding~~achieve better pricing versus U.S. institutional opportunities and ~~capital at highly competitive levels. The Firm further diversified its funding across the global markets, while reducing costs and lengthening maturities.~~benefited from incremental diversification. U.S. Corporate market conditions ~~deteriorated somewhat~~and investor appetite for debt improved in ~~March, erasing early 2005 gains; however, funding costs still remain attractive on a historical basis.~~
June, lending stability to the primary and secondary markets, and credit spreads tightened to levels consistent with those earlier in the quarter.

During the ~~first~~second quarter of 2005, JPMorgan Chase issued approximately ~~$15.8~~$7.3 billion of long-term debt and capital securities. These issuances were partially offset by ~~$9.9~~$4.1 billion of long-term debt and capital securities that matured or were redeemed. In addition, during the second quarter of 2005 the Firm securitized approximately $2.7 billion of residential mortgage loans, $4.9 billion of credit card loans and $2.3 billion of automobile loans, resulting in pre-tax gains on securitizations of $10 million, $33 million and $10 million, respectively. During the first half of 2005, JPMorgan Chase issued approximately $23.1 billion of long-term debt and capital securities. These issuances were partially offset by $14.0 billion of long-term debt and capital securities that matured or were redeemed. In addition, during the first ~~quarter~~half of 2005, the Firm securitized approximately ~~$3.6~~$6.3 billion of residential mortgage loans, ~~and $425 million~~$5.3 billion of credit card loans and $2.3 billion of automobile loans, resulting in pre-tax gains on securitizations of $20 million, $35 million and $10 million, ~~and $2 million,~~ respectively. ~~The Firm did not securitize any automobile loans during the first quarter of 2005.~~ For a further discussion of loan securitizations, see Note 12 on pages ~~65–68~~76–79 of this Form 10–Q.

Credit ratings
The credit ratings of JPMorgan Chase’s parent holding company and each of its significant banking subsidiaries were, as of ~~March 31,~~June 30, 2005, as follows:

Short-term debt

Senior long-term debt

~~Moody’s~~Moody's

S&P

Fitch

~~Moody’s~~

Moody's

S&P

Fitch

JPMorgan Chase & Co.

P-1

A-1

Aa3

A+

JPMorgan Chase Bank, N.A.

P-1

A-1+

F1+

Aa2

AA-

A+

Chase Bank USA, N.A.

P-1

A-1+

F1+

Aa2

AA-

A+

The Firm’s principal insurance subsidiaries had the following financial strength ratings as of ~~March 31,~~June 30, 2005:

~~Moody’s~~Moody's

S&P

A.M. Best

Chase Insurance Life and Annuity Company

A+

Chase Insurance Life Company

A+

The cost and availability of unsecured financing are influenced by credit ratings. A reduction in these ratings could adversely affect the Firm’s access to liquidity sources, increase the cost of funds, trigger additional collateral requirements and decrease the number of investors and counterparties willing to lend. Critical factors in maintaining high credit ratings include a stable and diverse earnings stream, strong capital ratios, strong credit quality and risk management controls, diverse funding sources and strong liquidity monitoring procedures.

If the Firm’s ratings were downgraded by one notch, the Firm estimates the incremental cost of funds and the potential loss of funding to be negligible. Additionally, the Firm estimates the additional funding requirements for VIEs and other third-party commitments would not be material. In the current environment, the Firm believes a downgrade is unlikely. For additional information on the impact of a credit ratings downgrade on the funding requirements for VIEs, and on derivatives and collateral agreements, see Off–balance Sheet Arrangements on pages ~~38–39~~44–45 and Ratings profile of derivative receivables mark-to-market (“MTM”) on page 4552 of this Form 10–Q.

CREDIT RISK MANAGEMENT

The following discussion of JPMorgan Chase’s credit portfolio as of ~~March 31,~~June 30, 2005, highlights developments since December 31, 2004, and should be read in conjunction with pages 57–69, page 77 and Notes 11, 12, 27 and 28 of JPMorgan Chase’s 2004 Annual Report.

The Firm assesses its consumer credit exposure on a managed basis, which includes credit card securitizations. For a reconciliation of the Provision for credit losses on a reported basis to operating, or managed, basis, see pages 10–1214 of this Form 10–Q.

CREDIT PORTFOLIO

The following table presents JPMorgan Chase’s credit portfolio as of ~~March 31,~~June 30, 2005, and December 31, 2004. Total wholesale credit exposure ~~was essentially unchanged~~at June 30, 2005, increased $4.4 billion from December 31, 2004, ~~to March 31, 2005,~~ while total consumer credit exposure (Retail Financial Services and Card Services) increased ~~by $8.5~~$4.6 billion from year-end 2004.

Wholesale and consumer credit portfolio

Nonperforming Average annual net
Credit exposure assets^(r)(s) Net charge-offs^(t) charge-off rate^(t)

Mar. 31, Dec. 31, Mar. 31, Dec. 31,
(in millions, except ratios) 2005 2004 2005 2004 1Q05 1Q04 1Q05 1Q04

Wholesale^(a)(b)(c)

Loans – reported^(d)
$ 137,401 $ 135,067 $ 1,329 $ 1,574 $ (9 ) $ 89 (0.03 )% 0.50 %
Derivative receivables^(e)
60,388 65,982 241 241 NA NA NA NA
Interests in purchased receivables 28,484 31,722 — — NA NA NA NA

Total wholesale credit-related assets^(d)
226,273 232,771 1,570 1,815 (9 ) 89 (0.03 ) 0.50
Lending-related commitments^(f)(g)
316,282 309,399 NA NA NA NA NA NA

Total wholesale credit exposure^(d)(h)
$ 542,555 $ 542,170 $ 1,570 $ 1,815 $ (9 ) $ 89 (0.03 )% 0.50 %

Consumer^(b)(i)(j)

Loans – reported^(k)
$ 265,268 $ 267,047 $ 1,158 $ 1,169 $ 825 $ 355 1.36 % 1.16 %
Loans – securitized^(k)(l)
67,328 70,795 — — 917 473 5.36 5.53

Total managed consumer loans^(k)
$ 332,596 $ 337,842 $ 1,158 $ 1,169 $ 1,742 $ 828 2.23 2.11
Lending-related commitments 614,949 601,196 NA NA NA NA NA NA

Total consumer credit exposure^(m)
$ 947,545 $ 939,038 $ 1,158 $ 1,169 $ 1,742 $ 828 2.23 2.11

Total credit portfolio

Loans – reported $ 402,669 $ 402,114 $ 2,487 $ 2,743 $ 816 $ 444 0.88 % 0.92 %
Loans – securitized^(l)
67,328 70,795 — — 917 473 5.36 5.53

Total managed loans 469,997 472,909 2,487 2,743 1,733 917 1.58 1.61
Derivative receivables^(e)
60,388 65,982 241 241 NA NA NA NA
Interests in purchased receivables 28,484 31,722 — — NA NA NA NA

Total managed credit-related assets 558,869 570,613 2,728 2,984 1,733 917 1.58 1.61
Wholesale lending-related commitments^(f)(g)
316,282 309,399 NA NA NA NA NA NA
Consumer lending-related commitments 614,949 601,196 NA NA NA NA NA NA
Assets acquired in loan satisfactions⁽ⁿ⁾
NA NA 221 247 NA NA NA NA

Total credit portfolio^(o)
$ 1,490,100 $ 1,481,208 $ 2,949 $ 3,231 $ 1,733 $ 917 1.58 % 1.61 %

Purchased held-for-sale wholesale loans^(p)
$ 319 $ 351 $ 319 $ 351 NA NA NA NA
Credit derivative hedges notional^(q)
(34,314 ) (37,200 ) (15 ) (15 ) NA NA NA NA
Collateral held against derivatives (7,536 ) (9,301 ) NA NA NA NA NA NA

Credit exposure Nonperforming assets^(o)(p)
(in millions, except ratios) June 30, 2005 Dec. 31, 2004 June 30, 2005 Dec. 31, 2004

Wholesale^(a)

Loans – reported^(b)(c)(d)
$ 149,588 $ 135,067 $ 1,251 $ 1,574
Derivative receivables^(e)
55,015 65,982 234 241
Interests in purchased receivables 27,887 31,722 — —

Total wholesale credit-related assets 232,490 232,771 1,485 1,815
Lending-related commitments^(f)(g)
314,034 309,399 NA NA

Total wholesale credit exposure $ 546,524 $ 542,170 $ 1,485 $ 1,815

Consumer

Loans – reported^(b)(h)(i)
$ 266,437 $ 267,047 $ 1,141 ^(q) $ 1,169 ^(q)
Loans – securitized^(i)(j)
68,808 70,795 — —

Total managed consumer loans 335,245 337,842 1,141 1,169
Lending-related commitments 608,413 601,196 NA NA

Total consumer credit exposure $ 943,658 $ 939,038 $ 1,141 $ 1,169

Total credit portfolio

Loans – reported^(b)(k)
$ 416,025 $ 402,114 $ 2,392 $ 2,743
Loans – securitized 68,808 70,795 — —

Total managed loans 484,833 472,909 2,392 2,743
Derivative receivables 55,015 65,982 234 241
Interests in purchased receivables 27,887 31,722 — —

Total managed credit-related assets 567,735 570,613 2,626 2,984
Wholesale lending-related commitments 314,034 309,399 NA NA
Consumer lending-related commitments 608,413 601,196 NA NA
Assets acquired in loan satisfactions^(l)
NA NA 206 ^(q) 247 ^(q)

Total credit portfolio $ 1,490,182 $ 1,481,208 $ 2,832 $ 3,231

Purchased held-for-sale wholesale loans^(m)
$ 378 $ 351 $ 378 $ 351
Credit derivative hedges notional⁽ⁿ⁾
(33,329 ) (37,200 ) (17 ) (15 )
Collateral held against derivatives (9,340 ) (9,301 ) NA NA

Three months ended June 30,^(r) Six months ended June 30,^(r)
Net charge-offs Net charge-off rate Net charge-offs Net charge-off rate
(in millions, except ratios) 2005 2004 2005 2004 2005 2004 2005 2004

Wholesale^(a)

Loans – reported^(c)
$ (52 ) $ 53 (0.17 )% 0.29 % $ (61 ) $ 142 (0.10 )% 0.39 %
Derivative receivables NA NA NA NA NA NA NA NA
Interests in purchased receivables NA NA NA NA NA NA NA NA

Total wholesale credit-related assets (52 ) 53 (0.17 ) 0.29 (61 ) 142 (0.10 ) 0.39
Lending-related commitments NA NA NA NA NA NA NA NA

Total wholesale credit exposure $ (52 ) $ 53 (0.17 )% 0.29 % $ (61 ) $ 142 (0.10 )% 0.39 %

Consumer

Loans – reported^(h)
$ 825 $ 339 1.32 % 1.05 % $ 1,650 $ 694 1.34 % 1.10 %
Loans – securitized 930 486 5.48 5.74 1,847 959 5.42 5.63

Total managed consumer loans 1,755 825 2.21 2.03 3,497 1,653 2.22 2.07
Lending-related commitments NA NA NA NA NA NA NA NA

Total consumer credit exposure $ 1,755 $ 825 2.21 % 2.03 % $ 3,497 $ 1,653 2.22 % 2.07 %

Total credit portfolio

Loans – reported $ 773 $ 392 0.83 % 0.77 % $ 1,589 $ 836 0.86 % 0.84 %
Loans – securitized 930 486 5.48 5.74 1,847 959 5.42 5.63

Total managed loans $ 1,703 $ 878 1.55 % 1.48 % $ 3,436 $ 1,795 1.57 % 1.54 %


(a)		Includes Investment Bank, Commercial Banking, Treasury & Securities Services and Asset & Wealth Management.

(b)		Amounts are presented gross of the Allowance for loan losses.

(c)		Net charge-off rates exclude wholesale loans HFS of $17.9 billion and $5.2 billion as of June 30, 2005 and 2004, respectively, and average wholesale loans HFS of ~~$8.2~~$13.0 billion and $5.2 billion for the ~~three~~six months ended ~~March 31,~~June 30, 2005 and 2004, respectively.

(d)		Wholesale loans past-due 90 days and over and accruing were ~~$14 million and~~ $8 million at ~~March 31,~~both June 30, 2005, and December 31, ~~2004, respectively.~~2004.

(e)		The Firm also views its credit exposure on an economic basis. For derivative receivables, economic credit exposure is the three-year average of a measure known as Average exposure (which is the expected MTM value of derivative receivables at future time periods, including the benefit of collateral). Average exposure was ~~$36~~$37 billion and $38 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively. See pages ~~44–46~~51–54 of thisForm 10–Q, and pages 62–65 of JPMorgan Chase’s 2004 Annual Report, for a further discussion of the Firm’s derivative receivables.

(f)		The Firm also views its credit exposure on an economic basis. For lending-related commitments, economic credit exposure is represented by a “loan equivalent” amount, which is the portion of the unused commitment or other contingent exposure that is expected, based on average

portfolio historical experience, to become outstanding in the event of a default by the obligor. Loan equivalents were ~~$161~~$167 billion and $162 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively. See page 4654 of thisForm 10–Q for a further discussion of this measure.
(g)
Includes unused advised lines of credit totaling ~~$22.9~~$23.6 billion and $22.8 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively, which are not legally binding. In regulatory filings with the Federal Reserve Board, unused advised lines are not reportable.
~~(h)~~
~~Represents Total wholesale loans, Derivative receivables, Interests in purchased receivables and Wholesale lending–related commitments.~~
~~(i)~~(h)
Net charge-off rates exclude average HFS ~~consumer~~retail loans ~~(excluding Card Services)~~ in the amount of ~~$15.9~~$14.6 billion and ~~$15.3~~$15.6 billion for the three months ended ~~March 31,~~June 30, 2005 and 2004, respectively, and $15.2 billion and $15.5 billion for the six months ended June 30, 2005 and 2004, respectively. Card Services has no average held-for-sale loans.
~~(j)~~
~~Includes Retail Financial Services and Card Services.~~
~~(k)~~(i)
Past-due loans 90 days and over and accruing ~~includes~~include credit card receivables of $1.0 billion and $1.0 billion, and related credit card securitizations of $1.1 billion and $1.3 billion at ~~both March 31,~~June 30, 2005, and December 31, ~~2004.~~2004, respectively.
~~(l)~~(j)
Represents securitized credit card receivables. For a further discussion of credit card securitizations, see Card Services on pages ~~23–25~~27–29 of thisForm 10–Q.Q.
~~(m)~~(k)
~~Represents Total consumer loans, Credit card securitizations~~Loans are presented net of unearned income of $3.3 billion and ~~Consumer lending–related commitments.~~$4.1 billion at June 30, 2005, and December 31, 2004, respectively.
~~(n)~~(l)
At ~~March 31,~~June 30, 2005, and December 31, 2004, includes ~~$20~~$19 million and $23 million, respectively, of wholesale assets acquired in loan satisfactions, and ~~$201~~$187 million and $224 million, respectively, of consumer assets acquired in loan satisfactions.
~~(o)~~
At March 31, 2005, and December 31, 2004, excludes $1.3 billion and $1.5 billion, respectively, of residential mortgage receivables in foreclosure status that are insured by government agencies. These amounts are excluded, as reimbursement is proceeding normally.
~~(p)~~(m)
Represents distressed wholesale loans purchased as part of IB’s proprietary investing activities.
~~(q)~~(n)
Represents the net notional amount of protection bought and sold of single-name and portfolio credit derivatives used to manage the credit risk of wholesale credit exposure; these derivatives do not qualify for hedge accounting under SFAS 133.
~~(r)~~(o)
Excludes purchased HFS wholesale loans.
~~(s)~~(p)
Nonperforming assets include wholesale HFS loans of $2 million at both ~~March 31,~~June 30, 2005, and December 31, 2004, and consumer HFS loans of ~~$31~~$26 million and $13 million at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively. HFS loans are carried at the lower of cost or market, and declines in value are recorded in Other income.
~~(t)~~(q)
Excludes nonperforming assets related to loans eligible for repurchase as well as loans repurchased from GNMA pools that are insured by government agencies of $1.0 billion and $1.5 billion for June 30, 2005, and December 31, 2004, respectively. These amounts are excluded, as reimbursement is proceeding normally.
(r)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
NA–
Not applicable.

It is expected that the provision for credit losses for the wholesale business will return to a more normal level over time. Factors that could affect the level of charge-offs and nonperforming loans in the wholesale portfolios include, among others, a deterioration in the global economy, interest rate movements, changes in the U.S. and international debt and equity markets, and portfolio mix. While consumer credit quality is currently anticipated to remain relatively stable over the remainder of the year, significant deterioration in the U.S. economy could materially change this expectation. Factors that could affect the level of charge-offs and nonperforming loans in the RFS and CS portfolios include, among others, changes in consumer behavior, bankruptcy trends, portfolio seasoning, interest rate movements and portfolio mix.

WHOLESALE CREDIT PORTFOLIO

~~Wholesale~~

As of June 30, 2005, wholesale exposure ~~remained flat~~increased $4.4 billion from December 31, 2004. Increases in loans and lending-related commitments ~~and loans~~ of $7$15 billion and $2$5 billion, respectively, were offset by reductions in derivative receivables and interests in purchased receivables of $6$11 billion and $3$4 billion, respectively. ~~The~~As described on page 41 of this Form 10–Q, the increase in ~~lending-related commitments~~loans was primarily ~~from~~in the IB, reflecting more loans held-for-sale related to securitization and ~~Commercial Banking~~syndication activities and, to a lesser extent, growth in the Middle Market segment of Commercial Banking. The decrease in derivative receivables was primarily due to the appreciation of the dollar. Below are summaries of the maturity and ratings profiles of the wholesale portfolio as of ~~March 31,~~June 30, 2005, and December 31, 2004. The ratings scale is based on the Firm’s internal risk ratings and is presented on an S&P-equivalent basis.

Wholesale exposure


	Maturity profile^(a)												Ratings profile																				Maturity profile^(a)												Ratings profile
													Investment-grade (“IG”)									Noninvestment-grade																							Investment-grade
																			BBB+											Total															(“IG”)			Noninvestment-grade
At March 31, 2005													AAA			A+			to			BB+			CCC+					% of
																																																						Total
At June 30, 2005																																																						% of
(in billions, except ratios)	<1 year			1–5 years			>5 years			Total			to AA-			to A-			BBB-			to B-			& below		Total			IG			<1 year			1–5 years			> 5 years			Total			AAA to BBB-			BB+ & below			Total			IG

Loans		46	%		38	%		16	%		100	%	$	31		$	20		$	36		$	47		$	4	$	138			63	%		47	%		36	%		17	%		100	%	$	89		$	61		$	150			59	%
Derivative receivables^(b)		12			42			46			100			28			10			11			11			—		60			82			8			52			40			100			43			12			55			78
Interests in purchased receivables		42			56			2			100			23			5			1			—			—		29			100			43			54			3			100			28			—			28			100
Lending-related commitments^(b)(c)		50			46			4			100			131			69			71			43			2		316			86			40			54			6			100			268			46			314			85

Total exposure^(d)		45	%		44	%		11	%		100	%	$	213		$	104		$	119		$	101		$	6	$	543			80	%		39	%		49	%		12	%		100	%	$	428		$	119		$	547			78	%

Credit derivative hedges notional^(e)		16	%		78	%		6	%		100	%	$	(9	)	$	(11	)	$	(12	)	$	(2	)	$	—	$	(34	)		94	%		18	%		74	%		8	%		100	%	$	(30	)	$	(3	)	$	(33	)		91	%


																																																						Total
At December 31, 2004																																																						% of
(in billions, except ratios)																																	<1 year			1-5 years			> 5 years			Total			AAA to BBB-			BB+ & below			Total			IG

Loans																																		43	%		43	%		14	%		100	%	$	87		$	48		$	135			64	%
Derivative receivables^(b)																																		19			39			42			100			57			9			66			86
Interests in purchased receivables																																		37			61			2			100			32			—			32			100
Lending-related commitments^(b)(c)																																		46			52			2			100			266			43			309			86

Total exposure^(d)																																		42	%		49	%		9	%		100	%	$	442		$	100		$	542			82	%

Credit derivative hedges notional^(e)																																		18	%		77	%		5	%		100	%	$	(35	)	$	(2	)	$	(37	)		95	%

Maturity profile^(a) Ratings profile
Investment-grade (“IG”) Noninvestment-grade
BBB+ Total
At December 31, 2004 AAA A+ to BB+ CCC+ % of
(in billions, except ratios) <1 year 1-5 years >5 years Total to AA- to A- BBB- to B- & below Total IG

Loans 43 % 43 % 14 % 100 % $ 31 $ 20 $ 36 $ 43 $ 5 $ 135 64 %
Derivative receivables^(b)
19 39 42 100 34 12 11 9 — 66 86
Interests in purchased receivables 37 61 2 100 3 24 5 — — 32 100
Lending-related commitments^(b)(c)
46 52 2 100 124 68 74 40 3 309 86

Total exposure^(d)
42 % 49 % 9 % 100 % $ 192 $ 124 $ 126 $ 92 $ 8 $ 542 82 %

Credit derivative hedges notional^(e)
18 % 77 % 5 % 100 % $ (11 ) $ (11 ) $ (13 ) $ (2 ) $ — $ (37 ) 95 %


(a)		The maturity profile of loans and lending-related commitments is based upon the remaining contractual maturity. The maturity profile of derivative receivables is based upon the maturity profile of Average exposure. See footnote (e) on page 4149 of thisForm 10–Q for a further discussion of Average exposure.

(b)		Based on economic credit exposure, the total percentage of Investment-grade for derivative receivables was ~~90%~~86% and 92% as of ~~March 31,~~June 30, 2005, and December 31, 2004, respectively, and for lending-related commitments was 85% ~~as of~~at both ~~March 31,~~June 30, 2005, and December 31, 2004. See footnotes (e) and (f) on ~~pages 41–42~~page 49 of thisForm 10–Q for a further discussion of economic credit exposure.

(c)		Based on economic credit exposure, the maturity profile for the<1 year, ~~1–5~~1-5 years and >5>5 years categories would have been ~~35%~~29%, ~~59%~~62% and 6%9%, respectively, as of ~~March 31,~~June 30, 2005, and 31%, 65% and 4%, respectively, as of December 31, 2004. See footnote (f) on ~~pages 41–42~~page 49 of thisForm 10–Q for a further discussion of economic credit exposure.

(d)		Based on economic credit exposure, the maturity profile for<1 year, 1–5 years and >5>5 years categories would have been ~~37%~~35%, 50% and ~~13%~~15%, respectively, as of ~~March 31,~~June 30, 2005, and 35%, 54% and 11%, respectively, as of December 31, 2004. See footnotes (e) and (f) on ~~pages 41–42~~page 49 of thisForm 10–Q for a further discussion of economic credit exposure.

(e)		Ratings are based on the underlying referenced assets.

Provision for credit losses
For a discussion of the reported Provision for credit losses, see page 9 of this Form 10–Q. The managed provision for credit losses for the three and six months ended June 30, 2005, which reflects credit card securitizations, increased from the corresponding periods in 2004 primarily due to the Merger.

Provision for Provision for
lending-related Total provision for lending-related
Provision for loan losses commitments credit losses Provision for loan losses commitments Total provision for credit losses
Three months ended March 31,^(a) (in millions) 2005 2004 2005 2004 2005 �� 2004
Three months ended June 30,^(a) (in millions) 2005 2004 2005 2004 2005 2004

Investment Bank $ (356 ) $ (161 ) $ (10 ) $ (27 ) $ (366 ) $ (188 ) $ (271 ) $ (96 ) $ (72 ) $ (32 ) $ (343 ) $ (128 )
Commercial Banking (8 ) (15 ) 2 2 (6 ) (13 ) 116 23 26 (4 ) 142 19
Treasury & Securities Services (5 ) 1 2 — (3 ) 1 2 3 — — 2 3
Asset & Wealth Management (7 ) 11 — (1 ) (7 ) 10 (18 ) (3 ) (2 ) (1 ) (20 ) (4 )
Corporate (4 ) (82 ) — — (4 ) (82 ) 1 (27 ) — — 1 (27 )

Total Wholesale (380 ) (246 ) (6 ) (26 ) (386 ) (272 ) (170 ) (100 ) (48 ) (37 ) (218 ) (137 )

Retail Financial Services 92 55 2 (1 ) 94 54 95 78 (1 ) — 94 78
Card Services 719 233 — — 719 233
Card Services – reported 711 262 — — 711 262

Total Consumer 811 288 2 (1 ) 813 287 806 340 (1 ) — 805 340

Total provision 431 42 (4 ) (27 ) 427 15 636 240 (49 ) (37 ) 587 203
Add: Securitized credit losses 917 473 — — 917 473
Credit card securitizations 930 486 — — 930 486

Total managed provision $ 1,348 $ 515 $ (4 ) $ (27 ) $ 1,344 $ 488 $ 1,566 $ 726 $ (49 ) $ (37 ) $ 1,517 $ 689

Provision for
lending-related
Provision for loan losses commitments Total provision for credit losses
Six months ended June 30,^(a) (in millions) 2005 2004 2005 2004 2005 2004

Investment Bank $ (627 ) $ (257 ) $ (82 ) $ (59 ) $ (709 ) $ (316 )
Commercial Banking 108 8 28 (2 ) 136 6
Treasury & Securities Services (3 ) 4 2 — (1 ) 4
Asset & Wealth Management (25 ) 8 (2 ) (2 ) (27 ) 6
Corporate (3 ) (109 ) — — (3 ) (109 )

Total Wholesale (550 ) (346 ) (54 ) (63 ) (604 ) (409 )

Retail Financial Services 187 133 1 (1 ) 188 132
Card Services – reported 1,430 495 — — 1,430 495

Total Consumer 1,617 628 1 (1 ) 1,618 627

Total provision 1,067 282 (53 ) (64 ) 1,014 218
Credit card securitizations 1,847 959 — — 1,847 959

Total managed provision $ 2,914 $ 1,241 $ (53 ) $ (64 ) $ 2,861 $ 1,177

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
It is expected that the provision for credit losses for the wholesale business will return to a more normal level over time. Factors that could affect the level of charge-offs and nonperforming loans in the wholesale portfolios include, among others, a deterioration in the global economy, interest rate movements, changes in the U.S. and international debt and equity markets, and portfolio mix. While consumer credit quality is currently anticipated to remain relatively stable over the remainder of the year, significant deterioration in the U.S. economy could materially change this expectation. Factors that could affect the level of charge-offs and nonperforming loans in the RFS and CS portfolios include, among others, changes in consumer behavior, bankruptcy trends, portfolio seasoning, interest rate movements and portfolio mix.
58

MARKET RISK MANAGEMENT

Risk management process
For a discussion of the Firm’s market risk management organization, see pages 70–74 of JPMorgan Chase’s 2004 Annual Report.

Value-at-risk
JPMorgan Chase’s statistical risk measure, VAR, gauges the potential loss from adverse market moves in an ordinary market environment and provides a consistent cross-business measure of risk profiles and levels of risk diversification. VAR is used to compare risks across businesses, to monitor limits and to allocate economic capital to the business segments. VAR provides risk transparency in a normal trading environment. Each business day the Firm undertakes a comprehensive VAR calculation that includes both its trading and its nontrading activities. VAR for nontrading activities measures the amount of potential change in economic value. The Firm calculates VAR using a one-day time horizon and a 99% confidence level. This means the Firm would expect to incur losses greater than that predicted by VAR estimates only once in every 100 trading days, or about 2.5 times a year. For a further discussion of the Firm’s VAR methodology, see pages 71–73 of JPMorgan Chase’s 2004 Annual Report.
49

Trading VAR
IB trading VAR by risk type and credit portfolio VAR^(a)

2005 2004 2005 2004^(f)
Three months ended March 31,^(b) Average Minimum Maximum At Average Minimum Maximum At
Six months ended June 30,^(b) Average Minimum Maximum At Average Minimum Maximum At
(in millions) VAR VAR VAR March 31, 2005 VAR VAR VAR March 31, 2004 VAR VAR VAR June 30, 2005 VAR VAR VAR June 30, 2004

By risk type:
Fixed income $ 57.2 $ 46.1 $ 71.6 $ 71.6 $ 73.4 $ 47.8 $ 97.6 $ 47.8 $ 70.0 $ 44.0 $ 110.2 $ 93.9 $ 75.1 $ 47.8 $ 117.5 $ 108.2
Foreign exchange 22.6 16.7 30.0 21.6 22.4 11.5 32.5 28.4 21.7 16.7 30.0 20.4 19.3 10.5 32.8 17.9
Equities 18.5 15.3 21.3 18.1 40.3 27.8 57.8 27.8 32.1 15.3 64.9 46.3 34.3 24.9 57.8 25.0
Commodities and other 9.8 6.5 17.4 10.0 8.1 7.1 9.6 7.1 12.1 6.5 23.2 21.0 8.1 6.9 11.4 9.1
Less: portfolio diversification (43.1 ) NM^(d) NM^(d) (48.1 ) (49.9 ) NM^(d) NM^(d) (41.2 ) (52.3 )^(d) NM ^(e) NM ^(e) (69.8 )^(d) (45.9 )^(d) NM ^(e) NM ^(e) (53.0 )^(d)

Total trading VAR $ 65.0 $ 52.9 $ 77.7 $ 73.2 $ 94.3 $ 69.9 $ 122.1 $ 69.9 $ 83.6 $ 52.9 $ 129.9 $ 111.8 $ 90.9 $ 59.8 $ 125.2 $ 107.2
Credit portfolio VAR^(c)
13.2 12.2 15.5 12.9 14.9 13.9 15.7 15.5 13.4 11.3 16.6 16.6 14.8 13.0 16.6 14.8
Less: portfolio diversification (8.2 ) NM ^(d) NM ^(d) (6.3 ) (7.6 ) NM ^(d) NM ^(d) (8.3 ) (10.8 )^(d) NM ^(e) NM ^(e) (15.3 )^(d) (8.0 )^(d) NM ^(e) NM ^(e) (8.2 )^(d)

Total trading and credit portfolio VAR^(e)
$ 70.0 $ 57.4 $ 82.6 $ 79.8 $ 101.6 $ 77.1 $ 131.6 $ 77.1 $ 86.2 $ 57.4 $ 129.9 $ 113.1 $ 97.7 $ 65.0 $ 131.6 $ 113.8

(a)
Includes all mark-to-market trading activities in the IB, plus available-for-sale securities held for the IB’s proprietary ~~purposes.~~purposes (included within Fixed income). Amounts exclude VAR related to the Firm’s private equity business. For a discussion of Private equity risk management, see page 5261 of thisForm 10–Q.Q.
(b)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(c)
Includes VAR on derivative credit valuation adjustments, credit valuation adjustment hedges and mark-to-market hedges of the accrual loan ~~hedges,~~portfolio, which are all reported in Trading revenue. This VAR does not include the accrual loan portfolio, which is not marked to market.
(d)
JPMorgan Chase’s average and period-end VARs are less than the sum of the VARs of its market risk components, due to risk offsets resulting from portfolio diversification.
(e)
Designated as NM because the minimum and maximum may occur on different days for different risk components, and hence it is not meaningful to compute a portfolio diversification effect. ~~In addition, JPMorgan Chase’s average and period-end VARs are less than the sum of the VARs of its market risk components, due to risk offsets resulting from portfolio diversification.~~
~~(e)~~(f)
For the ~~three~~six months ended ~~March 31,~~June 30, 2004, amounts have been revised to reflect the reclassification of hedge fund investments, reclassification of Treasury positions to portfolios outside the IB, and the inclusion of available-for-sale securities held for the IB’s proprietary purposes.
The largest contributor to the IB trading VAR in the second quarter and first ~~quarter~~half of 2005, respectively, was fixed income risk. Before portfolio diversification, fixed income risk accounted for ~~roughly 53%~~52% of the average IB Trading Portfolio ~~VAR.~~VAR for 2005. The diversification effect, which on average reduced the daily average IB Trading Portfolio VAR by ~~$43.1~~$52.3 million in the first ~~quarter~~half of 2005, reflects the fact that the ~~largest losses for different positions and~~ risks doare not ~~typically occur at the same time.~~perfectly correlated. The risk of a portfolio of positions is therefore usually less than the sum of the risks of the positions themselves. ~~The degree of diversification is determined both by the extent to which different market variables tend to move together and by the extent to which different businesses have similar positions.~~
Average IB trading and Credit Portfolio VAR during the first ~~quarter~~half of 2005 declined to ~~$70.0~~$86.2 million, compared with ~~$101.6~~$97.7 million for the same period in 2004. The decrease was driven by a decline in fixed income risk positions. Compared with the first quarter of 2005, second quarter average Total trading and ~~equities VAR, primarily due to decreased risk positions and reduced correlation between lines of business. Period-end~~Credit Portfolio VAR increased ~~slightly over March 31, 2004 to $79.8~~$31.9 million, from ~~$77.1 million.~~$70.0 million to $101.9 million for the three months ended June 30, 2005. This increase was driven by higher levels in fixed income and equity value-at-risk measures; the latter driven by a few concentrated client-related positions. In July, value-at-risk levels returned to levels consistent with the first quarter of 2005. In general, over the course of a year, VAR exposures can vary significantly as trading positions change and market volatility fluctuates.
59

VAR backtesting
To evaluate the soundness of its VAR model, the Firm conducts daily backtesting of trading VAR against actual financial results, based on daily market risk–related revenue. Market risk–related revenue is defined as the daily change in value of the mark-to-market trading portfolios plus any trading-related net interest income, brokerage commissions, underwriting fees or other revenue. The Firm’s definition of market risk–related revenue is consistent with the FRB’s implementation of the Basel Committee’s market risk capital rules. The ~~accompanying~~ histogram below illustrates the daily market risk–related gains and losses for the IB trading businesses for the ~~three~~six months ended ~~March 31,~~June 30, 2005. The chart shows that the IB posted market risk–related gains on 61103 out of 64129 days in this period, with ~~four~~8 days exceeding $100 million. The inset graph looks at those days on which the IB experienced losses and depicts the amount by which VAR exceeded the actual loss on each of those days. Losses were sustained on ~~three~~26 days, ~~with~~and no ~~loss greater than $20 million, and with no loss exceeding~~losses exceeded the VAR measure.
50

Economic value stress testing
While VAR reflects the risk of loss due to unlikely events in normal markets, stress testing captures the Firm’s exposure to unlikely but plausible events in abnormal markets. The Firm conducts economic-value stress tests monthly for both its trading and its nontrading activities, using multiple scenarios for both types of activities. Scenarios are continually reviewed and updated to reflect changes in the Firm’s risk profile and economic events. Stress testing is ~~equally~~ as important as VAR in measuring and controlling risk. Stress testing enhances the understanding of the Firm’s risk profile and loss potential and is used for monitoring limits, cross-business risk measurement and economic capital allocation. ~~Economic-value stress tests measure the potential change in the value of the Firm’s portfolios. Applying economic-value stress tests~~It also helps the Firm understand how the economic value of its balance sheet ~~(i.e., not~~(not the amounts reported under U.S. GAAP) would change under certain scenarios. The Firm conducts economic-value stress tests monthly for both its trading and its nontrading activities, using multiple scenarios, as well as the same scenarios for both types of activities. Scenarios are continually reviewed and updated to reflect changes in the Firm’s risk profile and economic events.

Based on the Firm’s stress scenarios, the stress-test loss (pre-tax) in the IB’s trading portfolio ranged from $469 million to ~~$745 million,~~$1.1 billion for the six months ended June 30, 2005, and from ~~$543~~$226 million to $1.2 billion for the ~~three~~six months ended ~~March 31, 2005 and 2004, respectively.~~June 30, 2004. The 2005 results reflect the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only. In addition, the 2004 amounts have been revised to reflect the reclassification of ~~hedge fund investments, reclassification of~~ Treasury positions to portfolios outside the IB and the inclusion of available-for-sale securities held for the IB’s proprietary purposes.

For a further discussion of the Firm’s stress-testing methodology, see page 73 of JPMorgan Chase’s 2004 Annual Report.

Earnings-at-risk stress testing
The VAR and stress-test measures described above illustrate the total economic sensitivity of the Firm’s balance sheet to changes in market variables. The effect of interest rate exposure on reported Net income is also critical. Interest rate risk exposure in the Firm’s core nontrading business activities (i.e., asset/liability management positions) results from on- and ~~off–balance~~off-balance sheet positions. The Firm conducts simulations of NII for its nontrading activities under a variety of interest rate scenarios, which are consistent with the scenarios used for economic-value stress testing. Earnings-at-risk tests measure the potential change in the Firm’s Net interest income over the next 12 months. These tests highlight exposures to various rate-sensitive factors, such as the rates themselves (e.g., the prime lending rate), pricing strategies on deposits, optionality and changes in product mix. The tests ~~included~~include forecasted balance sheet changes, such as asset sales and securitizations, as well as prepayment and reinvestment behavior.
51
~~JPMorgan Chase’s 12-month pre-tax earnings sensitivity profile as of March 31, 2005, and December 31, 2004 were as follows:~~

Immediate change in rates
(in millions) +200bp +100bp -100bp

March 31, 2005
$ (164 ) $ (29 ) $ (172 )
December 31, 2004 (557 ) (164 ) (180 )

The Firm is exposed to both rising and falling rates. The Firm’s risk to rising rates is largely the result of increased funding costs. In contrast, the exposure to falling rates is the result of potential compression of deposit spreads, coupled with higher anticipated levels of loan prepayments. The Firm’s risk to rising rates has declined due to portfolio repositioning.

Immediate changes in interest rates present a limited view of risk, and so a number of alternative scenarios are also reviewed. These scenarios include the implied forward curve, nonparallel rate shifts and severe interest rate shocks on selected key rates. These scenarios are intended to provide a comprehensive view of JPMorgan Chase’s earnings-at-risk over a wide range of outcomes.

Earnings-at-risk can also result from changes in the slope of the yield curve, because the Firm has the ability to lend at fixed rates and borrow at variable or short-term fixed rates. Based on these scenarios, the Firm’s earnings would be negatively affected by a sudden and unanticipated increase in short-term rates without a corresponding increase in long-term rates. Conversely, higher long-term rates are generally beneficial to earnings, particularly when the increase is not accompanied by rising short-term rates.

JPMorgan Chase’s 12-month pre-tax earnings sensitivity profile as of June 30, 2005, and December 31, 2004, were as follows:

Immediate change in rates
(in millions) +200bp +100bp -100bp

June 30, 2005
$ (442 ) $ (139 ) $ 131
December 31, 2004 (557 ) (164 ) (180 )

The Firm’s risk to rising and falling interest rates is largely due to corresponding increases and decreases in short-term funding costs. The Firm’s risk to rising rates is due to balance sheet growth and portfolio positioning, including both securities and derivative instruments.

OPERATIONAL RISK MANAGEMENT

For a discussion of JPMorgan Chase’s operational risk management, refer to page 75 of JPMorgan Chase’s 2004 Annual Report.

REPUTATION AND FIDUCIARY RISK MANAGEMENT

For a discussion of the Firm’s Reputation and Fiduciary Risk Management, see page 76 of JPMorgan Chase’s 2004 Annual Report.

PRIVATE EQUITY RISK MANAGEMENT

For a discussion of Private Equity Risk Management, see page 76 of JPMorgan Chase’s 2004 Annual Report. At ~~March 31,~~June 30, 2005, the carrying value of the private equity portfolio was ~~$7.2~~$6.4 billion.

SUPERVISION AND REGULATION

The following discussion should be read in conjunction with the Supervision and Regulation section on pages 1–4 of JPMorgan Chase’s 2004 Form 10–K.

Dividends
JPMorgan Chase’s bank subsidiaries could pay dividends to their respective bank holding companies, without the approval of their relevant banking regulators, in amounts up to the limitations imposed upon such banks by regulatory restrictions. These limitations, in the aggregate, totaled approximately ~~$7.5~~$8.3 billion at ~~March 31,~~June 30, 2005.

CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM

JPMorgan Chase’s accounting policies and use of estimates are integral to understanding its reported results. The Firm’s most complex accounting estimates require management’s judgment to ascertain the valuation of assets and liabilities. The Firm has established detailed policies and control procedures intended to ensure that valuation methods, including any judgments made as part of such methods, are well controlled, independently reviewed and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The Firm believes its estimates for determining the valuation of its assets and liabilities are appropriate. For further description of the Firm’s critical accounting estimates involving significant management valuation judgments, see pages 77–79 and the Notes to consolidated financial statements in JPMorgan Chase’s 2004 Annual Report.

Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers the wholesale and consumer loan portfolios as well as the Firm’s portfolio of wholesale lending-related commitments. The Allowance for loan losses is intended to adjust the value of the Firm’s loan assets for probable credit losses as of the balance sheet date. For a further discussion of the methodologies used in establishing the Firm’s Allowance for credit losses, see Note 12 on pages 102–103 of JPMorgan Chase’s 2004 Annual Report. The methodology for calculating the Allowance for loan losses and allowance for lending-related commitments involves significant judgment. For a further description of these judgments, see the JPMorgan Chase 2004 Annual Report; for amounts recorded as of ~~March 31,~~June 30, 2005 and 2004, see Allowance for credit losses on ~~pages 48-49,~~page 57, and Note 11 on page 6576 of this Form ~~10-Q.~~
52
10–Q.

Fair value of financial instruments
A portion of JPMorgan Chase’s assets and liabilities are carried at fair value, including trading assets and liabilities, AFS securities and private equity investments. Held-for-sale loans and mortgage servicing rights (“MSRs”) are carried at the lower of fair value or cost. At ~~March 31,~~June 30, 2005, approximately ~~$398~~$387 billion of the Firm’s assets were recorded at fair value.

Trading and available-for-sale portfolios
The following table summarizes the Firm’s trading and available-for-sale portfolios by valuation methodology at ~~March 31,~~June 30, 2005:

Trading assets Trading liabilities Trading assets Trading liabilities
Securities Securities AFS Securities Securities AFS
purchased^(a) Derivatives^(b) sold^(a) Derivatives^(b) securities purchased^(a) Derivatives^(b) sold^(a) Derivatives^(b) securities

Fair value based on:

Quoted market prices 91 % 1 % 98 % 1 % 91 % 89 % 1 % 98 % 1 % 93 %
Internal models with significant observable market parameters 8 98 1 98 3 9 98 1 98 6
Internal models with significant unobservable market parameters 1 1 1 1 6 2 1 1 1 1

Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %

(a)
Reflected as debt and equity instruments on the Firm’s Consolidated balance sheets.
(b)
Based on gross mark-to-market valuations of the Firm’s derivatives portfolio prior to netting positions pursuant to FIN 39, as cross-product netting is not relevant to an analysis based upon valuation methodologies.
62

ACCOUNTING AND REPORTING DEVELOPMENTS

Accounting for income taxes – repatriation of foreign earnings under the American Jobs Creation Act of 2004
In December 2004, the FASB issued FSP SFAS 109-2, which provides accounting and disclosure guidance for the foreign earnings repatriation provision within the American Jobs Creation Act of 2004 (the “Act”). The Act was signed into law on October 22, 2004.

The Act creates a temporary incentive for U.S. companies to repatriate accumulated foreign earnings at a substantially reduced U.S. effective tax rate by providing a dividends received deduction on the repatriation of certain foreign earnings to the U.S. taxpayer (the “repatriation provision”). The new deduction is subject to a number of limitations and requirements.

Clarification of key elements of the repatriation provision from Congress or the U.S. Treasury Department may affect an enterprise’s evaluation of the effect of the Act on its plan for repatriation or reinvestment of foreign earnings. The FSP provides a practical exception to the SFAS 109 requirement to reflect the effect of a new tax law in the period of enactment because of the lack of clarification of certain provisions of the Act and the timing of the enactment. Thus, companies have additional time to assess the effect of the Act on their plans for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109. A company should apply the provisions of SFAS 109 (i.e., reflect the tax impact in the financial statements) in the period in which it makes the decision to repatriate or reinvest unremitted foreign earnings in accordance with the Act. Decisions can be made in stages (e.g., by foreign country). The repatriation provision is effective for either the 2004 or 2005 tax years for calendar year taxpayers.

The range of possible amounts that may be considered by the Firm for repatriation under this provision is between zero and $1.9 billion. The Firm is currently assessing the impact of the repatriation provision and, at this time, cannot reasonably estimate the related range of income tax effects of such repatriation provision. Accordingly, the Firm has not reflected the tax effect of the repatriation provision in income tax expense or income tax liabilities.

Accounting for share-based payments
In December 2004, the FASB issued SFAS 123R, which revises SFAS 123 and supersedes APB 25. In March 2005, the SEC issued SAB 107 which provides interpretive guidance on SFAS 123R. Accounting and reporting under SFAS 123R is generally similar to the SFAS 123 approach. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R permits adoption using one of two methods – modified prospective or modified retrospective.
In April 2005, the Securities and Exchange Commission approved a new rule that, for public companies, delays the effective date of SFAS 123R to no later than January 1, 2006. The Firm intends to adopt SFAS 123R on January 1, 2006, under the modified prospective method.

The Firm has continued to account for stock options that were outstanding as of December 31, 2002, under APB 25 using the intrinsic value method. Therefore, compensation expense for some ~~previously granted~~previously-granted awards that was not recognized under SFAS 123 will be recognized under SFAS 123R. Had the Firm adopted SFAS 123R in prior periods, the impact would have approximated the impact of SFAS 123 as described in Note 6 on page 6272 of this Form 10–Q.

In ~~April~~May 2005, the Securities and Exchange Commission ~~approved a new rule~~provided guidance on accounting for share–based payments that ~~for public companies, delays~~are retained upon retirement. Prior to 2005, the ~~effective~~Firm granted certain awards with accelerated vesting upon an employee’s retirement with no substantive future service requirements. For those awards, the Firm’s policy has been not to accelerate recognition of expense to the retirement eligibility date. Awards granted to employees who are or will become retirement eligible prior to the vesting date ~~to no later than January 1, 2006. The Firm intends to adopt SFAS 123R on January 1, 2006 under~~represent an immaterial portion of the ~~modified prospective method.~~
53
total awards granted each year.

Accounting for variable interest entities
The application of FIN 46R ~~involved~~involves significant judgment and ~~interpretations~~interpretation by management. The Firm is aware of differing interpretations being developed among accounting professionals and the EITF with regard to analyzing derivatives under FIN 46R. At its March 2005 meeting, the EITF suspended further deliberations ~~on EITF Issue 04-7,~~ subject to actions by the Financial Accounting Standard Board. Timing of these actions is not certain.

Accounting for conditional asset retirement obligations
In March 2005, FASB issued FIN 47 to clarify the term “conditional asset retirement obligation” as used in SFAS ~~No.~~ 143. Conditional asset retirement obligations are legal obligations to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the company. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 clarifies that a company is required to recognize a liability for the fair value of the conditional asset retirement obligation if the fair value of the liability can be reasonably estimated and provides guidance for determining when a company would have sufficient information to reasonably estimate the fair value of the obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Firm is currently assessing the impact of this interpretation.

JPMORGAN CHASE & CO.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in millions, except per share data)

Three months ended March 31,^(a) Three months ended June 30, ^(a) Six months ended June 30, ^(a)
2005 2004 2005 2004 2005 2004

Revenue

Investment banking fees $ 993 $ 692 $ 961 $ 893 $ 1,954 $ 1,585
Trading revenue 1,859 1,720 387 873 2,246 2,593
Lending & deposit related fees 820 414 851 412 1,671 826
Asset management, administration and commissions 2,455 1,771 2,541 1,814 5,039 3,650
Securities/private equity gains (losses) (45 ) 432 407 460 362 892
Mortgage fees and related income 405 259 336 294 698 488
Credit card income 1,734 605 1,763 631 3,497 1,236
Other income 201 132 496 260 697 392

Noninterest revenue
8,422 6,025 7,742 5,637 16,164 11,662

Interest income 10,632 5,626 10,949 5,614 21,581 11,240
Interest expense 5,407 2,640 5,948 2,620 11,355 5,260

Net interest income
5,225 2,986 5,001 2,994 10,226 5,980

Total net revenue
13,647 9,011 12,743 8,631 26,390 17,642

Provision for credit losses 427 15 587 203 1,014 218

Noninterest expense

Compensation expense 4,702 3,302 4,266 2,943 8,968 6,245
Occupancy expense 525 431 580 440 1,105 871
Technology and communications expense 920 819 896 786 1,816 1,605
Professional & outside services 1,074 816 1,130 752 2,204 1,568
Marketing 483 199 537 202 1,020 401
Other expense 805 447 954 511 1,759 958
Amortization of intangibles 383 79 385 79 768 158

Total noninterest expense before merger costs and litigation reserve charge
8,892 6,093 8,748 5,713 17,640 11,806
Merger costs 145 — 279 90 424 90
Litigation reserve charge 900 — 1,872 3,700 2,772 3,700

Total noninterest expense
9,937 6,093 10,899 9,503 20,836 15,596

Income before income tax expense 3,283 2,903
Income tax expense 1,019 973
Income (loss) before income tax expense (benefit) 1,257 (1,075 ) 4,540 1,828
Income tax expense (benefit) 263 (527 ) 1,282 446

Net income
$ 2,264 $ 1,930
Net income (loss)
$ 994 $ (548 ) $ 3,258 $ 1,382

Net income applicable to common stock
$ 2,259 $ 1,917
Net income (loss) applicable to common stock
$ 991 $ (561 ) $ 3,250 $ 1,356

Net income per common share

Net income (loss) per common share

Basic earnings per share $ 0.64 $ 0.94 $ 0.28 $ (0.27 ) $ 0.93 $ 0.67
Diluted earnings per share 0.63 0.92 0.28 (0.27 ) 0.91 0.65

Average basic shares 3,517.5 2,032.3 3,493.0 2,042.8 3,505.2 2,037.6
Average diluted shares 3,569.8 2,092.7 3,548.3 2,042.8 3,559.0 2,096.3

Cash dividends per common share $ 0.34 $ 0.34 $ 0.34 $ 0.34 $ 0.68 $ 0.68

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
~~The Notes to consolidated financial statements (unaudited) are an integral part of these statements.~~
55
~~JPMORGAN CHASE & CO.~~
~~CONSOLIDATED BALANCE SHEETS (UNAUDITED)~~
~~(in millions, except share data)~~

March 31, December 31,
2005 2004

Assets

Cash and due from banks $ 37,593 $ 35,168
Deposits with banks 14,331 21,680
Federal funds sold and securities purchased under resale agreements 132,751 101,354
Securities borrowed 53,174 47,428
Trading assets (including assets pledged of $108,526 at March 31, 2005, and $77,266 at December 31, 2004) 291,113 288,814
Securities:
Available-for-sale (including assets pledged of $14,436 at March 31, 2005, and $26,881 at December 31, 2004) 75,150 94,402
Held-to-maturity (fair value: $106 at March 31, 2005, and $117 at December 31, 2004) 101 110
Interests in purchased receivables 28,484 31,722
Loans 402,669 402,114
Allowance for loan losses (6,935 ) (7,320 )

Loans, net of Allowance for loan losses 395,734 394,794
Private equity investments 7,333 7,735
Accrued interest and accounts receivable 21,098 21,409
Premises and equipment 9,344 9,145
Goodwill 43,440 43,203
Other intangible assets:
Mortgage servicing rights 5,663 5,080
Purchased credit card relationships 3,703 3,878
All other intangibles 5,514 5,726
Other assets 53,779 45,600

Total assets
$ 1,178,305 $ 1,157,248

Liabilities

Deposits:
U.S. offices:
Noninterest-bearing $ 130,533 $ 129,257
Interest-bearing 271,592 261,673
Non-U.S. offices:
Noninterest-bearing 6,669 6,931
Interest-bearing 122,585 123,595

Total deposits 531,379 521,456
Federal funds purchased and securities sold under repurchase agreements 137,062 127,787
Commercial paper 13,063 12,605
Other borrowed funds 10,124 9,039
Trading liabilities 153,716 151,207
Accounts payable, accrued expenses and other liabilities (including the Allowance for lending-related commitments of $488 at March 31, 2005, and $492 at December 31, 2004) 72,183 75,722
Beneficial interests issued by consolidated VIEs 44,827 48,061
Long-term debt 99,329 95,422
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities 11,282 10,296

Total liabilities
1,072,965 1,051,595

Commitments and contingencies (see Note 17 of this Form 10-Q)
Stockholders’ equity

Preferred stock 339 339
Common stock (authorized 9,000,000,000 shares; issued 3,597,803,183 shares and 3,584,747,502 shares at March 31, 2005, and December 31, 2004, respectively) 3,598 3,585
Capital surplus 73,394 72,801
Retained earnings 31,253 30,209
Accumulated other comprehensive income (loss) (623 ) (208 )
Treasury stock, at cost (72,504,703 shares at March 31, 2005, and 28,556,534 shares at December 31, 2004) (2,621 ) (1,073 )

Total stockholders’ equity
105,340 105,653

Total liabilities and stockholders’ equity
$ 1,178,305 $ 1,157,248

The Notes to consolidated financial statements (unaudited) are an integral part of these statements.
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56

JPMORGAN CHASE & CO.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data)

June 30, December 31 ,
2005 2004

Assets

Cash and due from banks $ 35,092 $ 35,168
Deposits with banks 9,080 21,680
Federal funds sold and securities purchased under resale agreements 130,785 101,354
Securities borrowed 58,457 47,428
Trading assets (including assets pledged of $88,453 at June 30, 2005, and $77,266 at December 31, 2004) 290,818 288,814
Securities:
Available-for-sale (including assets pledged of $19,952 at June 30, 2005, and $26,881 at December 31, 2004) 58,481 94,402
Held-to-maturity (fair value: $96 at June 30, 2005, and $117 at December 31, 2004) 92 110
Interests in purchased receivables 27,887 31,722

Loans 416,025 402,114
Allowance for loan losses (6,794 ) (7,320 )

Loans, net of Allowance for loan losses 409,231 394,794

Private equity investments 6,488 7,735
Accrued interest and accounts receivable 24,245 21,409
Premises and equipment 9,354 9,145
Goodwill 43,537 43,203
Other intangible assets:
Mortgage servicing rights 5,026 5,080
Purchased credit card relationships 3,528 3,878
All other intangibles 5,319 5,726
Other assets 53,863 45,600

Total assets
$ 1,171,283 $ 1,157,248

Liabilities

Deposits:
U.S. offices:
Noninterest-bearing $ 138,025 $ 129,257
Interest-bearing 263,952 261,673
Non-U.S. offices:
Noninterest-bearing 7,289 6,931
Interest-bearing 125,374 123,595

Total deposits 534,640 521,456

Federal funds purchased and securities sold under repurchase agreements 137,350 127,787
Commercial paper 12,842 12,605
Other borrowed funds 12,716 9,039
Trading liabilities 134,280 151,207
Accounts payable, accrued expenses and other liabilities (including the Allowance for lending-related commitments of $439 at June 30, 2005, and $492 at December 31, 2004) 77,064 75,722
Beneficial interests issued by consolidated VIEs 43,826 48,061
Long-term debt 101,182 95,422
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities 11,998 10,296

Total liabilities
1,065,898 1,051,595

Commitments and contingencies (see Note 17 of this Form 10–Q)
Stockholders’ equity

Preferred stock 139 339
Common stock (authorized 9,000,000,000 shares; issued 3,604,060,651 shares and 3,584,747,502 shares at June 30, 2005, and December 31, 2004, respectively) 3,604 3,585
Capital surplus 73,911 72,801
Retained earnings 31,032 30,209
Accumulated other comprehensive income (loss) (61 ) (208 )
Treasury stock, at cost (90,117,056 shares at June 30, 2005, and 28,556,534 shares at December 31, 2004) (3,240 ) (1,073 )

Total stockholders’ equity
105,385 105,653

Total liabilities and stockholders’ equity
$ 1,171,283 $ 1,157,248

The Notes to consolidated financial statements (unaudited) are an integral part of these statements.
65
JPMORGAN CHASE & CO.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(in millions, except per share data)

Three months ended March 31,^(a) Six months ended June 30, ^(a)
2005 2004 2005 2004

Preferred stock

Balance at beginning of the year and end of period $ 339 $ 1,009
Balance at beginning of the year $ 339 $ 1,009
Redemption of preferred stock (200 ) —

Balance at end of period 139 1,009

Common stock

Balance at beginning of year 3,585 2,044 3,585 2,044
Issuance of common stock 13 44 19 51

Balance at end of period 3,598 2,088 3,604 2,095

Capital surplus

Balance at beginning of year 72,801 13,512 72,801 13,512
Shares issued and commitments to issue common stock for employee stock-based awards and related tax effects 593 681 1,110 914

Balance at end of period 73,394 14,193 73,911 14,426

Retained earnings

Balance at beginning of year 30,209 29,681 30,209 29,681
Net income 2,264 1,930 3,258 1,382
Cash dividends declared:
Preferred stock (5 ) (13 ) (8 ) (26 )
Common stock ($0.34 per share each period) (1,215 ) (720 )
Common stock ($0.68 per share each period) (2,427 ) (1,441 )

Balance at end of period 31,253 30,878 31,032 29,596

Accumulated other comprehensive income (loss)

Balance at beginning of year (208 ) (30 ) (208 ) (30 )
Other comprehensive income (loss) (415 ) 207 147 (880 )

Balance at end of period (623 ) 177 (61 ) (910 )

Treasury stock, at cost

Balance at beginning of year (1,073 ) (62 ) (1,073 ) (62 )
Purchase of treasury stock (1,316 ) — (1,910 ) —
Share repurchases related to employee stock-based awards (232 ) (182 ) (257 ) (213 )

Balance at end of period (2,621 ) (244 ) (3,240 ) (275 )

Total stockholders’ equity at end of period $ 105,340 $ 48,101 $ 105,385 $ 45,941

Comprehensive income

Net income $ 2,264 $ 1,930 $ 3,258 $ 1,382
Other comprehensive income (loss) (415 ) 207 147 (880 )

Comprehensive income $ 1,849 $ 2,137 $ 3,405 $ 502

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
The Notes to consolidated financial statements (unaudited) are an integral part of these statements.
66
57

JPMORGAN CHASE & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)

Six months ended June 30, ^(a)
2005 2004
Three months ended March 31,^(a)
Operating activities
2005 2004

Net income $ 2,264 $ 1,930 $ 3,258 $ 1,382
Adjustments to reconcile net income to net cash (used in) operating activities:
Provision for credit losses 427 15 1,014 218
Depreciation and amortization 1,165 762 2,221 1,433
Deferred tax (benefit) provision 462 796 (1,038 ) (447 )
Investment securities (gains) losses 822 (126 ) 752 (165 )
Private equity unrealized (gains) losses (201 ) (159 ) (35 ) (261 )
Net change in:
Trading assets 545 (23,610 ) (1,499 ) (8,073 )
Securities borrowed (5,746 ) (8,047 ) (11,029 ) (3,113 )
Accrued interest and accounts receivable 338 (894 ) (2,787 ) (2,694 )
Other assets (6,974 ) (10,343 ) (6,813 ) (7,331 )
Trading liabilities (472 ) 4,404 (18,300 ) (6,468 )
Accounts payable, accrued expenses and other liabilities (4,349 ) (1,667 ) 1,903 12,677
Other operating adjustments — (120 ) — (17 )

Net cash (used in) operating activities (11,719 ) (37,059 ) (32,353) (12,859 )

Investing activities

Net change in:
Deposits with banks 7,465 (25,425 ) 12,717 (28,960 )
Federal funds sold and securities purchased under resale agreements (31,239 ) (2,546 ) (29,273 ) (23,983 )
Other change in loans (22,732 ) (31,385 ) (66,577 ) (68,381 )
Held-to-maturity securities:
Proceeds 9 19 18 40
Purchases — —
Available-for-sale securities:
Proceeds from maturities 8,703 2,060 17,008 4,482
Proceeds from sales 28,232 50,709 45,146 78,592
Purchases (19,543 ) (62,899 ) (31,731 ) (89,692 )
Loans due to sales and securitizations 21,373 28,080 51,085 56,529
Net cash received (used) in business acquisitions (304 ) (24 )
Net cash used in business acquisitions (413 ) (339 )
All other investing activities, net 1,374 (543 ) 2,489 (184 )

Net cash (used in) investing activities (6,662 ) (41,954 )
Net cash provided by (used in) investing activities 469 (71,896 )

Financing activities

Net change in:
Deposits 6,377 39,094 13,301 42,547
Federal funds purchased and securities sold under repurchase agreements 9,275 35,060 9,563 39,153
Commercial paper and other borrowed funds 1,543 1,954 3,914 1,303
Proceeds from the issuance of long-term debt and capital debt securities 15,796 4,943 23,068 11,387
Repayments of long-term debt and capital debt securities (9,903 ) (2,805 ) (14,033 ) (5,594 )
Net issuance of stock and stock-based awards 374 543 337 752
Redemption of preferred stock (200 ) —
Treasury stock purchased (1,316 ) — (1,910 ) —
Cash dividends paid (1,227 ) (720 ) (2,449 ) (1,454 )
All other financing activities, net 8 15 435 (7 )

Net cash provided by financing activities 20,927 78,084 32,026 88,087

Effect of exchange rate changes on cash and due from banks (121 ) 80 (218 ) (75 )
Net increase (decrease) in cash and due from banks 2,425 (849 ) (76 ) 3,257
Cash and due from banks at the beginning of the year 35,168 20,268 35,168 20,268

Cash and due from banks at the end of the period $ 37,593 $ 19,419 $ 35,092 $ 23,525

Cash interest paid $ 5,191 $ 2,619 $ 11,056 $ 5,118
Cash income taxes paid $ 1,187 $ 325 $ 2,432 $ 810

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
The Notes to consolidated financial statements (unaudited) are an integral part of these statements.
67
58

See Glossary of Terms on pages ~~77-78~~91–92 of this Form ~~10-Q~~10–Q for definitions of terms used throughout the Notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 —– BASIS OF PRESENTATION
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, with operations in more than 50 countries. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing, ~~investment~~asset and wealth management ~~private banking~~ and private equity. For a discussion of the Firm’s business segment information, see Note 20 on pages ~~74-75~~86-88 of this Form 10-Q.
The accounting and financial reporting policies of JPMorgan Chase and its subsidiaries conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and prevailing industry practices for interim reporting. Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The unaudited consolidated financial statements prepared in conformity with U.S. GAAP require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and disclosures of contingent assets and liabilities. Actual results could be different from these estimates. In the opinion of management, all normal recurring adjustments have been included for a fair statement of this interim financial information. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2004 (“2004 Annual Report”).
As further described in Note 2 ~~of this Form 10-Q,~~below, on July 1, 2004, the Firm merged with Bank One Corporation (“Bank One”) and acquired all of its outstanding stock. The merger was accounted for using the purchase method of accounting. Bank One’s results of operations were included in the Firm’s results beginning July 1, 2004.
Certain amounts in the prior periods have been reclassified to conform to the current presentation.
NOTE 2 —– BUSINESS CHANGES AND DEVELOPMENTS
Merger with Bank One Corporation
Refer to Note 2 on pages ~~89-90~~89–90 of JPMorgan Chase’s 2004 Annual Report for a discussion of JPMorgan Chase’s merger with Bank One Corporation (the “Merger”) on July 1, 2004, including its purchase price allocation and goodwill, Unaudited condensed statement of net assets acquired, and Acquired, identifiable intangible assets.
~~Bank One merged with and into JPMorgan Chase.~~ The Merger was accounted for using the purchase method of accounting, which requires that the assets and liabilities of Bank One that were acquired be fair valued as of July 1, 2004. The purchase price to complete the Merger was $58.5 billion.
68
Purchase price allocation and goodwill
The final purchase price of the Merger has been allocated to the assets acquired and liabilities assumed using their fair values as of the merger date. The computation of the purchase price and the allocation of the purchase price to the net assets of Bank One based on their respective fair values as of July 1, 2004, and the resulting goodwill, are presented below.

(in millions, except per share amounts) July 1, 2004

Purchase price

Bank One common stock exchanged 1,113
Exchange ratio 1.32

JPMorgan Chase common stock issued 1,469
Average purchase price per JPMorgan Chase common share^(a)
$ 39.02

$ 57,336
Fair value of employee stock awards and direct acquisition costs 1,210

Total purchase price $ 58,546
Net assets acquired:

Bank One stockholders’ equity $ 24,156
Bank One goodwill and other intangible assets (2,754 )

Subtotal 21,402

Adjustments to reflect assets acquired at fair value:

Loans and leases (2,261 )
Private equity investments (72 )
Identified intangibles 8,665
Pension plan assets (778 )
Premises and equipment (417 )
Other assets (267 )

Amounts to reflect liabilities assumed at fair value:

Deposits (373 )
Deferred income taxes 932
Postretirement plan liabilities (49 )
Other liabilities (1,162 )
Long-term debt (1,234 )

24,386

Goodwill resulting from the Merger $ 34,160

(a)
The value of the Firm’s common stock exchanged with Bank One shareholders was based on the average closing prices of the Firm’s common stock for the two days prior to, and the two days following, the announcement of the Merger on January 14, 2004.
Condensed statement of net assets acquired
The following condensed statement of net assets acquired reflects the fair value of Bank One net assets as of July 1, 2004.

(in millions) July 1, 2004

Assets

Cash and cash equivalents $ 14,669
Securities 70,512
Interests in purchased receivables 30,184
Loans, net of allowance 129,650
Goodwill and other intangible assets 42,825
All other assets 47,739

Total assets $ 335,579

Liabilities

Deposits $ 164,848
Short-term borrowings 9,811
All other liabilities 61,494
Long-term debt 40,880

Total Liabilities 277,033

Net assets acquired $ 58,546

69
Pro forma condensed combined financial information
The following pro forma condensed combined financial information presents the results of operations of the Firm, for the three and six months ended ~~March 31,~~June 30, 2004, had the Merger taken place atas of January 1, 2004.

Three months ended March 31, (in millions, except per share data) 2004
Three months ended June 30, Six months ended June 30,
(in millions, except per share data) 2004 2004

Noninterest revenue $ 8,496 $ 8,005 $ 16,501
Net interest income 5,311 5,274 10,585

Total net revenue 13,807 13,279 27,086
Provision for credit losses 153 248 401
Noninterest expense 9,112 12,629 21,741

Income before income tax expense 4,542 402 4,944
Net income $ 3,027 $ 433 $ 3,460

Net income per common share:
Basic $ 0.86 $ 0.12 $ 0.98
Diluted 0.84 0.12 0.96
Average common shares outstanding:
Basic 3,503.7 3,509.4 3,506.6
Diluted 3,590.4 3,588.6 3,589.0

59
~~Other business events~~
On February 28, 2005, JPMorgan Chase and Cazenove Group plc (“Cazenove”) formed a joint venture partnership which combined Cazenove’s investment banking business and JPMorgan Chase’s United Kingdom-based investment banking business to provide investment banking services in the United Kingdom and Ireland. The new company is called JPMorgan Cazenove Holdings.
NOTE 3—TRADING ASSETS AND LIABILITIES
For a discussion of the accounting policies related to trading assets and liabilities, see Note 3 on pages ~~90-91~~90–91 of JPMorgan Chase’s 2004 Annual Report. The following table presents Trading assets and Trading liabilities for the dates indicated:

March 31, December 31, June 30, December 31 ,
(in millions) 2005 2004 2005 2004

Trading assets

Debt and equity instruments:
U.S. government, federal agencies/corporations obligations and municipal securities $ 55,377 $ 43,866
U.S. government and federal agency, U.S. government-sponsored enterprise and municipal securities obligations $ 44,646 $ 43,866
Certificates of deposit, bankers’ acceptances and commercial paper 5,780 7,341 7,770 7,341
Debt securities issued by non-U.S. governments 54,202 50,699 62,423 50,699
Corporate securities and other 115,366 120,926 120,964 120,926

Total debt and equity instruments 230,725 222,832 235,803 222,832

Derivative receivables^(a)

Interest rate 41,290 45,892 37,086 45,892
Foreign exchange 4,712 7,939 6,060 7,939
Equity 7,059 6,120 4,454 6,120
Credit derivatives 2,762 2,945 3,662 2,945
Commodity 4,565 3,086 3,753 3,086

Total derivative receivables 60,388 65,982 55,015 65,982

Total trading assets
$ 291,113 $ 288,814 $ 290,818 $ 288,814

Trading liabilities

Debt and equity instruments^(b)
$ 96,090 $ 87,942 $ 83,011 $ 87,942

Derivative payables:^(a)

Interest rate 38,396 41,075 33,705 41,075
Foreign exchange 4,988 8,969 5,984 8,969
Equity 9,284 9,096 6,818 9,096
Credit derivatives 1,904 2,499 2,255 2,499
Commodity 3,054 1,626 2,507 1,626

Total derivative payables 57,626 63,265 51,269 63,265

Total trading liabilities
$ 153,716 $ 151,207 $ 134,280 $ 151,207

(a)
Included in Trading assets and Trading liabilities are the reported receivables (unrealized gains) and payables (unrealized losses) related to derivatives. These amounts include the effect of legally enforceable master netting agreements, including cash paid and received.
(b)
Primarily represents securities sold, not yet purchased.
70
60

NOTE 4 —– INTEREST INCOME AND INTEREST EXPENSE
Details of Interest income and Interest expense were as follows:

Three months ended March 31,^(a) (in millions) 2005 2004
Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Interest income

Loans $ 6,034 $ 2,667 $ 6,295 $ 2,714 $ 12,329 $ 5,381
Securities 1,078 661 610 718 1,688 1,379
Trading assets 2,232 1,799 2,384 1,666 4,616 3,465
Federal funds sold and securities purchased under resale agreements 727 307 941 314 1,668 621
Securities borrowed 221 94 313 89 534 183
Deposits with banks 154 87 190 113 344 200
Interests in purchased receivables 186 11 216 — 402 11

Total interest income 10,632 5,626 10,949 5,614 21,581 11,240
Interest expense

Interest-bearing deposits 1,985 814 �� 2,352 813 4,349 1,632
Short-term and other liabilities 2,226 1,384 2,262 1,365 4,476 2,744
Long-term debt 924 403 1,015 404 1,939 807
Beneficial interests issued by consolidated VIEs 272 39 319 38 591 77

Total interest expense 5,407 2,640 5,948 2,620 11,355 5,260

Net interest income
5,225 2,986 5,001 2,994 10,226 5,980
Provision for credit losses 427 15 587 203 1,014 218

Net interest income after provision for credit losses
$ 4,798 $ 2,971 $ 4,414 $ 2,791 $ 9,212 $ 5,762

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
NOTE 5 —– PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS
For a discussion of JPMorgan Chase’s pension and other postretirement employee benefit plans, see Note 6 on pages ~~92-95~~92–95 of JPMorgan Chase’s 2004 Annual Report. The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income for the U.S. and non-U.S. defined benefit pension and other postretirement benefit plans of the Firm.

Other Other
Pension plans Postretirement Pension plans Postretirement
U.S. Non-U.S. benefit plans U.S. Non-U.S. benefit plans
Three months ended March 31,^(a) (in millions) 2005 2004 2005 2004 2005 2004
Three months ended June 30,^(a) (in millions) 2005 2004 2005 2004 2005 2004

Components of net periodic benefit costs

Defined benefit plans:
Benefits earned during the period $ 75 $ 49 $ 5 $ 5 $ 4 $ 5 $ 75 $ 49 $ 7 $ 4 $ 4 $ 5
Interest cost on benefit obligations 108 67 26 22 21 19 107 67 27 21 21 19
Expected return on plan assets (173 ) (85 ) (27 ) (22 ) (22 ) (21 ) (173 ) (106 ) (28 ) (22 ) (22 ) (21 )
Amortization of unrecognized amounts:
Prior service cost 2 4 — — 1 — 2 4 — — 1 —
Net actuarial loss — 8 10 14 — — — 13 10 11 — —
Settlement loss — — — 6 — —

Subtotal 12 43 14 25 4 3 11 27 16 14 4 3
Other defined benefit pension plans^(b)
7 9 9 6 — — 6 6 11 11 — —

Total defined benefit pension plans 19 52 23 31 4 3 17 33 27 25 4 3
Defined contribution plans 61 36 45 26 — — 61 36 43 34 — —

Total pension and other postretirement benefit expense $ 80 $ 88 $ 68 $ 57 $ 4 $ 3 $ 78 $ 69 $ 70 $ 59 $ 4 $ 3

71

Other
Pension plans Postretirement
U.S. Non-U.S. benefit plans
Six months ended June 30,^(a) (in millions) 2005 2004 2005 2004 2005 2004

Components of net periodic benefit costs

Defined benefit plans:
Benefits earned during the period $ 150 $ 98 $ 12 $ 9 $ 8 $ 10
Interest cost on benefit obligations 215 134 53 43 42 38
Expected return on plan assets (346 ) (191 ) (55 ) (44 ) (44 ) (42 )
Amortization of unrecognized amounts:
Prior service cost 4 8 — — 2 —
Net actuarial loss — 21 20 25 — —
Settlement loss — — — 6 — —

Subtotal 23 70 30 39 8 6
Other defined benefit pension plans^(b)
13 15 20 17 — —

Total defined benefit pension plans 36 85 50 56 8 6
Defined contribution plans 122 72 88 60 — —

Total pension and other postretirement benefit expense $ 158 $ 157 $ 138 $ 116 $ 8 $ 6

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Includes U.S. defined benefit pension plans not subject to Title IV of the Employee Retirement Income Security Act of 1974 (e.g., Excess Retirement Plan) and immaterial non-U.S. defined benefit pension plans.
The fair value of the plan assets for the U.S. and material non-U.S. pension and other postretirement benefit plans was ~~$9.4~~$10.6 billion and $2.1 billion, respectively, as of ~~March 31,~~June 30, 2005, and $10.9 billion and $1.9 billion, respectively, as of December 31, 2004.
61
NOTE 6 —– EMPLOYEE STOCK-BASED INCENTIVES
For a discussion of the accounting policies relating to employee stock-based compensation, see Note 7 on pages ~~95-97~~95–97 of JPMorgan Chase’s 2004 Annual Report. The following table presents net income (after-tax) and basic and diluted earnings per share as reported, and as if all outstanding awards were accounted for at fair value:

Three months ended March 31,^(a)
(in millions, except per share data) 2005 2004

Net income as reported $ 2,264 $ 1,930
Add:       Employee stock-based compensation expense originally included in reported net income 229 178
Deduct:  Employee stock-based compensation expense determined under the fair value method for all awards (289 ) (222 )

Pro forma net income $ 2,204 $ 1,886

Earnings per share:
Basic:     As reported $ 0.64 $ 0.94
Pro forma 0.62 0.92
Diluted:  As reported $ 0.63 $ 0.92
Pro forma 0.62 0.89

Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions, except per share data) 2005 2004 2005 2004

Net income (loss) as reported $ 994 $ (548 ) $ 3,258 $ 1,382
Add: Employee stock-based compensation expense originally included in reported net income (loss) 215 176 444 354
Deduct: Employee stock-based compensation expense determined under the fair value method for all awards (248 ) (216 ) (537 ) (438 )

Pro forma net income (loss) $ 961 $ (588 ) $ 3,165 $ 1,298

Earnings per share:
Basic:    As reported $ 0.28 $ (0.27 ) $ 0.93 $ 0.67
Pro forma 0.27 (0.29 ) 0.90 0.62
Diluted: As reported $ 0.28 $ (0.27 ) $ 0.91 $ 0.65
Pro forma 0.27 (0.29 ) 0.89 0.60

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
72
In December 2004, the FASB issued SFAS 123R, which revises SFAS 123 and supersedes APB 25. In March 2005, the SEC issued SAB 107 which provides interpretive guidance on SFAS 123R. Accounting and reporting under SFAS 123R is generally similar to the SFAS 123 approach. However, SFAS 123R requires all share-based payments to employees, including grants of stock options and SARs, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.
SFAS 123R permits adoption using one of two methods — modified prospective or modified retrospective. In April 2005, the Securities and Exchange Commission approved a new rule that, for public companies, delays the effective date of SFAS 123R to no later than January 1, 2006. The Firm intends to adopt SFAS 123R on January 1, 2006, under the modified prospective method.
NOTE 7 —– NONINTEREST EXPENSE
Merger costs
A summary of Merger costs by expense category is shown in the following table. There were no Merger costs in the first quarter of 2004.

Three months ended March 31, (in millions) 2005 2004
Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Expense category

Compensation $ 55 $ — $ 109 $ 65 $ 164 $ 65
Occupancy — — 25 20 25 20
Technology and communications and other 90 — 145 5 235 5

Total^(a)
$ 145 $ —
Total^(b)
$ 279 $ 90 $ 424 $ 90

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
With the exception of occupancy-related write-offs, all of the costs in the table require the expenditure of cash.
The table below shows the change in the liability balance related to the costs associated with the Bank One merger.

(in millions) 2005 2005

Liability balance, January 1 $ 952 $ 952
Recorded as merger costs 145 424
Recorded as goodwill — (460 )
Liability utilized (180 ) (496 )

Liability balance, March 31 $ 917
Liability balance, June 30 $ 420

62
NOTE 8 —– SECURITIES AND PRIVATE EQUITY INVESTMENTS
For a discussion of the accounting policies relating to Securities and Private equity investments, see Note 9 on pages ~~98-100~~98–100 of JPMorgan Chase’s 2004 Annual Report. The following table presents realized gains and losses from AFS securities and private equity gains (losses):

Three months ended March 31,^(a) (in millions) 2005 2004
Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Realized gains $ 101 $ 187 $ 137 $ 69 $ 238 $ 256
Realized losses (923 ) (61 ) (67 ) (30 ) (990 ) (91 )

Net realized securities gains (losses) (822 ) 126 70 39 (752 ) 165
Private equity gains 777 306 337 421 1,114 727

Total Securities/private equity gains (losses) $ (45 ) $ 432 $ 407 $ 460 $ 362 $ 892

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
The amortized cost and estimated fair value of AFS and held-to-maturity securities were as follows for the dates indicated:

At March 31, 2005 At December 31, 2004 June 30, 2005 December 31, 2004
Gross Gross Gross Gross Gross Gross Gross Gross
Amortized unrealized unrealized Fair Amortized unrealized unrealized Fair Amortized unrealized unrealized Fair Amortized unrealized unrealized Fair
(in millions) cost gains losses value cost gains losses value cost gains losses value cost gains losses value

Available-for-sale securities

U.S. government and federal agencies/ corporations obligations:
U.S. government and federal agency obligations:
U.S. treasuries $ 5,374 $ 2 $ 68 $ 5,308 $ 13,621 $ 7 $ 222 $ 13,406
Mortgage-backed securities $ 39,155 $ 35 $ 784 $ 38,406 $ 46,577 $ 165 $ 601 $ 46,141 223 19 21 221 2,405 41 17 2,429
Agency obligations 84 10 — 94 12 — — 12
Collateralized mortgage obligations 539 1 13 527 682 4 4 682 46 — — 46 71 4 4 71
U.S. treasuries 4,376 1 101 4,276 13,621 7 222 13,406
Agency obligations 1,509 17 16 1,510 1,423 18 9 1,432
U.S. government-sponsored enterprise obligations 25,773 52 229 25,596 46,143 142 593 45,692
Obligations of state and political subdivisions 2,837 106 29 2,914 2,748 126 8 2,866 720 32 2 750 2,748 126 8 2,866
Debt securities issued by non-U.S. governments 6,014 10 16 6,008 7,901 59 38 7,922 5,089 30 9 5,110 7,901 59 38 7,922
Corporate debt securities 6,448 43 57 6,434 7,007 127 18 7,116 6,480 103 28 6,555 7,007 127 18 7,116
Equity securities 5,654 50 1 5,703 5,810 39 14 5,835 3,166 148 2 3,312 5,810 39 14 5,835
Other, primarily asset-backed securities^(a)
9,366 38 32 9,372 9,052 25 75 9,002 11,459 62 32 11,489 9,103 25 75 9,053

Total available-for-sale securities $ 75,898 $ 301 $ 1,049 $ 75,150 $ 94,821 $ 570 $ 989 $ 94,402 $ 58,414 $ 458 $ 391 $ 58,481 $ 94,821 $ 570 $ 989 $ 94,402

Held-to-maturity securities^(b)

Total held-to-maturity securities $ 101 $ 5 $ — $ 106 $ 110 $ 7 $ — $ 117 $ 92 $ 4 $ — $ 96 $ 110 $ 7 $ — $ 117

73
(a)
Includes collateralized mortgage obligations of private ~~issuers, which generally have underlying collateral consisting of obligations of U.S. government and federal agencies and corporations.~~issuers.
(b)
Consists primarily of mortgage-backed ~~securities.~~securities issued by U.S. government-sponsored enterprises.
The following table presents the carrying value and cost of the Private Equity investment portfolio for the dates indicated:

March 31, 2005 December 31, 2004 June 30, 2005 December 31, 2004
(in millions) Carrying value Cost Carrying value Cost Carrying value Cost Carrying value Cost

Total private equity investments $ 7,333 $ 8,630 $ 7,735 $ 9,103 $ 6,488 $ 8,005 $ 7,735 $ 9,103

NOTE 9 —– SECURITIES FINANCING ACTIVITIES
For a discussion of the accounting policies relating to ~~Securities Financing Activities,~~securities financing activities, see Note 10 on page 100 of JPMorgan Chase’s 2004 Annual Report. The following table details the components of securities financing activities at each of the dates indicated:

(in millions) March 31, 2005 December 31, 2004 June 30, 2005 December 31, 2004

Securities purchased under resale agreements $ 117,215 $ 94,076 $ 129,425 $ 94,076
Securities borrowed 53,174 47,428 58,457 47,428

Securities sold under repurchase agreements $ 118,370 $ 105,912 $ 116,344 $ 105,912
Securities loaned 10,702 6,435 12,399 6,435

Transactions similar to financing activities that do not meet the SFAS 140 definition of a repurchase agreement are accounted for as “buys” and “sells” rather than financing transactions. There were no transactions accounted for as purchases under SFAS 140 at ~~March 31,~~June 30, 2005; notional amounts of transactions accounted for as purchases under SFAS 140 were $6 billion at December 31, 2004. Notional amounts of transactions accounted for as sales under SFAS 140 were $8$5 billion and $20 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
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JPMorgan Chase pledges certain financial instruments it owns to collateralize repurchase agreements and other securities financings. Pledged securities that can be sold or repledged by the secured party are identified as financial instruments owned (pledged to various parties) on the Consolidated balance sheets.
At ~~March 31,~~June 30, 2005, and December 31, 2004, the Firm had received securities as collateral that can be repledged, delivered or otherwise used with a fair value of approximately ~~$285~~$325 billion and $252 billion, respectively. This collateral was generally obtained under resale or securities borrowing agreements. Of these securities, approximately ~~$270~~$303 billion and $238 billion, respectively, were repledged, delivered or otherwise used, generally as collateral under repurchase agreements, securities lending agreements or to cover short sales.
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NOTE 10 —– LOANS
For a discussion of the accounting policies relating to Loans, see Note 11 on pages ~~101-102~~101–102 of JPMorgan Chase’s 2004 Annual Report. The composition of the loan portfolio at each of the dates indicated was as follows:

(in millions) March 31, 2005 December 31, 2004 June 30, 2005 December 31, 2004

U.S. wholesale loans:

Commercial and industrial $ 59,653 $ 60,223 $ 61,390 $ 60,223
Real estate 12,480 13,038 12,671 13,038
Financial institutions 16,186 14,060 18,015 14,060
Lease financing receivables 3,046 4,043 2,754 4,043
Other 9,896 8,504 15,266 8,504

Total U.S. wholesale loans 101,261 99,868 110,096 99,868

Non-U.S. wholesale loans:

Commercial and industrial 25,322 25,115 27,953 25,115
Real estate 1,329 1,747 1,145 1,747
Financial institutions 8,426 7,269 9,307 7,269
Lease financing receivables 1,063 1,068 1,087 1,068

Total non-U.S. wholesale loans 36,140 35,199 39,492 35,199

Total wholesale loans:^(a)

Commercial and industrial 84,975 85,338 89,343 85,338
Real estate^(b)
13,809 14,785 13,816 14,785
Financial institutions 24,612 21,329 27,322 21,329
Lease financing receivables 4,109 5,111 3,841 5,111
Other 9,896 8,504 15,266 8,504

Total wholesale loans
137,401 135,067 149,588 135,067

Total consumer loans:^(c)

Consumer real estate
Home finance — home equity & other 68,779 67,837
Home finance — mortgage 55,588 56,816
Home finance
Home equity & other 72,346 67,837
Mortgage 58,594 56,816

Total Home finance 124,367 124,653 130,940 124,653
Auto & education finance 59,837 62,712 52,309 62,712
Consumer & small business and other 15,011 15,107 14,678 15,107
Credit card receivables^(d)
66,053 64,575 68,510 64,575

Total consumer loans
265,268 267,047 266,437 267,047

Total loans^(e)(f)(g)
$ 402,669 $ 402,114 $ 416,025 $ 402,114

(a)
Includes Investment Bank, Commercial Banking, Treasury & Securities Services and Asset & Wealth Management.
(b)
Represents credits extended for real estate-related purposes to borrowers who are primarily in the real estate development or investment businesses and for which the primary repayment is from the sale, lease, management, operations or refinancing of the property.
(c)
Includes Retail Financial Services and Card Services.
(d)
Includes billed finance charges and fees net of an allowance for uncollectible amounts.
(e)
Loans are presented net of unearned income of ~~$3.6~~$3.3 billion and $4.1 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
(f)
Includes loans ~~held for sale~~held-for-sale (principally mortgage-related loans) of ~~$24.7~~$31.0 billion and $25.7 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively. The results of operations for the three months ended March 31, 2005 and 2004, included $152 million and $164 million, respectively, in net gains on the sales of loans held for sale. The results of operations for the three months ended March 31, 2005 and 2004, included $(126) million and $(0.4) million, respectively, in adjustments to record loans held for sale at the lower of cost or market.
(g)
Amounts are presented gross of the Allowance for loan losses.
The following table reflects information about the Firm’s loans held-for-sale, principally mortgage-related:

Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Net gains on sales of loans held-for-sale $ 149 $ 129 $ 301 $ 293
Lower of cost or market adjustments 9 10 (117 ) 10

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
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64

NOTE ~~11 —~~11– ALLOWANCE FOR CREDIT LOSSES
For a discussion of the Allowance for credit losses and the related accounting policies, see Note 12 on pages 102-103 of JPMorgan Chase’s 2004 Annual Report.
The table below summarizes the changes in the Allowance for loan losses:

Three months ended March 31,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Allowance for loan losses at January 1 $ 7,320 $ 4,523 $ 7,320 $ 4,523

Gross charge-offs (1,033 ) (574 ) (2,042 ) (1,131 )
Gross recoveries 217 130 453 295

Net charge-offs (816 ) (444 ) (1,589 ) (836 )

Provision for loan losses 431 42 1,067 282
Other — (1 ) (4 ) (2 )

Allowance for loan losses at March 31^(b)
$ 6,935 $ 4,120
Allowance for loan losses at June 30^(b)
$ 6,794 $ 3,967

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Includes ~~$385~~$314 million of asset-specific ~~loss~~ and $6.5 billion of formula-based ~~loss~~allowance at ~~March 31,~~June 30, 2005. Included within the formula-based ~~loss~~allowance is ~~$4.5~~$4.7 billion related to a statistical calculation and an adjustment to the statistical calculation of ~~$2.0~~$1.8 billion. During the second quarter of 2005, the Firm refined its historical and market-based inputs used for estimating the formula-based component of the wholesale allowance. These refinements resulted in an increase to the statistical calculation and a decrease to the adjustments to the statistical calculation, the portion of the formula-based allowance that covers estimate imprecision; these adjustments were largely offsetting.
The table below summarizes the changes in the Allowance for lending-related commitments:

For the three months ended March 31,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Allowance for lending-related commitments at January 1 $ 492 $ 324 $ 492 $ 324
Provision for lending-related commitments (4 ) (27 ) (53 ) (64 )

Allowance for lending-related commitments at March 31^(b)
$ 488 $ 297
Allowance for lending-related commitments at June 30^(b)
$ 439 $ 260

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Includes ~~$144~~$104 million of asset-specific ~~loss~~ and ~~$344~~$335 million of formula-based ~~loss~~allowance at ~~March 31,~~June 30, 2005. The formula-based ~~loss~~allowance for lending-related commitments is based on a statistical calculation. There is no adjustment to the statistical calculation for lending-related commitments.
NOTE 12 —– LOAN SECURITIZATIONS
For a discussion of the accounting policies relating to Loan Securitizations, see Note 13 on pages ~~103-106~~103–106 of JPMorgan Chase’s 2004 Annual Report. JPMorgan Chase securitizes, sells and services various consumer loans, such as consumer real estate, credit card and automobile loans, as well as certain wholesale loans (primarily real estate) originated by the Investment Bank. In addition, the Investment Bank purchases, packages and securitizes commercial and consumer loans. All IB activity is collectively referred to below as Wholesale activities. JPMorgan Chase-sponsored securitizations utilize special purpose entities (“SPEs”) as part of the securitization process. These SPEs ~~are structured to~~ meet the definition of a “qualifying” special purpose entity (“QSPE”), as discussed in Note 1 on page 88 of JPMorgan Chase’s 2004 Annual Report; accordingly, the assets and liabilities of securitization-related QSPEs are not reflected in the Firm’s Consolidated balance sheets (except for retained interests, as described below) but are included on the balance sheet of the QSPE purchasing the assets. Assets held by ~~securitization-related SPEs~~securitization–related QSPEs as of ~~March 31,~~June 30, 2005, and December 31, 2004, were as follows:

(in billions) March 31, 2005 December 31, 2004 June 30, 2005 December 31, 2004

Credit card receivables $ 100.9 $ 106.3 $ 103.2 $ 106.3
Residential mortgage receivables 20.7 19.1 20.7 19.1
Wholesale activities 49.0 44.8 53.5 44.8
Automobile loans 4.1 4.9 5.7 4.9

Total $ 174.7 $ 175.1 $ 183.1 $ 175.1

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65

The following table summarizes new securitization transactions that were completed during the ~~first quarters of~~three and six months ended June 30, 2005 and 2004, the resulting gains or losses arising from such securitizations, certain cash flows received from such securitizations, and the key economic assumptions used in measuring the retained interests, as of the dates of such sales:

Three months ended March 31,^(a) Three months ended June 30,^(a)
2005 2004 2005 2004
Wholesale Wholesale Wholesale Wholesale
(in millions) Mortgage^(c) Credit card Automobile Activities^(c)(d) Mortgage Credit card Automobile Activities Mortgage ^(c) Credit card Automobile Activities ^(c)(d) Mortgage Credit card Automobile Activities

Principal securitized $ 3,574         $ 425         $ —         $ 2,764         $ 2,715 $ 1,500 $ 1,600 $ 1,960 $ 2,707 $ 4,850 $ 2,300 $ 3,632 $ 1,094 $ 1,750 $ — $ 2,521
Pre-tax gains (losses) 10         2         —         36         48 10 (3 ) 35 10 33 10 ^(e) 18 16 9 — 34
Cash flow information:

Proceeds from securitizations $ 3,596         $ 425         $ —         $ 2,803         $ 2,523 $ 1,500 $ 1,597 $ 2,044 $ 2,706 $ 4,850 $ 1,618 $ 3,642 $ 1,340 $ 1,750 $ — $ 2,916
Servicing fees collected 1         1         —         —         1 2 1 1 3 12 2 — 3 11 — —
Other cash flows received —         4         —         —         — 6 — 3 — 51 — — — 29 — 9
Proceeds from collections reinvested in revolving securitizations —         31,464         —         —         — 14,693 — — — 31,042 — — — 14,497 — —

Key assumptions (rates per annum):

Prepayment rate^(b)
—         16.7%    —         —         25.9 % 15.5 % 1.5 % 17.0-50.0 % — 16.7 % 1.5 % 50 % 23.8 % 15.7 % — 50.0 %
PPR        CPR PPR ABS PPR ABS CPR PPR
Weighted-average life (in years) —         0.5        —         —         2.8 0.6 1.8 2.9-4.0 — 0.5 1.5 1.0 3.0 0.6 — 2.3
Expected credit losses —         5.7%    —         —         1.0 % 5.8 % 0.6 % 0.0 %^(e) — 5.3 % 0.6 % — % 1.0 %^(f) 5.5 % — — %^(f)
Discount rate —         12.0%    —         —         15.0-30.0 % 12.0 % 4.1 % 0.6-5.0 % — 12.0 % 6.3 % 0.6 % 15.0 % 12.0 % — 1.5 %

Six months ended June 30,^(a)
2005 2004
Wholesale Wholesale
(in millions) Mortgage ^(c) Credit card Automobile Activities ^(c)(d) Mortgage Credit card Automobile Activities

Principal securitized $ 6,281 $ 5,275 $ 2,300 $ 6,396 $ 3,809 $ 3,250 $ 1,600 $ 4,481
Pre-tax gains (losses) 20 35 10 ^(e) 54 64 19 (3 ) 69
Cash flow information:

Proceeds from securitizations $ 6,302 $ 5,275 $ 1,618 $ 6,445 $ 3,863 $ 3,250 $ 1,597 $ 4,960
Servicing fees collected 4 13 2 — 4 13 1 1
Other cash flows received — 55 — — — 35 — 12
Proceeds from collections reinvested in revolving securitizations — 62,506 — — — 29,190 — —

Key assumptions (rates per annum):

Prepayment rate^(b)
— 16.7 % 1.5 % 50 % 23.8-25.9 % 15.5-15.7 % 1.5 % 17.0-50.0 %
PPR ABS CPR PPR ABS
Weighted-average life (in years) — 0.5 1.5 1.0 2.8-3.0 0.6 1.8 2.3-4.0
Expected credit losses — 5.3-5.7 % 0.6 % — % 1.0 %^(f) 5.5-5.8 % 0.6 % — %^(f)
Discount rate — 12.0 % 6.3 % 0.6 % 15.0-30.0 % 12.0 % 4.1 % 0.6-5.0 %

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the result of heritage JPMorgan Chase only.
(b)
CPR: constant prepayment rate; ABS: absolute prepayment speed; PPR: principal payment rate.
(c)
No interests other than servicing assets were retained in Mortgage in the first and ~~Wholesale~~second quarters of 2005 and no interests were retained in wholesale securitizations in the first quarter of 2005.
(d)
Wholesale activities consist of wholesale loans (primarily real estate) originated by the Investment Bank as well as ~~$537 million~~$1.4 billion and $1.9 billion for the three months and six months ended June 30, 2005, respectively, of consumer loans purchased from the market, packaged and securitized by the Investment Bank.
(e)
The auto securitization gain of $10 million does not include the write-down of loans transferred to held-for-sale in the first quarter of 2005 and risk management activities intended to protect the economic value of loans while held-for-sale.
(f)
Expected credit losses for prime residential mortgage and certain wholesale securitizations are minimal and are incorporated into other assumptions.
In addition to securitization transactions, the Firm sold residential mortgage loans totaling ~~$11.3~~$11.8 billion and ~~$18.0~~$19.9 billion during the ~~first quarters of~~three months ended June 30, 2005 and 2004, respectively, primarily as GNMA, FNMA and Freddie Mac mortgage-backed securities; these sales resulted in pre-tax gains of ~~$37~~$72 million and ~~$49~~$10 million, respectively.
During the first six months of 2005 and 2004, JPMorgan Chase sold residential mortgage loans totaling $23.1 billion and $37.9 billion, respectively; these sales resulted in pre-tax gains of $109 million and $59 million, respectively.
At ~~March 31,~~June 30, 2005, and December 31, 2004, the Firm had, with respect to its credit card master trusts, ~~$33.3~~$33.9 billion and $35.2 billion, respectively, related to its undivided interest, and ~~$2.1~~$2.2 billion and $2.1 billion, respectively, related to its subordinated interest, in accrued interest and fees on the securitized receivables, net of an allowance for uncollectible amounts. Credit card securitization trusts require the Firm to maintain a minimum undivided interest of 4% to 7% of the principal receivables in the
77
trusts. The Firm maintained an average undivided interest in its principal receivables in the trusts of approximately 26% and 23% for the ~~three~~six months ended ~~March 31,~~June 30, 2005, and for the year ended December 31, 2004, respectively.
The Firm retained senior securities totaling approximately $600 million from the second quarter 2005 auto securitization. At June 30, 2005, these securities are recorded as available-for-sale securities.
The Firm also maintains escrow accounts up to predetermined limits for some of its credit card and automobile securitizations, in the unlikely event of deficiencies in cash flows owed to investors. The amounts available in such escrow accounts are recorded in Other assets and, as of ~~March 31,~~June 30, 2005, amounted to ~~$350~~$482 million and ~~$113~~$110 million for credit card and automobile securitizations, respectively; as of December 31, 2004, the amounts available in escrow accounts were $395 million and $132 million for credit card and automobile securitizations, respectively.
The table below summarizes other retained securitization interests, which are primarily subordinated or residual interests and are carried at fair value on the Firm’s Consolidated balance sheets:

(in millions) March 31, 2005 December 31, 2004 June 30, 2005 December 31, 2004

Residential mortgage^(a)
$ 399 $ 433 $ 306 $ 433
Credit card^(a)
492 494 487 494
Automobile^(a)
67 85 128 85
Wholesale activities 19 23 32 23

Total $ 977 $ 1,035 $ 953 $ 1,035

(a)
Pre-tax unrealized gains (losses) recorded in Stockholders’ equity that relate to retained securitization interests totaled ~~$110~~$97 million and $118 million for Residential mortgage; ~~none~~$4 million and $(3) million for Credit cards; and ~~$11~~$9 million and $11 million for Automobile at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
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The table below outlines the key economic assumptions used to determine the fair value of the remaining retained interests at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively; and the sensitivities of those fair values to immediate 10% and 20% adverse changes in those assumptions:

March 31, 2005(in millions) Mortgage Credit card Automobile Wholesale activities
June 30, 2005(in millions)
Mortgage Credit card Automobile Wholesale activities

Weighted-average life (in years) 0.8-3.6 0.5-0.9 1.3 0.1-4.0 0.7-3.3 0.4-0.9 1.2 0.1-4.0

Prepayment rate 11.7-41.1
% CPR 9.1-16.7
% PPR 1.4 % ABS 17.5-50.0 % 13.9-41.0 % CPR 9.1-20.0 %PPR 1.5 %ABS 17.5-50 %
Impact of 10% adverse change $ (2 ) $ (34 ) $ (5 ) $ (1 ) $ (1 ) $ (37 ) $ (3 ) $ (1 )
Impact of 20% adverse change (2 ) (68 ) (11 ) (1 ) — (74 ) (7 ) (2 )

Loss assumption 0.0-4.3 %^(b) 5.3-8.4 % 0.7 % 0.0-3.0 %^(b) 0.0-4.9 %^(b) 4.7-8.5 % 0.6 % 0.0–2.0 %^(b)
Impact of 10% adverse change $ (14 ) $ (129 ) $ (3 ) $ — $ (12 ) $ (110 ) $ (4 ) $ —
Impact of 20% adverse change (27 ) (254 ) (7 ) — (23 ) (220 ) (8 ) —
Discount rate 13.0-30.0 %^(c) 3.9-12.0 % 6.2 % 1.0-22.9 % 13.0-30.0 %^(c) 4.7-12.0 % 6.3 % 1.0–22.9 %
Impact of 10% adverse change $ (7 ) $ (2 ) $ (1 ) $ — $ (6 ) $ (2 ) $ (1 ) $ —
Impact of 20% adverse change (14 ) (4 ) (2 ) — (11 ) (3 ) (2 ) —

December 31, 2004 (in millions) Mortgage Credit card Automobile Wholesale activities

Weighted-average life (in years) 0.8-3.4 0.5-1.0 1.3 0.2-4.0

Prepayment rate 15.1–37.1 % CPR 8.3–16.7 % PPR 1.4 % ABS 0.0–50.0 %^(a)
Impact of 10% adverse change $ (5 ) $ (34 ) $ (6 ) $ (1 )
Impact of 20% adverse change (8 ) (69 ) (13 ) (1 )

Loss assumption 0.0–5.0 %^(b) 5.7–8.4 % 0.7 % 0.0–3.0 %^(b)
Impact of 10% adverse change $ (17 ) $ (144 ) $ (4 ) $ —
Impact of 20% adverse change (34 ) (280 ) (8 ) —
Discount rate 13.0–30.0 %^(c) 4.9–12.0 % 5.5 % 1.0–22.9 %
Impact of 10% adverse change $ (9 ) $ (2 ) $ (1 ) $ —
Impact of 20% adverse change (18 ) (4 ) (2 ) —

December 31, 2004 (in millions) Mortgage Credit card Automobile Wholesale activities

Weighted-average life (in years) 0.8-3.4 0.5-1.0 1.3 0.2-4.0

Prepayment rate 15.1-37.1
% CPR 8.3-16.7
% PPR 1.4 % ABS 0.0-50.0 %^(a)
Impact of 10% adverse change $ (5 ) $ (34 ) $ (6 ) $ (1 )
Impact of 20% adverse change (8 ) (69 ) (13 ) (1 )

Loss assumption 0.0-5.0 %^(b) 5.7-8.4 % 0.7 % 0.0-3.0 %^(b)
Impact of 10% adverse change $ (17 ) $ (144 ) $ (4 ) $ —
Impact of 20% adverse change (34 ) (280 ) (8 ) —
Discount rate 13.0-30.0 %^(c) 4.9-12.0 % 5.5 % 1.0-22.9 %
Impact of 10% adverse change $ (9 ) $ (2 ) $ (1 ) $ —
Impact of 20% adverse change (18 ) (4 ) (2 ) —

(a)
Prepayment risk on certain wholesale retained interests are minimal and are incorporated into other assumptions.
(b)
Expected credit losses for prime residential mortgage and certain wholesale securitizations are minimal and are incorporated into other assumptions.
(c)
The Firm sells certain residual interests from ~~sub-prime~~subprime mortgage securitizations via Net Interest Margin (“NIM”) securitizations and retains residual interests in these NIM transactions, which are valued using a 30% discount rate.
The sensitivity analysis in the preceding table is hypothetical. Changes in fair value based on a 10% or 20% variation in assumptions generally cannot be extrapolated easily, because the relationship of the change in the assumptions to the change in fair value may not be linear. Also, in this table, the effect that a change in a particular assumption may have on the fair value is
78
calculated without changing any other assumption. In reality, changes in one factor may result in changes in another assumption, which could counteract or magnify the sensitivities.
The table below presents information about delinquencies, net credit losses and components of reported and securitized financial assets at ~~March 31,~~June 30, 2005 and December 31, 2004:

Nonaccrual and 90 days Net loan charge-offs Nonaccrual and 90 days
Total Loans or more past due Three months ended^(a) Total Loans or more past due Net loan charge-offs^(a)
March 31, December 31, March 31, December 31, March 31, March 31, June 30, Dec. 31, June 30, Dec. 31, Three months ended June 30, Six months ended June 30,
(in millions) 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Loans reported
Home finance
$ 124,367 $ 124,653 $ 691 $ 673 $ 41 $ 28
Loans reported

Home finance $ 130,940 $ 124,653 $ 662 $ 673 $ 38 $ 28 $ 79 $ 56
Auto & education finance 59,837 62,712 171 193 83 40 52,309 62,712 190 193 47 31 130 71
Consumer & small business and other 15,011 15,107 288 295 28 17 14,678 15,107 280 295 29 21 57 38
Credit card receivables 66,053 64,575 1,024 1,006 673 270 68,510 64,575 979 1,006 711 259 1,384 529

Total consumer loans 265,268 267,047 2,174 2,167 825 355 266,437 267,047 2,111 2,167 825 339 1,650 694
Total wholesale loans 137,401 135,067 1,343 1,582 (9 ) 89 149,588 135,067 1,259 1,582 (52 ) 53 (61 ) 142

Total loans reported 402,669 402,114 3,517 3,749 816 444 416,025 402,114 3,370 3,749 773 392 1,589 836
Securitized loans:
Residential mortgage^(b)
10,175 11,533 418 460 32 40 8,607 11,533 343 460 27 40 59 80
Automobile 4,026 4,763 8 12 5 7 5,553 4,763 8 12 2 5 7 12
Credit card 67,328 70,795 1,262 1,337 917 473 68,808 70,795 1,141 1,337 930 486 1,847 959

Total consumer loans securitized
81,529 87,091 1,688 1,809 954 520 82,968 87,091 1,492 1,809 959 531 1,913 1,051
Securitized wholesale activities 1,410 1,401 2 — — — 2,935 1,401 — — — — — —

Total loans securitized^(c)
82,939 88,492 1,690 1,809 954 520
Total loan securitized^(c)
85,903 88,492 1,492 1,809 959 531 1,913 1,051

Total loans reported and securitized^(d)
$ 485,608 $ 490,606 $ 5,207 $ 5,558 $ 1,770 $ 964 $ 501,928 $ 490,606 $ 4,862 $ 5,558 $ 1,732 $ 923 $ 3,502 $ 1,887

67
(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Includes ~~$9.1~~$7.6 billion and $10.3 billion of outstanding principal balances on securitized ~~sub-prime 1-4~~subprime 1–4 family residential mortgage loans as of ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
(c)
Total assets held in securitization-related SPEs were ~~$174.7~~$183.1 billion and $175.1 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively. The ~~$82.9~~$85.9 billion and $88.5 billion of loans securitized at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively, excludes: ~~$58.0~~$62.6 billion and $50.8 billion, respectively, of securitized loans in which the Firm’s only continuing involvement is the servicing of the assets; ~~$33.3~~$33.9 billion and $35.2 billion, respectively, of seller’s interests in credit card master trusts; and ~~$0.5~~$0.7 billion and $0.6 billion, respectively, of escrow accounts and other ~~asset.~~assets.
(d)
Represents both loans on the Consolidated balance sheets and loans that have been securitized, but excludes loans for which the Firm’s only continuing involvement is servicing of the assets.
NOTE 13 —– VARIABLE INTEREST ENTITIES
Refer to Note 1 on page 88 and Note 14 on pages 106-109 of JPMorgan Chase’s 2004 Annual Report for a further description of JPMorgan Chase’s policies regarding consolidation of variable interest entities (“VIEs”) as well as the utilization of ~~VIE’s~~VIEs by the Firm.
Multi-seller conduits
The following table summarizes the Firm’s involvement with Firm-administered multi-seller conduits:

Consolidated Nonconsolidated Total Consolidated Nonconsolidated Total
March 31, December 31, March 31, December 31, March 31, December 31, June 30, December 31, June 30, December 31, June 30, December 31,
(in billions) 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Total commercial paper issued by conduits
$ 31.9 $ 35.8 $ 8.9 $ 9.3 $ 40.8 $ 45.1 $ 30.6 $ 35.8 $ 8.5 $ 9.3 $ 39.1 $ 45.1

Commitments
Asset-purchase agreements
$ 46.0 $ 47.2 $ 15.8 $ 16.3 $ 61.8 $ 63.5
Commitments

Asset-purchase agreements $ 44.1 $ 47.2 $ 15.2 $ 16.3 $ 59.3 $ 63.5
Program-wide liquidity commitments 4.0 4.0 2.0 2.0 6.0 6.0 4.0 4.0 1.0 2.0 5.0 6.0
Limited credit enhancements 1.2 1.4 1.2 1.2 2.4 2.6 1.3 1.4 1.0 1.2 2.3 2.6

Maximum exposure to loss^(a)
47.0 48.2 16.4 16.9 63.4 65.1 45.1 48.2 15.7 16.9 60.8 65.1

(a)
The Firm’s maximum exposure to loss is limited to the amount of drawn commitments (i.e., sellers’ assets held by the multi-seller conduits for which the Firm provides liquidity support) of ~~$38.0~~$36.6 billion and $42.2 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively, plus contractual but undrawn commitments of ~~$25.4~~$24.2 billion and $22.9 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively. Since the Firm provides credit enhancement and liquidity to these multi-seller conduits, the maximum exposure is not adjusted to exclude exposure absorbed by third-party liquidity providers.
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The Firm views its credit exposure to multi-seller conduit transactions as limited. This is because, for the most part, the Firm is not required to fund under the liquidity facilities if the assets in the VIE are in default. Additionally, the Firm’s obligations under the letters of credit are secondary to the risk of first loss provided by the customer or other third parties —– for example, by the overcollateralization of the VIE with the assets sold to it or notes subordinated to the Firm’s liquidity facilities.
Additionally, the Firm is involved with a structured investment vehicle (“SIV”) that funds a diversified portfolio of highly rated assets by issuing medium-term notes, commercial paper and capital. The assets and liabilities of this SIV were approximately ~~$7.8~~$9.1 billion and $7.1 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively, and were included in the Firm’s Consolidated balance sheets.
Client intermediation
Assets held by certain client intermediation-related VIEs at ~~March 31,~~June 30, 2005, and December 31, 2004, were as follows:

(in billions) March 31, 2005 December 31, 2004

Structured wholesale loan vehicles^(a)
$ 2.0 $ 3.4
Credit-linked note vehicles^(b)
17.3 17.8
Municipal bond vehicles^(c)
8.6 7.5
Other client intermediation vehicles^(d)
4.0 4.0

(in billions) June 30, 2005 December 31, 2004

Credit-linked note vehicles^(a)
$ 16.9 $ 17.8
Municipal bond vehicles^(b)
10.0 7.5

(a)
JPMorgan Chase was committed to provide liquidity to these VIEs of up to $5.2 billion at both March 31, 2005, and December 31, 2004, of which $3.8 billion at both March 31, 2005, and December 31, 2004, was in the form of asset purchase agreements. The Firm’s maximum exposure to loss to these vehicles was $1.5 billion and $3.2 billion at March 31, 2005, and December 31, 2004, respectively, which reflects the netting of collateral and other program limits.
~~(b)~~
The fair value of the Firm’s derivative contracts with credit-linked note vehicles was not material at ~~March 31,~~June 30, 2005, and December 31, 2004. Assets of ~~$2.4~~$1.9 billion and $2.3 billion reported in the table above were recorded on the Firm’s Consolidated balance sheets at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively, due to contractual relationships held by the Firm that relate to collateral held by the VIE.
~~(c)~~(b)
Total amounts consolidated due to the Firm owning residual interests was $2.5 billion and $2.6 billion at ~~both March 31,~~June 30, 2005, and December 31, 2004, and are reported in the ~~table.~~table above. Total liquidity commitments were ~~$4.0~~$4.7 billion and $3.1 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively. The Firm’s maximum credit exposure to all municipal bond vehicles was ~~$6.6~~$7.2 billion and $5.7 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
~~(d)~~
~~The Firm’s net exposure arising from these intermediations is not significant.~~
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Finally, the Firm may enter into transactions with VIEs structured by other parties. These transactions can include, for example, acting as a derivative counterparty, liquidity provider, investor, underwriter, placement agent, trustee or custodian. These transactions are conducted at arm’s length, and individual credit decisions are based upon the analysis of the specific VIE, taking into consideration the quality of the underlying assets. JPMorgan Chase records and reports these positions similarly to any other third-party transaction. These activities do not cause JPMorgan Chase to absorb a majority of the expected losses of the VIEs or to receive a majority of the residual returns of the VIE, and they are not considered significant for disclosure purposes.
Consolidated VIE assets
The following table summarizes the Firm’s total consolidated VIE assets, by classification on the Consolidated balance sheets, as of ~~March 31,~~June 30, 2005, and December 31, 2004.

(in billions) March 31, 2005 December 31, 2004 June 30, 2005 December 31, 2004

Consolidated VIE assets^(a)
Investment securities
$ 11.3 $ 10.6
Consolidated VIE assets^(a)

Investment securities $ 9.3 $ 10.6
Trading assets^(b)
4.5 4.7 7.4 4.7
Loans 2.9 3.4 4.0 3.4
Interests in purchased receivables 28.3 31.6 27.8 31.6
Other assets 0.4 0.4 0.5 0.4

Total consolidated assets $ 47.4 $ 50.7 $ 49.0 $ 50.7

(a)
The Firm also holds ~~$3.7~~$4.1 billion and $3.4 billion of assets, at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively, primarily as a seller’s interest, in certain consumer securitizations in a segregated entity, as part of a two-step securitization transaction. This interest is included in the securitization activities disclosed in Note 12 on pages ~~65-68~~76-79 of thisForm ~~10-Q.~~10-Q.
(b)
Includes the fair value of securities and derivatives.
The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item titled “Beneficial interests issued by consolidated ~~variable interest entities”~~VIEs” on the Consolidated balance sheets. The holders of these beneficial interests do not have recourse to the general credit of JPMorgan Chase.
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NOTE 14 —– GOODWILL AND OTHER INTANGIBLE ASSETS

For a discussion of accounting policies related to Goodwill and Other intangible assets, see Note 15 on pages ~~109-111~~109–111 of JPMorgan Chase’s 2004 Annual Report.
Goodwill and Other intangible assets consist of the following:

(in millions) March 31, 2005 December 31, 2004 June 30, 2005 December 31, 2004

Goodwill $ 43,440 $ 43,203 $ 43,537 $ 43,203
Mortgage servicing rights 5,663 5,080 5,026 5,080
Purchased credit card relationships 3,703 3,878 3,528 3,878

All other intangibles:
Other credit card-related intangibles $ 261 $ 272
Other credit card–related intangibles $ 250 $ 272
Core deposit intangibles 3,171 3,328 3,016 3,328
All other intangibles 2,082 2,126
Other intangibles 2,053 2,126

Total All other intangible assets $ 5,514 $ 5,726 $ 5,319 $ 5,726

Goodwill
As of ~~March 31,~~June 30, 2005, goodwill increased by ~~$237~~$334 million compared with December 31, 2004, principally in connection with the joint venture partnership established with ~~Cazenove.~~Cazenove and the acquisition of Vastera. Goodwill was not impaired at ~~March 31,~~June 30, 2005, or December 31, 2004, nor was any goodwill written off during the ~~three~~six months ended ~~March 31,~~June 30, 2005 or 2004.
Under SFAS 142, goodwill must be allocated to reporting units and tested for impairment. Goodwill attributed to the business segments was as follows:

Goodwill resulting
(in millions) March 31, 2005 December 31, 2004 June 30, 2005 December 31, 2004 from the Merger

Investment Bank $ 3,541 $ 3,309 $ 3,488 $ 3,309 $ 1,179
Retail Financial Services 15,013 15,022 15,030 15,022 14,576
Card Services 12,781 12,781 12,817 12,781 12,802
Commercial Banking 2,650 2,650 2,660 2,650 2,599
Treasury & Securities Services 2,058 2,044 2,130 2,044 465
Asset & Wealth Management 7,020 7,020 7,035 7,020 2,539
Corporate (Private Equity) 377 377 377 377 —

Total goodwill $ 43,440 $ 43,203 $ 43,537 $ 43,203 $ 34,160

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Mortgage servicing rights
For a further description of the mortgage servicing rights (“MSRs”) asset and the interest rate risk management of MSRs, see Note 15 on pages ~~109-111~~109–111 of JPMorgan Chase’s 2004 Annual Report. The following table summarizes MSR activity during the ~~first quarter of~~six months ended June 30, 2005 and 2004:

Three months ended March 31,^(a) (in millions) 2005 2004
Six months ended June 30,^(a) (in millions) 2005 2004

Balance at January 1 $ 6,111 $ 6,159 $ 6,111 $ 6,159
Additions 374 368 763 979
Sales — — — —
Other-than-temporary impairment — (17 ) — (108 )
Amortization (339 ) (340 ) (664 ) (653 )
SFAS 133 hedge valuation adjustments 371 (586 ) (510 ) 256

Balance at March 31 6,517 5,584
Balance at June 30 5,700 6,633
Less: valuation allowance 854 1,395 674 926

Balance at March 31, after valuation allowance $ 5,663 $ 4,189
Estimated fair value at March 31 $ 5,663 $ 4,189
Balance at June 30, after valuation allowance $ 5,026 $ 5,707
Estimated fair value at June 30 $ 5,026 $ 5,707
Weighted-average prepayment speed assumption (CPR) 14.97 % 25.21 % 18.13 % 14.83 %
Weighted-average discount rate 8.27 % 7.23 % 8.54 % 7.19 %

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
~~(a)~~~~2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.~~
CPR: Constant prepayment rate
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JPMorgan Chase uses a combination of derivatives, AFS securities and trading ~~instruments~~securities to manage changes in the fair value of ~~MSRs. The intent is~~the MSR asset. These risk management activities are intended to ~~offset any~~protect the economic value of the MSR asset by providing offsetting changes in the fair value of ~~MSRs with changes in the fair value of the~~ related risk management instruments. ~~MSRs decrease~~The type and amount of hedging instruments used in ~~value when interest rates decline. Conversely, securities (such~~this risk management activity change over time as ~~mortgage-backed securities), principal-only certificates~~market conditions and ~~derivatives (when the Firm receives fixed-rate interest payments) decrease in value when interest rates increase.~~approach dictate.
The valuation allowance represents the extent to which the carrying value of the MSR asset exceeds its estimated fair value for its applicable SFAS 140 strata. Changes in the valuation allowance are the result of the recognition of impairment or the recovery of previously recognized impairment charges due to changes in market conditions during the period. The changes in the valuation allowance for MSRs were as follows:

Three months ended March 31,^(a) (in millions) 2005 2004
Six months ended June 30,^(a) (in millions) 2005 2004

Balance at January 1 $ 1,031 $ 1,378 $ 1,031 $ 1,378
Other-than-temporary impairment — (17 ) — (108 )
SFAS 140 impairment (recovery) adjustment (177 ) 34 (357 ) (344 )

Balance at March 31 $ 854 $ 1,395
Balance at June 30 $ 674 $ 926

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
Purchased credit card relationships and All other intangible assets
There were no Purchased credit card relationship intangibles oradded during the six months ended June 30, 2005. All other intangibles ~~added~~increased approximately $19 million during the ~~three~~six months ended ~~March 31,~~June 30, 2005. For the ~~three~~six months ended ~~March 31,~~June 30, 2005, Purchased credit card relationship intangibles and All other intangibles decreased by ~~$175~~$350 million and ~~$212~~$426 million, respectively, as a result of amortization. Except for ~~$510~~$513 million of indefinite-lived intangible assets, the remainder of the Firm’s other acquired intangible assets are subject to amortization.
The components of credit card relationships, core deposits and other intangible assets were as follows:

March 31, 2005 December 31, 2004
Net Net
Gross Accumulated carrying Gross Accumulated carrying
(in millions) amount amortization value amount amortization value

Purchased credit card relationships $ 5,225 $ 1,522 $ 3,703 $ 5,225 $ 1,347 $ 3,878

All other intangibles:
Other credit card-related intangibles $ 295 $ 34 $ 261 $ 295 $ 23 $ 272
Core deposit intangibles 3,797 626 3,171 3,797 469 3,328
Other intangibles 2,528 446 ^(a) 2,082 2,528 402 ^(a) 2,126

Total All other intangibles $ 6,620 $ 1,106 $ 5,514 $ 6,620 $ 894 $ 5,726

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~~Amortization expense~~

Three months ended March 31,^(b) (in millions) 2005 2004

Purchased credit card relationships $ 175 $ 61
Other credit card-related intangibles 11 —
Core deposit intangibles 157 1
All other intangibles 40 17

Total amortization expense $ 383 $ 79

June 30, 2005 December 31, 2004
Net Net
Gross Accumulated carrying Gross Accumulated carrying
(in millions) amount amortization value amount amortization value

Purchased credit card relationships $ 5,225 $ 1,697 $ 3,528 $ 5,225 $ 1,347 $ 3,878

All other intangibles:
Other credit card–related intangibles $ 295 $ 45 $ 250 $ 295 $ 23 $ 272
Core deposit intangibles 3,797 781 3,016 3,797 469 3,328
Other intangibles 2,547 494 ^(a) 2,053 2,528 402 ^(a) 2,126

Total All other intangibles $ 6,639 $ 1,320 $ 5,319 $ 6,620 $ 894 $ 5,726

Amortization expense Three months ended June 30,^(b) Six months ended June 30,^(b)
(in millions) 2005 2004 2005 2004

Purchased credit card relationships $ 175 $ 60 $ 350 $ 121
Other credit card–related intangibles 11 — 22 —
Core deposit intangibles 155 1 312 2
Other intangibles 44 18 84 35

Total amortization expense $ 385 $ 79 $ 768 $ 158

(a)
Includes $4$8 million and $4$7 million of amortization expense related to servicing assets on securitized automobile loans, which is recorded in Asset management, administration and commissions, for the ~~three~~six months ended ~~March 31,~~June 30, 2005 and ~~2004.~~2004, respectively.
(b)
2005 reflects the combined Firm’s results, while 2004 reflects the ~~result~~results of heritage JPMorgan Chase only.
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Future amortization expense
The following table presents future estimated amortization ~~expenses~~expense related to credit card relationships, core deposits and other intangible assets at ~~March 31,~~June 30, 2005:

Purchased Other credit Core Purchased Other credit Core
credit card card-related deposit Other credit card card-related deposit Other
For the year: (in millions) relationships intangibles intangibles intangibles Total relationships intangibles intangibles intangibles Total

2005^(a)
$ 701 $ 45 $ 624 $ 164 $ 1,534 $ 701 $ 45 $ 624 $ 164 $ 1,534
2006 674 40 531 153 1,398 674 40 531 156 1,401
2007 606 35 403 136 1,180 606 35 403 139 1,183
2008 502 33 294 128 957 502 33 294 128 957
2009 360 29 239 124 752 360 29 239 123 751
2010 301 27 238 82 648 301 27 238 112 678

(a)
Includes ~~$175~~$350 million, ~~$11~~$22 million, ~~$157~~$312 million and ~~$40~~$84 million of amortization expense related to Purchased credit card relationships, other credit card-related intangibles, core deposit intangibles and other ~~assets,~~intangibles, respectively, recognized during the first ~~three~~six months of 2005.
NOTE 15 —– EARNINGS PER SHARE
For a discussion of the computation of basic and diluted earnings per share (“EPS”), see Note 20 on page 114 of JPMorgan Chase’s 2004 Annual Report.
The following table presents the calculation of basic and diluted EPS for the three and six months ended ~~March 31,~~June 30, 2005 and 2004:

Three months ended March 31,^(a)
Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions, except per share amounts) 2005 2004 2005 2004 2005 2004

Basic earnings per share
Net income
$ 2,264 $ 1,930
Basic earnings per share

Net income $ 994 $ (548 ) $ 3,258 $ 1,382
Less: preferred stock dividends 5 13 3 13 8 26

Net income applicable to common stock $ 2,259 $ 1,917 $ 991 $ (561 ) $ 3,250 $ 1,356
Weighted-average basic shares outstanding 3,517.5 2,032.3 3,493.0 2,042.8 3,505.2 2,037.6

Net income per share $ 0.64 $ 0.94 $ 0.28 $ (0.27 ) $ 0.93 $ 0.67

Diluted earnings per share
Net income applicable to common stock
$ 2,259 $ 1,917
Diluted earnings per share

Net income applicable to common stock $ 991 $ (561 ) $ 3,250 $ 1,356
Weighted-average basic shares outstanding 3,517.5 2,032.3 3,493.0 2,042.8 3,505.2 2,037.6
Add: Broad-based options 3.8 7.5 3.4 — ^(c) 3.6 6.3
Key employee options 48.5 52.9
Restricted stock and key employee options 51.9 — ^(c) 50.2 52.4

Weighted-average diluted shares outstanding 3,569.8 2,092.7 3,548.3 2,042.8 3,559.0 2,096.3

Net income per share^(b)
$ 0.63 $ 0.92 $ 0.28 $ (0.27 ) $ 0.91 $ 0.65

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Options issued under employee benefit plans to purchase ~~305~~379 million and ~~200~~208 million shares of common stock were outstanding for the three months ended ~~March 31,~~June 30, 2005 and 2004, respectively, but were not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common shares. For the six months ended June 30, 2005 and 2004, options issued under employee benefit plans to purchase common stock excluded from the computation were 370 million and 208 million shares, respectively.
(c) ��
Common equivalent shares have been excluded from the computation of diluted loss per share for the three months ended June 30, 2004, as the effect would be antidilutive.
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NOTE 16 —– ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes the after-tax change in unrealized gains and losses on AFS securities, cash flow hedging activities and foreign currency translation adjustments (including the impact of related derivatives).

Unrealized Cash Accumulated other Unrealized Cash Accumulated other
(in millions) gains (losses) Translation flow comprehensive gains (losses) Translation flow comprehensive
Three months ended March 31, 2005^(a) on AFS securities^(b) adjustments hedges income (loss)
Six months ended June 30, 2005^(a) on AFS securities^(b) adjustments hedges income (loss)

Balance at December 31, 2004 $ (61 ) $ (8 ) $ (139 ) $ (208 ) $ (61 ) $ (8 ) $ (139 ) $ (208 )
Net change (246) ^(c) — ^(d) (169 )^(f) (415 ) 190 ^(c) — ^(d) (43) ^(e) 147

Balance at March 31, 2005 $ (307 ) $ (8) ^(e) $ (308 ) $ (623 )
Balance at June 30, 2005 $ 129 $ (8 ) $ (182 ) $ (61 )

Three months ended March 31, 2004^(a)

Six months ended June 30, 2004^(a)

Balance at December 31, 2003 $ 19 $ (6 ) $ (43 ) $ (30 ) $ 19 $ (6 ) $ (43 ) $ (30 )
Net change 228 ^(c) — ^(d) (21 )^(f) 207 (936 )^(c) — ^(d) 56 ^(e) (880 )

Balance at March 31, 2004 $ 247 $ (6 )^(e) $ (64 ) $ 177
Balance at June 30, 2004 $ (917 ) $ (6 ) $ 13 $ (910 )

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
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(b)
Represents the after-tax difference between the fair value and amortized cost of the AFS securities portfolio and retained interests in securitizations recorded in Other assets.
(c)
The net change ~~during~~for the six months ended June 30, 2005, was primarily due to ~~an increase in rates partially offset by~~ sales of investment securities at ~~losses.~~losses partially offset by higher interest rates. The net change ~~during~~for the six months ended June 30, 2004, was primarily due to ~~declining~~rising interest rates.
(d)
At ~~March 31,~~June 30, 2005 and 2004, included ~~$(130)~~$(270) million and $7$(84) million, respectively, of after-tax gains (losses) on foreign currency translation from operations for which the functional currency is other than the U.S. dollar, offset by ~~$130~~$270 million and ~~$(7)~~$84 million, respectively, of after-tax gains (losses) on hedges.
~~(e)~~
~~Includes after-tax gains and losses on foreign currency translation, including related hedge results from operations, for which the functional currency is other than the U.S. dollar.~~
~~(f)~~(e)
The net change for the ~~three~~six months ended ~~March 31,~~June 30, 2005, included ~~$64~~$50 million of after-tax losses recognized in income and ~~$233~~$93 million of after-tax losses representing the net change in derivative fair values that were recorded in comprehensive income. The net change for the ~~three~~six months ended ~~March 31,~~June 30, 2004, included ~~$67~~$13 million of after-tax losses recognized in income and ~~$88~~$43 million of after-tax ~~losses~~gains representing the net change in derivative fair values that were reported in comprehensive income.
NOTE 17 —– COMMITMENTS AND CONTINGENCIES
Litigation reserve
On June 14, 2005, JPMorgan Chase reached an agreement in principle to settle, for $2.2 billion (pre-tax), the Enron class action litigation entitled Newby v. Enron Corp. The Firm also recorded in the second quarter a nonoperating charge of $1.9 billion to cover the settlement and to increase its reserves for certain other remaining material legal matters.
On March 17, 2005, JPMorgan Chase reached an agreement to settle, for $2.0 billion (pre-tax), its class action litigation regarding WorldCom, Inc. In connection with the settlement, JPMorgan Chase increased its Litigation reserve by $900 million (pre-tax).
While the outcome of litigation is inherently uncertain, the amount of the Firm’s Litigation ~~reserve~~reserves at ~~March 31,~~June 30, 2005, reflected management’s assessment of the appropriate litigation reserve level at that date in light of all information then ~~known.~~known; the Firm believes its litigation reserves, at June 30, 2005, are adequate to meet its remaining litigation expenses. Management reviews litigation reserves periodically, and the reserve may be increased or decreased in the future to reflect further litigation developments. The Firm believes it has meritorious defenses to claims asserted against it in its currently outstanding litigation and intends to continue to defend itself vigorously, litigating or settling cases, according to management’s judgment as to what is in the best interest of stockholders.
NOTE 18 —– ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The majority of JPMorgan Chase’s derivatives are entered into for trading purposes. Derivatives are also utilized by the Firm as an end-user to hedge market exposures, to modify the interest rate characteristics of related balance sheet instruments or to meet longer-term investment objectives. Both trading and end-user derivatives are recorded in Trading assets and Trading liabilities. For a further discussion of the Firm’s use of, and accounting policies regarding, derivative instruments, see pages 62-65 and Note 26 on pages 118-119 of JPMorgan Chase’s 2004 Annual Report. The following table presents derivative instrument hedging-related activities for the periods indicated:

Three months ended March 31,^(a) (in millions) 2005 2004
Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Fair value hedge ineffective net gains/(losses)^(b)
$ (101 ) $ (51 ) $ 60 $ (49 ) $ (41 ) $ (100 )
Cash flow hedge ineffective net gains/(losses)^(b)
— (1 ) — — — (1 )
Cash flow hedging gains on forecasted transactions that failed to occur — — — — — —

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
(b)
Includes ineffectiveness and the components of hedging instruments that have been excluded from the assessment of hedge effectiveness.
Over the next 12 months, it is expected that ~~$48~~$46 million (after-tax) of net gains recorded in Other comprehensive income at ~~March 31,~~June 30, 2005, will be recognized in earnings. The maximum length of time over which forecasted transactions are hedged is 1310 years, related to core lending and borrowing activities.
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NOTE 19 —– OFF-BALANCE SHEET LENDING-RELATED FINANCIAL INSTRUMENTS AND GUARANTEES
For a discussion of ~~off-balance~~off–balance sheet lending-related financial instruments and guarantees, and the Firm’s related accounting policies, see Note 27 on pages ~~119-120~~119–120 of JPMorgan Chase’s 2004 Annual Report. To provide for the risk of loss inherent in wholesale-related contracts, an allowance for credit losses on lending-related commitments is maintained. See Note 12 on pages ~~102-103~~102–103 of JPMorgan Chase’s 2004 Annual Report for a further discussion regarding the allowance for credit losses on lending-related commitments. The following table summarizes the contractual amounts of ~~off-balance~~off–balance sheet lending-related financial instruments and guarantees and the related allowance for credit losses on lending-related commitments at ~~March 31,~~June 30, 2005, and December 31, 2004:
Off-balance sheet lending-related financial instruments

Allowance for lending- Allowance for lending-
Contractual amount related commitments Contractual amount related commitments
March 31, December 31, March 31, December 31, June 30, December 31, June 30, December 31,
(in millions) 2005 2004 2005 2004 2005 2004 2005 2004

Consumer $ 614,949 $ 601,196 $ 14 $ 12 $ 608,413 $ 601,196 $ 13 $ 12
Wholesale:
Other unfunded commitments to extend credit^(a)(b)(c)
230,438 225,152 200 185 232,622 225,152 259 185
Standby letters of credit and guarantees^(d)(e)
79,109 78,084 270 292 74,834 78,084 161 292
Other letters of credit^(a)
6,735 6,163 4 3 6,578 6,163 6 3

Total wholesale 316,282 309,399 474 480 314,034 309,399 426 480

Total off-balance sheet lending-related financial instruments $ 931,231 $ 910,595 $ 488 $ 492
Total off–balance sheet lending-related financial instruments $ 922,447 $ 910,595 $ 439 $ 492

Customers’ securities lent^(e)(f)
$ 221,346 $ 215,972 NA NA $ 234,149 $ 215,972 NA NA

(a)
Represents contractual amount net of risk participations totaling ~~$25.8~~$27.0 billion and $26.4 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
(b)
Includes unused advised lines of credit totaling ~~$22.9~~$23.6 billion and $22.8 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively, which are not legally binding. In regulatory filings with the Federal Reserve Board, unused advised lines are not reportable.
(c)
Includes certain asset purchase agreements to the Firm’s administered multi-seller asset-backed commercial paper conduits of ~~$33.5~~$31.9 billion and $31.8 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively; excludes ~~$28.4~~$27.4 billion and $31.7 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively, of asset purchase agreements related to the Firm’s administered multi-seller asset-backed commercial paper conduits consolidated in accordance with FIN 46R, as the underlying assets of the conduits are reported in the Firm’s Consolidated balance sheets. It also includes $3.4 billion and $7.5 billion at ~~both March 31,~~June 30, 2005, and December 31, 2004, respectively, of asset purchase agreements to structured wholesale loan vehicles and other third-party entities. The allowance for credit losses on lending-related commitments related to these agreements was insignificant at ~~March 31,~~June 30, 2005, and December 31, 2004.
(d)
JPMorgan Chase held collateral relating to ~~$7.1~~$8.1 billion and $7.4 billion of these arrangements at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
(e)
Includes unused commitments to issue standby letters of credit of $34.8 billion and $38.4 billion at June 30, 2005, and December 31, 2004, respectively.
(f)
Collateral held by the Firm in support of securities lending indemnification agreements was ~~$227.3~~$240.6 billion and $221.6 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
For a discussion of the ~~off-balance~~off–balance sheet lending-related arrangements the Firm considers to be guarantees under FIN 45, and the related accounting policies, see Note 27 on pages ~~119-120~~119–120 of JPMorgan Chase’s 2004 Annual Report. The amount of the liability related to guarantees recorded at ~~March 31,~~June 30, 2005, and December 31, 2004, excluding the allowance for credit losses on lending-related commitments and derivative contracts discussed below, was ~~$388~~$333 million and $341 million, respectively.
In addition to the contracts noted above, there are certain derivative contracts to which the Firm is a counterparty that meet the characteristics of a guarantee under FIN 45. For a discussion of the derivatives the Firm considers to be guarantees, and the related accounting policies, see Note 27 on pages ~~119-120~~119–120 of JPMorgan Chase’s 2004 Annual Report. The total notional value of the derivatives that the Firm deems to be guarantees was ~~$58~~$62 billion and $53 billion at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively. The fair value related to these contracts was a derivative receivable of ~~$190~~$195 million and $180 million, and a derivative payable of ~~$820~~$857 million and $622 million at ~~March 31,~~June 30, 2005, and December 31, 2004, respectively.
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NOTE 20 —– BUSINESS SEGMENTS

JPMorgan Chase is organized into six major reportable business segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services and Asset & Wealth Management, as well as a Corporate segment. The segments are based upon the products and services provided or the type of customer served, and they reflect the manner in which financial information is currently evaluated by management. Results of these lines of business are presented on an operating basis. For a definition of operating basis, see the footnotes to the table below. For a further discussion concerning JPMorgan Chase’s business segments, see Business segment results on ~~page 13~~pages 14-15 of this Form ~~10-Q,~~10–Q, and pages ~~28-29~~28–29 and Note 31 on pages ~~126-127~~126–127 of JPMorgan Chase’s 2004 Annual Report.
The following table provides a summary of the Firm’s segment results for the three and six months ended ~~March 31,~~June 30, 2005 and 2004, on an operating basis. The effect of credit card securitizations, Merger costs and ~~the~~nonoperating Litigation reserve ~~charge~~charges have been included in Corporate/~~reconciling~~Reconciling items so that total Firm results are on a reported basis. Finally, Operating revenue (Noninterest revenue and Net interest income) for each of the segments is presented on a tax-equivalent basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits are presented in the operating results on a basis comparable to taxable securities and investments. This allows management to assess the comparability of revenues arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these items is recorded within Income tax expense. The effect of the tax-equivalent basis adjustments is eliminated in Corporate/Reconciling items to reflect results on a reported basis. Segment results for the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2004, reflect heritage JPMorgan ~~Chase-only~~Chase–only results and have been restated to reflect the current business segment organization and reporting classifications.
Segment results and reconciliation^(a)

Retail Treasury & Asset Corporate/ Retail Treasury & Asset Corporate/
(in millions, except ratios) Investment Financial Card Commercial Securities & Wealth Reconciling Investment Financial Card Commercial Securities & Wealth Reconciling
Three months ended March 31, 2005^(b) Bank^(e) Services Services^(f) Banking Services Management Items^(a)(g) Total
Three months ended June 30, 2005^(b) Bank^(d) Services Services^(e) Banking Services Management Items^(d)(e)(f) Total

Net interest income $ 304 $ 2,653 $ 3,007 $ 625 $ 496 $ 282 $ (2,142 ) $ 5,225 $ 342 $ 2,558 $ 2,976 $ 648 $ 510 $ 274 $ (2,307 ) $ 5,001
Noninterest revenue 4,002 1,193 774 185 910 1,054 304 8,422 2,408 1,241 910 252 1,078 1,069 784 7,742
Intersegment revenue^(c)
(126 ) 1 (2 ) 40 76 25 (14 ) —

Total net revenue 4,180 3,847 3,779 850 1,482 1,361 (1,852 ) 13,647 2,750 3,799 3,886 900 1,588 1,343 (1,523 ) 12,743

Provision for credit losses (366 ) 94 1,636 (6 ) (3 ) (7 ) (921 ) 427 (343 ) 94 1,641 142 2 (20 ) (929 ) 587
Credit reimbursement (to)/from TSS^(d)
38 — — — (38 ) — — —
Credit reimbursement (to)/from TSS^(c)
38 — — — (38 ) — — —
Merger costs — — — — — — 145 ^(h) 145 — — — — — — 279 ^(g) 279
Litigation reserve charge — — — — — — 900 900 — — — — — — 1,872 1,872
Other noninterest expense 2,525 2,162 1,313 458 1,065 934 435 8,892 2,178 2,126 1,383 473 1,194 917 477 8,748

Income (loss) before income tax expense 2,059 1,591 830 398 382 434 (2,411 ) 3,283 953 1,579 862 285 354 446 (3,222 ) 1,257
Income tax expense (benefit) 734 603 308 155 137 158 (1,076 ) 1,019 347 599 320 111 125 163 (1,402 ) 263

Net income (loss) $ 1,325 $ 988 $ 522 $ 243 $ 245 $ 276 $ (1,335 ) $ 2,264 $ 606 $ 980 $ 542 $ 174 $ 229 $ 283 $ (1,820 ) $ 994

Average equity $ 20,000 $ 13,100 $ 11,800 $ 3,400 $ 1,900 $ 2,400 $ 52,745 $ 105,345 $ 20,000 $ 13,250 $ 11,800 $ 3,400 $ 1,900 $ 2,400 $ 52,519 $ 105,269
Average assets 566,778 225,120 138,512 55,080 27,033 39,716 110,579 1,162,818 592,383 225,574 140,741 55,963 26,437 42,001 92,934 1,176,033
Return on average equity 27 % 31 % 18 % 29 % 52 % 47 % NM 9 % 12 % 30 % 18 % 21 % 48 % 47 % NM 4 %
Overhead ratio 60 56 35 54 72 69 NM 73 79 56 36 53 75 68 NM 86

Retail Treasury & Asset Corporate/
(in millions, except ratios) Investment Financial Card Commercial Securities & Wealth Reconciling
Three months ended June 30, 2004^(b) Bank^(d) Services Services^(e) Banking Services Management Items^(d)(e)(f) Total

Net interest income $ 307 $ 1,211 $ 1,271 $ 234 $ 251 $ 117 $ (397 ) $ 2,994
Noninterest revenue 2,632 624 316 100 842 711 412 5,637

Total net revenue 2,939 1,835 1,587 334 1,093 828 15 8,631

Provision for credit losses (128 ) 78 748 19 3 (4 ) (513 ) 203
Credit reimbursement (to)/from TSS^(c)
2 — — — (2 ) — — —
Merger costs — — — — — — 90 ^(g) 90
Litigation reserve charge — — — — — — 3,700 3,700
Other noninterest expense 2,056 1,131 565 203 944 681 133 5,713

Income (loss) before income tax expense 1,013 626 274 112 144 151 (3,395 ) (1,075 )
Income tax expense (benefit) 369 230 98 47 43 52 (1,366 ) (527 )

Net income (loss) $ 644 $ 396 $ 176 $ 65 $ 101 $ 99 $ (2,029 ) $ (548 )

Average equity $ 14,015 $ 5,005 $ 3,346 $ 747 $ 3,203 $ 5,370 $ 15,178 $ 46,864
Average assets 439,166 146,693 51,510 17,281 21,040 35,083 92,097 802,870
Return on average equity 18 % 32 % 21 % 35 % 13 % 7 % NM NM
Overhead ratio 70 62 36 61 86 82 NM 110 %

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74

Retail Treasury & Asset Corporate/ Retail Treasury & Asset Corporate/
(in millions, except ratios) Investment Financial Card Commercial Securities & Wealth reconciling Investment Financial Card Commercial Securities & Wealth Reconciling
Three months ended March 31, 2004^(b) Bank^(e) Services Services^(f) Banking Services Management Items^(a)(g) Total
Six months ended June 30, 2005^(b) Bank^(d) Services Services^(e) Banking Services Management Items^(d)(e)(f) Total

Net interest income $ 295 $ 1,145 $ 1,273 $ 227 $ 243 $ 122 $ (319 ) $ 2,986 $ 646 $ 5,211 $ 5,983 $ 1,273 $ 1,006 $ 556 $ (4,449 ) $ 10,226
Noninterest revenue 3,543 472 283 80 719 702 226 6,025 6,284 2,435 1,682 477 2,064 2,148 1,074 16,164
Intersegment revenue^(c)
(74 ) (6 ) 1 15 50 24 (10 ) —

Total net revenue 3,764 1,611 1,557 322 1,012 848 (103 ) 9,011 6,930 7,646 7,665 1,750 3,070 2,704 (3,375 ) 26,390

Provision for credit losses (188 ) 54 706 (13 ) 1 10 (555 ) 15 (709 ) 188 3,277 136 (1 ) (27 ) (1,850 ) 1,014
Credit reimbursement (to)/from TSS^(d)
2 — — — (2 ) — — —
Credit reimbursement (to)/from TSS^(c)
76 — — — (76 ) — — —
Merger costs — — — — — — — — — — — — — — 424 ^(g) 424
Litigation reserve charge — — — — — — — — — — — — — — 2,772 2,772
Other noninterest expense 2,326 1,241 599 209 867 649 202 6,093 4,703 4,288 2,696 931 2,259 1,851 912 17,640

Income before
income tax expense 1,628 316 252 126 142 189 250 2,903 3,012 3,170 1,692 683 736 880 (5,633 ) 4,540
Income tax expense (benefit) 611 110 90 52 44 67 (1 ) 973 1,081 1,202 628 266 262 321 (2,478 ) 1,282

Net income $ 1,017 $ 206 $ 162 $ 74 $ 98 $ 122 $ 251 $ 1,930 $ 1,931 $ 1,968 $ 1,064 $ 417 $ 474 $ 559 $ (3,155 ) $ 3,258

Average equity $ 15,085 $ 5,177 $ 3,392 $ 795 $ 3,189 $ 5,471 $ 12,709 $ 45,818 $ 20,000 $ 13,175 $ 11,800 $ 3,400 $ 1,900 $ 2,400 $ 52,632 $ 105,307
Average assets 422,151 139,727 51,749 16,239 19,241 35,295 86,916 771,318 579,651 225,348 139,632 55,524 26,733 40,865 101,709 1,169,462
Return on average equity 27 % 16 % 19 % 37 % 12 % 9 % NM 17 % 19 % 30 % 18 % 25 % 50 % 47 % NM 6 %
Overhead ratio 62 77 38 65 86 77 NM 68 68 56 35 53 74 68 NM 79

Retail Treasury & Asset Corporate/
(in millions, except ratios) Investment Financial Card Commercial Securities & Wealth Reconciling
Six months ended June 30, 2004^(b) Bank^(d) Services Services^(e) Banking Services Management Items^(d)(e)(f) Total

Net interest income $ 602 $ 2,356 $ 2,544 $ 461 $ 494 $ 239 $ (716 ) $ 5,980
Noninterest revenue 6,101 1,090 600 195 1,611 1,437 628 11,662

Total net revenue 6,703 3,446 3,144 656 2,105 1,676 (88 ) 17,642

Provision for credit losses (316 ) 132 1,454 6 4 6 (1,068 ) 218
Credit reimbursement (to)/from TSS^(c)
4 — — — (4 ) — — —
Merger costs — — — — — — 90 ^(g) 90
Litigation reserve charge — — — — — — 3,700 3,700
Other noninterest expense 4,382 2,372 1,164 412 1,811 1,330 335 11,806

Income before income tax expense 2,641 942 526 238 286 340 (3,145 ) 1,828
Income tax expense (benefit) 980 340 188 99 87 119 (1,367 ) 446

Net income $ 1,661 $ 602 $ 338 $ 139 $ 199 $ 221 $ (1,778 ) $ 1,382

Average equity $ 14,550 $ 5,091 $ 3,369 $ 771 $ 3,196 $ 5,420 $ 13,944 $ 46,341
Average assets 430,658 143,210 51,630 16,760 20,141 35,189 89,506 787,094
Return on average equity 23 % 24 % 20 % 36 % 13 % 8 % NM 6 %
Overhead ratio 65 69 37 63 86 79 NM 88

(a)
In addition to analyzing the Firm’s results on a reported basis, management reviews the line of business results on an “operating basis,” which is a non-GAAP financial measure. The definition of operating basis starts with the reported U.S. GAAP results. In the case of the Investment Bank, operating basis noninterest revenue includes, in Trading revenue, Net interest income (“NII”) related to trading activities. In the case of Card Services, refer to footnote ~~(f)~~(e). These adjustments do not change JPMorgan Chase’s reported net income. Operating basis also excludes Merger costs and ~~the~~nonoperating Litigation reserve ~~charge,~~charges, as management believes these items are not part of the Firm’s normal daily business operations (and, therefore, not indicative of trends) and do not provide meaningful comparisons with other periods. Finally, operating results reflect revenues (Noninterest revenue and NII) on a tax-equivalent basis. Refer to footnote ~~(g)~~(f) for the impact of these adjustments.
(b)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
~~(c)~~
~~Intersegment revenue includes intercompany revenue and revenue-sharing agreements, net of intersegment expenses. Transactions between business segments are primarily conducted at fair value.~~
~~(d)~~(c)
TSS reimburses the IB for credit portfolio exposures the IB manages on behalf of clients the segments share. At the time of the Merger, the reimbursement methodology was revised to be based on pre-tax earnings, net of the cost of capital related to those exposures. Prior to the Merger, the credit reimbursement was based upon pre-tax earnings, plus the allocated capital associated with the shared clients.
~~(e)~~(d)
Segment operating results include the reclassification of NII related to trading activities to Trading revenue within Noninterest revenue, which primarily impacts the Investment Bank. Trading-related NII reclassified to Trading revenue was ~~$328~~$198 million and ~~$576~~$439 million for the three months ended ~~March 31,~~June 30, 2005 and 2004, respectively, and $526 million and $1,015 million for the six months ended June 30, 2005 and 2004, respectively. These amounts are eliminated in Corporate/reconciling items to arrive at NII and Noninterest revenue on a reported GAAP basis for JPMorgan Chase.
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~~(f)~~(e)
Operating results for Card Services exclude the impact of credit card securitizations on revenue, provision for credit losses and average assets, as JPMorgan Chase treats the sold receivables as if they were still on the balance sheet in evaluating the overall performance of the credit card portfolio. The related securitization adjustments ~~for the three months ended March 31, 2005 and 2004,~~ were as follows: $1.7 billion and $838 million, respectively, in NII; $(815) million and $(365) million, respectively, in Noninterest revenue; $917 million and $473 million, respectively, in Provision for credit losses; and $67.5 billion and $33.4 billion, respectively, in Average assets.

Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Net interest income $ 1,658 $ 838 $ 3,390 $ 1,676
Noninterest revenue (728 ) (352 ) (1,543 ) (717 )
Provision for credit losses 930 486 1,847 959
Average assets 66,226 33,026 66,864 33,191

(a)   2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
These adjustments are eliminated in Corporate/reconciling items to arrive at the Firm’s reported GAAP results.
~~(g)~~(f)
Segment operating results reflect revenues on a ~~tax-equivalent~~tax–equivalent basis with the corresponding income tax impact recorded within income tax expense. ~~Tax-equivalent~~
Tax–equivalent adjustments ~~for the three months ended March 31, 2005 and 2004,~~ were as follows: ~~$61 million and $14 million, respectively, in NII; $115 million and $34 million, respectively, in Noninterest revenue; and $176 million and $48 million, respectively, in Income tax expense.~~

Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Net interest income $ 84 $ 18 $ 145 $ 32
Noninterest revenue 143 41 258 75
Income tax expense 227 59 403 107

(a)   2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
These adjustments are eliminated in Corporate/reconciling items to arrive at the Firm’s reported GAAP results.
~~(h)~~(g)
Merger costs attributed to the lines of business ~~for the three months ended March 31, 2005,~~ were as follows: $5 million, Investment Bank; $26 million, Retail Financial Services; $11 million, Card Services; $2 million, Commercial Banking; $20 million, Treasury & Securities Services; $14 million, Asset & Wealth Management; and $67 million, Corporate. There were no Merger costs during the first quarter of 2004.

Three months ended June 30,^(a) Six months ended June 30,^(a)
(in millions) 2005 2004 2005 2004

Investment Bank $ 9 $ 5 $ 14 $ 5
Retail Financial Services 51 23 77 23
Card Services 74 1 85 1
Commercial Banking (3 ) 6 (1 ) 6
Treasury & Securities Services 23 5 43 5
Asset & Wealth Management 24 — 38 —
Corporate 101 50 168 50

(a)
2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.
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75

JPMORGAN CHASE & CO.
CONSOLIDATED AVERAGE BALANCE SHEET, INTEREST AND RATES
(Taxable-Equivalent Interest and Rates; in millions, except rates)

Heritage JPMC only
First Quarter 2005 First Quarter 2004 Heritage JPMC only
Average Rate Average Rate Three months ended June 30, 2005 Three months ended June 30, 2004
Balance Interest (Annualized) Balance Interest (Annualized) Average Rate Average Rate
Balance Interest (Annualized) Balance Interest (Annualized)
ASSETS

Deposits with Banks $ 15,232 $ 154 4.11 % $ 21,535 $ 87 1.62 % $ 18,646 $ 190 4.08 % $ 26,905 $ 113 1.68 %
Federal Funds Sold and Securities Purchased
under Resale Agreements 121,189 727 2.43 82,555 307 1.49 139,864 941 2.70 87,080 314 1.45
Securities Borrowed 52,449 221 1.71 48,609 94 0.77 60,207 313 2.08 54,233 89 0.66
Trading Assets — Debt Instruments 187,669 2,264 4.89 166,389 1,800 4.35 193,660 2,445 5.06 153,548 1,668 4.37
Securities 93,438 1,136 4.93 ^(a) 63,992 671 4.22 (a) 67,705 636 3.77 ^(a) 64,148 731 4.58 ^(a)
Interests in purchased receivables 29,277 186 2.58 2,537 11 1.79 28,082 216 3.08 — — NM
Loans 398,494 6,005 6.11 214,941 2,670 5.00 404,318 6,293 6.24 225,344 2,717 4.85

Total Interest-Earning Assets 897,748 10,693 4.83 600,558 5,640 3.78 912,482 11,034 4.85 611,258 5,632 3.71
Allowance for loan losses (7,192 ) (4,486 ) (6,958 ) (4,130 )
Cash and due from banks 29,831 20,255 29,400 19,374
Trading assets — Equity instruments 43,717 20,002
Trading assets — Derivative receivables 65,237 58,956
Trading assets – Equity instruments 43,935 38,934
Trading assets – Derivative receivables 58,304 53,242
Other assets 133,477 76,033 138,870 84,192

Total Assets
$ 1,162,818 $ 771,318 $ 1,176,033 $ 802,870

LIABILITIES

Interest-Bearing Deposits $ 388,355 $ 1,985 2.07 % $ 238,206 $ 814 1.37 % $ 394,455 $ 2,352 2.39 % $ 254,034 $ 813 1.29 %
Federal Funds Purchased and Securities Sold
under Repurchase Agreements 151,335 917 2.46 145,370 448 1.24 158,268 1,061 2.69 155,335 450 1.17
Commercial Paper 12,665 82 2.62 13,153 31 0.96 12,496 76 2.42 14,283 28 0.79
Other Borrowings^(b)
98,259 1,227 5.06 80,388 905 4.53 98,936 1,125 4.56 80,364 887 4.44
Beneficial interests issued by consolidated VIEs 45,294 272 2.44 9,764 39 1.60 43,743 319 2.92 7,433 38 2.04
Long-term debt 108,004 924 3.47 53,574 403 3.02 111,858 1,015 3.64 57,019 404 2.85

Total Interest-Bearing Liabilities 803,912 5,407 2.73 540,455 2,640 1.96 819,756 5,948 2.91 568,468 2,620 1.85
Noninterest-Bearing deposits 127,405 76,147 127,835 83,022
Trading liabilities — Derivative payables 63,741 53,223
Trading liabilities – Derivative payables 55,511 44,476
All other liabilities, including the allowance
for lending-related commitments 62,076 54,666 67,446 59,031

Total Liabilities
1,057,134 724,491 1,070,548 754,997

STOCKHOLDERS’ EQUITY

Preferred Stock 339 1,009 216 1,009
Common Stockholders’ Equity 105,345 45,818 105,269 46,864

Total Stockholders’ Equity
105,684 46,827 105,485 47,873

Total Liabilities, Preferred Stock and
Stockholders’ Equity
$ 1,162,818 $ 771,318 $ 1,176,033 $ 802,870

INTEREST RATE SPREAD
2.10 % 1.82 % 1.94 % 1.86 %
NET INTEREST INCOME AND MARGIN
ON INTEREST-EARNING ASSETS
$ 5,286 2.39 % $ 3,000 2.01 % $ 5,086 2.24 % $ 3,012 1.98 %

(a)
For the three months ended ~~March 31,~~June 30, 2005 and 2004, the annualized rate for available-for-sale securities based on fair value was ~~4.92%~~3.76% and ~~4.21%~~4.58%, respectively. For the three months ended ~~March 31,~~June 30, 2005 and 2004, the annualized rate for available-for-sale securities based on amortized cost was ~~4.90%~~3.77% and ~~4.22%~~4.49%, respectively.
(b)
Includes securities sold but not yet purchased.
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76

JPMORGAN CHASE & CO.
CONSOLIDATED AVERAGE BALANCE SHEET, INTEREST AND RATES
(Taxable-Equivalent Interest and Rates; in millions, except rates)

Heritage JPMC only
Six months ended June 30, 2005 Six months ended June 30, 2004
Average Rate Average Rate
Balance Interest (Annualized) Balance Interest (Annualized)
ASSETS

Deposits with Banks $ 16,948 $ 344 4.09 % $ 24,220 $ 200 1.66 %
Federal Funds Sold and Securities Purchased under Resale Agreements 130,580 1,668 2.58 84,818 621 1.47
Securities Borrowed 56,349 534 1.91 51,421 183 0.72
Trading Assets — Debt Instruments 190,681 4,709 4.98 159,968 3,468 4.36
Securities 80,500 1,772 4.44 ^(a) 64,070 1,401 4.40 ^(a)
Interests in purchased receivables 28,676 402 2.83 1,268 11 1.79
Loans 401,422 12,298 6.18 220,143 5,388 4.92

Total Interest-Earning Assets 905,156 21,727 4.84 605,908 11,272 3.74
Allowance for loan losses (7,074 ) (4,308 )
Cash and due from banks 29,614 19,814
Trading assets – Equity instruments 43,827 29,468
Trading assets – Derivative receivables 61,751 56,099
Other assets 136,188 80,113

Total Assets
$ 1,169,462 $ 787,094

LIABILITIES

Interest-Bearing Deposits $ 391,422 $ 4,349 2.24 % $ 246,120 $ 1,632 1.33 %
Federal Funds Purchased and Securities Sold under Repurchase Agreements 154,821 1,985 2.59 150,354 901 1.20
Commercial Paper 12,580 138 2.21 13,718 51 0.76
Other Borrowings^(b)
98,600 2,353 4.81 80,375 1,792 4.48
Beneficial interests issued by consolidated VIEs 44,514 591 2.68 8,598 77 1.79
Long-term debt 109,941 1,939 3.56 55,297 807 2.94

Total Interest-Bearing Liabilities 811,878 11,355 2.82 554,462 5,260 1.91
Noninterest-Bearing deposits 127,622 79,585
Trading liabilities – Derivative payables 59,603 48,849
All other liabilities, including the allowance for lending-related commitments 64,775 56,848

Total Liabilities
1,063,878 739,744

STOCKHOLDERS’ EQUITY

Preferred Stock 277 1,009
Common Stockholders’ Equity 105,307 46,341

Total Stockholders’ Equity
105,584 47,350

Total Liabilities, Preferred Stock and Stockholders’ Equity
$ 1,169,462 $ 787,094

INTEREST RATE SPREAD
2.02 % 1.83 %
NET INTEREST INCOME AND MARGIN ON INTEREST-EARNING ASSETS
$ 10,372 2.31 % $ 6,012 2.00 %

(a)
For the six months ended June 30, 2005 and 2004, the annualized rate for available-for-sale securities based on fair value was 4.43% and 4.39%, respectively. For the six months ended June 30, 2005 and 2004, the annualized rate for available-for-sale securities based on amortized cost was 4.42% and 4.36%, respectively.
(b)
Includes securities sold but not yet purchased.
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GLOSSARY OF TERMS
ACH:Automated Clearing House.
APB:Accounting Principles Board Opinion.
APB 25:“Accounting for Stock Issued to Employees.”
Assets under management:Represent assets actively managed by Asset & Wealth Management on behalf of institutional, private banking, private client services and retail clients. Excludes assets managed by American Century Companies, Inc., in which the Firm has a 43% ownership interest.
Assets under supervision:Represent assets under management as well as custody, brokerage, administration and deposit accounts.
Average managed assets:Refers to total assets on the Firm’s balance sheet plus credit card receivables that have been securitized.
bp:Denotes basis points; 100 bp equals 1%.
Contractual credit card charge-off:In accordance with the Federal Financial Institutions Examination Council policy, credit card loans are charged-off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification of the filing of bankruptcy, whichever is earlier.
Core deposits:U.S. deposits insured by the Federal Deposit Insurance Corporation, up to the legal limit of $100,000 per depositor.
Credit derivativesare contractual agreements that provide protection against a credit event of one or more referenced credits. The nature of a credit event is established by the protection buyer and protection seller at the inception of a transaction, and such events include bankruptcy, insolvency and failure to meet payment obligations when due. The buyer of the credit derivative pays a periodic fee in return for a payment by the protection seller upon the occurrence, if any, of a credit event.
EITF:Emerging Issues Task Force.
~~EITF Issue 04-7:~~~~“Determining Whether an Interest Is a Variable Interest in a Potential Variable Interest Entity.”~~
FASB:Financial Accounting Standards Board.
FIN 39:FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts.”
FIN 45:FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirement for Guarantees, including Indirect Guarantees of Indebtedness of Others.”
FIN 46R:FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51.”
FIN 47:FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations —– an interpretation of FASB Statement No. 143.”
FASB Staff Position (“FSP”) SFAS 109-2:“Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.”
Interests in Purchased Receivables:Represent an ownership interest in a percentage of cash flows of an underlying pool of receivables transferred by a third-party seller into a bankruptcy remote entity, generally a trust, and then securitized through a commercial paper conduit.
Investment-grade:An indication of credit quality based on JPMorgan Chase’s internal risk assessment system. “Investment-grade” generally represents a risk profile similar to a rating of a BBB-/Baa3 or better, as defined by independent rating agencies.
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Mark-to-market exposure:A measure, at a point in time, of the value of a derivative or foreign exchange contract in the open market. When the mark-to-market value is positive, it indicates the counterparty owes JPMorgan Chase and, therefore, creates a repayment risk for the Firm. When the mark-to-market value is negative, JPMorgan Chase owes the counterparty. In this situation, the Firm does not have repayment risk.
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Master netting agreement:An agreement between two counterparties that have multiple derivative contracts with each other that provides for the net settlement of all contracts through a single payment, in a single currency, in the event of default on or termination of any one contract. See FIN 39.
NA:Data is not applicable for the period presented.
NM:Not meaningful.
Nonoperating litigation reserve chargesare the $3.7 billion (pre-tax) charge taken in the second quarter of 2004, the $900 million (pre-tax) charge taken in the first quarter of 2005 and the $1.9 billion (pre-tax) charge taken in the second quarter of 2005, all of which relate to the legal cases named in the JPMorgan Chase Quarterly Report on Form 10–Q for the quarter ended June 30, 2004.
Overhead ratio:Noninterest expense as a percentage of total net revenue.
Return on equity-goodwill:Represents net income applicable to common stock divided by total average common equity (net of goodwill). The Firm uses return on equity less goodwill, a non-GAAP financial measure, to evaluate the operating performance of the Firm. The Firm also utilizes this measure to facilitate operating comparisons to other competitors.
SFAS:Statement of Financial Accounting Standards.
~~SFAS 107:~~~~“Disclosures about Fair Value of Financial Instruments.”~~
SFAS 109:“Accounting for Income Taxes.”
SFAS 123:“Accounting for Stock-Based Compensation.”
SFAS 123R:“Share-Based Payment.”
SFAS 133:“Accounting for Derivative Instruments and Hedging Activities.”
SFAS 140:“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities —– a replacement of FASB Statement No. 125.”
SFAS 142:“Goodwill and Other Intangible Assets.”
SFAS 143:“Accounting for Asset Retirement Obligations.”
Staff Accounting Bulletin (“SAB”) 107:“Application of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment.”
Stress testing:A scenario that measures market risk under unlikely but plausible events in abnormal markets.
U.S. GAAP:Accounting principles generally accepted in the United States of America.
Value-at-Risk (“VAR”):A measure of the dollar amount of potential loss from adverse market moves in an ordinary market environment.
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78

LINE OF BUSINESS METRICS
Investment Banking

IB’s revenues are comprised of the following:
Investment banking feesincludes advisory, equity underwriting, bond underwriting and loan syndication fees.
Fixed income marketsincludes client and portfolio management revenue related to both market-making and proprietary risk-taking across global fixed income markets, including government and corporate debt, foreign exchange, interest rate and commodities markets.
Equities marketsincludes client and portfolio management revenue related to market-making and proprietary risk-taking across global equity products, including cash instruments, derivatives and convertibles.
Credit portfolio revenueincludes Net interest income, fees and loan sale activity for IB’s credit portfolio. Credit portfolio revenue also includes gains or losses on securities received as part of a loan restructuring, and changes in the credit valuation adjustment (“CVA”), which is the component of the fair value of a derivative that reflects the credit quality of the counterparty. Credit portfolio revenue also includes the results of risk management related to the Firm’s lending and derivative activities.
Retail Financial Services

Description of selected business metrics within Home Finance:
Secondary marketinginvolves the sale of mortgage loans into the secondary market and risk management of this activity from the point of loan commitment to customers through loan closing and subsequent sale.
Home Finance’s origination channels are comprised of the following:
Retail-– A mortgage banker employed by the Firm directly contacts borrowers who are buying or refinancing a home through a branch office, through the Internet or by phone. Borrowers are frequently referred to a mortgage banker by real estate brokers, home builders or other third parties.
Wholesale-– A third-party mortgage broker refers loans to a mortgage banker at the Firm. Brokers are independent loan originators that specialize in finding and counseling borrowers but do not provide funding for loans.
Correspondent-– Banks, thrifts, other mortgage banks and other financial institutions sell closed loans to the Firm.
Correspondent negotiated transactions (“CNT”)-– Mid- to large-sized mortgage lenders, banks and bank-owned mortgage companies sell servicing to the Firm on an as-originated basis. These transactions supplement traditional production channels and provide growth opportunities in the servicing portfolio in stable and rising-rate periods.
Description of selected business metrics within Consumer & Small Business Banking:
Personal bankers-– Retail branch office personnel who acquire, retain and expand new and existing customer relationships by assessing customer needs and recommending and selling appropriate banking products and services.
Investment sales representatives-– Licensed retail branch sales personnel, assigned to support several branches, who assist with the sale of investment products including college planning accounts, mutual funds, annuities and retirement accounts.
Description of selected business metrics within Insurance:
Proprietary annuity salesrepresent annuity contracts marketed through and issued by subsidiaries of the Firm.
Insurance in force —– direct/assumedincludes the aggregate face amount of insurance policies directly underwritten and assumed through reinsurance.
Insurance in force —– retainedincludes the aggregate face amounts of insurance policies directly underwritten and assumed through reinsurance, after reduction for face amounts ceded to reinsurers.
93
Card Services

Description of selected business metrics within Card Services:
Charge volume-– Represents the dollar amount of cardmember purchases, balance transfers and cash advance activity.
Net accounts opened-– Includes originations, purchases and sales.
79
Merchant acquiring business-– Represents an entity that processes payments for merchants. JPMorgan Chase is a majority owner of Paymentech, Inc. and a 50% owner of Chase Merchant Services.
Bank card volume-– Represents the dollar amount of transactions processed for the merchants.
Total transactions-– Represents the number of transactions and authorizations processed for the merchants.
Commercial Banking

Commercial Banking revenues are comprised of the following:
Lendingincorporates a variety of financing alternatives, such as term loans, revolving lines of credit and asset-based structures and leases, which are often secured by receivables, inventory, equipment or real estate.
Treasury servicesincorporates a broad range of products and services to help clients manage short-term liquidity through deposits and sweeps, and longer-term investment needs through money market accounts, certificates of deposit and mutual funds; manage working capital through lockbox, global trade, global clearing and commercial card products; and have ready access to information to manage their business through on-line reporting tools.
Investment bankingproducts provide clients with more sophisticated capital-raising alternatives, through loan syndications, investment-grade debt, asset-backed securities, private placements, high-yield bonds and equity underwriting, and balance sheet and risk management tools through foreign exchange, derivatives, M&A and advisory services.
Description of selected business metrics within Commercial Banking:
Liability balancesinclude deposits and deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, fed funds purchases, and repurchase agreements).
Treasury & Securities Services

Treasury & Securities Servicesfirmwide metricsinclude certain TSS product revenues and liability balances reported in other lines of business for customers who are also customers of those lines of business. In order to capture the firmwide impact of TS and TSS products and revenues, management reviews firmwide metrics such as firmwide liability balances, firmwide revenue and firmwide overhead ratios in assessing financial performance for TSS. Firmwide metrics are necessary in order to understand the aggregate TSS business.
Description of selected business metrics within Treasury & Securities Services:
Liability balancesinclude deposits and deposits that are swept to on-balance sheet liabilities (e.g., commercial paper, fed funds purchases, and repurchase agreements).
Asset & Wealth Management

AWM’s client segments are comprised of the following:
ThePrivate bankaddresses every facet of wealth management for ultra-high-net-worth individuals and families worldwide, including investment management, capital markets and risk management, tax and estate planning, banking, capital raising and specialty wealth advisory services.
Retailprovides more than 2 million customers worldwide with investment management, retirement planning and administration, and brokerage services through third-party and direct distribution channels.
Institutionalserves more than 3,000 large and mid-size corporate and public institutions, endowments and foundations, and governments globally. AWM offers institutions comprehensive global investment services, including investment management across asset classes, pension analytics, asset-liability management, active risk budgeting and overlay strategies.
Private client servicesoffers high-net-worth individuals, families and business owners comprehensive wealth management solutions that include financial planning, personal trust, investment and banking products and services.
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Item 3Quantitative and Qualitative Disclosures about Market Risk
For a discussion of the quantitative and qualitative disclosures about market risk, see the Market Risk Management section of the MD&A on pages ~~49-52~~59-61 of this Form ~~10-Q.~~
10–Q.
Item 4Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Firm’s management, including its Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). See Exhibits 31.1, 31.2 and 31.3 for the Certification statements issued by the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.
There was no change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the ~~first~~second quarter of 2005 that has materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
Part II Other Information
Item 1Legal proceedings
The following information supplements and amends the disclosure set forth under Part I, Item 3 “Legal proceedings” in the Firm’s Annual Report on Form ~~10-K~~10–K for the fiscal year ended December 31, 2004 and Part II, Item 1 “Legal Proceedings” in the ~~Current Reports~~Firm’s Quarterly Report on Form ~~8-K filed since December~~10–Q for the quarterly period ending March 31, ~~2004.~~
2005 (the “Firm’s SEC filings”).
Enron litigation.On June 14, 2005, the Firm reached an agreement in principle to settle, for $2.2 billion (pre-tax), the Enron class action litigation entitledNewby v. Enron Corp.The settlement has been approved by the Firm’s Board of Directors and by the Board of Regents of the University of California, as Lead Plaintiff on behalf of theNewbyclass. The settlement is subject to negotiation of a definitive agreement, and approval by the United States District Court for the Southern District of Texas. TheNewbysettlement does not resolve Enron-related actions filed separately by plaintiffs that opt out of the class action, or are asserting claims not covered by that action. In May and June, 2005, the Firm and other financial institution defendants reached settlements with plaintiffs in a group of individual actions brought by institutional investors in Iowa and California, and in a suit by the Retirement Systems of Alabama, arising from their purchases of Enron securities. In May 2005, plaintiffs filed an amended complaint in the purported consolidated class action lawsuit by JPMorgan Chase stockholders, following the previously reported dismissal in March ~~28,~~2005 of the lawsuit. The Firm has moved to dismiss the amended complaint. On July 26, 2005, the United States District Court for the Southern District of New York granted ~~JPMorgan Chase’s~~the Firm’s motion to dismiss ~~a purported consolidated class action lawsuit by~~with prejudice the Firm’s stockholders alleging that the Firm issued false and misleading press releases and other public documents relating to Enron in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The dismissal was without prejudice to replead. Also on March 28, 2005, the United States District Court for the Southern District of New York dismissed without prejudice a shareholder derivative action brought by the Firm’s stockholders against JPMorgan Chase’s directors for alleged breaches of fiduciary ~~duties.~~
~~WorldCom litigation~~.duty and violations of the securities laws. On ~~March 17,~~July 12, 2005, ~~JPMorgan Chase reached agreement with the counsel for named plaintiff Alan Hevesi to settle for $2 billion the claims asserted against the Firm in the class action case pending before~~ the United States District Court for the Southern District of New ~~York. All~~York denied the Firm’s motion to dismiss the complaint brought by a putative class of participants in the Firm’s 401K plan. A motion for class certification is pending. On June 15, 2005, the United States Bankruptcy Court for the Southern District of New York denied the Firm’s motion to dismiss a complaint by Enron in one of the ~~other underwriters defendants in the case also settled, for an aggregate payment~~several pending bankruptcy cases, this one seeking recovery of certain pre-petition payments to the class of more than $6.1 billion. Those settlements do not resolve more than 35 individual actions filed separately by plaintiffs that opted out of the class action. Those individual plaintiffs claim losses totaling about $1.3 billion. Settlement negotiationsFirm in connection with Enron’s commercial paper program.
WorldCom.Negotiations with certain of the plaintiffs in the remaining individual actions continue, and a settlement of one of those ~~actions are under way.~~
has been reached, although that settlement remains contingent upon court approval of certain provisions. The district court has scheduled a hearing to consider the final approval of the class action settlement for September 9, 2005.
Commercial Financial Services litigation.~~The~~Trial of the bankruptcy adversary proceeding, previously scheduled for May 2005, has been adjourned without date, pending decision of motions filed by the Firm ~~has reached agreements in principle to settle for $356 million all~~challenging the ~~institutional investors’ lawsuits pending against JPMSI~~admissibility of expert opinions proffered by the plaintiffs and seeking summary judgment dismissing the case. A final pre-trial conference in the ~~United States District Court~~action commenced by CFS in Oklahoma state court is scheduled for ~~the Northern District of Oklahoma. These investors had sought damages of approximately $1.6 billion.~~
September 9, 2005, at which time it is expected that a trial date for that action will be set.
IPO allocation litigation.On ~~February 15,~~June 30, 2005, the United States Court ~~preliminarily approved a proposed settlement~~ of ~~plaintiffs’ claims against~~Appeals for the ~~issuer defendants~~Second Circuit granted the underwriter defendants’ petition for permission to appeal the district court’s decision to certify classes in ~~these~~six “focus” cases and has scheduled a fairness hearing on the issuer settlement for January 6, 2006. Pursuant to the proposed issuer settlement, the issuer defendants conditionally assigned to the plaintiffs any claims related to any “excess compensation” allegedly paid to the underwriters by their customers for allocations of stock in the ~~offerings at issue~~securities litigation. A briefing schedule will be set in the ~~IPO litigation. Joseph P. Lasala,~~near future, and the trustee designated by plaintiffs to act as assignee of such issuer excess compensation claims, has filed complaints purporting to allege state law claims on behalf of certain issuers against JPMSI and other underwriters, together with motions to stay proceedingsappeal likely will be heard in ~~each case. JPMSI either has filed or will shortly file oppositions to the stays and motions to dismiss the complaints.~~
2006.
Research analyst conflicts.In the action filed inby the West Virginia ~~state court by West Virginia’s~~ Attorney General, the West Virginia Supreme Court ~~has agreed~~held that the state consumer protection law does not authorize the Attorney General to ~~hear the interlocutory appeal sought by defendants~~bring this action. The Firm expects that this decision will result in dismissal of the case by the trial ~~court’s denial~~court as against the Firm and all of ~~their motion to dismiss. Oral argument on~~ the ~~appeal is scheduled for June 8, 2005. The email retention settlement has been finally approved by all regulators on the terms negotiated by JPMSI and the staff of each regulator.~~
other defendants.
National Century Financial Enterprises (NCFE).~~On March 31, 2005, motions to dismiss the UAT action were filed on behalf~~The staff of ~~JPMorgan Chase Bank. These motions are currently pending. In addition,~~ the Securities and Exchange Commission has served subpoenas on JPMorgan Chase Bank and Bank One, N.A. (“Bank One”) and has interviewed certain current and former employees. On April 25, 2005, the staff of the Midwest Regional Office of the SEC wrote to advise Bank Oneadvised that it is considering recommending that the Commission bring civil injunctive actions against the Firm and against two individuals (one current employee and one former employee) alleging violations of certain securities laws in connection with the individuals’ roles as former members of NCFE’s board of directors.
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~~recommending that~~
In addition to the ~~Commission bring~~various cases, proceedings and investigations discussed above and in the Firm’s SEC filings, JPMorgan Chase and its subsidiaries are named as defendants in a ~~civil injunctive action against Bank One~~number of other legal actions and ~~a former employee alleging violations of the securities laws~~governmental proceedings arising in connection with ~~Bank One’s role as indenture trustee for the NPF XII note program.~~
~~Mutual Fund Litigation.~~~~On March 25, 2005, Bank One and other defendants filed motions~~their respective businesses. Additional actions, investigations or proceedings may be brought from time to ~~dismiss the Employee Retirement Income Security Act claims~~time in the ~~litigation~~future. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, involve a large number of parties or are in ~~Baltimore, Maryland. On April 11, 2005,~~early stages of discovery, the ~~West Virginia Attorney General filed suit against BOIA,~~Firm cannot state with confidence what the eventual outcome of these pending matters will be, what the timing of the ultimate resolution of these matters will be or what the eventual loss, fines or penalties related to each pending matter may be. JPMorgan Chase believes, based upon its current knowledge, after consultation with counsel and ~~other entities related to~~after taking into account its litigation reserves, that the ~~mutual fund industry for alleged market timing, late trading and disclosure of portfolio information. The suit purports to bring claims for quo warranto and violation~~outcome of the ~~West Virginia Consumer Credit~~legal actions, proceedings and ~~Protection Act.~~
~~Bank One Securities Litigation.~~~~The Firm as successor to Bank One Corporation, settled all First Chicago Shareholder claims~~investigations currently pending against it should not have a material adverse effect on the consolidated financial condition of the Firm. However, in light of the uncertainties involved in such proceedings, actions and ~~former officers~~investigations, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by the Firm; as a result, the outcome of a particular matter may be material to JPMorgan Chase’s operating results for a particular period, depending upon, among other factors, the size of the loss or liability imposed and ~~directors in~~~~In Re Bank One Securities Litigation~~the level of JPMorgan Chase’s income for $120 million. The Firm reached this settlement agreement without admitting any wrongdoing. On March 22, 2005, the United States District Court for the Northern District of Illinois preliminarily approved the settlement. A fairness hearing will be held on May 19, 2005 in connection with the class settlement.
that period.
Item 2Unregistered Sales of Equity Securities and Use of Proceeds

During the ~~first~~second quarter of 2005, shares of common stock of JPMorgan Chase & Co. were issued in transactions exempt from registration under the Securities Act of 1933, pursuant to Section 4(2) thereof, to retired ~~directors who had deferred receipt of such common stock pursuant to the Deferred Compensation Plan for Non-Employee Directors, as follows: January 3, 2005: 27,171 shares; and to retired~~ employees who had deferred receipt of such common shares pursuant to the Corporate Performance Incentive Plan as follows: ~~January 25, 2005: 37,988~~May 18, 2005 – 3,351 shares.
On July 20, 2004, the Board of Directors approved an initial stock repurchase program in the aggregate amount of $6.0 billion. This amount includes shares to be repurchased to offset issuances under the Firm’s employee equity-based plans. The actual amount of shares repurchased will be subject to various factors, including market conditions; legal considerations affecting the amount and timing of repurchase activity; the Firm’s capital position (taking into account ~~purchase accounting adjustments)~~goodwill and intangibles); internal capital generation; and alternative potential investment opportunities. The stock repurchase program has no set expiration or termination date.
The Firm’s repurchases of equity securities in the second quarter and first ~~quarter~~half of 2005 were as follows:

Total open Average Dollar value of
For the three months ended market shares price paid remaining authorized
March 31, 2005 repurchased per share^(a) repurchase program

January 4,525,000 $ 36.99 $ 5,095
February 18,075,000 36.92 4,427
March 13,372,000 35.97 3,946

Total 35,972,000 $ 36.57

Total open Average Dollar value of
For the six months ended market shares price paid remaining authorized
June 30, 2005 repurchased per share^(a) repurchase program

First quarter 35,972,000 $ 36.57 $ 3,946

April 8,220,000 35.12 3,657
May 7,447,465 35.51 3,393
June 1,140,000 35.54 3,352

Second quarter 16,807,465 35.32

Year-to-date 52,779,465 $ 36.17

(a)
Excludes commission costs.
In addition to the repurchases disclosed above, participants in the Long-term Incentive Plan and Stock Option Plan may have shares withheld to cover income taxes. Shares withheld to pay income taxes are repurchased pursuant to the terms of the applicable Plan and not under the Firm’s publicly announced share repurchase program. A total of ~~6,993,164~~680,851 shares were repurchased in the 2005 ~~first~~second quarter at an average price per share of ~~$27.20: January—6,392,128~~$32.78 as follows: April—360,545 shares at an average price per share of ~~$26.70; February—329,745~~$33.07; May—159,269 shares at an average price per share of ~~$33.35; March—271,291~~$32.83; June—161,037 shares at an average price per share of ~~$31.65.~~
$32.07. During the first quarter of 2005, a total of 6,993,164 shares were repurchased at an average per share price of $27.20. For the six month period ended June 30, 2005, a total of 7,674,015 shares were repurchased at an average price per share of $27.70.
Item 3   Defaults Upon Senior Securities
None
Item 4   Submission of Matters to a Vote of Security Holders
            ~~None~~

The Annual Meeting of stockholders of JPMorgan Chase was held on May 17, 2005. For a summary of the matters submitted to vote at the meeting, see the Current Report on Form 8-K dated May 20, 2005, which is incorporated herein by reference.
Item 5   Other Information
None
Item 6   Exhibits
~~31.1~~ - ~~Certification~~
~~31.2~~ - ~~Certification~~
~~31.3~~ - ~~Certification~~
32 - ~~Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

31.1 – Certification
31.2 – Certification
31.3 – Certification
32 – Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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82

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

JPMORGAN CHASE & CO.
(Registrant)

Date: ~~May 5,~~August 8, 2005

By /s/ Joseph L. Sclafani

Joseph L. Sclafani

Executive Vice President and Controller
[Principal Accounting Officer]
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INDEX TO EXHIBITS
SEQUENTIALLY NUMBERED

EXHIBIT NO. EXHIBITS PAGE AT WHICH LOCATED EXHIBITS PAGE AT WHICH LOCATED
31.1 Certification 85 Certification 99

31.2 Certification 86 Certification 100

31.3 Certification 87 Certification 101

The following exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. In addition, Exhibit No. 32 shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 88
The following exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. In addition, Exhibit No. 32 shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 102
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Three months ended March 31,^(a) (in millions)	2005			2004		Change
Total net revenue^(a)									Three months ended June 30,							Six months ended June 30,
(in millions)									2005		2004		Change			2005		2004		Change

Investment banking fees	$	993		$	692		43	%	$	961	$	893		8	%	$	1,954	$	1,585		23	%
Trading revenue		1,859			1,720		8			387		873		(56	)		2,246		2,593		(13	)
Lending & deposit related fees		820			414		98			851		412		107			1,671		826		102
Asset management, administration and commissions		2,455			1,771		39			2,541		1,814		40			5,039		3,650		38
Securities/private equity gains (losses)		(45	)		432		NM			407		460		(12	)		362		892		(59	)
Mortgage fees and related income		405			259		56			336		294		14			698		488		43
Credit card income		1,734			605		187			1,763		631		179			3,497		1,236		183
Other income		201			132		52			496		260		91			697		392		78

Noninterest revenue		8,422			6,025		40			7,742		5,637		37			16,164		11,662		39
Net interest income		5,225			2,986		75			5,001		2,994		67			10,226		5,980		71

Total net revenue	$	13,647		$	9,011		51	%	$	12,743	$	8,631		48	%	$	26,390	$	17,642		50	%


							Six months ended June 30,
(in millions, except rate)^(a)	2Q05			2Q04			2005			2004

Income (loss) before income tax expense (benefit)	$	1,257		$	(1,075	)	$	4,540		$	1,828
Income tax expense (benefit)		263			(527	)		1,282			446
Effective tax rate		20.9	%		49.0	%		28.2	%		24.4	%



Earnings per share – diluted	$	0.28		$	—		$	—		$	0.05		$	0.33		$	—		$	0.66

Return on common equity		4	%		—	%		—	%		1	%		4	%		—	%		9	%
Return on equity – goodwill^(b)		6			—			—			1			8			—			15

Return on assets		0.34		NM			NM			NM			NM			NM				0.75

Overhead ratio		86		NM			NM			NM			NM			NM				63

Effective income tax rate		21		NM			NM				38			38			100			36


Six months ended June 30,^(a)	2005
(in millions, except per share and	Reported			Trading			Credit			Merger			Litigation			Tax-equivalent			Operating
ratio data)	results			reclass^(c)			card^(d)			costs^(e)			charge^(e)			adjustments			basis

Revenue
Investment banking fees	$	1,954		$	—		$	—		$	—		$	—		$	—		$	1,954
Trading revenue		2,246			526			—			—			—			—			2,772
Lending & deposit related fees		1,671			—			—			—			—			—			1,671
Asset management, administration and commissions		5,039			—			—			—			—			—			5,039
Securities/private equity gains (losses)		362			—			—			—			—			—			362
Mortgage fees and related income		698			—			—			—			—			—			698
Credit card income		3,497			—			(1,543	)		—			—			—			1,954
Other income		697			—			—			—			—			258			955

Noninterest revenue		16,164			526			(1,543	)		—			—			258			15,405
Net interest income		10,226			(526	)		3,390			—			—			145			13,235

Total net revenue		26,390			—			1,847			—			—			403			28,640
Provision for credit losses		1,014			—			1,847			—			—			—			2,861
Noninterest expense
Merger costs		424			—			—			(424	)		—			—			—
Litigation reserve charge		2,772			—			—			—			(2,772	)		—			—
All other noninterest expense		17,640			—			—			—			—			—			17,640

Total noninterest expense		20,836			—			—			(424	)		(2,772	)		—			17,640

Income before income tax expense		4,540			—			—			424			2,772			403			8,139
Income tax expense		1,282			—			—			161			1,053			403			2,899

Net income	$	3,258		$	—		$	—		$	263		$	1,719		$	—		$	5,240

Earnings per share – diluted	$	0.91		$	—		$	—		$	0.08		$	0.48		$	—		$	1.47
Return on common equity		6	%		—	%		—	%		1	%		3	%		—	%		10	%
Return on equity – goodwill^(b)		11			—			—			1			5			—			17

Return on assets		0.56		NM			NM			NM			NM			NM				0.85

Overhead ratio		79		NM			NM			NM			NM			NM				62

Effective income tax rate		28		NM			NM				38			38			100			36


Segment results – Operating basis^(a)																								Return on																													Return on
Three months ended March 31,^(b)	Total net revenue								Noninterest expense							Operating earnings								equity-goodwill
Three months ended June 30,^(b)																														Total net revenue								Noninterest expense							Operating earnings								equity–goodwill
(in millions, except ratios)	2005			2004		Change			2005		2004		Change			2005			2004		Change			2005			2004			2005			2004		Change			2005		2004		Change			2005			2004		Change			2005			2004


Investment Bank	$	4,180		$	3,764		11	%	$	2,525	$	2,326		9	%	$	1,325		$	1,017		30	%		27	%		27	%	$	2,750		$	2,939		(6	)%	$	2,178	$	2,056		6	%	$	606		$	644		(6	)%		12	%		18	%
Retail Financial Services		3,847			1,611		139			2,162		1,241		74			988			206		380			31			16			3,799			1,835		107			2,126		1,131		88			980			396		147			30			32
Card Services		3,779			1,557		143			1,313		599		119			522			162		222			18			19			3,886			1,587		145			1,383		565		145			542			176		208			18			21
Commercial Banking		850			322		164			458		209		119			243			74		228			29			37			900			334		169			473		203		133			174			65		168			21			35
Treasury & Securities Services		1,482			1,012		46			1,065		867		23			245			98		150			52			12			1,588			1,093		45			1,194		944		26			229			101		127			48			13
Asset & Wealth Management		1,361			848		60			934		649		44			276			122		126			47			9			1,343			828		62			917		681		35			283			99		186			47			7
Corporate		(759	)		418	NM				435		202		115			(687	)		251	NM			NM			NM				(366	)		560	NM				477		133		259			(486	)		325	NM			NM			NM

Total	$	14,740		$	9,532		55	%	$	8,892	$	6,093		46	%	$	2,912		$	1,930		51	%		19	%		21	%	$	13,900		$	9,176		51	%	$	8,748	$	5,713		53	%	$	2,328		$	1,806		29	%		15	%		19	%


																								Return on
Six months ended June 30,^(b)	Total net revenue								Noninterest expense							Operating earnings								equity–goodwill
(in millions, except ratios)	2005			2004		Change			2005		2004		Change			2005			2004		Change			2005			2004

Investment Bank	$	6,930		$	6,703		3	%	$	4,703	$	4,382		7	%	$	1,931		$	1,661		16	%		19	%		23	%
Retail Financial Services		7,646			3,446		122			4,288		2,372		81			1,968			602		227			30			24
Card Services		7,665			3,144		144			2,696		1,164		132			1,064			338		215			18			20
Commercial Banking		1,750			656		167			931		412		126			417			139		200			25			36
Treasury & Securities Services		3,070			2,105		46			2,259		1,811		25			474			199		138			50			13
Asset & Wealth Management		2,704			1,676		61			1,851		1,330		39			559			221		153			47			8
Corporate		(1,125	)		978	NM				912		335		172			(1,173	)		576	NM			NM			NM

Total	$	28,640		$	18,708		53	%	$	17,640	$	11,806		49	%	$	5,240		$	3,736		40	%		17	%		20	%


Selected income statement data(b)										Three months ended June 30,									Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except ratios)	2005			2004			Change			2005			2004			Change			2005			2004			Change

Revenue
Investment banking fees:
Advisory	$	263		$	147			79	%	$	359		$	268			34	%	$	622		$	415			50	%
Equity underwriting		239			177			35			104			221			(53	)		343			398			(14	)
Debt underwriting		483			366			32			502			402			25			985			768			28

Total investment banking fees		985			690			43			965			891			8			1,950			1,581			23
Trading-related revenue:^(b)
Trading-related revenue:
Fixed income and other		1,915			1,885			2			940			1,293			(27	)		2,855			3,178			(10	)
Equities		225			335			(33	)		(280	)		(86	)		(226	)		(55	)		249		NM
Credit portfolio		59			56			5			(46	)		29		NM				13			85			(85	)

Total trading-related revenue^(b)		2,199			2,276			(3	)
Total trading-related revenue^(c)											614			1,236			(50	)		2,813			3,512			(20	)
Lending & deposit related fees		157			96			64			146			112			30			303			208			46
Asset management, administration and commissions		408			393			4			413			348			19			821			741			11
Other income		127			14			NM			270			45			500			397			59		NM

Noninterest revenue		3,876			3,469			12			2,408			2,632			(9	)		6,284			6,101			3
Net interest income^(b)		304			295			3
Net interest income^(c)											342			307			11			646			602			7

Total net revenue^(c)		4,180			3,764			11
Total net revenue^(d)											2,750			2,939			(6	)		6,930			6,703			3
Provision for credit losses		(366	)		(188	)		(95	)		(343	)		(128	)		(168	)		(709	)		(316	)		(124	)
Credit reimbursement from TSS^(d)		38			2			NM
Credit reimbursement from TSS^(e)											38			2		NM				76			4		NM
Noninterest expense
Compensation expense		1,616			1,386			17			1,192			1,126			6			2,808			2,512			12
Noncompensation expense		909			940			(3	)		986			930			6			1,895			1,870			1

Total noninterest expense		2,525			2,326			9			2,178			2,056			6			4,703			4,382			7

Operating earnings before income tax expense		2,059			1,628			26			953			1,013			(6	)		3,012			2,641			14
Income tax expense		734			611			20			347			369			(6	)		1,081			980			10

Operating earnings	$	1,325		$	1,017			30		$	606		$	644			(6	)	$	1,931		$	1,661			16

Financial ratios
ROE		27	%		27	%		—	bp
ROA		0.95			0.97			(2	)
Overhead ratio		60			62			(200	)
Compensation expense as % of total net revenue		39			37			200


Financial ratios ROE		12	%		18	%	(600		)bp		19	%		23	%	(400		)bp
ROA		0.41			0.59			(18	)		0.67			0.78			(11	)
Overhead ratio		79			70			900			68			65			300
Compensation expense as % of total net revenue		43			38			500			41			37			400

Revenue by business^(f) Investment banking fees	$	965		$	891			8	%	$	1,950		$	1,581			23	%
Fixed income markets		1,418			1,572			(10	)		3,707			3,669			1
Equities markets		72			161			(55	)		628			793			(21	)
Credit portfolio		295			315			(6	)		645			660			(2	)

Total net revenue	$	2,750		$	2,939			(6	)	$	6,930		$	6,703			3

Revenue by region Americas	$	1,833		$	1,497			22		$	4,057		$	3,450			18
Europe/Middle East/Africa		554			1,032			(46	)		2,089			2,328			(10	)
Asia/Pacific		363			410			(11	)		784			925			(15	)

Total net revenue	$	2,750		$	2,939			(6	)	$	6,930		$	6,703			3


Selected metrics
Three months ended March 31,^(a)(b)
(in millions, except headcount and ratio data)	2005			2004			Change

Revenue by business
Investment banking fees	$	985		$	690			43	%
Fixed income markets		2,289			2,097			9
Equities markets		556			632			(12	)
Credit portfolio		350			345			1

Total net revenue	$	4,180		$	3,764			11

Revenue by region
Americas	$	2,224		$	1,953			14
Europe/Middle East/Africa		1,535			1,296			18
Asia/Pacific		421			515			(18	)

Total net revenue	$	4,180		$	3,764			11

Selected balance sheet data (average)
Total assets	$	566,778		$	422,151			34
Trading assets–debt and equity instruments^(c)		225,367			176,788			27
Trading assets–derivatives receivables		63,574			57,042			11
Loans^(d)		47,468			38,199			24
Adjusted assets^(e)		445,840			367,525			21
Equity^(f)		20,000			15,085			33

Headcount		17,993			14,930			21

Credit data and quality statistics
Net charge-offs	$	(5	)	$	34			NM
Nonperforming assets:
Nonperforming loans^(g)		814			1,498			(46	)
Other nonperforming assets		242			357			(32	)
Allowance for loan losses		1,191			855			39
Allowance for lending-related commitments		296			215			38

Net charge-off (recovery) rate^(d)		(0.05	)%		0.41	%		(46	)bp
Allowance for loan losses to average loans^(d)		3.03			2.59			44
Allowance for loan losses to nonperforming loans^(g)		147			58			8,900
Nonperforming loans to average loans		1.71			3.92			(221	)
Market risk–average trading and credit portfolio VAR^(h)(i)
Trading activities:
Fixed income^(h)	$	57		$	73			(22	)%
Foreign exchange		23			22			5
Equities		18			40			(55	)
Commodities and other		10			8			25
Diversification		(43	)		(49	)		12

Total trading VAR		65			94			(31	)
Credit portfolio VAR⁽ⁱ⁾		13			15			(13	)
Diversification		(8	)		(7	)		(14	)

Total trading and credit portfolio VAR	$	70		$	102			(31	)


Selected metrics^(a)	Three months ended June 30,									Six months ended June 30,
(in millions, except headcount and
ratio data)	2005			2004			Change			2005			2004			Change

Selected balance sheets data (average)
Total assets	$	592,383		$	439,166			35	%	$	579,651		$	430,658			35	%
Trading assets–debt and equity instruments		232,980			186,975			25			229,194			181,881			26
Trading assets–derivatives receivables		56,436			51,925			9			59,985			54,484			10
Loan Credit portfolio		30,435			26,192			16			29,838			26,956			11
Other loans^(b)		20,967			12,537			67			19,608			11,508			70

Total loans^(c)		51,402			38,729			33			49,446			38,464			29
Adjusted assets^(d)		453,895			373,461			22			449,845			370,493			21
Equity^(e)		20,000			14,015			43			20,000			14,550			37
Headcount		19,269			15,829			22			19,269			15,829			22
Credit data and quality statistics
Net charge-offs (recovery)	$	(47	)	$	15		NM			$	(52	)	$	49		NM
Nonperforming assets:
Nonperforming loans^(f)		711			1,202			(41	)		711			1,202			(41	)
Other nonperforming assets		235			339			(31	)		235			339			(31	)
Allowance for loan losses		971			742			31			971			742			31
Allowance for lending-related commitments		225			183			23			225			183			23
Net charge-off (recovery) rate^(c)		(0.56	)%		0.18	%		(74	)bp		(0.29	)%		0.30	%		(59	)bp
Allowance for loan losses to average loans^(c)		2.90			2.21			69			2.67			2.23			44
Allowance for loan losses to nonperforming loans^(f)		137			62			7,500			137			62			7,500
Nonperforming loans to average loans		1.38			3.10			(172	)		1.44			3.13			(169	)


Market risk–average trading and credit portfolio VAR^(g)(h)
Trading activities:
Fixed income^(g)	$	82		$	77		6	%	$	70		$	75		(7	)%
Foreign exchange		21			16		31			22			19		16
Equities		45			29		55			32			35		(9	)
Commodities and other		15			8		88			12			8		50
Diversification		(61	)		(42	)	(45	)		(52	)		(46	)	(13	)

Total trading VAR		102			88		16			84			91		(8	)
Credit portfolio VAR^(h)		13			15		(13	)		13			15		(13	)
Diversification		(13	)		(9	)	(44	)		(11	)		(8	)	(38	)

Total trading and credit portfolio VAR	$	102		$	94		9	%	$	86		$	98		(12	)%

~~(d)~~		Loans include loans ~~held for sale~~held-for-sale of ~~$8.2~~$17.9 billion and $5.2 billion for the ~~first quarters of~~periods ended June 30, 2005 and 2004, respectively. The year-to-date average loans held-for-sale were $13.0 billion and $5.2 billion for the periods ended June 30, 2005 and 2004, respectively. These amounts are not included in the allowance coverage ratios and net charge-off rates. See page 41 for a discussion of the change in loan balances.

~~(e)~~(d)		Adjusted assets, a non-GAAP financial measure, equals total ~~average~~ assets minus ~~(1)~~(i) securities purchased under resale agreements and securities borrowed less securities sold, not yet purchased; ~~(2)~~(ii) assets of variable interest entities (VIEs) consolidated under FIN 46R; ~~(3)~~(iii) cash and securities segregated and on deposit for regulatory and other purposes; and ~~(4)~~(iv) goodwill and intangibles. The amount of adjusted assets is presented to assist the reader in comparing the IB’s asset and capital levels to other investment banks in the securities industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a company’s capital adequacy. The IB believes an adjusted asset amount, which excludes certain assets considered to have a low-risk profile, provides a more meaningful measure of balance sheet leverage in the securities industry. See Capital management on pages ~~35–37~~42–44 of this Form 10–Q for a discussion of the Firm’s overall capital adequacy and capital management.

~~(f)~~(e)		Equity includes ~~$13.8~~$15.1 billion of economic risk capital assigned to the IB for the quarter ended ~~March 31,~~June 30, 2005.

~~(g)~~(f)		Nonperforming loans include loans ~~held for sale~~held-for-sale of $2 million ~~and $30 million~~ as of ~~March 31,~~both June 30, 2005 and 2004, respectively. These amounts are not included in the allowance coverage ratios.

~~(h)~~(g)		Includes all mark-to-market trading activities, plus available-for-sale securities held for proprietary purposes.

~~(i)~~(h)		Includes VAR on derivative credit valuation adjustments, credit valuation adjustment hedges and mark-to-market loan hedges, which are reported in Trading revenue. This VAR does not include the accrual loan portfolio, which is not marked to market.


							Asset																Asset
Three months ended March 31,^(a)	Investment		Trading-		Lending &		management,
	banking		related		deposit		administration		Other					Total net
																Investment		Trading-			Lending &		management,
Three months ended June 30,^(a)																banking		related			deposit		administration		Other					Total net
(in millions)	fees		revenue		related fees		and commissions		income			NII		revenue		fees		revenue			related fees		and commissions		income			NII		revenue

2005
Investment banking fees	$	985	$	—	$	—	$	—	$	—		$	—	$	985	$	965	$	—		$	—	$	—	$	—		$	—	$	965
Fixed income markets		—		1,915		65		64		104			141		2,289		—		940			61		50		192			175		1,418
Equities markets		—		225		—		333		(20	)		18		556		—		(280	)		—		350		(17	)		19		72
Credit portfolio		—		59		92		11		43			145		350		—		(46	)		85		13		95			148		295

Total	$	985	$	2,199	$	157	$	408	$	127		$	304	$	4,180	$	965	$	614		$	146	$	413	$	270		$	342	$	2,750


2004
Investment banking fees	$	690	$	—	$	—	$	—	$	—		$	—	$	690	$	891	$	—		$	—	$	—	$	—		$	—	$	891
Fixed income markets		—		1,885		26		60		49			77		2,097		—		1,293			28		59		63			129		1,572
Equities markets		—		335		—		325		(47	)		19		632		—		(86	)		—		279		(52	)		20		161
Credit portfolio		—		56		70		8		12			199		345		—		29			84		10		34			158		315

Total	$	690	$	2,276	$	96	$	393	$	14		$	295	$	3,764	$	891	$	1,236		$	112	$	348	$	45		$	307	$	2,939


Three months ended March 31,^(a)
Selected income statement data^(a)									Three months ended June 30,							Six months ended June 30,
(in millions)	2005		2004			Change			2005		2004		Change			2005		2004		Change

Prime production and servicing
Production	$	228	$	178			28	%	$	135	$	186		(27	)%	$	363	$	364		—	%
Servicing:
Mortgage servicing revenue, net of amortization		146		155			(6	)		142		193		(26	)		288		348		(17	)
MSR risk management results		106		61			74			166		86		93			272		147		85

Total net revenue		480		394			22			443		465		(5	)		923		859		7
Noninterest expense		229		289			(21	)		229		264		(13	)		458		553		(17	)
Operating earnings		158		65			143			136		128		6			294		193		52


Consumer real estate lending
Total net revenue	$	713	$	435			64		$	707	$	512		38		$	1,420	$	947		50
Provision for credit losses		30		(9	)		NM			38		38		—			68		29		134
Noninterest expense		238		203			17			234		172		36			472		375		26
Operating earnings		284		156			82			277		193		44			561		349		61

Total Home Finance
Total net revenue	$	1,193	$	829			44		$	1,150	$	977		18		$	2,343	$	1,806		30
Provision for credit losses		30		(9	)		NM			38		38		—			68		29		134
Noninterest expense		467		492			(5	)		463		436		6			930		928		—
Operating earnings		442		221			100			413		321		29			855		542		58


Selected metrics
Three months ended March 31,^(a)(b)
(in millions, except ratios and where otherwise noted)	2005			2004			Change

Origination volume by channel (in billions)
Retail	$	18.3		$	15.2			20	%
Wholesale		10.7			9.5			13
Correspondent		2.3			5.3			(57	)
Correspondent negotiated transactions		7.2			7.7			(6	)

Total	$	38.5		$	37.7			2

Origination volume by business (in billions)
Mortgage	$	26.6		$	31.0			(14	)
Home equity		11.9			6.7			78

Total	$	38.5		$	37.7			2

Business metrics (in billions)
Loans serviced – Mortgage (ending)^(c)	$	495.8		$	450.4			10
MSR net carrying value (ending)		5.7			4.2			36
End of period loans owned
Mortgage loans held for sale	$	9.6		$	12.8			(25	)
Mortgage loans retained		46.0			36.5			26
Home equity and other loans		68.8			26.3			162

Total end of period loans owned	$	124.4		$	75.6			65

Average loans owned
Mortgage loans held for sale	$	11.4		$	12.9			(12	)
Mortgage loans retained		44.3			35.8			24
Home equity and other loans		66.5			24.1			176

Total average loans owned	$	122.2		$	72.8			68

Overhead ratio		39	%		59	%		(2,000	)bp

Credit quality statistics
30+ day delinquency rate		1.15	%		1.32	%		(17	)bp
Net charge-offs
Mortgage	$	6		$	3			100	%
Home equity and other loans		35			25			40

Total net charge-offs		41			28			46
Net charge-off rate
Mortgage		0.05	%		0.03	%		2	bp
Home equity and other loans		0.21			0.42			(21	)
Total net charge-off rate^(d)		0.15			0.19			(4	)
Nonperforming assets	$	841		$	516			63	%


Selected metrics^(a)(b)	Three months ended June 30,							Six months ended June 30,
(in millions, except ratios and where otherwise noted)	2005		2004		Change			2005		2004		Change

Origination volume by channel (in billions)
Retail	$	22.8	$	20.8		10	%	$	41.1	$	36.0		14	%
Wholesale		13.2		15.7		(16	)		23.9		25.2		(5	)
Correspondent		3.6		7.9		(54	)		5.9		13.2		(55	)
Correspondent negotiated transactions		7.1		12.5		(43	)		14.3		20.2		(29	)

Total	$	46.7	$	56.9		(18	)	$	85.2	$	94.6		(10	)

Origination volume by business (in billions)
Mortgage	$	30.9	$	47.1		(34	)	$	57.5	$	78.1		(26	)
Home equity		15.8		9.8		61			27.7		16.5		68

Total	$	46.7	$	56.9		(18	)	$	85.2	$	94.6		(10	)


Business metrics (in billions)
Loans serviced – Mortgage (ending)^(c)	$	501.7		$	464.6		8		$	501.7		$	464.6		8
MSR net carrying value (ending)		5.0			5.7		(12	)		5.0			5.7		(12	)
End of period loans owned
Mortgage loans held-for-sale	$	11.2		$	13.6		(18	)	$	11.2		$	13.6		(18	)
Mortgage loans retained		47.4			40.5		17			47.4			40.5		17
Home equity and other loans		72.3			29.8		143			72.3			29.8		143

Total end of period loans owned	$	130.9		$	83.9		56		$	130.9		$	83.9		56
Average loans owned
Mortgage loans held-for-sale	$	10.5		$	14.6		(28	)	$	10.9		$	13.8		(21	)
Mortgage loans retained		47.0			38.2		23			45.7			37.0		24
Home equity and other loans		69.1			27.0		156			67.8			25.6		165

Total average loans owned	$	126.6		$	79.8		59		$	124.4		$	76.4		63

Overhead ratio		40	%		45	%	(500	)bp		40	%		51	%	(1,100	)bp

Credit quality statistics
30+ day delinquency rate^(d)		1.17	%		1.18	%	(1	)bp		1.17	%		1.18	%	(1	)bp
Net charge-offs
Mortgage	$	8		$	5		60	%	$	14		$	8		75	%
Home equity and other loans		30			23		30			65			48		35

Total net charge-offs		38			28		36			79			56		41
Net charge-off rate
Mortgage		0.07	%		0.05	%	2	bp		0.06	%		0.04	%	2	bp
Home equity and other loans		0.17			0.34		(17	)		0.19			0.38		(19	)
Total net charge-off rate^(e)		0.13			0.17		(4	)		0.14			0.18		(4	)
Nonperforming assets	$	799		$	468		71	%	$	799		$	468		71	%


Three months ended March 31,^(a)	Prime production					Consumer real
	and servicing					estate lending				Total revenue
															Prime production				Consumer real
Three months ended June 30,^(a)															and servicing				estate lending				Total revenue

(in millions)	2005		2004			2005		2004		2005		2004			2005		2004		2005		2004		2005		2004

Net interest income	$	115	$	182		$	678	$	397	$	793	$	579		$	111	$	202	$	673	$	410	$	784	$	612
Securities / private equity gains (losses)		2		(4	)		—		—		2		(4	)		1		—		—		—		1		—
Mortgage fees and related income^(b)		363		216			35		38		398		254			331		263		34		102		365		365

Total	$	480	$	394		$	713	$	435	$	1,193	$	829		$	443	$	465	$	707	$	512	$	1,150	$	977


Three months ended March 31,^(a)
MSR Risk Management Results^(a)							Three months ended June 30,						Six months ended June 30,
(in millions)	2005			2004			2005			2004			2005			2004

Reported amounts:
MSR valuation adjustments^(b)	$	551		$	(625	)	$	(703	)	$	1,221		$	(152	)	$	596
Derivative valuation adjustments and other risk management gains (losses)^(c)		(445	)		686			869			(1,135	)		424			(449	)

MSR risk management results	$	106		$	61		$	166		$	86		$	272		$	147


Selected income statement data – managed basis(a)										Three months ended June 30,									Six months ended June 30,
Three months ended March 31,^(a)
(in millions, except ratios)	2005			2004			Change			2005			2004			Change			2005			2004			Change

Revenue
Asset management, administration and commissions	$	—		$	24		NM			$	—		$	25			NM		$	—		$	49			NM
Credit card income		761			238			220	%		868			271			220	%		1,629			509			220	%
Other income		11			22			(50	)		42			20			110			53			42			26

Noninterest revenue		772			284			172			910			316			188			1,682			600			180
Net interest income		3,007			1,273			136			2,976			1,271			134			5,983			2,544			135

Total net revenue		3,779			1,557			143			3,886			1,587			145			7,665			3,144			144

Provision for credit losses		1,636			706			132			1,641			748			119			3,277			1,454			125

Noninterest expense
Compensation expense		285			156			83			291			150			94			576			306			88
Noncompensation expense		839			381			120			904			353			156			1,743			734			137
Amortization of intangibles		189			62			205			188			62			203			377			124			204

Total noninterest expense		1,313			599			119			1,383			565			145			2,696			1,164			132

Operating earnings before income tax expense		830			252			229			862			274			215			1,692			526			222
Income tax expense		308			90			242			320			98			227			628			188			234

Operating earnings	$	522		$	162			222		$	542		$	176			208		$	1,064		$	338			215


Financial metrics
ROE		18	%		19	%	(100		)bp		18	%		21	%		(300	)bp		18	%		20	%		(200	)bp
Overhead ratio		35			38			(300	)		36			36			—			35			37			(200	)


Selected average balances
Managed assets	$	140,741		$	51,510		173		$	139,632		$	51,630		170
Loans:
Loans on balance sheets	$	67,131		$	17,155		291		$	65,683		$	17,096		284
Securitized loans		68,075			34,052		100			68,718			34,239		101

Managed loans	$	135,206		$	51,207		164		$	134,401		$	51,335		162

Equity		11,800			3,346		253			11,800			3,369		250

Headcount		20,647			9,975		107			20,647			9,975		107

Credit quality statistics
Net charge-offs	$	1,641		$	745		120		$	3,231		$	1,488		117
Net charge-off rate		4.87	%		5.85	%	(98	)bp		4.85	%		5.83	%	(98	)bp

Delinquency ratios
30+ days		3.34	%		4.26	%	(92	)		3.34	%		4.26	%	(92	)
90+ days		1.54			1.94		(40	)		1.54			1.94		(40	)

Allowance for loan losses	$	3,055		$	1,191		157	%	$	3,055		$	1,191		157	%
Allowance for loan losses to period-end loans		4.46	%		6.93	%	(247	)bp		4.46	%		6.93	%	(247	)bp


Selected balance sheet data (average)
Total assets	$	55,080		$	16,239			239
Loans and leases		49,969			13,764			263
Liability balances^(c)		71,613			36,596			96
Equity		3,400			795			328

Memo:
Loans by business:
Middle market	$	30,216		$	5,109			491
Corporate banking		5,788			2,549			127
Real estate		10,345			3,610			187
Other		3,620			2,496			45

Total Commercial Banking loans	$	49,969		$	13,764			263

Headcount		4,495			1,701			164

Credit quality statistics
Net charge-offs (recoveries)	$	2		$	(1	)	NM
Nonperforming loans		433			165			162
Allowance for loan losses		1,312			111		NM
Allowance for lending-related commitments		170			28		NM

Net charge-off (recovery) rate		0.02	%		(0.03	)%	5		bp
Allowance for loan losses to average loans		2.63			0.81			182
Allowance for loan losses to nonperforming loans		303			67		NM
Nonperforming loans to average loans		0.87			1.20			(33	)


Memo
Treasury Services firmwide liability balances^(g)	$	133,770	$	74,817	79
Treasury & Securities Services firmwide liability balances^(g)		226,286		140,063	62
Headcount		23,073		15,341	50



(in millions, except headcount and where otherwise noted)
Firmwide disclosures
Treasury Services firmwide revenue^(g)	$	1,314		$	617		113		$	2,551		$	1,222		109
Treasury & Securities Services firmwide revenue^(g)		2,220			1,344		65			4,321			2,604		66
Treasury Services firmwide overhead ratio^(h)		54	%		65	%	(1,100	)bp		55	%		67	%	(1,200	)bp
Treasury & Securities Services firmwide overhead ratio^(h)		66			79		(1,300	)		64			79		(1,500	)
Treasury Services firmwide liability balances⁽ⁱ⁾	$	138,058		$	79,448		74	%	$	135,926		$	77,133		76	%
Treasury & Securities Services firmwide liability balances⁽ⁱ⁾		236,534			152,682		55			231,438			146,373		58


ASSETS UNDER SUPERVISION^(a)(b)
June 30, (in billions)	2005		2004

Asset class
Liquidity	$	223	$	152
Fixed income		171		117
Equities & balanced		323		261
Alternatives		66		45

Assets under management		783		575
Custody/brokerage/administration/deposits		310		221

Total Assets under supervision	$	1,093	$	796


Client segment
Private bank
Assets under management	$	135	$	139
Custody/brokerage/administration/deposits		165		138

Assets under supervision		300		277
Retail
Assets under management		141		101
Custody/brokerage/administration/deposits		97		80

Assets under supervision		238		181
Institutional
Assets under management		455		328
Custody/brokerage/administration/deposits		3		—

Assets under supervision		458		328
Private client services
Assets under management		52		7
Custody/brokerage/administration/deposits		45		3

Assets under supervision		97		10

Total Assets under supervision	$	1,093	$	796


Geographic region
Americas
Assets under management	$	535	$	370
Custody/brokerage/administration/deposits		270		189

Assets under supervision		805		559
International
Assets under management		248		205
Custody/brokerage/administration/deposits		40		32

Assets under supervision		288		237

Total Assets under supervision	$	1,093	$	796


Memo:
Mutual fund assets:
Liquidity	$	174	$	117
Fixed income		41		30
Equity, balanced & alternatives		114		74

Total mutual funds assets	$	329	$	221


ASSETS UNDER SUPERVISION^(a)
March 31,^(b) (in billions)	2005		2004

Asset class
Liquidity	$	228	$	159
Fixed income		171		120
Equities & balanced		326		266
Alternatives		65		44

Assets under management		790		589
Custody/brokerage/administration/deposits		302		216

Total Assets under supervision^(c)	$	1,092	$	805

Client segment
Private bank
Assets under management	$	138	$	141
Custody/brokerage/administration/deposits		161		135

Assets under supervision		299		276
Retail
Assets under management		138		106
Custody/brokerage/administration/deposits		94		78

Assets under supervision		232		184
Institutional
Assets under management		462		335
Custody/brokerage/administration/deposits		5		—

Assets under supervision		467		335
Private client services
Assets under management		52		7
Custody/brokerage/administration/deposits		42		3

Assets under supervision		94		10

Total Assets under supervision^(c)	$	1,092	$	805

Geographic region
Americas
Assets under management	$	558	$	377
Custody/brokerage/administration/deposits		263		186

Assets under supervision		821		563
International
Assets under management		232		212
Custody/brokerage/administration/deposits		39		30

Assets under supervision		271		242

Total Assets under supervision^(c)	$	1,092	$	805

Memo:
Mutual fund assets:
Liquidity	$	175	$	119
Fixed income		45		31
Equity, balanced & alternatives		106		87

Total mutual funds assets^(c)	$	326	$	237


	Three months ended June 30,						Six months ended June 30,
Assets under management rollforward	2005			2004			2005			2004

Beginning balance	$	790		$	589		$	791		$	561
Liquidity net asset flows		(5	)		(7	)		(11	)		(4	)
Fixed income net asset flows		(2	)		—			2			(1	)
Equity, balanced & alternative net asset flows		8			3			9			10
Market/other impacts^(c)		(8	)		(10	)		(8	)		9

Ending balance	$	783		$	575		$	783		$	575


Custody/brokerage/administration/deposits rollforward
Beginning balance	$	302		$	216		$	315		$	203
Custody / brokerage / administration net asset flows		(1	)		3			6			9
Market/other impacts		9			2			(11	)		9

Ending balance	$	310		$	221		$	310		$	221


Assets under supervision rollforward
Beginning balance	$	1,092		$	805		$	1,106		$	764
Net asset flows		—			(1	)		6			14
Market/other impacts^(c)		1			(8	)		(19	)		18

Ending balance	$	1,093		$	796		$	1,093		$	796


Assets under management rollforward
Beginning balance	$	791		$	561
Liquidity net asset flows		(6	)		3
Fixed income net asset flows		4			(1	)
Equity, balanced & alternative net asset flows		1			7
Market/other impacts		—			19

Ending balance	$	790		$	589


Custody/brokerage/administration/deposits rollforward
Beginning balance	$	315		$	203
Custody/brokerage/administration net asset flows		7			6
Market/other impacts		(20	)		7

Ending balance	$	302		$	216


Assets under supervision rollforward
Beginning balance	$	1,106		$	764
Net asset flows		6			15
Market/other impacts		(20	)		26

Ending balance	$	1,092		$	805


(a)		Excludes Assets under management of American Century.

(b)		2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only.

(c)		~~2004 has been restated~~Includes AWM’s strategic decision to ~~conform with current presentation.~~exit the Institutional Fiduciary business in the second quarter of 2005 ($12 billion).


Private equity portfolio information^(b)
Direct investments	March 31, 2005		December 31, 2004		Change

Publicly-held securities
Carrying value	$	1,149	$	1,170		(2	)%
Cost		808		744		9
Quoted public value		1,713		1,758		(3	)

Privately-held direct securities
Carrying value		5,490		5,686		(3	)
Cost		6,689		7,178		(7	)

Third-party fund investments^(c)
Carrying value		550		641		(14	)
Cost		934		1,042		(10	)


Total private equity portfolio
Carrying value	$	7,189	$	7,497		(4	)
Cost	$	8,431	$	8,964		(6	)