10–Q
For the Quarterly Period Ended | Commission file number1-5805 |
Delaware | 13-2624428 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
270 Park Avenue, New York, New York | 10017 | |
(Address of principal executive offices) | (Zip Code) |
Common Stock, $1 Par Value |
Page | ||||||||||
Item 1 | Consolidated Financial Statements — JPMorgan Chase & Co.: | |||||||||
Consolidated statements of income (unaudited) for the three and six months ended | 64 | |||||||||
Consolidated balance sheets (unaudited) at | 65 | |||||||||
Consolidated statements of changes in stockholders’ equity (unaudited) for the | 66 | |||||||||
Consolidated statements of cash flows (unaudited) for the | 67 | |||||||||
Notes to consolidated financial statements (unaudited) | 68 | |||||||||
Consolidated average balance sheet, interest and rates (unaudited) for the three and six months ended | 89 | |||||||||
Glossary of Terms and Line of Business Metrics | 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 | 14 | |||||||||
Balance Sheet Analysis | 41 | |||||||||
Capital Management | 42 | |||||||||
Off-Balance Sheet Arrangements and Contractual Cash Obligations | 44 | |||||||||
Risk Management | 45 | |||||||||
Supervision and Regulation | 61 | |||||||||
Critical Accounting Estimates Used by the Firm | 62 | |||||||||
Accounting and Reporting Developments | 63 | |||||||||
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 95 | ||||||||
Item 4 | Controls and Procedures | 95 | ||||||||
Part II – Other information | ||||||||||
Item 1 | Legal Proceedings | 95 | ||||||||
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 96 | ||||||||
Item 3 | Defaults Upon Senior Securities | 96 | ||||||||
Item 4 | Submission of Matters to a Vote of Security Holders | 96 | ||||||||
Item 5 | Other Information | 96 | ||||||||
Item 6 | Exhibits | 96 | ||||||||
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(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 | 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) | ||
(b) | Based on annualized amounts. | |
(c) | Represents Net income divided by Total average assets. | |
(d) | Excluded from this ratio were loans | |
(e) | Excluded from this ratio were average loans | |
(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. | |
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top 15 major metropolitan areas in the U.S.
CazenoveOn 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 PartnersOn 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 settlementOn 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
5
charges of $1.7 billion and Merger costs of $263 million. In addition to the firstaforementioned litigation charge in the second quarter of 2005, both the globalfirst-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. economiesMerger costs, operating earnings were $5.2 billion, or $1.47 per share, and return on common equity was 10%.
the year.
higher headcount levels.
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 provisionrewards expense. Strong new account originations led to an increase in balances in their introductory periods, resulting in margin compression.
Commercial Banking revenues benefited frompositive: wider spreads on higher liability balances (which include deposits and deposits swept into on-balance sheet liabilities), increased liability balances. These benefitsloan 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 salesales 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.
6
Performance in the Corporate segment was negatively affected by securities losses related to repositioning the repositioning oftreasury portfolio, compared with gains in the investment securities portfolio. Private Equity results were strong and included two largeprior period; this decline more than offset the significant increase in private equity gains.
quarter and $1.9 billion, or 52.8 million shares, of common stock during the first half of the year.
Card Services expectsrevenue 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 spend41%, which is also expected to increase from the first quarter level. Withinreflective of current market conditions.
The revenue outlook for the 2006.
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.
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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 52–53page 62 of this Form 10–Q, and pages 77–79 of the JPMorgan Chase 2004 Annual Report.
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) 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 tofrom 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
The increase in
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10–Q.
RFS in the first quarter of 2005.
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.
10-Q.
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) 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 tofrom the Merger.second quarter of 2004. Excluding $145 million of Merger costs and the $900 millionnonoperating 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 additionThe 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.
Compensation expense rose partially as a result of higher performance-related incentive accruals. The Firm added to its headcount as a result of insourcing itsFirm’s global technology infrastructure (effective December 31, 2004, JPMorgan Chase terminated its outsourcing agreement with IBM), and as a resultthe 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 increaseFirm.
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last year.
infrastructure.
9
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.
In March 2005,10–Q.
10–Q.
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) 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 costsincrease 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 Litigationlocal taxes. The nonoperating litigation reserve chargecharges in the first quarterhalf of 2005 and 2004, reflecting tax benefits at a 38% marginal tax rate, also contributed to the reduction in the 2005 effectivelow tax rate.
rate for both periods.
10
10
For additional detail on nonoperating litigation charges, see the Glossary of Terms on page 92 of this Form 10–Q.
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 | |||||||||||||||||||||||||||||||||||||||||||||||||
11
Three months ended March 31,(a) | 2004 | |||||||||||||||||||
Reported | Trading | Credit | Tax-equivalent | Operating | ||||||||||||||||
(in millions, except per share and ratio data) | results | reclass(c) | card(d) | adjustments | basis | |||||||||||||||
Revenue | ||||||||||||||||||||
Investment banking fees | $ | 692 | $ | — | $ | — | $ | — | $ | 692 | ||||||||||
Trading revenue | 1,720 | 576 | — | — | 2,296 | |||||||||||||||
Lending & deposit related fees | 414 | — | — | — | 414 | |||||||||||||||
Asset management, administration and commissions | 1,771 | — | — | — | 1,771 | |||||||||||||||
Securities/private equity gains | 432 | — | — | — | 432 | |||||||||||||||
Mortgage fees and related income | 259 | — | — | — | 259 | |||||||||||||||
Credit card income | 605 | — | (326 | ) | — | 279 | ||||||||||||||
Other income | 132 | — | (39 | ) | 34 | 127 | ||||||||||||||
Noninterest revenue | 6,025 | 576 | (365 | ) | 34 | 6,270 | ||||||||||||||
Net interest income | 2,986 | (576 | ) | 838 | 14 | 3,262 | ||||||||||||||
Total net revenue | 9,011 | — | 473 | 48 | 9,532 | |||||||||||||||
Provision for credit losses | 15 | — | 473 | — | 488 | |||||||||||||||
Noninterest expense | ||||||||||||||||||||
Merger costs | — | — | — | — | — | |||||||||||||||
Litigation reserve charge | — | — | — | — | — | |||||||||||||||
All other noninterest expense | 6,093 | — | — | — | 6,093 | |||||||||||||||
Total noninterest expense | 6,093 | — | — | — | 6,093 | |||||||||||||||
Income before income tax expense | 2,903 | — | — | 48 | 2,951 | |||||||||||||||
Income tax expense | 973 | — | — | 48 | 1,021 | |||||||||||||||
Net income | $ | 1,930 | $ | — | $ | — | $ | — | $ | 1,930 | ||||||||||
Earnings per share – diluted | $ | 0.92 | $ | — | $ | — | $ | — | $ | 0.92 | ||||||||||
Return on common equity | 17 | % | — | % | — | % | — | % | 17 | % | ||||||||||
Return on equity – goodwill(b) | 21 | — | — | — | 21 | |||||||||||||||
Return on assets | 1.01 | NM | NM | NM | 0.96 | |||||||||||||||
Overhead ratio | 68 | NM | NM | NM | 64 | |||||||||||||||
Effective income tax rate | 34 | NM | NM | 100 | 35 | |||||||||||||||
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 | |||||||||||||||||||||
Three months ended June 30,(a) | 2004 | |||||||||||||||||||||||||||
(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 | $ | 893 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 893 | ||||||||||||||
Trading revenue | 873 | 439 | — | — | — | — | 1,312 | |||||||||||||||||||||
Lending & deposit related fees | 412 | — | — | — | — | — | 412 | |||||||||||||||||||||
Asset management, administration and commissions | 1,814 | — | — | — | — | — | 1,814 | |||||||||||||||||||||
Securities/private equity gains (losses) | 460 | — | — | — | — | — | 460 | |||||||||||||||||||||
Mortgage fees and related income | 294 | — | — | — | — | — | 294 | |||||||||||||||||||||
Credit card income | 631 | — | (307 | ) | — | — | — | 324 | ||||||||||||||||||||
Other income | 260 | — | (45 | ) | — | — | 41 | 256 | ||||||||||||||||||||
Noninterest revenue | 5,637 | 439 | (352 | ) | — | — | 41 | 5,765 | ||||||||||||||||||||
Net interest income | 2,994 | (439 | ) | 838 | — | — | 18 | 3,411 | ||||||||||||||||||||
Total net revenue | 8,631 | — | 486 | — | — | 59 | 9,176 | |||||||||||||||||||||
Provision for credit losses | 203 | — | 486 | — | — | — | 689 | |||||||||||||||||||||
Noninterest expense | ||||||||||||||||||||||||||||
Merger costs | 90 | — | — | (90 | ) | — | — | — | ||||||||||||||||||||
Litigation reserve charge | 3,700 | — | — | — | (3,700 | ) | — | — | ||||||||||||||||||||
All other noninterest expense | 5,713 | — | — | — | — | — | 5,713 | |||||||||||||||||||||
Total noninterest expense | 9,503 | — | — | (90 | ) | (3,700 | ) | — | 5,713 | |||||||||||||||||||
Income before income tax expense | (1,075 | ) | — | — | 90 | 3,700 | 59 | 2,774 | ||||||||||||||||||||
Income tax expense | (527 | ) | — | — | 30 | 1,406 | 59 | 968 | ||||||||||||||||||||
Net income | $ | (548 | ) | $ | — | $ | — | $ | 60 | $ | 2,294 | $ | — | $ | 1,806 | |||||||||||||
Earnings per share – diluted | $ | (0.27 | ) | $ | — | $ | — | $ | 0.03 | $ | 1.09 | $ | — | $ | 0.85 | |||||||||||||
Return on common equity | NM | NM | NM | NM | NM | NM | 15 | % | ||||||||||||||||||||
Return on equity – goodwill(b) | NM | NM | NM | NM | NM | NM | 19 | |||||||||||||||||||||
Return on assets | NM | NM | NM | NM | NM | NM | 0.87 | |||||||||||||||||||||
Overhead ratio | 110 | % | NM | NM | NM | NM | NM | 62 | ||||||||||||||||||||
Effective income tax rate | 49 | NM | NM | 33 | % | 38 | % | 100 | % | 35 | ||||||||||||||||||
12
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 | |||||||||||||||||||||
Six months ended June 30,(a) | 2004 | |||||||||||||||||||||||||||
(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 | $ | 1,585 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,585 | ||||||||||||||
Trading revenue | 2,593 | 1,015 | — | — | — | — | 3,608 | |||||||||||||||||||||
Lending & deposit related fees | 826 | — | — | — | — | — | 826 | |||||||||||||||||||||
Asset management, administration and commissions | 3,650 | — | — | — | — | — | 3,650 | |||||||||||||||||||||
Securities/private equity gains (losses) | 892 | — | — | — | — | — | 892 | |||||||||||||||||||||
Mortgage fees and related income | 488 | — | — | — | — | — | 488 | |||||||||||||||||||||
Credit card income | 1,236 | — | (633 | ) | — | — | — | 603 | ||||||||||||||||||||
Other income | 392 | — | (84 | ) | — | — | 75 | 383 | ||||||||||||||||||||
Noninterest revenue | 11,662 | 1,015 | (717 | ) | — | — | 75 | 12,035 | ||||||||||||||||||||
Net interest income | 5,980 | (1,015 | ) | 1,676 | — | — | 32 | 6,673 | ||||||||||||||||||||
Total net revenue | 17,642 | — | 959 | — | — | 107 | 18,708 | |||||||||||||||||||||
Provision for credit losses | 218 | — | 959 | — | — | — | 1,177 | |||||||||||||||||||||
Noninterest expense | ||||||||||||||||||||||||||||
Merger costs | 90 | — | — | (90 | ) | — | — | — | ||||||||||||||||||||
Litigation reserve charge | 3,700 | — | — | — | (3,700 | ) | — | — | ||||||||||||||||||||
All other noninterest expense | 11,806 | — | — | — | — | — | 11,806 | |||||||||||||||||||||
Total noninterest expense | 15,596 | — | — | (90 | ) | (3,700 | ) | — | 11,806 | |||||||||||||||||||
Income before income tax expense | 1,828 | — | — | 90 | 3,700 | 107 | 5,725 | |||||||||||||||||||||
Income tax expense | 446 | — | — | 30 | 1,406 | 107 | 1,989 | |||||||||||||||||||||
Net income | $ | 1,382 | $ | — | $ | — | $ | 60 | $ | 2,294 | $ | — | $ | 3,736 | ||||||||||||||
13
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. | |
(d) | The impact of credit card securitizations affects | |
(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 | |
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. |
12
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, | |
(b) | 2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only. |
13
Selected income statement data | 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 | |
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 | ||
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. |
Revenuesquality.
16
14
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.
recoveries, as well as refinements in the data used to estimate the allowance for credit losses.
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 | ) |
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) | ||
(c) |
15
Loans include loans | ||
Adjusted assets, a non-GAAP financial measure, equals total | ||
Equity includes | ||
Nonperforming loans include loans | ||
Includes all mark-to-market trading activities, plus available-for-sale securities held for proprietary purposes. | ||
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. |
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 | ||||||||||||
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
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
Selected income statement data | 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. |
Total netoriginations and the decision to retain subprime mortgage loans rather than securitize.
subprime mortgage loan securitization gains.
20
loan securitization.
17
Selected metrics | 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) | ||
(c) | Includes demand and savings deposits. | |
Average loans include loans | ||
Nonperforming loans include loans |
21
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
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 | ) | ||||||||||||
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 | |
(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 |
19
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
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 | |
(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. |
MSR valuation adjustments
this Form 10–Q.
Selected income statement data | 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
24
Selected metrics | 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 | 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 | |
(c) | Primarily community development loans. | |
(d) | Includes demand and savings deposits. | |
21
AUTO & EDUCATION FINANCE
Selected income statement data | 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
25
Selected metrics | 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 |
Selected income statement data | 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
26
Selected metrics | 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 |
Selected income statement data – managed basis | 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. |
spend and an operating charge to increase litigation reserves.
27
23
Selected metrics | 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 | |
(c) | Represents Total net revenue less Provision for credit losses. |
24
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 | $ | 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
Selected income statement data | 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 |
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.
30
Selected metrics | 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 | |
(c) | Liability balances include deposits and deposits that are swept to on-balance sheet liabilities. |
31
Selected income statement data | 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. |
27
(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. | |
TSS net revenues of $1.5 billion were up $470 million, or 46%. Revenue growth reflected the benefit of the Merger, widerwidening spreads on liability balances, (whichimproved fee-based revenue, liability balance growth and the Merger. Current period results include depositscharges 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.
deposits and the absence, in the current period, of a gain on the sale of a business.
113%.
VasteraOn April 1, 2005, JPMorgan Chase acquired Vastera,Banking. The prior year included a providersoftware 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).
32
Worldwide Securities ServicesOn 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 | ) |
28
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 |
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 | |
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 | |||||||||
Beginning March 31, 2005, assets under custody include an estimated $400 billion of ITS assets under custody that have not been included previously. | ||
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. |
(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 | |
(i) | Firmwide liability balances include TS’ liability balances recorded in certain |
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 | ||||||||||||||||||
34
Selected income statement data | 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 |
29
balances and an improved loan mix.
Expenses increased to $934higher performance-based incentives, which were driven by improved investment results.
35
Selected metrics | 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 | 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 1stand 2nd 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 | |
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. |
36
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 | ||||
37
30
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) |
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. |
38
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.
Selected metrics | 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 | |||||||
39
33
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 |
40
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 | ||||
34
securities, deposits with banks and federal funds sold, and derivative receivables trading assets.
payables and debt and equity trading liabilities.
For additional information, refer to Note 3 on page 70 of this Form 10–Q.
10–Q.
10–Q.
41
10–Q.
section that follows.
35
(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) |
42
(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. |
36
15% limit by the March 31, 2009 implementation date.
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 |
43
(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. |
$1.9 billion, an increase in the deduction for goodwill of $334 million and the redemption of $200 million of preferred stock.
37
10–Q.
44
The revenue reported in the table below primarily represents servicing and custodial fee income.
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 | |
(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.
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 |
38
(b) | Includes unused advised lines of credit totaling | |
(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. |
45
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.
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.
June, lending stability to the primary and secondary markets, and credit spreads tightened to levels consistent with those earlier in the quarter.
46
39
Short-term debt | Senior long-term debt | |||||||||||||||||||||||
S&P | Fitch | Moody's | S&P | Fitch | ||||||||||||||||||||
JPMorgan Chase & Co. | P-1 | A-1 | F1 | Aa3 | A+ | 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+ | ||||||||||||||||||
S&P | A.M. Best | |||||||||||
Chase Insurance Life and Annuity Company | A2 | A+ | A | |||||||||
Chase Insurance Life Company | A2 | A+ | A | |||||||||
47
40
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 | ||||||||||
48
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 | |
(d) | Wholesale loans past-due 90 days and over and accruing were | |
(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 | |
(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 |
41
portfolio historical experience, to become outstanding in the event of a default by the obligor. Loan equivalents were | ||
(g) | Includes unused advised lines of credit totaling | |
Net charge-off rates exclude average HFS | ||
Past-due loans 90 days and over and accruing | ||
Represents securitized credit card receivables. For a further discussion of credit card securitizations, see Card Services on pages | ||
At | ||
Represents distressed wholesale loans purchased as part of IB’s proprietary investing activities. | ||
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. | ||
Excludes purchased HFS wholesale loans. | ||
Nonperforming assets include wholesale HFS loans of $2 million at both | ||
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. |
49
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
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 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
42
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 | |
(b) | Based on economic credit exposure, the total percentage of Investment-grade for derivative receivables was | |
(c) | Based on economic credit exposure, the maturity profile for the<1 year, | |
(d) | Based on economic credit exposure, the maturity profile for<1 year, 1–5 years and | |
(e) | Ratings are based on the underlying referenced assets. |
As
50
March 31, 2005 | December 31, 2004 | June 30, 2005 | December 31, 2004 | |||||||||||||||||||||||||||||
Criticized exposure – industry concentrations | % of | % of | % of | % of | ||||||||||||||||||||||||||||
(in millions) | Amount | portfolio | Amount | portfolio | ||||||||||||||||||||||||||||
(in millions, except ratios) | Amount | portfolio | Amount | portfolio | ||||||||||||||||||||||||||||
Media | $ | 656 | 10.9 | % | $ | 509 | 6.1 | % | ||||||||||||||||||||||||
Utilities | $ | 735 | 11.4 | % | $ | 890 | 10.7 | % | 639 | 10.6 | 890 | 10.7 | ||||||||||||||||||||
Consumer products | 452 | 7.5 | 479 | 5.8 | ||||||||||||||||||||||||||||
Real estate | 617 | 9.6 | 765 | 9.2 | 420 | 6.9 | 765 | 9.2 | ||||||||||||||||||||||||
Media | 481 | 7.5 | 509 | 6.1 | ||||||||||||||||||||||||||||
Building materials/construction | 360 | 6.0 | 430 | 5.2 | ||||||||||||||||||||||||||||
Airlines | 352 | 5.8 | 450 | 5.4 | ||||||||||||||||||||||||||||
Business services | 447 | 6.9 | 444 | 5.4 | 328 | 5.4 | 444 | 5.4 | ||||||||||||||||||||||||
Consumer products | 350 | 5.4 | 479 | 5.8 | ||||||||||||||||||||||||||||
Airlines | 348 | 5.4 | 450 | 5.4 | ||||||||||||||||||||||||||||
Automotive | 337 | 5.2 | 359 | 4.3 | ||||||||||||||||||||||||||||
Machinery and equipment manufacturing | 320 | 5.0 | 459 | 5.6 | 316 | 5.2 | 459 | 5.6 | ||||||||||||||||||||||||
Building materials/construction | 304 | 4.7 | 430 | 5.2 | ||||||||||||||||||||||||||||
Chemicals/plastics | 250 | 4.1 | 488 | 5.9 | ||||||||||||||||||||||||||||
Metals/mining | 289 | 4.5 | 438 | 5.3 | 234 | 3.9 | 438 | 5.3 | ||||||||||||||||||||||||
All Other | 2,221 | 34.4 | 3,061 | 37.0 | 2,033 | 33.7 | 2,932 | 35.4 | ||||||||||||||||||||||||
Total | $ | 6,449 | 100.0 | % | $ | 8,284 | 100.0 | % | $ | 6,040 | 100.0 | % | $ | 8,284 | 100.0 | % |
43
Nonperforming assets by line of business | Nonperforming assets by line of business | |||||||||||||||||||||||||||||||||||||||
(in millions, except ratios) | March 31, 2005 | % of NPA | December 31, 2004 | % of NPA | Change | June 30, 2005 | % of NPA | December 31, 2004 | % of NPA | Change | ||||||||||||||||||||||||||||||
Investment Bank | $ | 1,056 | 67 | % | $ | 1,196 | 65 | % | (12 | )% | $ | 946 | 63 | % | $ | 1,196 | 65 | % | (21 | )% | ||||||||||||||||||||
Commercial Banking | 452 | 28 | 547 | 30 | (17 | ) | 452 | 30 | 547 | 30 | (17 | ) | ||||||||||||||||||||||||||||
Treasury & Securities Services | 4 | — | 14 | 1 | (71 | ) | 6 | — | 14 | 1 | (57 | ) | ||||||||||||||||||||||||||||
Asset & Wealth Management | 78 | 5 | 81 | 4 | (4 | ) | 100 | 7 | 81 | 4 | 23 | |||||||||||||||||||||||||||||
Total(a) | $ | 1,590 | 100 | % | $ | 1,838 | 100 | % | (13 | )% | $ | 1,504 | 100 | % | $ | 1,838 | 100 | % | (18 | )% | ||||||||||||||||||||
(a) | Includes assets acquired in loan satisfactions of |
For the six months ended June 30, 2005, the net recovery rate was 0.10%, compared with a net charge-off rate of 0.39% in 2004.
The following table summarizes the aggregate notional amounts and the reported derivative receivables (i.e., the MTM or fair value of the derivative contracts after taking into account the effects of legally enforceable master netting agreements) at each of the dates indicated:
51
Notional amounts(a) | Derivative receivables MTM | Notional amounts(a) | Derivative receivables MTM | |||||||||||||||||||||||||||||
(in billions) | March 31, 2005 | December 31, 2004 | March 31, 2005 | December 31, 2004 | June 30, 2005 | December 31, 2004 | June 30, 2005 | December 31, 2004 | ||||||||||||||||||||||||
Interest rate | $ | 37,412 | $ | 37,022 | $ | 41 | $ | 46 | $ | 38,114 | $ | 37,022 | $ | 37 | $ | 46 | ||||||||||||||||
Foreign exchange | 1,710 | 1,886 | 5 | 8 | 1,673 | 1,886 | 6 | 8 | ||||||||||||||||||||||||
Equity | 446 | 434 | 7 | 6 | 482 | 434 | 4 | 6 | ||||||||||||||||||||||||
Credit derivatives | 1,333 | 1,071 | 3 | 3 | 1,626 | 1,071 | 4 | 3 | ||||||||||||||||||||||||
Commodity | 114 | 101 | 4 | 3 | 156 | 101 | 4 | 3 | ||||||||||||||||||||||||
Total | $ | 41,015 | $ | 40,514 | $ | 60 | $ | 66 | $ | 42,051 | $ | 40,514 | $ | 55 | $ | 66 | ||||||||||||||||
Collateral held against derivative receivables | NA | NA | (7) | (b) | (9 | )(c) | NA | NA | (9) | (b) | (9 | )(c) | ||||||||||||||||||||
Total | NA | NA | $ | 53 | $ | 57 | NA | NA | $ | 46 | $ | 57 | ||||||||||||||||||||
(a) | The notional amounts represent the gross sum of long and short third-party notional derivative contracts, excluding written options and foreign exchange spot contracts. | |
(b) | The Firm held | |
(c) | The Firm held $41 billion of collateral against derivative receivables as of December 31, 2004, consisting of $32 billion in net cash received under credit support annexes to legally enforceable master netting agreements, and $9 billion of other highly liquid collateral. The benefit of the $32 billion is reflected within the $66 billion of derivative receivables MTM. Excluded from the $41 billion of collateral is $10 billion of collateral delivered by clients at the initiation of transactions; this collateral secures exposure that could arise in the existing derivatives portfolio should the MTM of the client’s transactions move in the Firm’s favor. Also excluded are credit enhancements in the form of letter-of-credit and surety receivables. |
44
March 31, 2005 | December 31, 2004 | June 30, 2005 | December 31, 2004 | |||||||||||||||||||||||||||||
Rating equivalent | Exposure net | % of exposure | Exposure net | % of exposure | Exposure net | % of exposure | Exposure net | % of exposure | ||||||||||||||||||||||||
(in millions) | of collateral(a) | net of collateral | of collateral(b) | net of collateral | of collateral(a) | net of collateral | of collateral(b) | net of collateral | ||||||||||||||||||||||||
AAA to AA- | $ | 25,179 | 48 | % | $ | 30,384 | 53 | % | $ | 20,164 | 44 | % | $ | 30,384 | 53 | % | ||||||||||||||||
A+ to A- | 7,964 | 15 | 9,109 | 16 | 6,960 | 15 | 9,109 | 16 | ||||||||||||||||||||||||
BBB+ to BBB- | 9,575 | 18 | 9,522 | 17 | 8,085 | 18 | 9,522 | 17 | ||||||||||||||||||||||||
BB+ to B- | 9,770 | 18 | 7,271 | 13 | 10,101 | 22 | 7,271 | 13 | ||||||||||||||||||||||||
CCC+ and below | 364 | 1 | 395 | 1 | 365 | 1 | 395 | 1 | ||||||||||||||||||||||||
Total | $ | 52,852 | 100 | % | $ | 56,681 | 100 | % | $ | 45,675 | 100 | % | $ | 56,681 | 100 | % |
(a) | See footnote (b) | |
(b) | See footnote (c) |
52
Notional amount | Notional amount | |||||||||||||||||||||||||||||||||||||||
Portfolio management | Dealer/client | Portfolio management | Dealer/client | |||||||||||||||||||||||||||||||||||||
Protection | Protection | Protection | Protection | Protection | Protection | Protection | Protection | |||||||||||||||||||||||||||||||||
(in millions) | bought(a) | sold | bought | sold | Total | bought | (a) | sold | bought | sold | Total | |||||||||||||||||||||||||||||
March 31, 2005 | $ | 34,347 | $ | 33 | $ | 623,967 | $ | 674,757 | $ | 1,333,104 | ||||||||||||||||||||||||||||||
June 30, 2005 | $ | 34,066 | $ | 737 | $ | 770,609 | $ | 820,323 | $ | 1,625,735 | ||||||||||||||||||||||||||||||
December 31, 2004 | 37,237 | 37 | 501,266 | 532,335 | 1,070,875 | 37,237 | 37 | 501,266 | 532,335 | 1,070,875 |
(a) | Includes |
Notional amount of protection bought | Notional amount of protection bought | |||||||||||||||
(in millions) | March 31, 2005 | December 31, 2004 | June 30, 2005 | December 31, 2004 | ||||||||||||
Credit derivatives used to manage: | ||||||||||||||||
Loans and lending-related commitments | $ | 22,941 | $ | 25,002 | $ | 21,998 | $ | 25,002 | ||||||||
Derivative receivables | 11,406 | 12,235 | 12,068 | 12,235 | ||||||||||||
Total | $ | 34,347 | $ | 37,237 | $ | 34,066 | $ | 37,237 |
45
Portfolio management activity in the first quarter of 2004 resulted in a gain of $58 million included in Trading revenue. These gains included $21 million, the majority of which was the result of wider high yield credit spreads, on credit derivatives used to manage the Firm’s risk associated with accrual lending activities. The remaining $37
53
54
46
Credit-related | Nonperforming | Average annual net | ||||||||||||||||||||||||||||||||||||||||||||||
exposure | assets | Net charge-offs | charge-off rate(d) | |||||||||||||||||||||||||||||||||||||||||||||
Mar. 31, | Dec. 31, | Mar. 31, | Dec. 31, | Credit-related exposure | Nonperforming assets | |||||||||||||||||||||||||||||||||||||||||||
(in millions, except ratios) | 2005 | 2004 | 2005 | 2004 | 1Q05 | 1Q04(c) | 1Q05 | 1Q04(c) | June 30, 2005 | Dec. 31, 2004 | June 30, 2005 | Dec. 31, 2004 | ||||||||||||||||||||||||||||||||||||
Consumer real estate | ||||||||||||||||||||||||||||||||||||||||||||||||
Home finance – home equity and other | $ | 68,779 | $ | 67,837 | $ | 390 | $ | 416 | $ | 35 | $ | 25 | 0.21 | % | 0.42 | % | ||||||||||||||||||||||||||||||||
Home finance – mortgage | 55,588 | 56,816 | 301 | 257 | 6 | 3 | 0.05 | 0.03 | ||||||||||||||||||||||||||||||||||||||||
Home finance | ||||||||||||||||||||||||||||||||||||||||||||||||
Home equity and other | $ | 72,346 | $ | 67,837 | $ | 368 | $ | 416 | ||||||||||||||||||||||||||||||||||||||||
Mortgage | 58,594 | 56,816 | 294 | 257 | ||||||||||||||||||||||||||||||||||||||||||||
Total Home finance | 124,367 | 124,653 | 691 | 673 | 41 | 28 | 0.15 | 0.19 | 130,940 | 124,653 | 662 | 673 | ||||||||||||||||||||||||||||||||||||
Auto & education finance | 59,837 | 62,712 | 171 | 193 | 83 | 40 | 0.60 | 0.38 | 52,309 | 62,712 | 190 | 193 | ||||||||||||||||||||||||||||||||||||
Consumer & small business and other | 15,011 | 15,107 | 288 | 295 | 28 | 17 | 0.76 | 1.63 | 14,678 | 15,107 | 280 | 295 | ||||||||||||||||||||||||||||||||||||
Credit card receivables – reported(a) | 66,053 | 64,575 | 8 | 8 | 673 | 270 | 4.25 | 6.37 | 68,510 | 64,575 | 9 | 8 | ||||||||||||||||||||||||||||||||||||
Total consumer loans – reported | 265,268 | 267,047 | 1,158 | 1,169 | 825 | 355 | 1.36 | 1.16 | 266,437 | 267,047 | 1,141 | 1,169 | ||||||||||||||||||||||||||||||||||||
Credit card securitizations(a)(b) | 67,328 | 70,795 | — | — | 917 | 473 | 5.36 | 5.53 | 68,808 | 70,795 | — | — | ||||||||||||||||||||||||||||||||||||
Total consumer loans – managed(a) | 332,596 | 337,842 | 1,158 | 1,169 | 1,742 | 828 | 2.23 | 2.11 | ||||||||||||||||||||||||||||||||||||||||
Total consumer loans – managed | 335,245 | 337,842 | 1,141 | 1,169 | ||||||||||||||||||||||||||||||||||||||||||||
Assets acquired in loan satisfactions | NA | NA | 201 | 224 | NA | NA | NA | NA | NA | NA | 187 | 224 | ||||||||||||||||||||||||||||||||||||
Total consumer related assets – managed | 332,596 | 337,842 | 1,359 | 1,393 | 1,742 | 828 | 2.23 | 2.11 | 335,245 | 337,842 | 1,328 | 1,393 | ||||||||||||||||||||||||||||||||||||
Consumer lending–related commitments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Home finance | 60,380 | 53,223 | NA | NA | NA | NA | NA | NA | 58,839 | 53,223 | NA | NA | ||||||||||||||||||||||||||||||||||||
Auto & education finance | 5,655 | 5,193 | NA | NA | NA | NA | NA | NA | 5,979 | 5,193 | NA | NA | ||||||||||||||||||||||||||||||||||||
Consumer & small business and other | 7,961 | 10,312 | NA | NA | NA | NA | NA | NA | 5,199 | 10,312 | NA | NA | ||||||||||||||||||||||||||||||||||||
Credit cards | 540,953 | 532,468 | NA | NA | NA | NA | NA | NA | 538,396 | 532,468 | NA | NA | ||||||||||||||||||||||||||||||||||||
Total lending-related commitments | 614,949 | 601,196 | NA | NA | NA | NA | NA | NA | 608,413 | 601,196 | NA | NA | ||||||||||||||||||||||||||||||||||||
Total consumer credit portfolio | $ | 947,545 | $ | 939,038 | $ | 1,359 | $ | 1,393 | $ | 1,742 | $ | 828 | 2.23 | % | 2.11 | % | $ | 943,658 | $ | 939,038 | $ | 1,328 | $ | 1,393 |
Average annual net | Average annual net | |||||||||||||||||||||||||||||||
Net Charge-offs | charge-off rate(d) | Net Charge-offs | charge-off rate(d) | |||||||||||||||||||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
(in millions, except ratios) | 2005 | 2004(c) | 2005 | 2004(c) | 2005 | 2004(c) | 2005 | 2004(c) | ||||||||||||||||||||||||
Home finance | ||||||||||||||||||||||||||||||||
Home equity and other | $ | 30 | $ | 23 | 0.17 | % | 0.34 | % | $ | 65 | $ | 48 | 0.19 | % | 0.38 | % | ||||||||||||||||
Mortgage | 8 | 5 | 0.07 | 0.05 | 14 | 8 | 0.06 | 0.04 | ||||||||||||||||||||||||
Total Home finance | 38 | 28 | 0.13 | 0.17 | 79 | 56 | 0.14 | 0.18 | ||||||||||||||||||||||||
Auto & education finance | 47 | 31 | 0.36 | 0.29 | 130 | 71 | 0.48 | 0.34 | ||||||||||||||||||||||||
Consumer & small business and other | 29 | 21 | 0.81 | 2.06 | 57 | 38 | 0.78 | 1.82 | ||||||||||||||||||||||||
Credit card receivables – reported | 711 | 259 | 4.25 | 6.07 | 1,384 | 529 | 4.25 | 6.22 | ||||||||||||||||||||||||
Total consumer loans – reported | 825 | 339 | 1.32 | 1.05 | 1,650 | 694 | 1.34 | 1.10 | ||||||||||||||||||||||||
Credit card securitizations(b) | 930 | 486 | 5.48 | 5.74 | 1,847 | 959 | 5.42 | 5.63 | ||||||||||||||||||||||||
Total consumer loans – managed | $ | 1,755 | $ | 825 | 2.21 | % | 2.03 | % | $ | 3,497 | $ | 1,653 | 2.22 | % | 2.07 | % | ||||||||||||||||
Memo: Credit card – managed | $ | 1,641 | $ | 745 | 4.87 | % | 5.85 | % | $ | 3,231 | $ | 1,488 | 4.85 | % | 5.83 | % | ||||||||||||||||
(a) | Past-due loans 90 days and over and accruing includes 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 | |
(b) | Represents securitized credit card receivables. For a further discussion of credit card securitizations, see Card Services on pages | |
(c) | Heritage JPMorgan Chase only. | |
(d) | Net charge-off rates exclude average HFS retail loans | |
NA– | Not applicable. |
55
These benefits were partially offset by the merger. The Firm proactively manages its retail credit operation. Ongoing efforts include continual review and enhancement of credit underwriting criteria and refinement of pricing and risk management models.
47
securitize, subprime mortgage loans, which caused subprime mortgage loans to increase from $7 billion at December 31, 2004, to $9 billion at March 31, 2005.loans. Home Finance provides real estate lending to the full spectrum of credit borrowers and maintains a geographic distribution of consumer real estate loans that is well diversified.
2004.
56
Three months ended March 31,(a) | 2005 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||
Six months ended June 30,(a) | 2005 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Wholesale | Consumer | Total | Wholesale | Consumer | Total | Wholesale | Consumer | Total | Wholesale | Consumer | Total | ||||||||||||||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance at January 1 | $ | 3,098 | $ | 4,222 | $ | 7,320 | $ | 2,204 | $ | 2,319 | $ | 4,523 | $ | 3,098 | $ | 4,222 | $ | 7,320 | $ | 2,204 | $ | 2,319 | $ | 4,523 | ||||||||||||||||||||||||
Gross charge-offs | (61 | ) | (972 | ) | (1,033 | ) | (168 | ) | (406 | ) | (574 | ) | (92 | ) | (1,950 | ) | (2,042 | ) | (340 | ) | (791 | ) | (1,131 | ) | ||||||||||||||||||||||||
Gross recoveries | 70 | 147 | 217 | 79 | 51 | 130 | 153 | 300 | 453 | 198 | 97 | 295 | ||||||||||||||||||||||||||||||||||||
Net charge-offs | 9 | (825 | ) | (816 | ) | (89 | ) | (355 | ) | (444 | ) | 61 | (1,650 | ) | (1,589 | ) | (142 | ) | (694 | ) | (836 | ) | ||||||||||||||||||||||||||
Provision for loan losses | (380 | ) | 811 | 431 | (246 | ) | 288 | 42 | (550 | ) | 1,617 | 1,067 | (346 | ) | 628 | 282 | ||||||||||||||||||||||||||||||||
Other | — | — | — | — | (1 | ) | (1 | ) | (5 | ) | 1 | (4 | ) | (1 | ) | (1 | ) | (2 | ) | |||||||||||||||||||||||||||||
Ending balance at March 31 | $ | 2,727 | (b) | $ | 4,208 | (c) | $ | 6,935 | $ | 1,869 | $ | 2,251 | $ | 4,120 | ||||||||||||||||||||||||||||||||||
Ending balance at June 30 | $ | 2,604 | (b) | $ | 4,190 | (c) | $ | 6,794 | $ | 1,715 | $ | 2,252 | $ | 3,967 | ||||||||||||||||||||||||||||||||||
Lending-related commitments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance at January 1 | $ | 480 | $ | 12 | $ | 492 | $ | 320 | $ | 4 | $ | 324 | $ | 480 | $ | 12 | $ | 492 | $ | 320 | $ | 4 | $ | 324 | ||||||||||||||||||||||||
Net charge-offs | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Provision for lending-related commitments | (6 | ) | 2 | (4 | ) | (26 | ) | (1 | ) | (27 | ) | (54 | ) | 1 | (53 | ) | (63 | ) | (1 | ) | (64 | ) | ||||||||||||||||||||||||||
Ending balance at March 31 | $ | 474 | $ | 14 | $ | 488 | (d) | $ | 294 | $ | 3 | $ | 297 | |||||||||||||||||||||||||||||||||||
Ending balance at June 30 | $ | 426 | $ | 13 | $ | 439 | (d) | $ | 257 | $ | 3 | $ | 260 |
(a) | 2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only. | |
(b) | Includes | |
(c) | Includes $3.1 billion and $1.1 billion of the consumer statistical component and adjustments to the statistical component, respectively. |
48
(d) | Includes |
Overall:
businesses and to a lesser extent refinements in the data used to estimate the wholesale allowance for credit losses.
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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. |
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49
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 | $ | 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 | |
(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 | |
(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. | |
For the |
Average IB trading and Credit Portfolio VAR during the first quarterhalf 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-endCredit 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
50
60
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.
Immediate change in rates | ||||||||||||
(in millions) | +200bp | +100bp | -100bp | |||||||||
June 30, 2005 | $ | (442 | ) | $ | (139 | ) | $ | 131 | ||||
December 31, 2004 | (557 | ) | (164 | ) | (180 | ) | ||||||
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52
10–Q.
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
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.
53
total awards granted each year.
63
54
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 | ||||
64
56
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 | ||||
65
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. |
66
57
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. |
67
58
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
(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. |
(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
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 eventsOn 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.
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
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. |
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. |
61
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.
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. |
(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
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. |
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 | |
(b) | Consists primarily of mortgage-backed |
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 |
(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 |
63
74
(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 | |
(f) | Includes loans | |
(g) | Amounts are presented gross of the Allowance for loan losses. |
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. |
75
64
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 |
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 |
(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 |
76
65
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 | |
(d) | Wholesale activities consist of wholesale loans (primarily real estate) originated by the Investment Bank as well as | |
(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. |
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.
77
(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 |
66
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 |
78
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 | |
(c) | Total assets held in securitization-related SPEs were | |
(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. |
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 |
79
(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) | ||
The fair value of the Firm’s derivative contracts with credit-linked note vehicles was not material at | ||
Total amounts consolidated due to the Firm owning residual interests was $2.5 billion and $2.6 billion at | ||
68
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.
(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 | |
(b) | Includes the fair value of securities and derivatives. |
80
(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 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 |
69
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. |
81
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. |
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 | ||||||||||||
70
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 | |
(b) | 2005 reflects the combined Firm’s results, while 2004 reflects the |
82
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 |
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 | |
(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. |
71
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. |
83
(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 | |
(d) | At | |
The net change for the |
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. |
84
72
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 | 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 | $ | 221,346 | $ | 215,972 | NA | NA | $ | 234,149 | $ | 215,972 | NA | NA |
(a) | Represents contractual amount net of risk participations totaling | |
(b) | Includes unused advised lines of credit totaling | |
(c) | Includes certain asset purchase agreements to the Firm’s administered multi-seller asset-backed commercial paper conduits of | |
(d) | JPMorgan Chase held collateral relating to | |
(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 |
85
73
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 | % | |||||||||||||||||||||||
86
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 | |
(b) | 2005 reflects the combined Firm’s results, while 2004 reflects the results of heritage JPMorgan Chase only. | |
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. | ||
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 |
87
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 |
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. | ||
Segment operating results reflect revenues on a | ||
Tax–equivalent adjustments |
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. | ||
Merger costs attributed to the lines of business |
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
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 | |
(b) | Includes securities sold but not yet purchased. |
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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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EITF Issue 04-7:“Determining Whether an Interest Is a Variable Interest in a Potential Variable Interest Entity.”
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SFAS 107:“Disclosures about Fair Value of Financial Instruments.”
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IB’s revenues are comprised of the following:
Description of selected business metrics within Home Finance:
93
Description of selected business metrics within Card Services:
79
Commercial Banking revenues are comprised of the following:
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.
AWM’s client segments are comprised of the following:
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80
10–Q.
2005 (the “Firm’s SEC filings”).
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. AllYork 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 paymentseveral 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.
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.
September 9, 2005, at which time it is expected that a trial date for that action will be set.
2006.
other defendants.
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81
recommending that
Mutual Fund Litigation.On March 25, 2005, Bank One and other defendants filed motionstheir respective businesses. Additional actions, investigations or proceedings may be brought from time to dismiss the Employee Retirement Income Security Act claimstime in the litigationfuture. 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 toafter 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 violationoutcome of the West Virginia Consumer Creditlegal actions, proceedings and Protection Act.
Bank One Securities Litigation.The Firm as successor to Bank One Corporation, settled all First Chicago Shareholder claimsinvestigations 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 officersinvestigations, 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 inIn Re Bank One Securities Litigationthe 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.
During the firstsecond 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: 37,988May 18, 2005 – 3,351 shares.
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. |
$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.
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.
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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JPMORGAN CHASE & CO. (Registrant) | ||||
Date: | ||||
By | /s/ Joseph L. Sclafani | |||
Joseph L. Sclafani Executive Vice President and Controller [Principal Accounting Officer] |
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83
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 |
32 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 102 |
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