1
April 11, 1996
J.P. MORGAN REPORTS 1996 FIRST QUARTER RESULTS
J.P. Morgan & Co. Incorporated reported net income of $439 million in the
first quarter of 1996, 72% higher than in the first quarter of 1995.
Earnings per share for the quarter were $2.13 versus $1.27 a year ago.
Last year, first quarter earnings included a charge of $55 million ($33
million after tax), or $0.17 per share, related primarily to severance.
Douglas A. Warner III, chairman, said: OGrowing opportunities to put J.P.
MorganOs worldwide capabilities to work for clients led to strong first
quarter results. Market-making, investment banking, and investment
management all produced substantial gains.O
FIRST QUARTER RESULTS AT A GLANCE
In millions of dollars, Fourth
except per share data First quarter
quarter
1996 1995 1995
___________________________________________________________________________
___
Revenues $ 1,740 $ 1,388 $1,518
Operating expenses (1,085) (1,002) (990)
Income taxes (216) (131) (162)
___________________________________________________________________________
___
Net income $ 439 $ 255 $ 366
Net income per share $2.13 $1.27 $1.80
___________________________________________________________________________
___
Dividends declared per share $0.81 $0.75 $0.81
REVENUES rose 25% in the first quarter from a year ago.
- Trading revenue more than doubled to $758 million, as increased
client activity propelled advances in fixed income and equities.
Combined trading and related net interest revenue was up 116% to $788
million.
- Investment banking revenue rose 76% to $201 million.
- Investment management fees grew 21%. Operational service and
credit-related fees were down as a result of the sale of the firmOs
custody business in late 1995.
- Net interest revenue declined 21% to $396 million.
OPERATING EXPENSES were up 8% from a year ago, as incentive compensation
accruals for the first quarter increased in line with higher earnings.
The remainder of this release contains information on specific areas of
results, a financial summary, and the consolidated financial statements.
2
REVENUES
Revenues totaled $1.740 billion in the first quarter of 1996, up 25% from
$1.388 billion a year earlier.
NET INTEREST REVENUE declined 21% to $396 million from the first quarter of
1995, reflecting lower returns from asset and liability management in the
United States and a decrease in trading-related net interest revenue.
TRADING REVENUE rose to $758 million from $303 million a year earlier.
Revenues in both developed and emerging markets were strong and diversified
across the range of the firmOs trading products. Reported trading revenue
does not include net interest revenue associated with trading activities,
which was $30 million in the first quarter of 1996 and $61 million a year
ago.
Combined trading and related net interest revenue increased to $788 million
from $364 million a year earlier. (For details, see the table of combined
trading and related net interest revenue by principal product groupings on
page 8.) Combined revenue from fixed income rose to $602 million in the
first quarter from $123 million in the year-earlier quarter because of
strong client demand for swaps as well as government and corporate
securities; risk management activity for clients accelerated. Combined
revenue from equities doubled to $51 million from $25 million a year
earlier, driven by strong demand for equity derivative products. Combined
revenue from commodities was $32 million compared with $22 million in the
year-earlier quarter. Foreign exchange combined revenue totaled $73
million versus $106 million in the first quarter of 1995. Combined revenue
from the firmOs proprietary unit was $30 million compared with $88 million
in the first quarter of 1995.
INVESTMENT BANKING REVENUE was up 76% to $201 million in the first quarter.
Underwriting revenue grew to $65 million from $22 million a year ago, as
Morgan raised more debt and equity capital for a broad range of clients.
Advisory fees rose to $136 million from $92 million a year earlier,
reflecting our growing share of the merger-and-acquisition advisory market.
CREDIT-RELATED FEES were $38 million in the first quarter, 12% lower than
in the first quarter of 1995 because of the sale of the custody business in
1995.
INVESTMENT MANAGEMENT FEES advanced 21% to $157 million from a year ago, as
assets under management rose, primarily from net new business.
OPERATIONAL SERVICE FEES in the first quarter totaled $113 million, 19%
lower than in the 1995 first quarter. Excluding revenues of $33 million
associated with the recently sold custody business, operational service
fees for the first quarter rose 6% on increased brokerage commissions.
NET INVESTMENT SECURITIES GAINS were $12 million in the first quarter,
compared with gains of $9 million in the first quarter of 1995.
OTHER REVENUE was $65 million in the first quarter, compared with $149
million in the 1995 first quarter. The 1996 first quarter included net
equity investment securities gains of $64 million, versus $163 million a
year ago.
3
OPERATING EXPENSES
Operating expenses were $1.085 billion in the first quarter of 1996, up 8%
from a year earlier. Excluding the 1995 first quarter charge and the 1995
expenses associated with the custody business, operating expenses were up
21%. Employee compensation and benefits expense rose, primarily reflecting
higher incentive compensation accruals in line with higher earnings.
Expenses other than employee compensation and benefits were essentially
flat.
At March 31, 1996, staff totaled 15,431 employees compared with 16,443
employees at March 31, 1995.
Income tax expense of $216 million in the first quarter was based on an
effective tax rate of 33% versus 34% in the first quarter of 1995.
ASSETS
Total assets were $205 billion at March 31, 1996, compared with $185
billion at December 31, 1995, primarily because of an increase in trading-
related assets and loans. Nonperforming assets increased by $38 million to
$156 million during the first quarter as assets newly classified as
nonperforming exceeded charge-offs and repayments. No provision for credit
losses was deemed necessary in the 1996 first quarter. The allowance for
credit losses was $1.117 billion at March 31, 1996. (For details, see
asset quality tables on page 9.)
CAPITAL
At March 31, 1996, J.P. Morgan's estimated Tier 1 and total risk-based
capital ratios were 8.2% and 12.1%, respectively, compared with Tier 1 and
total risk-based capital ratios of 8.8% and 13.0%, respectively, at
December 31, 1995. The first quarter decreases in the risk-based capital
ratios related primarily to the rise in risk-adjusted assets. The March
31, 1996, leverage ratio was 6.2% versus 6.1% at December 31, 1995.
At March 31, 1996, stockholders' equity included approximately $470 million
of net unrealized appreciation on debt investment and marketable equity
investment securities, net the related deferred tax liability of $290
million. Net unrealized appreciation was $566 million at December 31, 1995.
The unrealized appreciation on debt investment securities was $331 million
and $484 million at March 31, 1996, and December 31, 1995, respectively.
The unrealized appreciation on marketable equity investment securities was
$429 million and $440 million at March 31, 1996, and December 31, 1995,
respectively.
During February 1996, J.P. Morgan issued $200 million of perpetual 6 5/8%
cumulative preferred stock, series H, with a stated value of $500 per
share. These shares are represented by 4 million depositary shares with a
stated value of $50 per share, each representing one-tenth of a preferred
share.
# # #
J.P. Morgan is a global banking firm that serves clients with complex
financial needs through an integrated range of advisory, financing,
trading, investment, and related capabilities.
Attached are the financial summary, the financial statements, the combined
trading and related net interest revenue table, and the asset quality
tables. J.P. Morgan news releases, including quarterly financial results,
are available on the Internet (http://www.jpmorgan.com).
4
FINANCIAL SUMMARY
J.P. Morgan & Co. Incorporated
_________________________________________________________
Dollars in
millions,
except per
share data First quarter Fourth
____________________ quarter
______
1996 1995 1995
_______________________________________
Net income $439 $255 $366
PER COMMON
SHARE
Net income (a) $ 2.13 $ 1.27 $ 1.80
Dividends 0.81 0.75 0.81
declared
Book value (b) 51.57 47.19 50.71
_________________________________________________________
Weighted-
average number
of common and
common
equivalent 202,133, 196,905, 199,829
shares 593 106 ,966
outstanding
_________________________________________________________
Dividends
declared on $152 $141 $152
common stock
Dividends
declared on 8 6 6
preferred stock
SELECTED RATIOS
Annualized rate
of return on
average common
stockholders'
equity (c) 17.2% 11.1% 14.7%
As % of period-
end total
assets:
Common equity 5.0 5.5 5.4
Total equity 5.3 5.8 5.7
Regulatory
capital ratios
(d)
Tier 1 risk-
based capital
ratio 8.2 8.9 8.8
Total risk-
based 12.1 13.2 13.0
capital ratio
Leverage 6.2 5.9 6.1
ratio
_________________________________________________________
AVERAGE
BALANCES
Debt
investment $ 24,298 $ 22,720 $ 23,077
securities
(e)
Loans 27,326 23,667 24,500
Total
interest- 162,606 135,310 147,569
earning
assets
Total assets 204,836 175,694 189,724
Total
interest-
bearing 154,804 129,279 142,575
liabilities
Total
liabilities 194,160 166,128 179,570
Common
stockholders'
equity 10,065 9,072 9,660
Total
stockholders'
equity 10,676 9,566 10,154
Net interest
earnings (fully
taxable basis) 418 529 511
Net yield on
interest-
earning assets
1.03% 1.59% 1.37%
_________________________________________________________
Employees at
period-end 15,431 16,443 15,613
_________________________________________________________
(a) Earnings per share amounts represent both primary and fully diluted
earnings per share.
(b) Excluding the impact of SFAS No. 115, book value per common share would
have been $49.18, $44.87 and $47.83 for the three months ended March 31,
1996, March 31, 1995, and December 31, 1995, respectively.
(c) Excluding the impact of SFAS No. 115, the annualized rate of return on
average common stockholders' equity would have been 18.1%, 11.7% and 15.5%
for the three months ended March 31, 1996, March 31, 1995, and December 31,
1995, respectively.
(d) In accordance with Federal Reserve Board guidelines, these ratios
exclude the equity, assets and off-balance-sheet exposures of J.P. Morgan
Securities, Inc. and the effect of SFAS No. 115. Risk-based capital ratios
for March 31, 1996, are estimates.
(e) Average debt investment securities are computed based on historical
amortized cost, excluding the effects of SFAS No. 115 adjustments.
5
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
______________________________________________________________________________
____________
In millions,
except per share data Three months ended
_______________________________________________________________
March 31 March 31 Increase December Increase/
1996 1995 / 31 (Decrease)
(Decreas 1995
e)
_______________________________________________________________
NET INTEREST REVENUE
Interest revenue $2,554 $2,470 $ 84 $2,609 ($55)
Interest expense 2,158 1,970 188 2,121 37
_________________________________________________________________________________
_________
Net interest revenue 396 500 (104) 488
(92)
NONINTEREST REVENUE
Trading revenue 758 303 455 369 389
Investment banking
revenue 201 114 87 158 43
Credit-related fees 38 43 (5) 40 (2)
Investment management
fees 157 130 27 156 1
Operational service 113 140 (27) 129 (16)
fees
Net investment
securities 3 1 11
gains 12 9
Other revenue 65 149 (84) 177 (112)
___________________________________________________________________________
_______________
Total noninterest 1,344 888 456 1,030 314
revenue
Total revenue 1,740 1,388 352 1,518 222
OPERATING EXPENSES
Employee compensation
and 730 626 104 608 122
benefits
Net occupancy 73 80 (7) 76 (3)
Technology and
communications 158 172 (14) 165 (7)
Other expenses 124 124 - 141 (17)
___________________________________________________________________________
_______________
Total operating 1,085 1,002 83 990 95
expenses
Income before income 655 386 269 528 127
taxes
Income taxes 216 131 85 162 54
_________________________________________________________________________________
_________
Net income 439 255 184 366 73
PER COMMON SHARE
Net income (a) $2.13 $1.27 $0.86 $1.80 $0.33
Dividends declared 0.81 0.75 0.06 0.81 -
_________________________________________________________________________________
_________
(a) Earnings per share amounts represent both primary and fully diluted
earnings per share.
6
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
___________________________________________________________________________
_________
Dollars in millions March 31 December 31
1996 1995
__________________________________________________
ASSETS
Cash and due from banks $ 732 $ 1,535
Interest-earning deposits with 1,183 1,986
banks
Debt investment securities
available for sale carried at
fair value(Cost: $27,115 at
March 1996 and $24,154 at
December 1995) 27,446 24,638
Trading account assets 69,844 69,408
Securities purchased under
agreements to resell ($39,683
at March 1996 and $32,157 at
December 1995) and federal 39,692 32,157
funds sold
Securities borrowed 22,901 19,830
Loans 28,645 23,453
Less: allowance for credit 1,117 1,130
losses
___________________________________________________________________________
_________
Net loans 27,528 22,323
Customers' acceptance 339 237
liability
Accrued interest and accounts
receivable 4,766 3,539
Premises and equipment 3,354 3,339
Less: accumulated 1,445 1,412
depreciation
___________________________________________________________________________
_________
Premises and equipment, net 1,909 1,927
Other assets 8,407 7,299
___________________________________________________________________________
_________
Total assets 204,747 184,879
___________________________________________________________________________
_________
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 2,784 3,287
In offices outside the 677 744
U.S.
Interest-bearing deposits:
In offices in the U.S. 1,765 2,003
In offices outside the 44,978 40,404
U.S.
___________________________________________________________________________
_________
Total deposits 50,204 46,438
Trading account liabilities 46,766 45,289
Securities sold under
agreements to repurchase
($55,952 at March 1996 and
$40,803 at December 1995) and
federal funds purchased 58,765 45,099
Commercial paper 4,229 2,801
Other liabilities for
borrowed money 15,659 15,129
Accounts payable and accrued
expenses 7,265 5,643
Liability on acceptances 339 237
Long-term debt not qualifying
as risk-based capital 5,710 5,737
Other liabilities 1,272 4,465
___________________________________________________________________________
_________
190,209 170,838
Long-term debt qualifying as
risk-based capital 3,691 3,590
___________________________________________________________________________
_________
Total liabilities 193,900 174,428
STOCKHOLDERS' EQUITY
Preferred stock (authorized
shares: 10,400,000):
Adjustable rate cumulative
preferred stock, $100 par
value(issued and outstanding:
2,444,300) 244 244
Variable cumulative preferred
stock, $1,000 par value
(issued 250 250
and outstanding: 250,000)
Fixed cumulative preferred
stock,
$500 par value (issued and 200 -
outstanding: 400,000)
Common stock, $2.50 par value
(authorized shares:
500,000,000; issued:
200,682,873 at March 1996 and
678,373 at December 1995) 502 502
Capital surplus 1,432 1,430
Retained earnings 8,006 7,731
Net unrealized gains on
investment securities, net of 470 566
taxes
Other 593 552
___________________________________________________________________________
_________
11,697 11,275
Less: treasury stock
(13,382,388 shares at March
1996 and 13,562,755 shares at
December 1995) at cost
850 824
___________________________________________________________________________
_________
Total stockholders' equity 10,847 10,451
___________________________________________________________________________
_________
Total liabilities and
stockholders' equity 204,747 184,879
___________________________________________________________________________
_________
7
CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New
York
___________________________________________________________________________
_______
Dollars in millions March 31 December
1996 31
1995
_________________________________
ASSETS
Cash and due from banks $ 709 $ 1,421
Interest-earning deposits with banks 1,270 2,081
Debt investment securities available for
sale 23,004 23,625
carried at fair value
Trading account assets 54,306 55,298
Securities purchased under agreements to
resell 25,218 21,013
and federal funds sold
Loans 25,933 20,628
Less: allowance for credit losses 1,009 1,021
___________________________________________________________________________
_______
Net loans 24,924 19,607
Customers' acceptance liability 319 237
Accrued interest and accounts receivable 3,424 3,401
Premises and equipment 2,970 2,958
Less: accumulated depreciation 1,249 1,224
___________________________________________________________________________
_______
Premises and equipment, net 1,721 1,734
Other assets 6,101 4,574
___________________________________________________________________________
_______
Total assets 140,996 132,991
___________________________________________________________________________
_______
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 2,731 3,254
In offices outside the U.S. 703 839
Interest-bearing deposits:
In offices in the U.S. 1,707 1,846
In offices outside the U.S. 45,706 40,450
___________________________________________________________________________
_______
Total deposits 50,847 46,389
Trading account liabilities 41,660 39,126
Securities sold under agreements to
repurchase 21,496 20,090
and federal funds purchased
Other liabilities for borrowed money 7,367 7,368
Accounts payable and accrued expenses 4,180 4,168
Liability on acceptances 319 237
Long-term debt not qualifying as risk-based 2,507 2,786
capital
Other liabilities 1,443 2,852
___________________________________________________________________________
_______
129,819 123,016
Long-term debt qualifying as risk-based 2,437 1,509
capital
___________________________________________________________________________
_______
Total liabilities 132,256 124,525
STOCKHOLDER'S EQUITY
Preferred stock, $100 par value
(authorized shares: 2,500,000) - -
Common stock, $25 par value
(authorized and outstanding shares: 250 250
10,000,000)
Surplus 2,820 2,820
Undivided profits 5,491 5,136
Net unrealized gains on investment
securities, net of 181 264
taxes
Foreign currency translation (2) (4)
___________________________________________________________________________
_______
Total stockholder's equity 8,740 8,466
___________________________________________________________________________
_______
Total liabilities and stockholder's equity 140,996 132,991
___________________________________________________________________________
_______
Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
8
COMBINED TRADING AND RELATED NET INTEREST REVENUE
J.P. Morgan & Co. Incorporated
Dollars in millions
Fixed Foreign Commo- Proprietar
y
Income Equities Exchange dities Unit Total
___________________________________________________________________________
_______________
First Quarter
1996
Trading revenue $533 $94 $ 68 $34 $29 $758
Net interest 69 (43) 5 (2) 1 30
revenue*
___________________________________________________________________________
_______________
Combined total 602 51 73 32 30 788
___________________________________________________________________________
_______________
First Quarter
1995
Trading revenue 57 42 102 19 83 303
Net interest 66 (17) 4 3 5 61
revenue
___________________________________________________________________________
_______________
Combined total 123 25 106 22 88 364
___________________________________________________________________________
_______________
Fourth Quarter
1995
Trading revenue 248 36 63 5 17 369
Net interest 38 (32) 12 (2) - 16
revenue
___________________________________________________________________________
_______________
Combined total 286 4 75 3 17 385
*Estimated
9
ASSET QUALITY
J.P. Morgan & Co. Incorporated
________________________________________________________________________
NONPERFORMING ASSETS
March 31 December March 31
31
Dollars in millions 1996 1995 1995
____________________________________________
Impaired loans:
Commercial and $110 $ 67 $148
industrial
Other 42 48 65
________________________________________________________________________
152 115 213
Restructuring countries 4 2 3
___________________________________________________________
____________
Total impaired loans 156 117 216
Other nonperforming - 1 1
assets
________________________________________________________________________
Total nonperforming 156 118 217
assets
________________________________________________________________________
ALLOWANCE FOR CREDIT LOSSES
March 31 December March 31
31
Dollars in millions 1996 1995 1995
____________________________________
_______
Allowance for credit $1,117 $1,130 $1,132
losses
_________________________________________________________________________
First
Quarter
__________________________
1996 1995
__________________________
Charge-offs:
Commercial and ($15) ($6)
industrial
Restructuring - -
countries
Other (3) (2)
Recoveries 5 9
_____________________________________________
_________