1
FORM 10-Q
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
(Mark one)
(x) QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
For the quarterly period
ended September 30, 1995
OR
( ) TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
Commission file number: 1-
5885
J.P. MORGAN & CO.
INCORPORATED (Exact name of
registrant as
specified in its charter)
Delaware 13-
2625764
(State or (I.R.S.
other jurisdiction of Employer
incorporation or organization) Identification No.)
60 Wall Street, New York,
NY (Address of principal
executive offices)
10260-0060
(Zip Code)
(212) 483-2323
(Registrant's telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes..X.. No.....
Number of shares outstanding of each of the registrant's classes of
common stock at October 31, 1995:
Common Stock, $2.50 Par Value 187,544,438
Shares
2
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Financial statement information is set forth within this document on
the pages indicated:
Page Three-month Consolidated statement of income
J.P. Morgan & Co. Incorporated 3
Nine-month Consolidated statement of income
J.P. Morgan & Co. Incorporated 4
Consolidated balance sheet
J.P. Morgan & Co. Incorporated 5
Consolidated statement of changes in stockholders' equity
J.P. Morgan & Co. Incorporated 6
Consolidated statement of cash flows
J.P. Morgan & Co. Incorporated 7
Consolidated statement of condition
Morgan Guaranty Trust Company of New York 8
Notes to Consolidated financial statements
J.P. Morgan & Co. Incorporated 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of business sector results; Discussion of the
financial condition and results of operations; Statements
of consolidated average balances and net interest earnings of
J.P. Morgan & Co. Incorporated ("J.P. Morgan") for the
three months and nine months ended September 30, 1995; and Table of
asset and liability management derivatives are set forth
on pages 19 through 36 herein.
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 37
SIGNATURES 38
3
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
_______________________________________________________________________________
__ _________
In millions,
except per share data Three months ended
_________________________________________________________________
September September June
30 30 Increase 30 Increase
1995 1994 (Decrease 1995
(Decrease
) )
_________________________________________________________________
NET INTEREST REVENUE
Interest revenue $2,453 $2,142 $311 $2,405 $48
Interest expense 1,946 1,616 330 1,897 49
_______________________________________________________________________________
__ _________
Net interest revenue 507 526 (19) 508 (1)
NONINTEREST REVENUE
Trading revenue 399 282 117 305 94
Corporate finance 195 108 87 117 78
revenue
Credit-related fees 38 49 (11) 41
(3)
Investment management 150 133 17 138 12
fees
Operational service 137 135 2 140
(3)
fees
Net investment
securities gains
(55)
(losses)
(22) (27) 5 33
Other revenue 145 226 (81) 167
(22)
_______________________________________________________________________________
__ _________
Total noninterest revenue 1,042 906 136 941 101
Total revenue 1,549 1,432 117 1,449 100
OPERATING EXPENSES
Employee compensation and
benefits
32
648 576 72 616
Net occupancy 87 68 19 79 8
Technology and 169 162 7 165 4
communications
Other expenses 118 135 (17) 124
(6)
_______________________________________________________________________________
__ _________
Total operating 1,022 941 81 984 38
expenses
Income before income 527 491 36 465 62
taxes
Income taxes 167 164 3 150 17
_______________________________________________________________________________
__ _________
Net income 360 327 33 315 45
PER COMMON SHARE
Net income (a) $1.78 $1.63 $0.15 $1.56 $0.22
Dividends declared 0.75 0.68 0.07 0.75 -
_______________________________________________________________________________
__
_________
(a) Earnings per share amounts represent both primary and fully diluted
earnings per share.
See notes to financial statements.
4
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
___________________________________________________________________________
_
________________
In millions,
except per share data Nine months ended
____________________________________________________________________
_ September
September 30 30 Increase
1995 1994 (Decrease)
_____________________________________________________________________
NET INTEREST REVENUE
Interest revenue $7,328 $6,010 $1,318
Interest expense 5,813 4,547 1,266
___________________________________________________________________________
__
______________
_
Net interest revenue 1,515 1,463 52
NONINTEREST REVENUE
Trading revenue 1,007 866 141
Corporate finance revenue 426 312 114
Credit-related fees 122 160 (38)
Investment management fees 418 387 31
Operational service fees 417 419 (2)
Net investment securities gains 20 99 (79)
Other revenue 461 583 (122)
___________________________________________________________________________
__
______________
_
Total noninterest revenue 2,871 2,826 45
Total revenue 4,386 4,289 97
OPERATING EXPENSES
Employee compensation and 1,890 1,716 174
benefits
Net occupancy 246 201 45
Technology and communications 506 436 70
Other expenses 366 376
(10)
___________________________________________________________________________
__
______________
_
Total operating 3,008 2,729 279
expenses
Income before income 1,378 1,560 (182)
taxes
Income taxes 448 538 (90)
___________________________________________________________________________
__
______________
_
Net income 930 1,022 (92)
PER COMMON SHARE
Net income (a) $4.62 $5.05 ($0.43)
Dividends declared 2.25 2.04 0.21
___________________________________________________________________________
__
______________
_
(a) For the nine months ended September 30, 1995, the earnings per
share amount represents primary earnings per share; fully diluted
earnings per share for the nine months ended September 30, 1995, were
$4.57. For the
nine months ended September 30, 1994, the earnings per share
amount represents both primary and fully diluted earnings
per share.
See notes to financial
statements.
5
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
___________________________________________________________________________
__
____________
_
<CAPTION
>
Dollars in millions September 30 June 30 December
31
1995 1995 1994
_________________________________________________________
ASSETS
Cash and due from banks $$$
112,210
,,
58
11
92
Interest-earning deposits with banks 111,362
,,
57
03
46
Debt investment securities available-for-sale
carried at fair value(Cost: $21,657 at 22,657
September 1995, $20,133 at June 1995 and
$22,503 at December 1994)
2
2
2
0
,
,
0
4
1
1
4
6
Trading account assets 6657,065
48
,,
62
95
69
Securities purchased under agreements to
resell ($30,549 at September 1995, $26,127 21,350
at June 1995, and $21,170 at December 1994)
and federal funds sold
32
06
,,
62
80
79
Securities borrowed 1112,127
70
,,
83
41
03
Loans 2222,080
54
,,
20
64
53
Less: allowance for credit losses 111,131
,,
11
33
22
___________________________________________________________________________
__
____________
_
Net loans 2220,949
42
,,
19
31
31
Customers' acceptance liability 52586
26
86
Accrued interest and accounts receivable 235,028
,,
92
91
84
Premises and equipment 333,318
,,
44
53
38
Less: accumulated depreciation 111,302
,,
44
52
30
___________________________________________________________________________
__
____________
_
Premises and equipment, net 222,016
,,
00
01
08
Other assets 199,567
0,
,4
40
16
2
___________________________________________________________________________
__
____________
_
Total assets 11154,917
76
86
,,
35
36
10
___________________________________________________________________________
__
____________
_
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 333,693
,,
54
29
54
In offices outside the U.S. 89767
99
45
Interest-bearing deposits:
In offices in the U.S. 121,826
,,
61
65
96
In offices outside the U.S. 4336,799
08
,,
56
97
01
___________________________________________________________________________
__
____________
_
Total deposits 4443,085
65
,,
63
71
86
Trading account liabilities 4436,407
52
,,
04
00
84
Securities sold under agreements to repurchase
($38,347 at September 1995, $32,864 at June
35,768
1995, and $30,179 at December 1994) and
federal funds purchased
4
3
1
8
,
,
8
4
7
9
9
6
Commercial paper 213,507
,,
99
50
43
Other liabilities for borrowed money 1110,900
42
,,
30
36
08
Accounts payable and accrued expenses 546,231
,,
58
70
04
Liability on acceptances 52586
26
86
Long-term debt not qualifying as risk-based 653,605
capital ,,
07
25
89
Other liabilities 122,063
,,
83
24
10
___________________________________________________________________________
__
____________
_
11142,152
65
43
,,
73
95
66
Long-term debt qualifying as risk-based 333,197
capital ,,
43
23
23
___________________________________________________________________________
__
____________
_
Total liabilities 11145,349
65
86
,,
26
18
89
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares:
10,000,000):
Adjustable rate cumulative preferred stock,
$100 par value(issued and outstanding: 244
2,444,300)
22
44
44
Variable cumulative preferred stock, $1,000
par value (issued and outstanding: 250,000) 250
22
55
00
Common stock, $2.50 par value (authorized
shares: 500,000,000; issued: 200,677,173 at 502
September 1995, 200,674,673 at June 1995
and 200,668,373 at December 1994)
55
00
22
Capital surplus 111,452
,,
44
34
31
Retained earnings 777,044
,,
53
21
65
Net unrealized gains on investment
securities, net of taxes 456
44
95
59
Other 44367
30
97
___________________________________________________________________________
__
____________
_
1110,3
0015
,,
86
81
98
Less: treasury stock (13,107,615 shares at
September 1995, 12,856,867 shares at June 1995 747
and 12,966,917 shares at December 1994) at
cost
77
74
67
___________________________________________________________________________
__
____________
_
Total stockholders' equity 199,56
0,8
,8
17
11
3
___________________________________________________________________________
__
____________
_
Total liabilities and stockholders' equity 11154,917
76
86
,,
35
36
10
_____________________________________________________________________________
_____________
See notes to financial statements.
6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
J.P. Morgan & Co. Incorporated
_____________________________________________________________________________
__
______________
_
Dollars in millions Nine months ended
______________________________
September September
30 30
1995 1994
______________________________
PREFERRED STOCK
Adjustable rate cumulative preferred stock
Balance, January 1 and September 30 $ 244 $ 244
Variable cumulative preferred stock
Balance, January 1 and September 30 250 250
_____________________________________________________________________________
_____________
Total preferred stock, September 30 494 494 494
_____________________________________________________________________________
_____________
COMMON STOCK
Balance, January 1 502 499
Shares issued under dividend reinvestment plan,
various employee benefit plans, and conversion
of debentures
- 3
___________________________________________________________________________
__
____________
_
Balance, September 30 502 502
___________________________________________________________________________
__
____________
_
CAPITAL SURPLUS
Balance, January 1 1,452
1,393
Shares issued under dividend reinvestment plan,
various employee benefit plans, and conversion 63
of debentures, and income tax benefits
associated with stock options
(19)
___________________________________________________________________________
__
____________
_
Balance, September 30 1,433 1,456
___________________________________________________________________________
__
____________
_
RETAINED EARNINGS
Balance, January 1 7,044 6,386
Net income 930
1,022
Dividends declared on adjustable rate cumulative
preferred stock (9)
(9)
Dividends declared on variable cumulative (9) (6)
preferred stock
Dividends declared on common stock (422)
(390)
Dividend equivalents on common stock issuable (8) (3)
___________________________________________________________________________
__
____________
_
Balance, September 30 7,526 7,000
___________________________________________________________________________
__
____________
_
NET UNREALIZED GAINS ON INVESTMENT SECURITIES,
NET OF TAXES
Balance, January 1 456 1,165
Net change in net unrealized gains, net of taxes 39 (551)
___________________________________________________________________________
__
____________
_
Balance, September 30 495 614
___________________________________________________________________________
__
____________
_
OTHER
COMMON STOCK ISSUABLE UNDER STOCK AWARD PLANS
Balance, January 1 369 253
Accrued deferred stock awards 93 79
Deferred stock awards distributed, net (18) (11)
___________________________________________________________________________
__
____________
_
Balance, September 30 444 321
___________________________________________________________________________
__
____________
_
FOREIGN CURRENCY TRANSLATION
Balance, January 1 (2) (3)
Translation adjustments (4) -
Income tax benefit 1 -
___________________________________________________________________________
__
____________
_
Balance, September 30 (5) (3)
_____________________________________________________________________________
_____________
Total other, September 30 439 318
_____________________________________________________________________________
_____________
LESS: TREASURY STOCK
Balance, January 1 747 328
Purchases 194 340
Shares distributed under various employee benefit (165) (17)
plans
_____________________________________________________________________________
_____________
Balance, September 30 776 651
_____________________________________________________________________________
_____________
Total stockholders' equity, September 30 10,113 9,733
___________________________________________________________________________
_______________
See notes to financial statements.
7
CONSOLIDATED STATEMENT OF CASH FLOWS
J.P. Morgan & Co. Incorporated
________________________________________________________________________________
__
____
__
Dollars in millions Nine months ended
____________________________
September 30 September
30
1995 1994
____________________________
NET INCOME $ 930 $ 1,022
Adjustments to reconcile to cash provided by
(used in) operating activities:
Noncash items: depreciation, amortization,
deferred income taxes, and stock award
plans
290 325
(Increase) decrease in assets:
Trading account assets (7,654) (17,096)
Securities purchased under agreements to (9,384) (3,130)
resell
Securities borrowed (5,713) (699)
Accrued interest and accounts receivable 2,029 1,644
Increase (decrease) in liabilities:
Trading account liabilities 8,582 19,419
Securities sold under agreements to 8,165 (4,785)
repurchase
Accounts payable and accrued expenses (692) (313)
Other changes in operating assets and 711 (833)
liabilities, net
Net investment securities gains included in
cash flows from investing activities
(20) (99)
______________________________________________________________________________
__
______
__
CASH USED IN OPERATING ACTIVITIES (2,756) (4,545)
______________________________________________________________________________
__
______
__
Increase in interest-earning deposits with banks (142) (1,261)
Debt investment securities:
Proceeds from sales 33,920 41,810
Proceeds from maturities, calls, and mandatory 1,988 3,037
redemptions
Purchases (33,669) (44,463)
(Increase) decrease in federal funds sold 42 (10)
(Increase) decrease in loans (3,201) 1,709
Payments for premises and equipment (160) (229)
Other changes, net (2,254) (1,997)
______________________________________________________________________________
__
______
__
CASH USED IN INVESTING ACTIVITIES (3,476) (1,404)
______________________________________________________________________________
__
______
__
Decrease in noninterest-bearing deposits (41) (1,612)
Increase in interest-bearing deposits 3,621 6,690
Decrease in federal funds purchased (2,057) (1,620)
Increase (decrease) in commercial paper (553) 1,731
Other liabilities for borrowed money:
Proceeds 13,771 9,266
Payments (10,022) (8,926)
Long-term debt:
Proceeds 3,320 1,695
Payments (798) (593)
Capital stock:
Issued - 65
Purchased or redeemed (194) (340)
Dividends paid (434) (407)
Other changes, net (1,095) 484
______________________________________________________________________________
__
______
__
CASH PROVIDED BY FINANCING ACTIVITIES 5,518 6,433
______________________________________________________________________________
__
______
__
Effect of exchange rate changes on cash and due from 23 32
banks
______________________________________________________________________________
__
______
__
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (691) 516
Cash and due from banks at December 31, 1994 and 2,210 1,008
1993
______________________________________________________________________________
__
______
__
Cash and due from banks at September 30, 1995 and 1,519 1,524
1994
______________________________________________________________________________
__
______
__
Cash disbursements were made for:
Interest $5,578 $4,457
Income taxes 422 1,183
______________________________________________________________________________
__
______
__
See notes to financial statement
s.
</TABL
E>
8
CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New
York
______________________________________________________________________________
__
___________
__
Dollars in millions September December
30 31
1995 1994
____________________________________________
ASSETS
Cash and due from banks $$
12
,,
51
08
32
Interest-earning deposits with banks 11
,,
66
00
25
Debt investment securities available-for-sale carried at 22
fair value 11
,,
12
99
82
Trading account assets 54
35
,,
93
08
06
Securities purchased under agreements to resell and
federal funds sold
11
86
,,
85
56
42
Loans 21
29
,,
23
19
07
Less: allowance for credit losses 11
,,
00
22
65
______________________________________________________________________________
__
___________
__
Net loans 21
18
,,
13
87
42
Customers' acceptance liability 45
75
86
Accrued interest and accounts receivable 23
,,
95
69
04
Premises and equipment 32
,,
09
66
87
Less: accumulated depreciation 11
,,
21
74
39
______________________________________________________________________________
__
___________
__
Premises and equipment, net 11
,,
78
91
58
Other assets 17
0,
,3
06
00
0
______________________________________________________________________________
__
___________
__
Total assets 11
31
38
,,
47
72
47
______________________________________________________________________________
__
___________
__
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 33
,,
46
69
38
In offices outside the U.S. 97
37
90
Interest-bearing deposits:
In offices in the U.S. 11
,,
44
78
40
In offices outside the U.S. 43
18
,,
85
76
46
______________________________________________________________________________
__
___________
__
Total deposits 44
74
,,
75
51
04
Trading account liabilities 43
00
,,
97
43
30
Securities sold under agreements to repurchase and
federal funds purchased
12
82
,,
60
99
09
Other liabilities for borrowed money 65
,,
93
82
20
Accounts payable and accrued expenses 32
,,
99
80
72
Liability on acceptances 45
75
86
Long-term debt not qualifying as risk-based capital
(includes $776 at 1995 and $630 at 1994 of notes
payable to J.P. Morgan)
31
,,
19
56
38
Other liabilities 22
,,
00
18
20
______________________________________________________________________________
__
___________
__
11
21
30
,,
91
96
59
Long-term debt qualifying as risk-based capital
(includes $1,128 at 1995 and $1,030 at 1994 of notes
payable to J.P. Morgan)
11
,,
32
24
79
______________________________________________________________________________
__
___________
__
Total liabilities 11
21
51
,,
34
21
28
STOCKHOLDER'S EQUITY
Preferred stock, $100 par value (authorized shares: --
2,500,000)
Common stock, $25 par value (authorized and outstanding
shares: 10,000,000)
22
55
00
Surplus 22
,,
86
27
00
Undivided profits 44
,,
82
86
36
Net unrealized gains on investment securities, net of 21
taxes 02
44
Foreign currency translation ((
51
))
______________________________________________________________________________
__
___________
__
Total stockholder's equity 87
,,
13
50
29
______________________________________________________________________________
__
___________
__
Total liabilities and stockholder's equity 11
31
38
,,
47
72
47
______________________________________________________________________________
__
___________
__
Member of the Federal Reserve System and the Federal Deposit
Insurance
Corporatio
n.
See notes to financial
statements.
9
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
OF J.P. MORGAN & CO.
INCORPORATED
Supplementary to notes in the 1994 Annual report to stockholders
1. BASIS OF PRESENTATION
The interim financial information in this report has not been audited. In the
opinion of management, all adjustments necessary for a fair presentation of
the financial position and the results of operations for the interim periods
have been made. All adjustments made were of a normal recurring nature.
Management consults with its independent accountants on significant accounting
and reporting matters that arise during the year.
2. ACCOUNTING CHANGES
ACCOUNTING FOR IMPAIRMENT OF A LOAN
On January 1, 1995, J.P. Morgan adopted Statement of Financial Accounting
Standards (SFAS)
No. 114 and subsequent amendment SFAS No. 118, both entitled, Accounting by
Creditors for Impairment of a Loan, which prescribe criteria for recognition
of loan impairment as well as methods to measure impairment of certain loans,
including loans whose terms were modified in troubled debt restructurings.
J.P. Morgan defines impaired loans as any loan on which the accrual of
interest is discontinued because the contractual payment of principal or
interest has become 90 days past due or management has serious doubts about
future collectibility of principal or interest, even though the loans are
currently performing (i.e., nonaccrual loans). Factors involved in
determining impairment include, but are not limited to, expected future cash
flows, financial condition of the borrower and current economic conditions.
When a loan is recognized as impaired, any accrued but unpaid interest
previously recorded on such loan is reversed against interest revenue of the
current period. Interest received on impaired loans is generally either
applied against the principal or reported as revenue, according to
management's judgment as to the collectibility of principal. Generally, a
loan may be restored to accrual status only after all delinquent interest and
principal are brought current and, in the case of loans where interest has
been interrupted for a substantial period, a regular payment performance is
established.
J.P. Morgan measures each loan impairment based upon the present value of
expected future cash flows discounted at an individual loan's effective
interest rate, except where there is an observable market value or, if the
loan is collateral dependent, at the fair value of the collateral. More
than half of the impaired loan balance is measured using the cash flow
method, one third is measured by an observable market price and the
remainder is based on the fair value of the collateral.
Management recommends those credits or portions of credits, judged to
be uncollectible, that should be charged off. The adoption of SFAS No. 114
did not affect J.P. Morgan's charge-off policy.
The adoption of these standards did not have a material impact on J.P.
Morgan's financial statements. For additional information, see Note 9 to
the financial statements, Nonperforming assets and allowance for credit
losses.
10
3. INTEREST REVENUE AND EXPENSE
An analysis of interest revenue and expense derived from on-and off-balance
sheet financial instruments is presented in the table below. Interest
revenue and expense associated with derivative financial instruments, such
as swaps, forwards, spot, futures, options, and debt securities forwards,
used as hedges or to modify the interest rate characteristics of assets and
liabilities, are attributed to and included with the related balance sheet
instrument. Net interest revenue associated with risk-adjusting swaps that
are used to meet longer-term asset and liability management objectives,
including the maximization of net interest revenue, is not attributed to a
specific balance sheet instrument, but is included in the Other sources
caption in the table below.
Third quarter Nine months
In millions 1995 1994 1995 1994
_______________________________________________________________________________
__ ___
INTEREST REVENUE
Deposits with banks $ $ $ $
31 50 134 145
Debt investment securities (a) 377 327 1,148 890
Trading account assets 735 708 2,346
1,982
Securities purchased under agreements
to resell and federal funds sold 500 404 1,355
1,151
Securities borrowed 203 160 604 411
Loans 407 360 1,258
1,033
Other sources, primarily risk- 200 133 483 398
adjusting swaps
_______________________________________________________________________________
_ ________________ ___
Total interest revenue 2,453 2,142 7,328 6,010
_______________________________________________________________________________
__ ___
INTEREST EXPENSE
Deposits 619 517 1,854 1,386
Trading account liabilities 305 333 1,066 894
Securities sold under agreements to
repurchase and federal funds 633 501 1,833
1,604
purchased
Other borrowed money 238 190 653 468
Long-term debt 151 75 407 195
_______________________________________________________________________________
_ ________________ __
Total interest expense 1,946 1,616 5,813 4,547
_______________________________________________________________________________
_ ________________ __
Net interest revenue 507 526 1,515 1,463
_______________________________________________________________________________
__ __
(a) Interest revenue from debt investment securities included taxable revenue
of $342 million and $1,030 million and revenue exempt from U.S. income taxes
of $35 million
and $118 million for the three months and nine months ended September 30,
1995, respectively.
For the three months and nine months ended September 30, 1995, net interest
revenue associated with asset and liability management derivatives was
approximately $90 million and
$280 million, respectively. At September 30, 1995, approximately ($300)
million of net deferred losses on closed derivative contracts used for asset
and liability management purposes were recorded on the balance sheet. Such
amount is primarily composed of net deferred losses on closed hedge
contracts included in the amortized cost of the debt investment portfolio.
As discussed in Note 5 to the financial statements, Investment securities,
the net unrealized appreciation associated with the debt investment
portfolio was $357 million at September 30, 1995. Net deferred losses on
closed derivative contracts are expected to amortize into Net interest
revenue as follows: ($35) million - remainder of 1995; ($120) million -
1996; ($85) million - 1997; ($50) million - 1998; ($15) million - 1999; and
approximately $5 million thereafter. The amount of net deferred gains or
losses on closed derivative contracts will change from period to period,
primarily due to amortization of such amounts to net interest revenue and
the execution of our asset and liability management strategies, which may
result in the sale of the underlying hedged instruments and/or termination
of hedge contracts.
11
4. TRADING REVENUE
An analysis of trading revenue for the three months and nine months ended
September 30, 1995 and 1994, is presented in the following table. Reported
Trading revenue does not include the net interest revenue associated with
our trading activities. As our business objective is to maximize total
revenue, trading-related net interest revenue should be considered when
evaluating results. For additional information related to trading-related
net interest revenue, refer to the trading revenue discussion in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Third quarter Nine months
In millions 1995 1994 1995 1994
_______________________________________________________________________________
__ ___
Swaps and other interest rate $ 159 $ 127 $ 335 $ 519
contracts
Debt instruments 110 80 277 113
Foreign exchange spot and option 48 16 142 53
contracts
Equities and commodities 82 59 253 181
_______________________________________________________________________________
__ ________________ ___
Trading revenue 399 282 1,007 866
_______________________________________________________________________________
__ ___
5. INVESTMENT SECURITIES
Debt investment securities
A comparison of the cost and carrying values of debt investment securities
available for sale and carried at fair value at September 30, 1995, follows.
Fair and
carrying
In millions Cost value
______________________________________________________________________________
__ __
U.S. Treasury $ 1,811 $ 1,894
U.S. government agency, principally 15,037 15,126
mortgage-backed
U.S. state and political subdivision 1,856 2,022
U.S. corporate and bank debt 204 208
Foreign government* 1,539 1,548
Foreign corporate and bank debt 1,111 1,116
Other 99 100
______________________________________________________________________________
__ __
Total debt investment securities 21,657 22,014
______________________________________________________________________________
__ __
* Primarily includes debt of countries that are members of the Organization
for Economic Cooperation and Development.
Net unrealized appreciation associated with debt investment securities
available for sale carried at fair value at September 30, 1995, was $357
million, consisting of gross unrealized appreciation of $523 million and gross
unrealized depreciation of $166 million. Such amounts represent the gross
unrealized appreciation or depreciation on each debt security, including the
effects of any related hedge. For additional detail of gross unrealized gains
and losses associated with open derivative contracts used to hedge debt
investment securities, see Note 7 to the financial statements, Off-balance-
sheet financial instruments.
The following table presents the components of Net realized investment
securities gains (losses).
Third Nine months
quarter
In millions 1995 1994 1995 1994
______________________________________________________________________________
__ ____
Gross realized gains from sales $ 49 $ 49 $ $ 341
320
Gross realized losses from sales (83) (76) (312) (259)
Net gains on maturities, calls and
mandatory redemptions 12 - 12 17
______________________________________________________________________________
__ ____
Net investment securities gains (22) (27) 20 99
(losses)
______________________________________________________________________________
__ ____
12
Equity investment securities
Net realized gains on the sale of equity investment securities of $91 million
and $386 million included in Other revenue for the three months and nine
months ended September 30, 1995, respectively, include $98 million and $414
million of gross realized gains. Gross unrealized gains and losses as well as
a comparison of the cost, fair value, and carrying value of marketable equity
investment securities at September 30, 1995, follows.
Gross Gross Fair
and
unrealize unrealiz carryin
d ed g
In millions Cost gains losses value
____________________________________________________________________________
__ September 30, 1995 $226 $447 - $673
____________________________________________________________________________
__
Securities without available market quotations:
Nonmarketable equity investment securities, carried at a cost of $412
million, had an estimated fair value of $481 million at September 30, 1995.
6. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities, including derivative instruments
used for trading purposes, are carried at fair value. The following table
presents the carrying value of trading account assets and liabilities at
September 30, 1995, and the average balance for the three-month and nine-
month periods ended September 30, 1995.
C A
a v
r e
r r
y a
i g
n e
g
v b
a a
l l
u a
e n
c
e
___________
_____________________________
September 30 In millions Nine
Third m
o 1 q n
9 u t
9 a h
5 r s
t 1
e 9
r 9
1 5
9
9
5
______________________________________________________________________________
__ __
TRADING ACCOUNT ASSETS
U.S. Treasury $ $ $
7 7 6
, , ,
3 2 8
3 9 8
3 3 3
U.S. government agency 2 1
2
1 ,
,
6 5 6
4 9
8 6
Foreign government 2 1
1
1 9
9
, , ,
6 1 9
0 5 6
7 6 1
Corporate debt and equity 1 9
9
0 ,
,
, 9 1
2 9 4
1 8 5
0
Other securities 3 4
4
, ,
,
1 6 4
8 5 1
5 6 0
Interest rate and currency 1 1 1
swaps 1 3 3
, , ,
8 0 1
1 1 7
8 5 0
Foreign exchange contracts 3 4
5
, ,
,
6 6 4
1 7 8
4 4 6
Interest rate futures and 3 3 2
forwards 8 8 8
8 1 4
Commodity and equity contracts 1 1
1
, ,
,
7 5 3
9 7 8
8 4 8
Purchased option contracts 4 4
4
, ,
,
5 4 1
2 4 0
7 8 9
______________________________________________________________________________
__ __
Total trading account assets 6 6 6
4 6 7
, , ,
6 7 5
9 4 3
6 3 2
______________________________________________________________________________
__ __
TRADING ACCOUNT LIABILITIES
U.S. Treasury 5 6 6
, , ,
1 2
9
5 9
7
8 8
8
Foreign government 1 9
9
3 , ,
, 3
8
2 6
2
4 9
3
0
Corporate debt and equity 2 2
3
, , ,
7 8
3
3 5
3
0 1
7
Other securities 7 2
1
3 , ,
7 2
3
7
6
4
6
Interest rate and currency 1 1 1
swaps 1 2 2
, ,
,
5 0
0
8 1
4
4 5
0
Foreign exchange contracts 4 4
4
, , ,
0 3
6
6 0
1
9 4
3
Interest rate futures and 4 4 3
forwards 9 5 3
6 4
9
Commodity and equity 2 1 1
contracts , , ,
1 5
4
0 9
4
3 7
2
Written option contracts 4 4
4
, , ,
8 5
3
9 5
3
1 1
1
______________________________________________________________________________
__ __
Total trading account 4 4 4
liabilities 5 3 4
, ,
,
0 7
2
0 1
6
8 3
9
______________________________________________________________________________
__ __
13
7. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Derivatives
Derivatives may be used either for trading or asset and liability management
purposes. Accordingly, the notional amounts presented in the table below have
been identified as relating to either trading or asset and liability
management activities based on management's intent and ongoing usage. A
summary of the credit exposure, which is represented by the positive market
value associated with derivatives, after considering the benefit of
approximately $23.6 billion of master netting agreements in effect at
September 30, 1995, is also presented.
In billions: September 30, Notional
1995 amounts Credit
exposure
______________________________________________________________________________
__ ______________
Interest rate and currency swaps
Trading $1,096.8
Asset and liability 279.9
management(a)(b)(c)
______________________________________________________________________________
__ ______________
Total interest rate and currency 1,376.7 $11.8
swaps
______________________________________________________________________________
__ ______________
Foreign exchange spot, forward, and
futures contracts
Trading 479.8
Asset and liability 20.8
management(a)(b)
______________________________________________________________________________
__ ______________
Total foreign exchange spot,
forward, and futures contracts
500.6 3.6
______________________________________________________________________________
__ ______________
Interest rate futures, forward rate
agreements, and debt securities
forwards
Trading 396.8
Asset and liability management 8.9
______________________________________________________________________________
__ ______________
Total interest rate futures,
forward rate agreements, and debt 0.4
securities forwards
405.7
______________________________________________________________________________
__
______________
Commodity and equity swaps, forward, and futures
contracts, all trading 1.8
64.6
______________________________________________________________________________
__ ______________
Purchased options(d)
Trading 506.5
Asset and liability management(a) 2.7
______________________________________________________________________________
__ ______________
Total purchased options 509.2 4.5
______________________________________________________________________________
__ ______________
Written options, all trading(e) 532.0
______________________________________________________________________________
________________
Total credit exposure recorded as
assets on the balance sheet
22.1
______________________________________________________________________________
_ 14
(a) The majority of J.P. Morgan's asset and liability management derivatives
are transacted with independently managed J.P. Morgan derivatives dealers that
function as intermediaries for credit and administrative purposes.
(b) The notional amounts of asset and liability management derivatives
contracts conducted in the foreign exchange markets, primarily forward
contracts, amounted to $23.4 billion at September 30, 1995, and were primarily
denominated in the following currencies: Italian lira $5.5 billion, Deutsche
mark $4.2 billion, Japanese yen $2.3 billion, French franc $1.9 billion,
Belgian franc $1.7 billion, Swiss franc $1.6 billion, British pound $1.4
billion, and Spanish peseta $1.0 billion.
(c) The notional amount of risk-adjusting swaps was $256.4 billion at
September 30, 1995.
(d) At September 30, 1995, purchased options used for trading purposes
included $388.2 billion of interest rate options, $85.7 billion of foreign
exchange options, and $32.6 billion of commodity and equity options. Only
interest rate options are used for asset and liability management purposes.
Purchased options executed on an exchange amounted to $210.8 billion and those
negotiated over-the-counter amounted to $298.4 billion at September 30, 1995.
(e) At September 30, 1995, written options used for trading purposes included
$409.0 billion of interest rate options, $88.3 billion of foreign exchange
options, and $34.7 billion of commodity and equity options. Written option
contracts executed on an exchange amounted to $184.1 billion and those
negotiated over-the-counter amounted to $347.9 billion at
September 30, 1995.
Asset and liability management derivatives
As an end user, J.P. Morgan utilizes derivative instruments in the execution
of its asset and liability management strategies. Derivatives used for these
purposes primarily include interest rate swaps, foreign exchange forward
contracts, forward rate agreements, interest rate futures, and debt securities
forwards. Derivatives are used to hedge or modify the interest rate
characteristics of debt investment securities, loans, deposits, other
liabilities for borrowed money, long-term debt, and other financial assets and
liabilities. In addition, we utilize derivatives to adjust our overall
interest rate risk profile through the use of risk-adjusting swaps.
Net unrealized gains associated with open derivative contracts used to
hedge or modify the interest rate characteristics of related balance sheet
instruments amounted to $155 million at September 30, 1995. Gross unrealized
gains and gross unrealized losses associated with open derivative contracts
used for these purposes at September 30, 1995, are presented below. Such
amounts primarily relate to interest rate and currency swaps used to hedge or
modify the interest rate characteristics of deposits, long-term debt, and debt
investment securities, principally mortgage-backed securities. See Note 8 to
the financial statements, Fair value of financial instruments.
Gross Gross Net
unrealize unrealize unrealized
d d
In millions gains losses gains/(losses
)
______________________________________________________________________________
__ __
Debt investment $ 16 $ 14 $ 2
securities
Long-term debt 201 48 153
Deposits 34 5 29
Other financial 35 64 (29)
instruments
______________________________________________________________________________
__ __
Total 286 131 155
______________________________________________________________________________
__ __
Net unrealized gains associated with risk-adjusting swaps and their related
hedges that are entered into to meet longer-term asset and liability
management objectives approximated
$0.5 billion at September 30, 1995. The net amount is composed of $3.6
billion of gross unrealized gains and $3.1 billion of gross unrealized losses.
The unrealized gains and losses related to the derivative contracts used to
hedge these risk-adjusting swaps were not material at September 30, 1995.
There were no material terminations of risk-adjusting swaps during the three
months and nine months ended September 30, 1995.
15
Credit-related financial instruments
Credit-related financial instruments include commitments to extend credit,
standby letters of credit and guarantees, and indemnifications in connection
with securities lending activities. The contractual amounts of these
instruments represent the amounts at risk should the contract be fully drawn
upon, the client default, and the value of any existing collateral become
worthless. The credit risk associated with these instruments varies depending
on the creditworthiness of the client and the value of any collateral held.
The maximum credit risk associated with credit-related financial instruments
is measured by the contractual amounts of these instruments.
A summary of the contractual amount of credit-related financial
instruments at
September 30, 1995, is presented in the following table.
September
30
In billions 1995
______________________________________________________________________________
_
Commitments to extend credit $52.9
Standby letters of credit and guarantees 10.5
Securities lending indemnifications (a) 17.2
____________________________________________________________________________
__ _
(a) At September 30, 1995, J.P. Morgan held cash and other collateral of
$17.3 billion in support of securities lending indemnifications.
Other
Consistent with industry practice, amounts receivable and payable for
securities that have not reached the contractual settlement dates are
recorded net on the consolidated balance sheet. Amounts receivable for
securities sold of $39.1 billion were netted against amounts payable for
securities purchased of $36.9 billion to arrive at a net trade date
receivable of
$2.2 billion, which was classified as Other assets on the consolidated
balance sheet at September 30, 1995.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, J.P. Morgan estimates that the aggregate net fair value of all
balance sheet and off-balance-sheet financial instruments exceeded
associated net carrying values at September 30, 1995, by approximately $1.6
billion before considering income taxes, compared with $2.2 billion at
December 31, 1994. Such amounts were primarily attributable to net
appreciation on net loans and risk-adjusting swaps of $1.2 billion and $0.5
billion, respectively, at September 30, 1995 and $1.2 billion and $0.8
billion, respectively, at December 31, 1994.
16
9. NONPERFORMING ASSETS AND ALLOWANCE FOR CREDIT LOSSES
Total nonperforming assets, net of charge-offs, at September 30, 1995, are
presented in the following table.
September
30
In millions 1995
______________________________________________________________________________
__ __
Impaired loans:
Commercial and industrial $135
Other 50
______________________________________________________________________________
__ __
185
Restructuring countries 2
______________________________________________________________________________
__ ________________ __
Total impaired loans 187 (a)
______________________________________________________________________________
__ __
Other nonperforming assets 1
______________________________________________________________________________
____
Total nonperforming assets 188
______________________________________________________________________________
__
__
Consistent with prior periods, all of J.P. Morgan's impaired loans at
September 30, 1995 were on nonaccrual status. Accordingly, comparisons of
current balances with those of prior periods are not affected by the
implementation of SFAS No. 114 and 118.
An analysis of the effect of impaired loans, net of charge-offs, on
interest revenue in the three months and nine months ended September 30, 1995,
is presented in the following table.
Third Nine months
quarter
In millions 1995 1995
______________________________________________________________________________
__ __
Interest revenue that would have
been recorded if accruing
$5 $14
Less interest revenue recorded 4 23
______________________________________________________________________________
__ ________________ __
(Negative)/ positive impact of
impaired loans on interest revenue
(1) 9
______________________________________________________________________________
__ __
An analysis of the allowance for credit losses at September 30, 1995, is
presented in the following table.
Third Nine months
quarter
In millions 1995 1995
______________________________________________________________________________
__ ________________ __
Beginning of period balance $ 1,132 $ 1,131
______________________________________________________________________________
__ ________________ __
Recoveries 11 38
Charge-offs:
Commercial and industrial (11) (31)
Restructuring countries - -
Other - (6)
______________________________________________________________________________
__ __
Net charge-offs - 1
______________________________________________________________________________
__ __
Balance, September 30, 1995 (b) 1,132 1,132 (c)
______________________________________________________________________________
__ __
(a) As of September 30, 1995, no SFAS No. 114 reserve is required for the
$187
million recorded investment in impaired loans. Charge-offs and interest
applied to principal have reduced the recorded investment values to amounts
that are less than the SFAS No. 114 calculated values. For the three months
and nine months ended September 30, 1995, the average recorded investment in
impaired loans was $178 million and $198 million, respectively.
(b) In accordance with SFAS No. 5, Accounting for Contingencies, and SFAS No.
114, an allowance is maintained that is considered adequate to absorb losses
inherent in the existing portfolios of loans and other undertakings to extend
credit, such as irrevocable unused loan commitments, or to make payments to
others for which a client is ultimately liable, such as standby letters of
credit and guarantees, commercial letters of credit and acceptances, and all
other credit exposures, including derivatives. A judgment as to the adequacy
of the allowance is made at the end of each quarterly reporting period.
(c) At September 30, 1995, the allocation of the allowance for credit losses
was as follows: Specific allocation - borrowers in the U.S. $111 million,
Specific allocation - borrowers outside the U.S.
$48 million, Allocation to general risk $973 million.
17
10. CORPORATE FINANCE AND OTHER REVENUE
In the third quarter of 1995 and 1994, Corporate finance revenue includes $71
million
and $22 million, respectively, of underwriting revenue. For the nine months
ended
September 30, 1995 and 1994, underwriting revenue was $134 million and $92
million, respectively.
Other revenue of $145 million in the 1995 third quarter includes $91
million of net equity investment securities gains and $35 million of revenue
associated with hedging anticipated foreign currency revenues and expenses.
Other revenue of $226 million in the 1994 third quarter includes net equity
investment securities gains of $148 million and $54 million related to the
sale of the firm's domestic corporate trust business.
For the nine months ended September 30, 1995, Other revenue of $461
million primarily includes net equity investment securities gains of $386
million. Other revenue of $583 million for the nine months ended September 30,
1994, primarily includes net equity investment securities gains of $509
million.
11. INCOME TAXES
Income tax expense in the 1995 third quarter reflects a 32% effective tax
rate, compared
to a 33% effective tax rate in the 1994 third quarter. For the nine months
ended
September 30, 1995, the effective tax rate was 33% versus 35% for the
comparable 1994 period. Income tax benefit related to net investment
securities losses was approximately $9 million and $11 million for the three
months ended September 30, 1995 and 1994, respectively, computed at a rate of
approximately 41%. For the nine months ended September 30, 1995 and 1994,
income tax expense related to net investment securities gains was
approximately $8 million and
$41 million, respectively, computed at a rate of approximately 41%.
The valuation allowance to reduce deferred tax assets to the amount
expected to be realized totaled $140 million at December 31, 1994. The
valuation allowance is primarily related to the ability to recognize tax
benefits associated with foreign operations. The balance of the valuation
allowance has not changed materially since December 31, 1994.
12. COMMITMENTS AND CONTINGENT LIABILITIES
Excluding mortgaged properties, assets carried at approximately $57.7 billion
in the consolidated balance sheet at September 30, 1995, were pledged as
collateral for borrowings, to qualify for fiduciary powers, to secure public
monies as required by law, and for other purposes.
18
13. EARNINGS PER COMMON SHARE
In the calculation of primary and fully diluted earnings per common share,
net income is adjusted by adding back to net income the interest expense on
convertible debentures and the expense related to dividend equivalents on
certain deferred incentive compensation awards, net of the related income
tax effects, and deducting the preferred stock dividends.
Primary and fully diluted earnings per common share are computed by
dividing income components by the weighted-average number of common and
common equivalent shares outstanding during the period.
For the primary earnings per share calculation, the weighted-average
number of common and common equivalent shares outstanding includes the
average number of shares of common stock outstanding, the average number of
shares issuable upon conversion of convertible debentures, and the average
number of shares issuable under employee benefit plans that have a dilutive
effect.
The weighted-average number of common and common equivalent shares
outstanding, assuming full dilution, includes the average number of shares
of common stock outstanding, the average number of shares issuable upon
conversion of convertible debentures, and the average number of shares
issuable under various employee benefit plans. The maximum dilutive effect
is computed using the period-end market price of J.P. Morgan common stock,
if it is higher than the average market price used in calculating primary
earnings per share.
Third quarter
Dollars in millions 1995 1994
_____________________________________________________________________________
__ Adjusted net income $ 356 $ 323
Primary earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 199,300,749 198,193,98
2
Fully diluted earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 200,069,670 198,194,82
5
_____________________________________________________________________________
__
Nine months
Dollars in millions 1995 1994
_____________________________________________________________________________
__ Adjusted net income $ 915 $ 1,009
Primary earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 198,179,495 200,009,06
7
Fully diluted earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 200,232,610 200,009,40
1
______________________________________________________________________________
_
19
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
J.P. Morgan & Co. Incorporated reported net income of $360 million in the
third quarter of 1995, up 10% from the third quarter of 1994 and 14% higher
than in the second quarter of this year. Third quarter earnings per share
were $1.78 versus $1.63 a year earlier and $1.56 in the 1995 second quarter.
Net income for the first nine months of 1995 totaled $930 million,
compared with
$1.022 billion in the first nine months of 1994. Nine-month net income for
1995 includes a first quarter special charge of $55 million ($33 million after
tax, or $0.17 a share) primarily related to severance. Nine-month earnings
per share were $4.62 versus $5.05 a year ago.
THIRD QUARTER RESULTS AT A GLANCE
In millions of dollars,
except per share data Second
Third quarter quarter
1995 1994 1995
___________________________________________________________________________
__ <<
CC
>>
Revenues $1,549 $1,432 $1,449
Operating expenses (1,022) (941) (984)
Income taxes (167) (164) (150)
____________________________________________________________________________
__ Net income $ 360 $ 327 $ 315
Net income per share $ 1.78 $ 1.63 $ 1.56
____________________________________________________________________________
__ Dividends declared per $ 0.75 $ 0.68 $ 0.75
share
____________________________________________________________________________
__
REVENUES in the third quarter rose 8% from a year earlier on improved results
in trading, advisory, and underwriting activities:
-Combined trading and related net interest revenue advanced 20% to $425
million from a year ago on strong client volumes in favorable
market conditions.
-Corporate finance revenue was up 81% to $195 million. Securities
underwriting
revenue more than tripled from a year ago. Advisory and syndication
fees were up
44%.
-Investment management fees rose 13% to $150 million, while credit-
related fees
declined from a year earlier.
-Net equity investment securities gains were $91 million in the third
quarter versus $148 million in the corresponding 1994 quarter.
OPERATING EXPENSES rose 9% from a year ago and were up 4% from the second
quarter of 1995.
As previously reported, J.P. Morgan has agreed to sell its U.S., U.K., and
global securities custody businesses, its local custody and securities
clearing businesses in Continental Europe, and its U.S. commercial paper
issuing and paying agency business. The firm also announced that it would
outsource certain cash and check-processing services. These activities, which
represented approximately 5% of consolidated total revenue for the nine month
period ended September 30, 1995, are expected to produce a net gain, to be
recorded over time, and are expected to have no material effect on J.P.
Morgan's ongoing consolidated results.
20
BUSINESS SECTOR RESULTS
The firm reports financial results for five business sectors. Three are
oriented toward client services: Asset Management and Servicing, Finance and
Advisory, and Sales and Trading. The Equity Investments sector comprises
management of the firm's own portfolio of equity securities. The Asset and
Liability Management sector covers the management of the firm's overall
interest rate exposure. These five sectors generally reflect the way we
operate but do not correspond exactly with the firm's organizational
structure. Presented below are the summary results for each sector for the
three months ended September 30, 1995 and 1994 and the nine months ended
September 30, 1995 and 1994.
Asset Asset
Manageme
nt Finance Sales Equity and
and and and Invest-Liability Corporat Consoli-
e
In millions Servicin Advisor Tradin ments Managemen Items dated
g y g t
________________________________________________________________________________
__ _______
Third
quarter 1995
Total $414 $453 $431 $102 $244 ($95) $1,549
revenue
Total 357 312 312 6 27 8 1,022
expenses
________________________________________________________________________________
__ _______
Pretax 57 141 119 96 217 (103) 527
income
________________________________________________________________________________
__ _______
Third
quarter
1994
Total 404 338 412 171 225 (118) 1,432
revenue
Total 326 277 289 6 24 19 941
expenses
________________________________________________________________________________
__ _______
Pretax 78 61 123 165 201 (137) 491
income
________________________________________________________________________________
__ _______
Nine months
1995
Total 1,242 1,140 1,160 426 774 (356) 4,386
revenue
Total 1,028 877 896 18 75 114 3,008
expenses
________________________________________________________________________________
_ ________
Pretax 214 263 264 408 699 (470) 1,378
income
________________________________________________________________________________
_ ________
Nine months
1994
Total 1,262 893 1,010 545 722 (143) 4,289
revenue
Total 938 794 835 18 70 74 2,729
expenses
________________________________________________________________________________
_ ________
Pretax income 324 99 175 527 652 (217) 1,560
________________________________________________________________________________
_ ________
Notes:
(1) The firm's management reporting system and policies were used to determine
the revenues and
expenses directly attributable to each sector on a taxable-equivalent basis. In
addition, earnings
on stockholders' equity and certain overhead expenses not allocated for
management reporting purposes were allocated to each business sector. Earnings
on stockholders' equity were allocated based on management's assessment of the
inherent risk of each sector. Overhead expenses were allocated based primarily
on staff levels and represent costs associated with various support functions
that exist for the benefit of the firm as a whole.
(2) In the three months ended September 30, 1995 and 1994, $167 million and
$164 million,
respectively, related to income taxes were not allocated to the business
sectors. In the nine months ended September 30, 1995 and 1994, $448 million and
$538 million respectively, related to income taxes were not allocated to the
business sectors.
21
Asset Management and Servicing
The Asset Management and Servicing sector recorded pretax income of $57 million
in the third quarter of 1995 compared with $78 million in the year-earlier
period, a decrease of $21 million or 27%. Revenues increased 2% to $414
million in the third quarter of 1995 compared with
$404 million. Revenues from asset management activities increased reflecting
an increase in assets under management, primarily from net new business,
while revenues from securities-related services declined.
Expenses associated with the Asset Management and Servicing sector were
$357 million in the third quarter of 1995 compared with $326 million in the
third quarter of 1994. The 10% increase in expenses primarily relates to
higher employee compensation and benefits mainly due to an increase in staff
levels.
Revenues of $1,242 million for the nine month period ended September 30,
1995, decreased $20 million from 1994. Expenses for the nine month period
ended September 30, 1995, increased 10% from 1994 to $1,028 million.
As previously reported, J.P. Morgan agreed to sell its U.S., U.K., and
global securities custody businesses, its local custody and securities
clearing businesses in Continental Europe, and its U.S. commercial paper
issuing and paying agency business. J.P. Morgan also announced that it would
outsource certain cash and check-processing services. The moves reflect a
sharpening of the firm's strategic focus on core global banking activities.
These activities represented approximately 20% of the Asset Management and
Servicing sector revenues for the nine month period ended September 30, 1995.
We will continue to provide operational services that complement our
core global banking activities, such as the administration of American and
other depositary receipts as well as U.S. money transfer, and global trust
and agency services. J.P. Morgan's role as operator of the Euroclear System,
the world's largest clearance and settlement system for internationally
traded securities, will not be affected by these actions.
Finance and Advisory
The Finance and Advisory sector recorded pretax income of $141 million in the
third quarter compared with $61 million a year ago. Total revenue in the
third quarter increased 34% to
$453 million from $338 million in the third quarter of 1994 reflecting an
increase in corporate finance revenue principally due to higher levels of
underwriting, advisory, and loan syndication activities. Higher revenues
from equity derivatives trading also contributed to the increase.
Expenses in the third quarter for the Finance and Advisory sector were
$312 million compared with $277 million in the third quarter of 1994, an
increase of 13%, due primarily to higher employee compensation and benefits
expense.
Revenues for the nine month period ended September 30, 1995, increased
$247 million or 28% from 1994. Expenses for the same nine month period
increased $83 million or 10%.
22
Sales and Trading
The Sales and Trading sector recorded pretax income of $119 million in the
third quarter compared with $123 million in 1994. Total revenue in the third
quarter of 1995 was
$431 million compared with $412 million in the third quarter of 1994.
Revenue increased as client demand was strong across a range of the firm's
marketmaking activities, particularly foreign exchange and swaps, while
revenue from emerging markets declined from an exceptionally strong third
quarter in 1994.
Total expenses for the Sales and Trading sector of $312 million
increased
$23 million or 8% from the third quarter of 1994 due to higher employee
compensation and benefits expense.
Total revenue of $1,160 million for the nine months ended September 30,
1995, increased 15% or $150 million from 1994. Total expenses increased $61
million or 7% from last year.
Equity Investments
Equity Investments recorded pretax income of $96 million in the third quarter
of 1995 compared with $165 million in the third quarter of 1994. Total
revenue was $102 million, compared with $171 million in the third quarter of
1994. The 1995 third quarter reflected net equity investment securities
gains of $91 million versus $148 million in the year-earlier quarter. Total
revenue for the nine month period was $426 million compared with $545 million
in 1994. Net
unrealized appreciation on the combined portfolio of marketable and
nonmarketable equity investment securities was $516 million, compared with
$553 million at June 30, 1995.
The results of the Equity Investment portfolio are also evaluated on an
economic basis using total return. In the third quarter of 1995, total
return was $65 million. Total return for the nine months ended September 30,
1995, was $270 million. As our investment strategy covers a longer-term
horizon, total return viewed over short periods will reflect the impact of
short-term market movements, including industry specific events.
Asset and Liability Management
Asset and Liability Management recorded pretax income of $217 million in the
third quarter of 1995 compared with $201 million in the same period a year
ago. Total revenue, which primarily includes net interest revenue and net
investment securities gains, was $244 million and
$225 million for the third quarter of 1995 and 1994 respectively. Total
revenue increased
$52 million to $774 million for the nine month period ended September 30,
1995. Total unrealized appreciation on asset and liability management
financial instruments, principally risk adjusting swaps and debt investment
securities, was $644 million at September 30, 1995, and $701 million at June
30, 1995.
As our objective in Asset and Liability Management is to create longer-
term value through the management of interest rate risk related to J.P.
Morgan's assets, liabilities, and off-balance-sheet activities, the
performance of the Asset and Liability Management sector, similar to that of
the Equity Investments sector, is evaluated on an economic basis using total
return. Total return in the third quarter of 1995 was $187 million. Total
return for the nine month period ended September 30, 1995 was $346 million.
During the twelve months ended September 30, 1995, monthly value at risk
averaged approximately $88 million and ranged from approximately $70 million
to $111 million. (This equates to average daily earnings at risk of
approximately $19 million and a range of approximately $15 million to $24
million.) Total return was within the bands of monthly value at risk in all
but one month during the past twelve months, consistent with statistical
expectations.
23
Corporate Items
Corporate Items consists of intercompany eliminations, the taxable equivalent
adjustment, which is calculated to gross-up tax exempt interest on a taxable
basis, and certain revenue and expense items that have not been allocated to
the sectors. Because of the nature of these items, revenues and expenses
will vary from period to period.
Corporate Items in the third quarter of 1995 consisted primarily of
intercompany eliminations and the taxable equivalent adjustment of $27
million. Corporate Items for the third quarter of 1994 included intercompany
eliminations, $54 million related to the sale of the firm's domestic
corporate trust business and the taxable equivalent adjustment of
$30 million. Corporate Items for the nine months of 1995 consisted primarily
of intercompany eliminations, the taxable equivalent adjustment of $83
million, a $55 million charge related primarily to severance, and other items
not allocated to sectors.
24
FINANCIAL STATEMENT ANALYSIS
REVENUES
Revenues totaled $1.549 billion in the third quarter of 1995, up 8% from
$1.432 billion a year earlier.
Net interest revenue declined 4% to $507 million from the third quarter
of 1994, primarily as a result of lower trading-related net interest revenue
from debt instruments. Net interest revenue for the first nine months of
1995 was
$1.515 billion compared with $1.463 billion earned in the first nine months of
1994. The 1994 nine-month period included $116 million related to past-due
interest on Brazilian and Argentine assets and interest on income tax refunds.
Excluding these items, net interest revenue increased 12% from the first nine
months of 1994.
The following table provides J.P. Morgan's interest-rate-sensitivity gap
at September 30, 1995, including the asset and liability interest-rate-
sensitivity gap and the effect of derivatives on the gap. The resulting
interest-ratesensitivity gap is presented by U.S. dollar and non-U.S. dollar
currency components and reflects J.P. Morgan's market outlook at September 30,
1995. Significant variances in interest rate sensitivity may exist at other
dates not presented in the table. Amounts in parentheses reflect liability
sensitive positions.
By repricing or maturity dates
______________________________________________________________________________
__ ________________ ___
After After After
six one
five
months year
years
but but
Within within within
In millions six one year five
months
______________________________________________________________________________
__ ________________ ___
SEPTEMBER 30, 1995
Asset and liability interest-
rate-sensitivity gap $3,929
($732) ($3,204) $10,31
2
Derivatives affecting
interest rate sensitivity 1,351
958 3,209 (5,518
)
______________________________________________________________________________
__ ________________ ___
Interest-rate-sensitivity gap 226 5 4,794 5,280
(a)
______________________________________________________________________________
__ ________________ ___
(a) Components of interest-
rate- sensitivity gap:
U.S. dollar 5,682 (4,864) 4,196 4,870
Non-U.S. dollar* (5,456) 4,869 598 410
______________________________________________________________________________
__ __________
Total 226 5 4,794 5,280
______________________________________________________________________________
__ __________
* Primarily yen, deutsche mark, French franc, Belgian franc, and sterling
positions.
25
Trading revenue increased 41% to $399 million from the third quarter of 1994.
In the first nine months of 1995 trading revenue was $1.007 billion, compared
with $866 million in the same 1994 period. Reported trading revenue does not
include net interest revenue associated with trading activities, which was
$26 million in the third quarter of 1995 and $73 million in the third quarter
of 1994. Trading-related net interest revenue for the first nine months of
1995 was $115 million compared with $192 million in the same 1994 period.
The following presents an analysis of trading results, including the related
amount of net interest revenue, in the principal markets in which we
participate, for the three months and nine months ended
September 30, 1995 and 1994.
Foreign
Swaps and exchange
other spot and Equities
interest Debt option and
rate
In millions contracts instrumen contract commoditi Total
ts s es
______________________________________________________________________________
__ __
THIRD QUARTER
1995
Trading revenue $159 $110 $48 $82 $399
Net interest (3) 40 1 (12) 26
revenue
______________________________________________________________________________
__ __
Combined total 156 150 49 70 425
______________________________________________________________________________
__ __
THIRD QUARTER 1994
Trading revenue 127 80 16 59 282
Net interest revenue (7) 80 10 (10) 73
(a)
______________________________________________________________________________
__ __
Combined total 120 160 26 49 355
______________________________________________________________________________
__ __
NINE MONTHS 1995
Trading revenue 335 277 142 253 1,007
Net interest 10 171 (1) (65) 115
revenue
______________________________________________________________________________
__ __
Combined total 345 448 141 188 1,122
______________________________________________________________________________
__ __
NINE MONTHS 1994
Trading revenue 519 113 53 181 866
Net interest 8 224 - (40)
192
revenue (a)
______________________________________________________________________________
__ __
Combined total 527 337 53 141 1,058
______________________________________________________________________________
__ __
(a) Certain prior-year amounts have been reclassified to conform with 1995
classifications.
26
Client demand was strong across the range of the firm's market-making
activities. Combined trading and related net interest revenue rose 20% to
$425 million from a year earlier. Combined revenue from swaps and other
interest rate contracts increased $36 million to $156 million. Combined
revenue from foreign exchange trading totaled $49 million, up $23 million from
a year earlier. Combined revenue from equities and commodities trading was
$70 million, an increase of $21 million, primarily from equity derivatives.
Debt instrument trading produced combined revenue of $150 million versus $160
million a year earlier. Combined trading and related net interest revenue for
the first nine months of 1995 was $1.122 billion, compared with
$1.058 billion in the same period in 1994.
Market risk profile
J.P. Morgan employs a value at risk methodology to estimate the potential
losses that could arise from adverse changes in market conditions within a 95%
confidence interval, referred to as "Daily Earnings at Risk" (DEaR). The DEaR
estimate for our combined trading activities averaged approximately $18
million for the twelve-month period ended September 30, 1995, and ranged from
approximately $11 million to $31 million. Daily combined trading-related
revenue averaged
$6.6 million during the twelve-month period ended September 30, 1995. The
frequency distribution of daily revenues around this average was consistent
with our related DEaR estimates.
Corporate finance revenue rose 81% to $195 million in the third quarter from
the year-earlier quarter. Underwriting revenue recorded a threefold increase
to $71 million, reflecting debt and equity capital-raising activity for a
broad range of clients. Advisory and syndication fees increased 44% to $124
million as levels of merger and acquisition activity increased. Corporate
finance revenue for the first nine months of 1995 was $426 million, compared
with $312 million for the first nine months of 1994. Underwriting revenue for
the first nine months of 1995 was $134 million versus $92 million in the
comparable 1994 period.
Credit-related fees were $38 million in the third quarter, 22% lower than
in the third quarter of 1994, primarily because of lower securities lending
revenue. In the first nine months of this year, credit-related fees were $122
million compared with $160 million in the same period of 1994.
Investment management fees increased 13% to $150 million from a year
earlier, reflecting an increase in assets under management, primarily from net
new business. The nine-month total increased 8% to $418 million.
27
Operational service fees in the third quarter totaled $137 million,
relatively unchanged from a year ago. For the first nine months of 1995,
operational service fees were $417 million, versus $419 million in the 1994
period.
Net investment securities losses were $22 million in the third quarter.
In the year-earlier quarter, net investment securities losses were $27
million. For the 1995 nine-month period, net investment securities gains were
$20 million, versus $99 million in the first nine months of 1994.
Other revenue was $145 million in the third quarter, compared with $226
million in the 1994 third quarter. The 1995 third quarter reflected net
equity investment securities gains of $91 million, versus $148 million in the
yearearlier quarter. Also included in the third quarter of 1995 was $35
million of revenue associated with hedging anticipated foreign currency
revenues and expenses. The 1994 third quarter included $54 million related to
the sale of the firm's domestic corporate trust business. For the first nine
months of 1995, other revenue was $461 million, versus $583 million in the
comparable 1994 period. Net equity investment securities gains in the first
nine months of 1995 were $386 million, compared with $509 million for the
first nine months of 1994.
OPERATING EXPENSES
Operating expenses were $1.022 billion in the third quarter of 1995, 9% higher
than a year earlier. The weakening in the dollar's value accounted for two
percentage points of the increase. Employee compensation and benefits expense
rose, primarily due to higher incentive compensation accruals linked to
improved earnings and to higher severance costs.
Operating expenses in the third quarter were 4% higher than in the second
quarter, mostly related to higher incentive compensation accruals. Expenses
other than employee compensation and benefits were essentially unchanged. At
September 30, 1995, staff totaled 16,394 employees compared with 17,055
employees at December 31, 1994.
Operating expenses in the first nine months of 1995 were $3.008 billion
compared with $2.729 billion in the comparable 1994 period. Excluding the $55
million special charge in the first quarter, operating expenses rose 8% from
the comparable 1994 period.
Income tax expense of $167 million in the third quarter reflects an
effective tax rate of 32%, compared with an effective tax rate of 33% in the
third quarter of 1994. For the nine months ended September 30, 1995, the
effective tax rate was 33% versus 35% for the comparable 1994 period.
ASSETS
Total assets were $178 billion at September 30, 1995, compared with $167
billion at
June 30, 1995. Nonperforming assets at September 30, 1995, were $188 million,
compared with $187 million at June 30, 1995. No provision for credit losses
was deemed necessary in the 1995 third quarter. The allowance for credit
losses was $1.132 billion at September 30, 1995.
28
FOREIGN-COUNTRY-RELATED OUTSTANDINGS
Foreign-country-related outstandings represent outstandings to foreign
borrowers that are denominated in U.S. dollars or currencies other than the
borrower's local currency or, in the case of a guarantee, other than the
guarantor's local currency. Countries in which J.P. Morgan's outstandings
exceeded 1.0% of total assets at September 30, 1995, are listed in the
following table. Outstandings include loans, interest-earning deposits with
banks, investment securities, customers' acceptance liability, securities
purchased under agreements to resell, trading account securities, accrued
interest, and other monetary assets. Outstandings generally are distributed
according to the location of the borrower. In the case of guaranteed
outstandings or when tangible, liquid collateral is held and realizable
outside the obligor's country, distribution is generally made according to the
location of the guarantor or the location where the collateral is held and
realizable.
In millions Cross-border outstandings (a)
_________________________________________________________________________
_
United Kingdom $7,064
France 3,442
_________________________________________________________________________
_ At September 30, 1995, Switzerland's cross-border outstandings were
$1,730 million, between 0.75% and 1.0% of total assets.
(a) Mexican cross-border outstandings at September 30, 1995, were $1,258
million, less than 0.75% of total assets. Not included in Mexican cross-
border outstandings are United Mexican States (UMS) bonds, substantially all
of which have been sold forward, that are collateralized by U.S. Treasury
securities. If the book value of these bonds, which is discussed below, had
been included, total Mexican cross-border outstandings would have exceeded
1.0% of total assets at September 30, 1995.
The UMS bonds are collateralized as to principal by zero-coupon U.S. Treasury
securities with face value equal to the face value of the underlying bonds.
The collateral, which will become available when the UMS bonds mature, is
pledged to the holders of the bonds and is held by the Federal Reserve Bank of
New York.
U.S.
Treasury
In millions UMS bonds collateral
_____________________________________________________________
Book Face Market Fair
value value value value
______________________________________________________________________________
__ ________________ __
SEPTEMBER 30,
1995
Due in 2008 $832 $857 $761 $382
Due in 2019 619 724 500 187
______________________________________________________________________________
__ __
29
CAPITAL
September June 30 December September
30 31 30
Dollars in billions 1995 1995 1994 1994
________________________________________________________________________________
__ ____________
Total stockholders' $ 10.1 $ 9.9 $ 9.6 $ 9.7
equity
Annualized rate of return
on average common %
stockholders' equity
(a) (b) % % %
14.9 13.4 8.1 13.9
As percent of period-end
total assets:
Common equity 5.4 5.6 5.9 6.0
Total equity 5.7 5.9 6.2 6.3
Book value per common $49.36 $48.14 $46.73 $47.36
share (c)
Risk-based capital:
Tier 1 risk-based capital $ 8.8 $ 8.6 $ 8.3 $ 8.1
Total risk-based capital 13.0 12.7 12.2 12.0
Risk adjusted assets 103.8 99.0 86.2 84.5
Capital ratios:
J.P. Morgan
Tier 1 ratio 8.5 % 8.7 %9.6 % %
9.8
Total ratio 12.5 12.8 14.2 14.7
Leverage ratio 6.3 6.0 6.5 6.5
Morgan Guaranty Trust
Company of New York
Tier 1 ratio 8.2 % 8.3 %9.7 % 9.6 %
Total ratio 10.6 10.7 12.6 12.7
Leverage ratio 5.7 5.2 5.5 5.6
______________________________________________________________________________
__ _______________________
(a) Represents the annualized rate of return on average common stockholders'
equity for the three months ended September 30, 1995, June 30, 1995, December
31, 1994, and September 30, 1994. Excluding the impact of SFAS No. 115, the
annualized rate of return on average common stockholders' equity would have
been 15.6%, 14.1%, 8.6% and 15.0% for the three months ended
September 30, 1995, June
30, 1995, December 31, 1994, and September 30, 1994, respectively.
(b) The annualized rate of return on average common stockholders' equity for
the nine months ended September 30, 1995 and 1994 was 13.2% and 14.5%,
respectively. Excluding the impact of SFAS No. 115, the annualized rate of
return on average common stockholders' equity would have been 13.8% and 16.1%
for the nine months ended September 30, 1995 and 1994, respectively.
(c) Excluding the impact of SFAS No. 115, the book value per common share
would have been $46.82, $45.78, $44.39 and $44.21 for the three months ended
September 30, 1995, June 30, 1995, December 31, 1994, and September 30, 1994,
respectively.
30
J.P. Morgan's risk-based capital and leverage ratios remain well above the
minimum standards set by the Federal Reserve Board. In accordance with the
Federal Reserve Board guidelines, the risk-based capital and leverage ratios
exclude the equity, assets and off-balance-sheet exposures of J.P. Morgan
Securities, Inc. and the effect of SFAS No. 115.
At September 30, 1995, stockholders' equity included approximately $495
million of net unrealized appreciation on debt investment and marketable
equity investment securities, net the related deferred tax liability of $309
million. This compares with $459 million of net unrealized appreciation at
June 30, 1995. The unrealized appreciation on debt investment securities was
$357 million and $283 million at September 30, 1995, and at June 30, 1995,
respectively. The unrealized appreciation on marketable equity investment
securities was
$447 million at September 30, 1995, and $463 million at June 30, 1995.
31
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
________________________________________________________________________________
__ _____________
Dollars in millions, Three months ended
interest and average rates _______________________________________________
_________
on a taxable-equivalent basis September 30, 1995 September 30, 1994
_______________________________________________
_________
Averag Averag Averag Averag
e e e e
balanc Interes rate balanc Intere rate
e t e st
_______________________________________________
_________
ASSETS
Interest-earning deposits with
%
banks, mainly in offices
outside the U.S. $ $ % $ $
1,316 31 9.35 2,335 50 8.50
Debt investment securities in
offices in the U.S. (a):
U.S. Treasury 2,179 36 6.55 1,057 17 6.38
U.S. state and political
subdivision
1,916 56 11.60 2,201 66 11.90
Other 14,042 245 6.92 11,508 169 5.83
Debt investment securities in
offices outside the U.S. (a)
3,405 62 7.22 5,493 98 7.08
Trading account assets:
In offices in the U.S. 12,231 196 6.36 15,071 249 6.55
In offices outside the U.S. 24,779 540 8.65 21,407 461 8.54
Securities purchased under
agreements to resell and
federal funds sold, mainly in
offices in the U.S.
31,721 500 6.25 29,326 404 5.47
Securities borrowed in offices
in the U.S.
14,350 203 5.61 15,763 160 4.03
Loans:
In offices in the U.S. 6,364 109 6.80 7,689 117 6.04
In offices outside the U.S. 17,413 302 6.88 15,759 248 6.24
Other interest-earning assets
(b):
In offices in the U.S. 739 53 * 1,082 78 *
In offices outside the U.S. 1,968 147 * 456 55 *
_________________________________________________________________________________
__ _____________
Total interest-earning assets 132,42 2,480 7.43 129,14 2,172 6.67
3 7
Allowance for credit losses (1,132 (1,140
) )
Cash and due from banks 1,809 1,740
Other noninterest-earning 40,914 40,520
assets
_________________________________________________________________________________
__ ______________
Total assets 174,01 170,26
4 7
_________________________________________________________________________________
__ _____________
Interest and average rates applying to the following asset categories have been
adjusted to a taxable-equivalent basis: Debt investment securities in offices in
the U.S., Trading account assets in offices in the U.S., and Loans in offices in
the U.S. The applicable tax rate used to determine these adjustments was
approximately 41% for the three months ended September 30, 1995 and 1994.
(a) For the three months ended September 30, 1995 and 1994, average debt
investment securities are computed based on historical amortized cost, excluding
the effects of SFAS No. 115 adjustments.
(b) Interest revenue includes the effect of certain off-balance-sheet
transactions.
* Not meaningful
32
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
_____________________________________________________________________________
_______________
Dollars in millions, Three months ended
interest and average rates
______________________________________________
_________
on a taxable-equivalent basis September 30, 1995 September 30, 1994
____________________________________________
__ _________
Averag Averag Averag
Averag
e e e e
balanc Intere rate balanc Intere rate
e st e st
____________________________________________
__ _________
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits:
In offices in the U.S. $ $ 24 4.63 % $ $ 25 4.72
%
2,056 2,103
In offices outside the 38,763 595 6.09 39,770 492 4.91
U.S.
Trading account liabilities:
In offices in the U.S. 5,329 90 6.70 8,102 131 6.41
In offices outside the 11,550 215 7.39 10,346 202 7.75
U.S.
Securities sold under
agreements to repurchase and
federal funds purchased,
mainly in offices in the
U.S.
42,623 633 5.89 42,309 501 4.70
Commercial paper, mainly in
offices in the U.S.
2,583 40 6.14 4,615 54 4.64
Other interest-bearing
liabilities:
In offices in the U.S. 10,193 158 6.15 8,044 100 4.93
In offices outside the 1,702 40 9.32 2,201 36 6.49
U.S.
Long-term debt,
mainly in offices in the 9,643 151 6.18 5,976 75 4.98
U.S.
_____________________________________________________________________________
_______________
Total interest-bearing 124,4 1,946 6.20 123,46 1,616 5.19
liabilities 42 6
Noninterest-bearing deposits:
In offices in the U.S. 3,355 3,550
In offices outside the 1,597 1,163
U.S.
Other noninterest-bearing
liabilities
34,66 32,372
1
___________________________________________________________________________
__ _______________
Total liabilities 164,05 160,55
5 1
Stockholders' equity 9,959 9,716
_____________________________________________________________________________
_______________
Total liabilities and
stockholders' equity
174,01 170,26
4 7
Net yield on interest-earning 1.60 1.71
assets
_____________________________________________________________________________
_______________
Net interest earnings 534 556
_____________________________________________________________________________
_______________
33
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
___________________________________________________________________________
__ _______________
Dollars in millions, Nine months ended
interest and average rates ______________________________________________
_________
on a taxable-equivalent basis September 30, 1995 September 30, 1994
______________________________________________
_________
Averag Averag Averag Averag
e e e e
balanc Intere rate balanc Intere rate
e st e st
______________________________________________
_________
ASSETS
Interest-earning deposits with
banks, mainly in offices
%
outside the U.S. $ $ % $ $
1,743 134 10.28 2,310 145 8.39
Debt investment securities in
offices in the U.S. (a):
U.S. Treasury 2,228 107 6.42 1,264 55 5.82
U.S. state and political
subdivision
2,043 185 12.11 2,219 201 12.11
Other 12,887 690 7.16 10,214 387 5.07
Debt investment securities in
offices outside the U.S. (a)
4,478 233 6.96 6,260 318 6.79
Trading account assets:
In offices in the U.S. 12,652 640 6.76 14,463 682 6.30
In offices outside the 25,425 1,710 8.99 23,220 1,303 7.50
U.S.
Securities purchased under
agreements to resell and
federal funds sold, mainly
in offices in the U.S.
30,069 1,355 6.02 32,515 1,151 4.73
Securities borrowed in offices
in the U.S.
14,186 604 5.69 15,248 411 3.60
Loans:
In offices in the U.S. 6,684 355 7.10 7,926 322 5.43
In offices outside the 17,345 915 7.05 16,222 726 5.98
U.S.
Other interest-earning assets
(b):
In offices in the U.S. 1,295 211 * 868 164 *
In offices outside the 1,220 272 * 658 234 *
U.S.
_____________________________________________________________________________
______________
Total interest-earning assets 132,25 7,411 7.49 133,38 6,099 6.11
5 7
Allowance for credit losses (1,132 (1,146
) )
Cash and due from banks 1,827 1,822
Other noninterest-earning 41,781 39,139
assets
_____________________________________________________________________________
_______________
Total assets 174,73 173,20
1 2
_____________________________________________________________________________
_______________
Interest and average rates applying to the following asset categories have
been adjusted to a taxable-equivalent basis: Debt investment securities in
offices in the U.S., Trading account assets in offices in the U.S., and
Loans in offices in the U.S. The applicable tax rate used to determine
these adjustments was approximately 41% for the nine months ended September
30, 1995 and 1994.
(a) For the nine months ended September 30, 1995 and 1994, average debt
investment securities are computed based on historical amortized cost,
excluding the effects of SFAS No. 115 adjustments.
(b) Interest revenue includes the effect of certain off-balance-sheet
transactions.
* Not meaningful
34
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
______________________________________________________________________________
_
_____________
Dollars in millions, Nine months ended
interest and average rates ______________________________________________
_________
on a taxable-equivalent basis September 30, 1995 September 30, 1994
______________________________________________
_________
Averag Averag Averag Averag
e e e e
Intere Intere
balanc st rate balanc st rate
e e
______________________________________________
_________
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits:
In offices in the U.S. $ $ 76 4.83 % $ $ 78 4.61
%
2,104 2,261
In offices outside the 41,009 1,778 5.80 36,526 1,308 4.79
U.S.
Trading account liabilities:
In offices in the U.S. 6,527 339 6.94 7,801 357 6.12
In offices outside the 11,691 727 8.31 10,336 537 6.95
U.S.
Securities sold under
agreements to repurchase and
federal funds purchased,
mainly in offices in the
U.S.
41,836 1,833 5.86 49,547 1,604 4.33
Commercial paper, mainly in
offices in the U.S.
2,598 119 6.12 4,205 127 4.04
Other interest-bearing
liabilities:
In offices in the U.S. 9,664 449 6.21 7,769 241 4.15
In offices outside the 1,974 85 5.76 2,426 100 5.51
U.S.
Long-term debt,
mainly in offices in the 8,545 407 6.36 5,667 195 4.60
U.S.
______________________________________________________________________________
_
_____________
Total interest-bearing 125,948 5,813 6.17 126,53 4,547 4.80
liabilities 8
Noninterest-bearing deposits:
In offices in the U.S. 3,346 3,965
In offices outside the 1,366 1,484
U.S.
Other noninterest-bearing
liabilities
34,312 31,420
______________________________________________________________________________
_
_____________
Total liabilities 164,972 163,4
07
Stockholders' equity 9,759 9,795
______________________________________________________________________________
_
_____________
Total liabilities and
stockholders' equity
174,731 173,20
2
Net yield on interest-earning 1.62 1.56
assets
______________________________________________________________________________
_
_____________
Net interest earnings 1,598 1,552
______________________________________________________________________________
_
_____________
35
ASSET AND LIABILITY MANAGEMENT DERIVATIVES
The objective of asset and liability management is to create longer-term
value through the management of interest rate risk related to J.P. Morgan's
assets, liabilities, and off-balance-sheet activities. J.P. Morgan utilizes
a variety of financial instruments, including derivatives, in an integrated
manner to achieve these objectives. Additional information on asset and
liability management derivatives, primarily interest rate swaps, is provided
below. For more information about asset and liability management activities,
see Note 7 to the financial statements, Off-balance-sheet financial
instruments.
The table below summarizes maturities and weighted-average interest
rates
to be received and paid on U.S. dollar and non-U.S. dollar asset and
liability
management interest rate swaps at September 30, 1995. The majority of asset
and liability management interest rate swaps, as presented below, are risk-
adjusting swaps. Also included in the table are swaps designated as hedges
or
used to modify the interest rate characteristics of assets and liabilities.
Variable rates presented are generally based on the London Interbank Offered
Rate (LIBOR) in effect at September 30, 1995, and reset at predetermined
dates.
The table was prepared under the assumption that these variable interest
rates
remain constant. The variable interest rates to be received or paid will
change to the extent that rates fluctuate. Such changes may be substantial.
Not included in the table below are other derivatives used for asset and
liability management purposes, such as currency swaps, basis swaps, foreign
exchange contracts, interest rate futures, forward rate agreements, debt
securities forwards, and purchased options, totaling $39.0 billion at
September
30, 1995. The contractual maturities of these derivative contracts are
primarily less than one year.
36
By expected maturities
_____________________________________________________________________________
_
________________
After After After After
one two three four
year years years years
but but but but
Withi withi withi withi withi After
Dollars in billions n one n n n n five
year two three four five years Tota
l
______________________________________________________________________________
_
_______________
INTEREST RATE SWAPS
- - U.S. DOLLAR
Receive fixed
swaps
Notional amount $19.3 $13.8 $5.0 $2.8 $3.6 $7.5 $52.
0
Weighted average:
Receive rate 6.3 % 6.9 % 7.2 % 7.7 % 6.9 % 7.1 % 6.8
%
Pay rate 5.9 6.1 5.9 5.9 5.9 5.9 5.9
Pay fixed swaps
Notional amount $18.7 $13.7 $10.2 $2.2 $4.9 $6.7 $56.
4
Weighted average:
Receive rate 5.9 % 6.0 % 5.9 % 5.9 % 5.9 % 6.0 % 5.9
%
Pay rate 5.6 6.6 6.1 6.7 6.4 7.3 6.3
INTEREST RATE SWAPS
- - NON-U.S. DOLLAR
Receive fixed
swaps
Notional amount $32.4 $21.6 $11.4 $8.7 $5.4 $7.4 $86.
9
Weighted average:
Receive rate 5.9 % 6.9 % 6.7 % 6.0 % 7.1 % 7.2 % 6.4
%
Pay rate 4.2 5.2 4.8 3.9 5.4 5.3 4.7
Pay fixed swaps
Notional amount $23.6 $22.2 $11.0 $8.8 $5.0 $7.4 $78.
0
Weighted average:
Receive rate 4.7 % 5.3 % 4.7 % 4.0 % 5.4 % 5.5 % 4.9
%
Pay rate 6.2 6.6 6.0 5.7 7.3 7.6 6.4
______________________________________________________________________________
_
_______________
Total notional $94.0 $71.3 $37.6 $22.5 $18.9 $29.0 $273
amount .3
______________________________________________________________________________
_
_______________
There is $2.6 billion and $4.0 billion of notional amounts related to currency
swaps and basis swaps, respectively, not included in the table above.
37
PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12. Statement re computation of ratios
(incorporated by reference to Exhibit 12 to J.P. Morgan's
Amendment No. 3 to the Registration Statement on Form S-3, Registration
No.
33-55851)
27. Financial data schedule
(b) Reports on Form 8-K
The following reports on Form 8-K were filed with the Securities
and Exchange Commission during the quarter ended September 30,
1995:
July 13, 1995 (Items 5 and 7)
Reported the issuance by J.P. Morgan of a press release
announcing its earnings for the three-month period ended June
30, 1995.
July 18, 1995 (Items 5 and 7)
Reported the issuance by J.P. Morgan of a press release
announcing
the
sale of its local custody and securities clearing businesses in
Continental
Europe.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by
the undersigned thereunto duly authorized.
(REGISTRANT) J.P. MORGAN & CO. INCORPORATED
BY (SIGNATURE)
/s/ DAVID H. SIDWELL
_______________________________________
(NAME AND TITLE) DAVID H. SIDWELL
MANAGING DIRECTOR AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
DATE: November 14, 1995
1
LIST OF EXHIBITS
EXHIBIT
27. Financial data schedule