1
IMMEDIATE January 13, 1997
J.P. MORGAN REPORTS FOURTH QUARTER AND 1996 FULL YEAR RESULTS
J.P. Morgan & Co. Incorporated reported net income of $419 million in the fourth
quarter of 1996, 14% higher than in the fourth quarter of 1995. Earnings per
share for the quarter were $2.04 versus $1.80 a year ago. Net income for 1996
totaled $1.574 billion, up 21% from 1995. Earnings per share were $7.63 in 1996
versus $6.42 in 1995.
Douglas A. Warner III, chairman, said: "Our business grew substantially in 1996
and produced strong results across the range of our advisory, capital raising,
asset management, risk management, and trading activities. Thanks to the skills
of our people and the confidence of our clients, we continue to build on J.P.
Morgan's competitive advantages and global business momentum."
FOURTH QUARTER AND 1996 FULL YEAR RESULTS AT A GLANCE
Fourth Quarter Year
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In millions of dollars, except per share data 1996 1995 1996 1995
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Revenues $ 1,805 $ 1,518 $ 6,855 $ 5,904
Operating expenses (1,197) (990) (4,523) (3,998)
Income taxes (189) (162) (758) (610)
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Net income $ 419 $ 366 $ 1,574 $ 1,296
Net income per share $ 2.04 $ 1.80 $ 7.63 $ 6.42
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Dividends declared per share $ 0.88 $ 0.81 $ 3.31 $ 3.06
REVENUES rose 19% in the fourth quarter from a year ago and were up 16% for
1996.
- Trading revenue advanced 39% to $512 million in the fourth
quarter on stronger results across the range of trading
activities. In 1996, trading revenue rose 80% to $2.477
billion.
- Investment banking revenue increased 75% to $277 million in
the fourth quarter due to higher levels of advisory,
syndication, and underwriting activities. In 1996, investment
banking revenue grew 58% to $921 million.
- Investment management fees rose 17% to $182 million in the
fourth quarter primarily as a result of net new business. In
1996, investment management fees increased 18% to $675
million.
- Net interest revenue was flat in the fourth quarter compared
with a year earlier. Net interest revenue declined 15% to
$1.702 billion in 1996, primarily reflecting the maturing of
higher-yielding asset and liability management instruments.
- Other revenue decreased 14% to $153 million in the fourth
quarter mostly because of lower net equity investment
securities revenues. In 1996, other revenue declined 25% to
$481 million.
OPERATING EXPENSES rose 21% in the fourth quarter and 13% in 1996 due to
higher compensation in line with improved earnings and costs associated
with increased activity in client businesses.
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Press contact: Joseph M. Evangelisti 212/648-9589
Investor contact: Ann B. Patton 212/648-9446
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IN OTHER DEVELOPMENTS, Morgan completed the previously announced sale of
its institutional U.S. cash-processing business in December. The sale did
not have a material effect on fourth quarter earnings and will have no
material effect on Morgan's ongoing financial results.
The remainder of this release contains information on specific areas of results,
a financial summary, and the consolidated financial statements.
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REVENUES
REVENUES in the fourth quarter of 1996 totaled $1.805 billion, up 19% from a
year earlier. Revenues increased 16% in 1996 to $6.855 billion.
NET INTEREST REVENUE, the aggregate of interest revenue and expense generated
primarily by the firm's asset and liability management, credit-related, and
trading activities, totaled $484 million in the fourth quarter, compared with
$488 million in the year-earlier quarter. In the 1996 fourth quarter, decreases
in asset and liability management revenue were offset by increased
trading-related net interest revenue. In 1996, net interest revenue declined to
$1.702 billion from $2.003 billion in 1995, mostly reflecting lower asset and
liability management revenue. In both the quarter and the year, the decline in
net interest revenue from asset and liability management was primarily
attributable to the maturing of higher-yielding instruments.
TRADING REVENUE increased 39% to $512 million in the fourth quarter from $369
million in the year-earlier quarter. Reported trading revenue does not include
net interest revenue associated with trading activities, which totaled an
estimated $113 million in the 1996 fourth quarter, compared with $16 million in
the 1995 fourth quarter. In 1996, trading revenue rose to $2.477 billion from
$1.376 billion in 1995. Net interest revenue associated with trading activities
totaled an estimated $250 million in 1996, compared with $131 million in 1995.
Combined trading and related net interest revenue increased in both the fourth
quarter and 1996 from year-earlier levels, reflecting strong client demand
across the firm's market-making activities in both developed and emerging
markets, and higher revenue from the firm's proprietary trading unit. (For
details, see the table of combined trading and related net interest revenue by
principal product groupings on page 11.)
Combined trading and related net interest revenue in the fourth quarter
increased 62% to $625 million from a year earlier. Combined revenue from fixed
income rose to $377 million in the fourth quarter from $286 million a year ago.
Foreign-exchange combined revenue increased to $89 million from $75 million a
year earlier. Combined revenue from equities advanced to $56 million in the 1996
fourth quarter from $4 million in the corresponding 1995 quarter. The
proprietary trading unit generated combined revenue of $92 million in the fourth
quarter, compared with $17 million a year earlier.
For all of 1996, combined trading and related net interest revenue grew to
$2.727 billion, up 81% from 1995.
INVESTMENT BANKING REVENUE rose 75% to $277 million in the fourth quarter.
Advisory and syndication fees in the fourth quarter increased 78% to $183
million, and underwriting revenue was up 71% to $94 million. In 1996, investment
banking revenue totaled $921 million, up 58% from 1995. Advisory and syndication
fees increased 44% to $568 million in 1996, and underwriting revenue rose 87% to
$353 million.
For 1996, J.P. Morgan ranked as the sixth largest underwriter of U.S. debt and
equity issues, according to Securities Data Co. In advisory activities,
Securities Data Co. ranked J.P. Morgan fifth in completed mergers and
acquisitions worldwide in 1996.
CREDIT-RELATED FEES of $41 million in the fourth quarter were essentially flat
compared with the 1995 fourth quarter. Excluding revenues from the custody
business, which was sold in 1995, and from the discontinued cash-processing
businesses, credit-related fees increased 12% in the fourth quarter from a year
earlier. The increase was primarily due to higher volumes of lending
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commitments and stand-by letters of credit. Credit-related fees were $156
million in 1996, down 4% from 1995. Excluding revenues from the custody and
cash-processing businesses, credit-related fees rose 8% in 1996.
INVESTMENT MANAGEMENT FEES in the fourth quarter totaled $182 million, up 17%
from the 1995 fourth quarter. Investment management fees in 1996 rose 18% to
$675 million. The quarter and full year increases are primarily due to net new
business. Assets under management at December 31, 1996 were approximately $206
billion.
OPERATIONAL SERVICE FEES totaled $111 million in the fourth quarter, down 14%
from the 1995 fourth quarter. Operational service fees were $426 million in
1996, 22% lower than in 1995. Excluding revenues from the custody and
cash-processing businesses, operational service fees for the fourth quarter and
full year rose 6%.
NET INVESTMENT SECURITIES GAINS were $45 million in the fourth quarter of 1996,
compared with $1 million in the year-earlier quarter. In 1996, net investment
security gains totaled $17 million, compared with $21 million in 1995.
OTHER REVENUE totaled $153 million in the fourth quarter of 1996, compared with
$177 million a year ago. Other revenue totaled $481 million in 1996, compared
with $638 million in 1995. Net equity investment securities revenues were $31
million in the fourth quarter, compared with $99 million a year earlier, and
$269 million in 1996 versus $485 million in 1995. In addition, other revenue in
1996 included a fourth quarter gain of $77 million related to the partial sale
of a minority investment. Other revenue for 1995 included a gain of $40 million
($31 million in the fourth quarter) related to the sale of the firm's custody
business.
OPERATING EXPENSES
Operating expenses increased 21% to $1.197 billion in the fourth quarter from a
year earlier. For the full year, operating expenses rose 13% to $4.523 billion.
This comparison reflects a technology-related special charge of $71 million in
the 1996 third quarter, and a severance-related charge of $55 million in the
first quarter of 1995.
In 1996, continued allocation of resources to areas of strategic importance,
including investment banking and asset management activities, more than offset
the reduction in expenses resulting from the exit from the custody and
cash-processing businesses. Employee compensation and benefits increased as a
result of higher incentive compensation - attributable to higher earnings, the
increasing proportion of revenue earned in client business areas, and more
competitive market conditions. Nonpersonnel expenses also rose with the growth
of client-related business.
At December 31, 1996, staff totaled 15,527 employees compared with 15,188
employees at September 30, 1996, and 15,613 employees at December 31, 1995.
Income tax expense in the fourth quarter totaled $189 million, based on an
effective tax rate of 31%, which equaled the effective rate in the year-earlier
quarter. Income tax expense of $758 million for 1996 reflects an effective tax
rate of 32.5%, compared with an effective tax rate of 32.0% in 1995.
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ASSETS
Total assets were $222 billion at December 31, 1996, compared with $212 billion
at September 30, 1996.
At December 31, 1996, the aggregate allowance for credit losses was $1.116
billion. Nonperforming assets decreased to $120 million at December 31, 1996,
from $161 million at September 30, 1996, as assets newly classified as
nonperforming were more than offset by repayments and charge-offs. No provision
for credit losses was deemed necessary in the 1996 fourth quarter.
CAPITAL
At December 31, 1996, J.P. Morgan's estimated Tier 1 and total risk-based
capital ratios were 8.7% and 12.2%, respectively, compared with Tier 1 and total
risk-based capital ratios of 8.1% and 11.7%, respectively, at September 30,
1996. The December 31, 1996, leverage ratio was 5.9%, versus 6.2% at September
30, 1996.
At December 31, 1996, stockholders' equity included approximately $464 million
of net unrealized appreciation on debt investment and marketable equity
investment securities, net the related deferred tax liability of $268 million.
This compares with $317 million of net unrealized appreciation at September 30,
1996, net the related deferred tax liability of $178 million. The net unrealized
appreciation on debt investment securities was $255 million and $224 million at
December 31, 1996, and September 30, 1996, respectively. The net unrealized
appreciation on marketable equity investment securities was $477 million at
December 31, 1996, and $271 million at September 30, 1996.
As previously reported, the Board of Directors in December declared an increase
in the regular quarterly dividend to $0.88 per share from $0.81 per share on the
company's common stock for the quarter ended December 31, 1996. The Board also
approved the purchase of up to 7 million shares of J.P. Morgan common stock to
lessen the dilutive impact on earnings per share of the firm's employee benefit
plans. These purchases may be made in 1997 or beyond in the open market or
through privately negotiated transactions. The firm purchased 7 million shares
in 1996.
In addition, the Board approved the purchase of up to $750 million of J.P.
Morgan common stock in the open market or through privately negotiated
transactions. J.P. Morgan raised $750 million qualifying as Tier 1 capital under
Federal Reserve guidelines on November 26, 1996 through an issue of 7.54% trust
preferred securities due January 15, 2027, by JPM Capital Trust I. The proceeds
of this issue will be used principally to finance this stock repurchase, which
is expected to be completed in 1997.
# # #
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 interim consolidated financial
statements which are unaudited, 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).
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FINANCIAL SUMMARY
J. P. Morgan & Co. Incorporated
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Dollars in millions, except per share data
Third
Fourth Quarter Quarter Twelve Months
---------------------------- ------------ ----------------------------
1996 1995 1996 1996 1995
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Net Income $ 419 $ 366 $ 276 $ 1,574 $ 1,296
PER COMMON SHARE
Net income (a) $ 2.04 $ 1.80 $ 1.32 $ 7.63 $ 6.42
Dividends declared 0.88 0.81 0.81 3.31 3.06
Book value (b) 54.43 50.71 52.62
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Weighted-average number of common and
common equivalent shares outstanding 201,537,658 199,829,966 201,755,770 202,010,237 198,654,973
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Dividends declared on common stock $ 163 $ 152 $ 151 $ 617 $ 574
Dividends declared on preferred stock 9 6 9 33 24
SELECTED RATIOS
Annualized rate of return on average
common stockholders' equity (c) 15.3% 14.7% 10.3% 14.9% 13.6%
As % of period-end total assets:
Common equity 4.8% 5.4% 4.9%
Total equity 5.2 5.7 5.2
Regulatory capital ratios (d)
Tier 1 risk-based capital ratio 8.7% 8.8% 8.1%
Total risk-based capital ratio 12.2 13.0 11.7
Leverage ratio 5.9 6.1 6.2
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AVERAGE BALANCES
Debt investment securities (e) $ 26,728 $ 23,077 $ 23,171 $ 25,023 $ 21,999
Loans 29,267 24,500 26,976 28,021 24,147
Total interest-earning assets 185,351 147,569 171,409 171,654 136,115
Total assets 233,985 189,724 211,452 215,043 178,510
Total interest-bearing liabilities 177,783 142,575 162,175 163,250 130,139
Total liabilities 222,607 179,570 200,431 204,052 168,651
Common stockholders' equity 10,684 9,660 10,327 10,317 9,365
Total stockholders' equity 11,378 10,154 11,021 10,991 9,859
Net interest earnings (fully taxable basis) 505 511 445 1,787 2,109
Net yield on interest-earning assets 1.08% 1.37% 1.03% 1.04% 1.55%
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Employees at period-end 15,527 15,613 15,188
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(a) Earnings per share amounts represent both primary and fully diluted earnings
per share, except for the twelve months ended December 31, 1996 and 1995, and
the three months ended December 31, 1996. Fully diluted earnings per share were
$7.56, $6.36, and $2.03 for the twelve months ended December 31, 1996 and 1995,
and the three months ended December 31, 1996, respectively.
(b) Excluding the impact of SFAS No. 115, the book value per common share would
have been $52.08, $47.83, and $51.01 at December 31, 1996, December 31, 1995 and
September 30, 1996, respectively.
(c) Excluding the impact of SFAS No. 115, the annualized rate of return on
average common stockholders' equity would have been 15.9% , 15.5%, and 10.6% for
the three months ended December 31, 1996, December 31, 1995, and September 30,
1996, respectively, and 15.6% and 14.3% for the twelve months ended December 31,
1996 and 1995, respectively.
(d) In accordance with the 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
December 31, 1996 are estimates.
(e) Average debt investment securities are computed based on historical
amortized cost, excluding the effects of SFAS No. 115 adjustments.
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CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
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In millions, except per share data
Three months ended
-----------------------------------------------------------------
December 31 December 31 Increase/ September 30 Increase/
1996 1995 (Decrease) 1996 (Decrease)
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NET INTEREST REVENUE
Interest revenue $2,925 $2,609 $ 316 $2,675 $ 250
Interest expense 2,441 2,121 320 2,250 191
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Net interest revenue 484 488 (4) 425 59
NONINTEREST REVENUE
Trading revenue 512 369 143 510 2
Investment banking revenue 277 158 119 233 44
Credit-related fees 41 40 1 39 2
Investment management fees 182 156 26 164 18
Operational service fees 111 129 (18) 98 13
Net investment securities gains 45 1 44 11 34
Other revenue 153 177 (24) 69 84
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Total noninterest revenue 1,321 1,030 291 1,124 197
Total revenue 1,805 1,518 287 1,549 256
OPERATING EXPENSES
Employee compensation and benefits 732 608 124 685 47
Net occupancy 73 76 (3) 74 (1)
Technology and communications 221 165 56 248 (27)
Other expenses 171 141 30 130 41
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Total operating expenses 1,197 990 207 1,137 60
Income before income taxes 608 528 80 412 196
Income taxes 189 162 27 136 53
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Net income 419 366 53 276 143
PER COMMON SHARE
Net income (a) $ 2.04 $ 1.80 $0.24 $ 1.32 $0.72
Dividends declared 0.88 0.81 0.07 0.81 0.07
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(a) See Financial Summary for per common share data assuming full dilution.
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CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
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In millions, except per share data
Twelve months ended
----------------------------------------
December 31 December 31 Increase/
1996 1995 (Decrease)
--------------------------------------
NET INTEREST REVENUE
Interest revenue $10,713 $9,937 $ 776
Interest expense 9,011 7,934 1,077
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Net interest revenue 1,702 2,003 (301)
NONINTEREST REVENUE
Trading revenue 2,477 1,376 1,101
Investment banking revenue 921 584 337
Credit-related fees 156 162 (6)
Investment management fees 675 574 101
Operational service fees 426 546 (120)
Net investment securities gains 17 21 (4)
Other revenue 481 638 (157)
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Total noninterest revenue 5,153 3,901 1,252
Total revenue 6,855 5,904 951
OPERATING EXPENSES
Employee compensation and benefits 2,884 2,498 386
Net occupancy 296 322 (26)
Technology and communications 785 671 114
Other expenses 558 507 51
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Total operating expenses 4,523 3,998 525
Income before income taxes 2,332 1,906 426
Income taxes 758 610 148
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Net income 1,574 1,296 278
PER COMMON SHARE
Net income (a) $ 7.63 $ 6.42 $ 1.21
Dividends declared 3.31 3.06 0.25
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(a) See Financial Summary for per common share data assuming full dilution.
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CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
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Dollars in millions December 31 September 30 December 31
1996 1996 1995
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ASSETS
Cash and due from banks $ 906 $ 1,088 $ 1,535
Interest-earning deposits with banks 1,908 2,193 1,986
Debt investment securities available for sale carried at fair value (Cost: $24,610 at
December 1996, $26,341 at September 1996, and $24,154 at December 1995) 24,865 26,565 24,638
Trading account assets, net of allowance for credit losses of $350 at December 1996 (a) 90,980 80,784 69,408
Securities purchased under agreements to resell ($32,455 at December 1996,
$34,658 at September 1996, and $32,157 at December 1995) and federal funds sold 32,505 34,686 32,157
Securities borrowed 27,931 25,430 19,830
Loans, net of allowance for credit losses of $566 at December 1996, $1,113 at September 1996,
and $1,130 at December 1995 (a) 27,554 28,889 22,323
Customers' acceptance liability 212 287 237
Accrued interest and accounts receivable 3,789 3,585 3,539
Premises and equipment 3,137 3,068 3,339
Less: accumulated depreciation 1,272 1,236 1,412
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Premises and equipment, net 1,865 1,832 1,927
Other assets 9,511 6,309 7,299
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Total assets 222,026 211,648 184,879
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LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 1,501 2,115 3,287
In offices outside the U.S. 708 917 744
Interest-bearing deposits:
In offices in the U.S. 7,103 6,016 2,003
In offices outside the U.S. 43,412 40,860 40,404
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Total deposits 52,724 49,908 46,438
Trading account liabilities 50,919 45,601 45,289
Securities sold under agreements to repurchase ($56,117 at December 1996, $58,318 at
September 1996, and $40,803 at December 1995) and federal funds purchased 61,429 61,094 45,099
Commercial paper 4,132 4,448 2,801
Other liabilities for borrowed money 19,948 19,966 15,129
Accounts payable and accrued expenses 5,935 6,255 5,643
Liability on acceptances 212 287 237
Long-term debt not qualifying as risk-based capital 9,411 8,176 5,737
Other liabilities, including allowance for credit losses of $200 at December 1996 (a) 1,442 1,095 4,465
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206,152 196,830 170,838
Long-term debt qualifying as risk-based capital 3,692 3,740 3,590
Company obligated mandatorily redeemable preferred securities of subsidiary
grantor trust holding solely junior subordinated debentures of the Company 750 -- --
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Total liabilities 210,594 200,570 174,428
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares: 10,400,000 at December 1996 and September 1996,
and 10,000,000 at December 1995)
Adjustable rate cumulative preferred stock, $100 par value (issued and outstanding: 2,444,300) 244 244 244
Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250 250 250
Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000 at December 200 200 --
and September 1996)
Common stock, $2.50 par value (authorized shares: 500,000,000; issued: 200,688,123 at December
1996, 200,684,623 at September 1996, and 200,678,373 at December 1995) 502 502 502
Capital surplus 1,446 1,442 1,430
Retained earnings 8,635 8,392 7,731
Net unrealized gains on investment securities, net of taxes 464 317 566
Other 826 754 552
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12,567 12,101 11,275
Less: treasury stock (15,765,455 shares at December 1996, 14,767,312 shares at September 1996,
and 13,562,755 shares at December 1995) at cost 1,135 1,023 824
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Total stockholders' equity 11,432 11,078 10,451
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Total liabilities and stockholders' equity 222,026 211,648 184,879
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(a) See Aggregate allowance for credit losses table on page 12.
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CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New York
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Dollars in millions December 31 December 31
1996 1995
------------------------
ASSETS
Cash and due from banks $ 920 $ 1,429
Interest-earning deposits with banks 1,910 1,995
Debt investment securities available for sale carried at fair value 23,510 23,767
Trading account assets, net allowance of credit losses of $350 at December 1996 72,549 55,373
Securities purchased under agreements to resell and federal
funds sold 27,762 20,996
Loans, net of allowance for credit losses of $565 at December 1996 and $1,129
at December 1995 27,378 22,190
Customers' acceptance liability 212 237
Accrued interest and accounts receivable 3,470 3,420
Premises and equipment 2,812 2,967
Less: accumulated depreciation 1,116 1,232
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Premises and equipment, net 1,696 1,735
Other assets 5,406 4,571
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Total assets 164,813 135,713
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LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 1,495 3,275
In offices outside the U.S. 749 839
Interest-bearing deposits:
In offices in the U.S. 7,114 1,975
In offices outside the U.S. 43,716 40,985
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Total deposits 53,074 47,074
Trading account liabilities 44,039 39,197
Securities sold under agreements to repurchase and federal
funds purchased 30,787 20,274
Other liabilities for borrowed money 13,215 8,509
Accounts payable and accrued expenses 4,203 4,187
Liability on acceptances 212 237
Long-term debt not qualifying as risk-based capital 5,436 2,786
Other liabilities, including allowance for credit losses of $200 at December 1996 977 3,324
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151,943 125,588
Long-term debt qualifying as risk-based capital 2,979 1,659
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Total liabilities 154,922 127,247
STOCKHOLDER'S EQUITY
Preferred stock, $100 par value (authorized shares: 2,500,000) -- --
Common stock, $25 par value (authorized shares: 11,000,000 at December
1996, and 10,000,000 at December 1995; outstanding:
10,599,027 at December 1996, and 10,000,000 at December 1995) 265 250
Surplus 3,155 2,820
Undivided profits 6,334 5,136
Net unrealized gains on investment securities, net of taxes 149 264
Foreign currency translation (12) (4)
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Total stockholder's equity 9,891 8,466
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Total liabilities and stockholder's equity 164,813 135,713
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Prior period balances were restated to reflect the merger of J.P. Morgan
Delaware with Morgan Guaranty Trust Company effective June 1996.
Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
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COMBINED TRADING AND RELATED NET INTEREST REVENUE
J.P. Morgan & Co. Incorporated
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Dollars in millions
Fixed Foreign Proprietary
Income Equities Exchange Commodities Unit Total
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Fourth Quarter 1996
Trading revenue $ 273 $ 69 $ 84 $ 10 $ 76 $ 512
Net interest revenue* 104 (13) 5 1 16 113
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Combined total 377 56 89 11 92 625
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Fourth Quarter 1995
Trading revenue 248 36 63 5 17 369
Net interest revenue 38 (32) 12 (2) -- 16
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Combined total 286 4 75 3 17 385
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Third Quarter 1996
Trading revenue 403 43 59 (15) 20 510
Net interest revenue 45 (4) 5 4 15 65
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Combined total 448 39 64 (11) 35 575
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Twelve Months 1996
Trading revenue 1,540 330 320 34 253 2,477
Net interest revenue* 272 (69) 20 (2) 29 250
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Combined total 1,812 261 340 32 282 2,727
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Twelve Months 1995
Trading revenue 668 249 253 42 164 1,376
Net interest revenue 201 (112) 22 -- 20 131
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Combined total 869 137 275 42 184 1,507
* Estimated
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ASSET QUALITY
J.P. Morgan & Co. Incorporated
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NONPERFORMING ASSETS
December 31 September 30 December 31
Dollars in millions 1996 1996 1995
----------- ------------ -----------
Impaired loans:
Commercial and industrial $ 89 $125 $ 67
Other 29 34 48
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118 159 115
Restructuring countries 2 2 2
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Total impaired loans 120 161 117
Other nonperforming assets -- -- 1
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Total nonperforming assets 120 161 118
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AGGREGATE ALLOWANCE FOR CREDIT LOSSES
December 31 September 30 December 31
Dollars in millions 1996 1996 1995
----------- ------------ -----------
Aggregate allowance for credit losses (a) $1,116 $1,113 $1,130
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Fourth Quarter Twelve Months
----------------------- -----------------------
1996 1995 1996 1995
----------------------- -----------------------
Charge-offs:
Commercial and industrial ($2) ($ 8) ($30) ($39)
Other (2) (10) (9) (16)
Recoveries 7 16 25 54
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(a) Prior to December 31, 1996, the aggregate allowance for credit losses was
displayed in the consolidated balance sheet as a reduction of the carrying value
of loans. This aggregate allowance is available to absorb losses inherent in our
portfolio of loans and other undertakings to extend credit or to make payments
to others for which a client is ultimately liable, and for all other credit
exposures, including derivatives. For financial statement reporting purposes,
beginning December 31, 1996, in accordance with the American Institute of
Certified Public Accountants Banks and Savings Institutions Audit Guide, while
we consider it in the aggregate, the total allowance has been apportioned and
displayed as follows: $566 million as a reduction of loans, $350 million as a
reduction of trading account assets relating to derivatives, and $200 million as
other liabilities related to undertakings to extend credit which are not
currently reflected on the balance sheet such as standby letters of credit and
guarantees. Given the global and diversified nature of our business, expected
shifts in the relative level of credit risk among financial instruments, and the
numerous estimates and assumptions necessary to derive such allocated amounts,
it is expected that portions of the aggregate allowance may be reclassified from
time to time. Prior period amounts have not been reclassified.
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CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
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Dollars in millions, interest and average Three months ended
rates on a taxable-equivalent basis ---------------------------------------------------------------------
December 31, 1996 December 31, 1995
---------------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
---------------------------------------------------------------------
ASSETS
Interest-earning deposits with banks,
mainly in offices outside the U.S. $ 2,071 $ 29 5.57% $ 1,953 $ 34 6.91%
Debt investment securities in offices
in the U.S. (a):
U.S. Treasury 3,002 44 5.83 1,255 23 7.27
U.S. state and political subdivision 1,496 43 11.43 1,729 51 11.70
Other 16,708 275 6.55 15,792 272 6.83
Debt investment securities in offices
outside the U.S. (a) 5,522 74 5.33 4,301 76 7.01
Trading account assets:
In offices in the U.S. 19,100 280 5.83 13,247 196 5.87
In offices outside the U.S. 38,328 740 7.68 25,958 495 7.57
Securities purchased under agreements
to resell and federal funds sold, mainly
in offices in the U.S. 40,466 515 5.06 36,814 587 6.33
Securities borrowed in offices in the U.S. 27,899 365 5.20 18,297 272 5.90
Loans:
In offices in the U.S. 5,546 92 6.60 6,294 124 7.82
In offices outside the U.S. 23,721 371 6.22 18,206 321 7.00
Other interest-earning assets (b):
In offices in the U.S. 675 51 * 858 41 *
In offices outside the U.S. 817 67 * 2,865 140 *
- ----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 185,351 2,946 6.32 147,569 2,632 7.08
Allowance for credit losses (c) (1,113) (1,126)
Cash and due from banks 1,082 1,706
Other noninterest-earning assets 48,665 41,575
- ----------------------------------------------------------------------------------------------------------------------
Total assets 233,985 189,724
- ----------------------------------------------------------------------------------------------------------------------
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 December 31, 1996 and 1995.
(a) For the three months ended December 31, 1996 and 1995, 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.
(c) See Aggregate allowance for credit losses table on page 12.
* Not meaningful.
14
14
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
- -------------------------------------------------------------------------------------------------------------------------
Dollars in millions, interest and average Three months ended
rates on a taxable-equivalent basis ----------------------------------------------------------------
December 31, 1996 December 31, 1995
----------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
----------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
In offices in the U.S. $ 7,944 $ 109 5.46% $ 1,882 $ 22 4.64%
In offices outside the U.S. 45,049 537 4.74 43,996 644 5.81
Trading account liabilities:
In offices in the U.S. 8,127 127 6.22 6,802 99 5.77
In offices outside the U.S. 11,812 218 7.34 13,796 196 5.64
Securities sold under agreements to repurchase
and federal funds purchased, mainly in
offices in the U.S. 69,511 911 5.21 49,065 735 5.94
Commercial paper, mainly in offices in the U.S. 4,082 56 5.46 3,437 50 5.77
Other interest-bearing liabilities:
In offices in the U.S. 15,544 227 5.81 12,639 190 5.96
In offices outside the U.S. 2,856 59 8.22 1,557 42 10.70
Long-term debt, mainly in offices in the U.S. 12,630 193 6.08 9,401 143 6.03
Company obligated mandatorily redeemable
preferred securities of subsidiary grantor trust
holding solely junior subordinated debentures
of the Company 228 4 6.98 -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 177,783 2,441 5.46 142,575 2,121 5.90
Noninterest-bearing deposits:
In offices in the U.S. 1,872 3,305
In offices outside the U.S. 481 1,319
Other noninterest-bearing liabilities 42,471 32,371
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 222,607 179,570
Stockholders' equity 11,378 10,154
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 233,985 189,724
Net yield on interest-earning assets 1.08 1.37
- -------------------------------------------------------------------------------------------------------------------------
Net interest earnings 505 511
- -------------------------------------------------------------------------------------------------------------------------
15
15
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
- ---------------------------------------------------------------------------------------------------------------------------
Dollars in millions, interest and average Twelve months ended
rates on a taxable-equivalent basis ------------------------------------------------------------------------
December 31, 1996 December 31, 1995
------------------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
------------------------------------------------------------------------
ASSETS
Interest-earning deposits with banks,
mainly in offices outside the U.S. $ 2,022 $ 110 5.44% $ 1,796 $ 168 9.35%
Debt investment securities in offices
in the U.S.(a):
U.S. Treasury 1,581 106 6.70 1,983 130 6.56
U.S. state and political subdivision 1,591 183 11.50 1,964 236 12.02
Other 17,399 1,109 6.37 13,619 962 7.06
Debt investment securities in offices outside
the U.S.(a) 4,452 271 6.09 4,433 309 6.97
Trading account assets:
In offices in the U.S. 16,591 994 5.99 12,802 836 6.53
In offices outside the U.S. 29,656 2,285 7.71 25,560 2,205 8.63
Securities purchased under agreements
to resell and federal funds sold, mainly
in offices in the U.S. 43,064 2,254 5.23 31,769 1,942 6.11
Securities borrowed in offices in the U.S. 25,310 1,284 5.07 15,222 876 5.75
Loans:
In offices in the U.S. 6,227 418 6.71 6,586 479 7.27
In offices outside the U.S. 21,794 1,371 6.29 17,561 1,236 7.04
Other interest-earning assets (b):
In offices in the U.S. 940 139 * 1,185 252 *
In offices outside the U.S. 1,027 274 * 1,635 412 *
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 171,654 10,798 6.29 136,115 10,043 7.38
Allowance for credit losses (c) (1,119) (1,130)
Cash and due from banks 935 1,796
Other noninterest-earning assets 43,573 41,729
- ---------------------------------------------------------------------------------------------------------------------------
Total assets 215,043 178,510
- ---------------------------------------------------------------------------------------------------------------------------
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 twelve months ended December 31, 1996 and 1995.
(a) For the twelve months ended December 31, 1996 and 1995, 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.
(c) See Aggregate allowance for credit losses table on page 12.
* Not meaningful.
16
16
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
- ------------------------------------------------------------------------------------------------------------------------
Dollars in millions, interest and average Twelve months ended
rates on a taxable-equivalent basis ----------------------------------------------------------------
December 31, 1996 December 31, 1995
----------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
----------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
In offices in the U.S. $ 3,962 $ 204 5.15% $ 2,048 $ 98 4.79%
In offices outside the U.S. 45,148 2,337 5.18 41,762 2,422 5.80
Trading account liabilities:
In offices in the U.S. 8,295 522 6.29 6,596 438 6.64
In offices outside the U.S. 11,056 780 7.05 12,222 923 7.55
Securities sold under agreements to repurchase
and federal funds purchased, mainly in offices
in the U.S. 63,424 3,295 5.20 43,658 2,568 5.88
Commercial paper, mainly in offices in the U.S. 4,133 225 5.44 2,809 169 6.02
Other interest-bearing liabilities:
In offices in the U.S. 14,274 815 5.71 10,414 639 6.14
In offices outside the U.S. 2,258 204 9.03 1,869 127 6.80
Long-term debt, mainly in offices in the U.S. 10,643 625 5.87 8,761 550 6.28
Company obligated mandatorily redeemable
preferred securities of subsidiary grantor trust
holding solely junior subordinated debentures
of the Company 57 4 7.02 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 163,250 9,011 5.52 130,139 7,934 6.10
Noninterest-bearing deposits:
In offices in the U.S. 2,298 3,336
In offices outside the U.S. 737 1,354
Other noninterest-bearing liabilities 37,767 33,822
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 204,052 168,651
Stockholders' equity 10,991 9,859
Total liabilities and stockholders' equity 215,043 178,510
Net yield on interest-earning assets: 1.04 1.55
- ------------------------------------------------------------------------------------------------------------------------
Net interest earnings 1,787 2,109
- ------------------------------------------------------------------------------------------------------------------------