1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT JULY 18, 2001 COMMISSION FILE NUMBER 1-5805
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J.P. MORGAN CHASE & CO.
-----------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2624428
------------------------------- ------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
270 PARK AVENUE, NEW YORK, NEW YORK 10017
--------------------------------------- ------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 270-6000
--------------
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Item 5. Other Events
J.P. Morgan Chase & Co. (NYSE: JPM) announced second quarter 2001 operating
earnings per share of $0.33, compared with $0.70 in the first quarter of 2001
and $0.89 in the second quarter of 2000. Operating income was $690 million in
the 2001 second quarter compared to $1,436 million in the first quarter of 2001
and $1,757 million one year ago. Reported net income, which includes merger and
restructuring costs, was $378 million, or $0.18 per share, in the second quarter
of 2001. This compares with $1,199 million, or $0.58 per share, in the first
quarter of 2001 and $1,633 million, or $0.83 per share, in the second quarter of
2000.
This presentation contains statements that are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are based upon the current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and uncertainties. Actual
results may differ from those set forth in the forward-looking statements. These
uncertainties include: the risk of adverse movements or volatility in the debt
and equity securities markets or in interest or foreign exchange rates or
indices; the risk of adverse impacts from an economic downturn; the risk of a
downturn in domestic or foreign securities and trading conditions or markets;
the risks involved in deal completion including an adverse development affecting
a customer or the inability by a customer to receive a regulatory approval; the
risks associated with increased competition; the risks associated with
unfavorable political and diplomatic developments in foreign markets or adverse
changes in domestic or foreign governmental or regulatory policies; the risk
that the merger integration will not be successful or that the revenue synergies
and cost savings anticipated from the merger may not be fully realized or may
take longer to realize than expected; the risk that the integration process may
result in the disruption of ongoing business or in the loss of key employees or
may adversely affect relationships with employees, clients or suppliers; the
risk that the credit, market, liquidity, and operational risks associated with
the various businesses of JPMorgan Chase are not successfully managed; or other
factors affecting operational plans. Additional factors that could cause
JPMorgan Chase's results to differ materially from those described in the
forward-looking statements can be found in the 2000 Annual Report on Form 10-K
of J.P. Morgan Chase & Co., filed with the Securities and Exchange Commission
and available at the Securities and Exchange Commission's internet site
(http://www.sec.gov).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
J.P. MORGAN CHASE & CO.
-----------------------
(Registrant)
Date July 18, 2001 By /s/ Joseph L. Sclafani
--------------- ----------------------
Joseph L. Sclafani
Executive Vice President
and Controller
[Principal Accounting Officer]
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EXHIBIT INDEX
Exhibit No. Description Page
----------- ----------- ----
12 (a) Computation of Ratio of Earnings to Fixed Charges 5
12 (b) Computation of Ratio of Earnings to Fixed Charges 6
and Preferred Stock Dividend Requirements
99.1 Press Release - 2001 Second Quarter Earnings 7
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EXHIBIT 12(a)
J.P. MORGAN CHASE & CO.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIOS)
SIX MONTHS ENDED
JUNE 30, 2001
----------------
EXCLUDING INTEREST ON DEPOSITS
Income before income taxes and effect of accounting change $ 2,465
--------
Fixed charges:
Interest expense 7,692
One-third of rents, net of income from subleases (a) 115
--------
Total fixed charges 7,807
--------
Less: Equity in undistributed income of affiliates (61)
--------
Earnings before taxes, effect of accounting change and fixed charges,
excluding capitalized interest $ 10,211
========
Fixed charges, as above $ 7,807
========
Ratio of earnings to fixed charges 1.31
========
INCLUDING INTEREST ON DEPOSITS
Fixed charges, as above $ 7,807
Add: Interest on deposits 4,758
--------
Total fixed charges and interest on deposits $ 12,565
========
Earnings before taxes, effect of accounting change and fixed charges,
excluding capitalized interest, as above $ 10,211
Add: Interest on deposits 4,758
--------
Total earnings before taxes, effect of accounting change,
fixed charges and interest on deposits $ 14,969
========
Ratio of earnings to fixed charges 1.19
========
(a) The proportion deemed representative of the interest factor.
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EXHIBIT 12(b)
J.P. MORGAN CHASE & CO.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN MILLIONS, EXCEPT RATIOS)
SIX MONTHS ENDED
JUNE 30, 2001
----------------
EXCLUDING INTEREST ON DEPOSITS
Income before income taxes and effect of accounting change $ 2,465
--------
Fixed charges:
Interest expense 7,692
One-third of rents, net of income from subleases (a) 115
--------
Total fixed charges 7,807
--------
Less: Equity in undistributed income of affiliates (61)
--------
Earnings before taxes, effect of accounting change and fixed charges,
excluding capitalized interest $ 10,211
========
Fixed charges, as above $ 7,807
Preferred stock dividends 40
--------
Fixed charges including preferred stock dividends $ 7,847
========
Ratio of earnings to fixed charges and
preferred stock dividend requirements 1.30
========
INCLUDING INTEREST ON DEPOSITS
Fixed charges including preferred stock dividends, as above $ 7,847
Add: Interest on deposits 4,758
--------
Total fixed charges including preferred stock
dividends and interest on deposits $ 12,605
========
Earnings before taxes, effect of accounting change and fixed charges,
excluding capitalized interest, as above $ 10,211
Add: Interest on deposits 4,758
--------
Total earnings before taxes, effect of accounting change, fixed charges
and interest on deposits $ 14,969
========
Ratio of earnings to fixed charges
and preferred stock dividend requirements 1.19
========
(a) The proportion deemed representative of the interest factor.
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Exhibit 99.1
J.P. Morgan Chase & Co. [JPMORGAN CHASE LOGO]
270 Park Avenue, New York, NY 10017-2070
NYSE symbol: JPM
www.jpmorganchase.com
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News release: IMMEDIATE RELEASE
JPMORGAN CHASE REPORTS SECOND QUARTER 2001 RESULTS AND ANNOUNCES
NEW $6 BILLION COMMON STOCK REPURCHASE AUTHORIZATION
NEW YORK, JULY 18, 2001 - J.P. Morgan Chase & Co. (NYSE: JPM) today announced
second quarter 2001 operating earnings per share of $0.33, compared with $0.70
in the first quarter of 2001 and $0.89 in the second quarter of 2000. Operating
income was $690 million in the 2001 second quarter compared to $1,436 million in
the first quarter of 2001 and $1,757 million one year ago.
The contribution of JPMorgan Partners to operating earnings per share was a loss
of $0.31 in the second quarter compared to a $0.01 loss in the first quarter and
income of $0.10 in the second quarter of 2000. Excluding the results of JPMorgan
Partners, operating earnings per share were $0.64 in the second quarter of 2001.
This compares with $0.71 in the first quarter of 2001 and $0.79 in the second
quarter of 2000.
Reported net income, which includes merger and restructuring costs, was $378
million, or $0.18 per share, in the second quarter of 2001. This compares with
$1,199 million, or $0.58 per share, in the first quarter of 2001 and $1,633
million, or $0.83 per share, in the second quarter of 2000.
Amortization of intangibles was $0.09 per share in the second quarter of 2001,
$0.08 per share in the first quarter, and $0.05 per share one year ago. The
annualized cash operating return on common equity was 8% for the second quarter
of 2001, 17% excluding the results of JPMorgan Partners. See the Financial
Highlights exhibit for consolidated results on a cash basis. Results for all
periods give effect to the merger of The Chase Manhattan Corporation and J.P.
Morgan & Co. Incorporated on December 31, 2000.
The Board of Directors of J.P. Morgan Chase & Co. has authorized the repurchase
of up to $6 billion of JPMorgan Chase's common stock in the open market or
through negotiated transactions. This authorization is in addition to any
amounts necessary to provide for issuances under JPMorgan Chase's dividend
reinvestment plan and its various stock-based director and employee benefits
plans. The authorization is effective July 19, 2001.
"We are not satisfied with our financial results, which have been negatively
affected by weak markets and deterioration of private equity values," said
William B. Harrison, Jr., President and Chief Executive Officer. "On the other
hand, we are making excellent progress on merger integration and after only six
months as a merged company we are already beginning to see improved competitive
performance for our franchise. This has confirmed our confidence in our merger
execution capability and in our business model. We are more confident than ever
that our franchise will produce strong returns over time."
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Investor Contact: John Borden Media Contact: Jon Diat
212-270-7318 212-270-5089
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J.P. Morgan Chase & Co.
News Release
HIGHLIGHTS FOR THE SECOND QUARTER 2001
- - Results for JPMorgan Partners were negatively affected by $1.02 billion
of write-downs and write-offs, particularly from telecommunications
investments in the privately held portion of the portfolio.
- - Total operating expenses declined by 6%, or $315 million, from the
first quarter of 2001 and declined by 4% from the second quarter of
2000 including Flemings on a pro-forma basis.
- - Investment banking fees were down only 1% from the first quarter,
reflecting market share gains in a weaker market.
- - Treasury & Securities Services and Retail & Middle Market Financial
Services posted solid results, with cash ROE in excess of 20% for each
business.
- - Investment Management & Private Banking expense initiatives led to 18%
growth in cash operating earnings from a weak first quarter.
BUSINESS SEGMENT RESULTS (ALL COMPARISONS TO PERIODS IN 2000 ARE PRO-FORMA TO
ASSUME THAT THE PURCHASE OF FLEMINGS OCCURRED AT THE BEGINNING OF THAT YEAR)
JPMORGAN PARTNERS had private equity losses of $827 million in the second
quarter, compared to gains of $132 million in the first quarter and gains of
$447 million in the second quarter of 2000. Unrealized losses of $767 million in
the quarter reflected $860 million of downward valuation adjustments taken
primarily against telecommunications-related private direct investments and
certain third party funds that were only partially offset by unrealized gains in
public securities. Realized losses of $60 million in the second quarter
reflected $156 million of write-offs primarily of telecommunications investments
that exceeded realized gains elsewhere in the portfolio.
The total write-downs and write-offs of $1.02 billion relate primarily to
investments made in 1999 and 2000. These valuation adjustments reflect the
likelihood that access to the capital markets will be limited for some time to
newer companies in the technology and telecommunications sectors.
THE INVESTMENT BANK'S operating revenues were $3.78 billion in the second
quarter of 2001, a decline of 15% from the first quarter and an 11% decline from
the second quarter of 2000. Cash operating expenses of $2.37 billion declined by
10% from the first quarter and by 8% from the second quarter of 2000. The
expense declines in each period resulted primarily from reduced levels of
salaries and incentive compensation, and reflect headcount reduction in excess
of 3,000.
Investment banking fees totaled $921 million in the second quarter, declining 2%
from the first quarter and 21% from the second quarter of 2000. Continued
strength in loan and bond origination revenues, and an improvement in equity
underwriting, helped largely to offset lower M&A fees when compared to the first
quarter. The 21% decline from the second quarter of 2000 reflects the
comparative strength in equity capital markets and M&A one year ago. For the
first six months of the year, investment banking fees declined by 22% compared
to the first half of 2000 reflecting a
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J.P. Morgan Chase & Co.
News Release
significant reduction in overall market activity. During the first six months of
2001, however, important product leadership positions were maintained in
leveraged and syndicated lending (#1) and U.S. high grade bonds (#2)(1). In
addition, the global announced M&A ranking for the first six months of 2001
improved to #5 from #7 as compared to the same period one year ago(2).
Trading revenues (including related net interest income) of $1.61 billion
declined by 24% from the first quarter and by 11% from the second quarter of
2000. Seasonal strength in the first quarter and overall challenging market
conditions contributed to the declines from each period compared to the second
quarter. These declines were experienced across most of the firm's trading
activities. Trading revenues declined by 6% for the first half of 2001 compared
to the same period in 2000.
Fees and commissions of $400 million in the second quarter experienced declines
of 15% from the first quarter and 16% from the second quarter of 2000. In each
instance, the declines reflected lower equity brokerage commissions. Securities
gains of $67 million in the second quarter resulted from the favorable impact of
declining interest rates on the firm's securities portfolio maintained in
connection with asset/liability management.
The Investment Bank's cash operating earnings totaled $790 million in the second
quarter, a 25% decline from the first quarter and a 20% decline from the second
quarter of 2000. For the second quarter of 2001, the Investment Bank's cash
overhead ratio was 63% and cash ROE was 17%.
INVESTMENT MANAGEMENT & PRIVATE BANKING had operating revenues of $788 million
in the second quarter, 2% below the first quarter and down 15% from the second
quarter of 2000. The decline versus one year ago was primarily a result of lower
assets under management and associated management fees as a consequence of
market conditions. Revenues from commissions and spreads also were down from one
year ago. Total assets under management of $611 billion were 6% lower than one
year ago and flat from the prior quarter, with a higher proportion of assets
held in lower yielding money market accounts. This excludes assets managed in
other lines of business and assets attributable to the firm's 45% stake in
American Century.
Cash operating expenses of $644 million declined by 6% from both the first
quarter and from the second quarter of 2000, driven by lower compensation
expense. The overall reduction in cash expenses in the second quarter resulted
in cash operating earnings growth of 18% from the first quarter, with pre-tax
margin improvement from 15% to 19%. The 15% decline in revenues from the second
quarter of 2000, however, contributed to a 26% decline in cash operating
earnings from the second quarter of 2000.
- --------
(1) Thomson Financial Securities Data
(2) Ibid.
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J.P. Morgan Chase & Co.
News Release
TREASURY & SECURITIES SERVICES operating revenues were $909 million in the
second quarter, essentially flat with the first quarter of 2001 and an increase
of 1% from the second quarter of 2000. In each instance, revenues declined at
Investor Services reflecting lower asset-based fees, lower foreign exchange and
reduced net asset growth. Revenues were stronger for Treasury Services and
Institutional Trust reflecting new business and higher volumes, which offset the
negative effect of declining short-term interest rates on deposits.
Operating expenses increased by 3% both from the first quarter and
year-over-year. The increases largely reflected higher processing volumes across
all businesses. Cash operating earnings declined by 6% and 3% from the first
quarter of 2001 and second quarter of 2000, respectively. Cash ROE was 22% in
the second quarter of 2001.
RETAIL & MIDDLE MARKET FINANCIAL SERVICES operating revenues were $2.64 billion,
increasing by 3% and 5% from the first quarter of 2001 and second quarter of
2000, respectively. Adjusted for business dispositions during the second half of
2000, second quarter operating revenues increased by 9% compared to one year
ago. These revenue increases were driven by volume growth in the credit card,
auto finance and mortgage businesses.
Cash operating expenses increased by 4% from both the first quarter of 2001 and
second quarter of 2000 and reflected higher business volumes and increased
credit card marketing since the second quarter of 2000 in support of growth
initiatives. Adjusted for business dispositions, cash operating expenses
increased by 7% from one year ago. Cash ROE for the quarter was 21% reflecting
cash operating earnings of $438 million in the second quarter. Cash operating
earnings declined by 1% and 3% from the first quarter of 2001 and second quarter
of 2000, respectively.
Mortgage and auto originations totaled $53.8 billion and $4.8 billion,
respectively, in the second quarter, and exceeded the record levels that had
been achieved for each in the prior quarter. Credit card outstandings grew by
over 15% from one year ago. New account growth continued with over one million
accounts added in the quarter. The declining interest rate environment had a
negative impact on Regional Banking Group's performance by reducing deposit
spreads and depressing investment revenues consistent with overall market
conditions.
EXPENSES
Total cash operating noninterest expense was $5.10 billion, a 6% decline from
the first quarter of 2001 and a 4% decline from the second quarter of 2000
pro-forma for Flemings. This expense decline reflected merger-related headcount
reduction of 4,663 since September 2000. Amortization of intangibles was $183
million in the second quarter of 2001 compared to $177 million in the first
quarter and $92 million one year ago.
Included in reported earnings in the second quarter of 2001 are $478 million
(pre-tax) of previously announced merger and restructuring costs, for a total of
$806 million in the first half of this year
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J.P. Morgan Chase & Co.
News Release
compared to anticipated total merger and restructuring costs of $2.5 billion
over the course of 2001 and 2002.
CREDIT COSTS
COMMERCIAL net charge-offs in the second quarter of 2001 were $212 million,
which compares to $148 million in the first quarter and $95 million in the
second quarter of 2000. The increase in the second quarter primarily relates to
U.S. commercial and industrial loans, with the telecom sector representing the
majority of second quarter commercial net charge-offs.
CONSUMER charge-offs on a managed basis (i.e., including securitizations) were
$586 million, up from $540 million in the first quarter and $482 million in the
second quarter of 2000. In each instance, the increase related almost
exclusively to the credit card business. On a managed basis, the credit card net
charge-off ratio was 5.54%, an increase from 5.05% in the first quarter and
5.16% in the second quarter of 2000. The increase in this ratio from the first
quarter primarily was the result of higher bankruptcy filings, which were
leveling off during the latter half of the second quarter.
TOTAL NONPERFORMING ASSETS were $2.50 billion at June 30, 2001 compared to $2.23
billion and $2.04 billion at March 31, 2001 and June 30, 2000, respectively. The
increase from March 31 relates in particular to U.S. commercial and industrial
loans.
TOTAL ASSETS AND CAPITAL
Total assets as of June 30, 2001 were $713 billion, compared with $714 billion
as of March 31, 2001 and $662 billion one year ago. JPMorgan Chase's Tier One
capital ratio was 8.6% at June 30, 2001, 8.7% at March 31, 2001, and 8.6% one
year ago.
OTHER FINANCIAL INFORMATION
MERGERS OF THE WHOLESALE BROKER DEALERS AND LEAD BANKS: The merger of Chase
Securities Inc. and J.P. Morgan Securities Inc. occurred on May 1, 2001; the
merger of The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York
currently is scheduled to occur in October 2001.
SPECIAL ITEMS: Special items in the second quarter of 2001 were $478 million
(pre-tax) of merger and restructuring costs. Special items in the second quarter
of 2000 include a $141 million loss resulting from the economic hedge of the
purchase price of Flemings prior to its acquisition and $50 million of
restructuring costs associated with previously announced relocation initiatives.
J.P. Morgan Chase & Co. is a leading global financial services firm with assets
of $713 billion and operations in more than 50 countries. The firm is a leader
in investment banking, asset management,
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J.P. Morgan Chase & Co.
News Release
private equity, custody and transaction services, retail and middle market
financial services, and e-finance. Headquartered in New York, JPMorgan Chase
serves more than 30 million consumer customers and the world's most prominent
corporate, institutional and government clients.
JPMorgan Chase will hold a presentation for the investment community on
Wednesday, July 18, 2001 at 11:00 a.m. (Eastern Daylight Time) to review second
quarter 2001 financial results. A live audio webcast of the presentation will be
available on www.jpmorganchase.com. In addition, persons interested in listening
to the presentation by telephone may dial in at (973) 872-3100. A telephone
replay of the presentation will be available beginning at 1:30 p.m. (EDT) on
July 18, 2001 and continuing through 6:00 p.m. (EDT) on July 24, 2001 at (973)
341-3080, passcode 2671619. The replay also will be available on
www.jpmorganchase.com.
This presentation contains statements that are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are based upon the current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and uncertainties. Actual
results may differ from those set forth in the forward-looking statements. These
uncertainties include: the risk of adverse movements or volatility in the debt
and equity securities markets or in interest or foreign exchange rates or
indices; the risk of adverse impacts from an economic downturn; the risk of a
downturn in domestic or foreign securities and trading conditions or markets;
the risks involved in deal completion including an adverse development affecting
a customer or the inability by a customer to receive a regulatory approval; the
risks associated with increased competition; the risks associated with
unfavorable political and diplomatic developments in foreign markets or adverse
changes in domestic or foreign governmental or regulatory policies; the risk
that the merger integration will not be successful or that the revenue synergies
and cost savings anticipated from the merger may not be fully realized or may
take longer to realize than expected; the risk that the integration process may
result in the disruption of ongoing business or in the loss of key employees or
may adversely affect relationships with employees, clients or suppliers; the
risk that the credit, market, liquidity, and operational risks associated with
the various businesses of JPMorgan Chase are not successfully managed; or other
factors affecting operational plans. Additional factors that could cause
JPMorgan Chase's results to differ materially from those described in the
forward-looking statements can be found in the 2000 Annual Report on Form 10-K
of J.P. Morgan Chase & Co., filed with the Securities and Exchange Commission
and available at the Securities and Exchange Commission's internet site
(http://www.sec.gov).
# # #
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J.P. MORGAN CHASE & CO.
FINANCIAL HIGHLIGHTS
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
SECOND QUARTER SIX MONTHS
---------------------------------------------- ----------------------------------------
OVER/(UNDER) OVER/(UNDER)
REPORTED BASIS 2001 2000 2Q 2000 1Q 2001 2001 2000 2000
---------- ---------- ---------- -------- ------------- ---------- ------------
Revenue $ 6,871 $ 7,899 (13)% (17) % $ 15,124 $ 16,668 (9) %
Noninterest Expense (excluding Merger
and Restructuring Costs) 5,283 5,025 5 (6) 10,881 10,378 5
Merger and Restructuring Costs 478 50 NM 46 806 50 NM
Provision for Loan Losses 525 328 60 17 972 670 45
Net Income (a) $ 378 $ 1,633 (77) (68) $ 1,577 $ 3,621 (56)
Net Income per Share:
Basic (a) $ 0.18 $ 0.87 (79) (70) $ 0.78 $ 1.92 (59)
Diluted (a) 0.18 0.83 (78) (69) 0.76 1.84 (59)
Cash Dividends Declared 0.34 0.32 6 -- 0.68 0.64 6
Share Price at Period End 44.60 46.06 (3)
Book Value at Period End 20.81 19.19 8
Common Shares Outstanding:
Average Common Shares:
Basic 1,978.4 1,853.1 7 1 1,972.6 1,858.9 6
Diluted 2,033.6 1,939.2 5 -- 2,033.0 1,942.3 5
Common Shares at Period End 1,989.2 1,829.7 9 -- 1,989.2 1,829.7 9
Performance Ratios:
Return on Average Total Assets (b) 0.21 % 0.98 % (77) bp (46) bp 0.43 % 1.10 % (67) bp
Return on Average Common Equity (b) 3.5 19.1 (1,560) bp (810) bp 7.5 21.4 (1,390) bp
Capital Ratios:
Tier I Capital Ratio 8.6 %(g) 8.6 %
Total Capital Ratio 12.1 (g) 12.3
Tier I Leverage 5.4 (g) 5.8
EXCLUDING JPMORGAN PARTNERS (f)
------------------------------------------------------------------------------------------
OPERATING BASIS (c)
Revenue $ 8,038 $ 7,892 2 % (5) % $16,475 $ 16,314 1 %
Noninterest Expense 5,209 4,945 5 (5) 10,707 10,172 5
Credit Costs 798 570 40 16 1,486 1,166 27
Earnings 1,308 1,556 (16) (10) 2,769 3,239 (15)
Diluted Earnings per Share 0.64 0.79 (19) (10) 1.35 1.65 (18)
Return on Average Common Equity (b) 14.7 % 23.3 % (860) bp (230) bp 15.8 % 24.5 % (870) bp
Overhead Ratio (d) 65 63 200 bp -- bp 65 62 300 bp
CASH OPERATING BASIS:
Cash Earnings $ 1,486 $ 1,646 (10)% (9)% $ 3,119 $ 3,419 (9) %
Cash Diluted Earnings Per Share 0.72 0.84 (14) (9) 1.52 1.74 (13)
Shareholder Value Added (e) 463 890 (48) (28) 1,107 1,923 (42)
Cash Return on Average Common Equity (b) 16.7 % 24.7 % (800) bp (230) bp 17.8 % 25.9 % (810) bp
Cash Overhead Ratio (d) 63 62 100 bp -- bp 63 61 200 bp
INCLUDING JPMORGAN PARTNERS (f)
------------------------------------------------------------------------------------------
OPERATING BASIS (c)
Revenue $ 7,144 $ 8,282 (14) % (16) % $15,638 $ 17,305 (10) %
Noninterest Expense 5,283 5,025 5 (6) 10,881 10,378 5
Credit Costs 798 570 40 16 1,486 1,166 27
Earnings 690 1,757 (61) (52) 2,126 3,745 (43)
Diluted Earnings per Share 0.33 0.89 (63) (53) 1.03 1.90 (46)
Return on Average Common Equity (b) 6.5 % 20.6 % (1,410) bp (740) bp 10.1 % 22.2 % (1,210) bp
Overhead Ratio (d) 74 61 1,300 bp 800 bp 70 60 1,000 bp
CASH OPERATING BASIS:
Cash Earnings $ 873 $ 1,849 (53) % (46) % $ 2,486 $ 3,930 (37)%
Cash Diluted Earnings Per Share 0.42 0.94 (55) (46) 1.20 2.00 (40)
Shareholder Value Added (e) (394) 814 NM NM (23) 1,881 NM
Cash Return on Average Common Equity (b) 8.2 % 21.7 % (1,350) bp (740) bp 11.9 % 23.3 % (1,140)bp
Cash Overhead Ratio (d) 71 60 1,100 bp 700 bp 67 59 800 bp
- ----------------------------------------------------------
NOTES: On December 31, 2000, J.P. Morgan & Co. Incorporated ("J.P. Morgan")
merged with and into The Chase Manhattan Corporation ("Chase") and
became J.P. Morgan Chase & Co. ("JPMorgan Chase" or "the Firm"). The
merger was accounted for as a pooling of interests and, accordingly,
the information included in this press release reflects the combined
results of Chase and J.P. Morgan as if the merger had been in effect
for all periods presented. In addition, certain amounts have been
reclassified to conform to the current presentation.
(a) Reported basis for the six months 2001 includes the cumulative effect of a
transition adjustment of $(25) million, net of taxes, related to the
adoption of Statement of Financial Accounting Standards ("SFAS") 133,
relating to the accounting for derivative instruments and hedging
activities. The impact on each of basic and diluted earnings per share was
$(0.01).
(b) Based on annualized amounts.
(c) Operating basis excludes the impact of credit card securitizations, merger
and restructuring costs and special items. See page 12 for a
reconciliation of results on a reported and operating basis.
(d) The overhead ratio is noninterest expense as a percentage of the total of
net interest income and noninterest revenue (excluding merger and
restructuring costs and special items). The cash overhead ratio also
excludes the impact of amortization of goodwill and certain other
intangibles.
(e) SVA represents operating earnings excluding the amortization of goodwill
and certain other intangibles, minus preferred dividends and an explicit
charge for capital. An integrated cost of capital was implemented during
the first quarter of 2001. A 12% cost of capital has been used for all
businesses except JPMorgan Partners ("JPMP"), which has a 15% cost of
capital. Prior periods have been restated to conform with current
methodologies.
(f) JPMP is JPMorgan Chase's private equity business. See pages 8 and 9 for
its line of business results.
(g) Estimated
bp - Denotes basis points; 100 bp equals 1%
NM - Not meaningful
Unaudited
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J.P. MORGAN CHASE & CO.
LINES OF BUSINESS RESULTS
(IN MILLIONS, EXCEPT RATIOS)
---------------------------------------------------------
INVESTMENT BANK
---------------------------------------------------------
PROFORMA
1Q 2001 2Q 2000 2Q 2000
SECOND QUARTER 2Q 2001 % CHANGE % CHANGE % CHANGE (d)
- --------------------------------- ---------- -------- --------- ------------
Operating Basis
Investment Banking Fees $ 921 (2) % (16) % (21) %
Trading-Related Revenue (a) 1,614 (24) (10) (11)
Fees and Commissions 400 (15) 21 (16)
Private Equity Gains (Losses) 14 180 8 8
Securities Gains 67 (60) NM NM
Other Revenue 11 175 (83) (89)
Net Interest Income 748 3 20 12
-----------
Operating Revenue 3,775 (15) (3) (11)
Compensation Expense 1,499 (14) - (11)
Non Compensation Expense 867 (2) 6 (1)
-----------
Cash Expense 2,366 (10) 2 (8)
Cash Operating Earnings $ 790 (25) (16) (20)
===========
Average Common Equity $ 18,340 (4) 14 -
Average Managed Assets (b) $ 510,954 - 9 6
Shareholder Value Added (SVA) (c) $ 233 (52) (48) (46)
Cash Return on Common Equity 17.1 % (510) bp (600) bp (440) bp
Cash Overhead Ratio 63 400 bp 400 bp 200 bp
---------------------------------------------------------
INVESTMENT MANAGEMENT & PRIVATE BANKING
---------------------------------------------------------
PROFORMA
1Q 2001 2Q 2000 2Q 2000
SECOND QUARTER 2Q 2001 % CHANGE % CHANGE % CHANGE (d)
- --------------------------------- ---------- -------- -------- ------------
Operating Basis
Investment Banking Fees $ 2 NM NM NM
Trading-Related Revenue (a) 19 (14) % (44) % (44) %
Fees and Commissions 592 (1) 20 (8)
Private Equity Gains (Losses) - NM NM NM
Securities Gains - NM NM NM
Other Revenue 49 7 (21) (43)
Net Interest Income 126 (5) (19) (21)
----------
Operating Revenue 788 (2) 5 (15)
Compensation Expense 340 (10) 12 (9)
Non Compensation Expense 304 (1) 21 (2)
----------
Cash Expense 644 (6) 16 (6)
Cash Operating Earnings $ 117 18 (8) (26)
==========
Average Common Equity $ 5,885 (4) 139 (6)
Average Managed Assets (b) $ 33,495 (5) 20 (8)
Shareholder Value Added (SVA) (c) $ (62) (27) NM 107
Cash Return on Common Equity 7.8 % 140 bp (1,270) bp (230) bp
Cash Overhead Ratio 82 (300) bp 800 bp 800 bp
--------------------------------------------------
TREASURY & SECURITIES SERVICES
--------------------------------------------------
1Q 2001 2Q 2000
SECOND QUARTER 2Q 2001 % CHANGE % CHANGE
- --------------------------------- ---------- ------------- ----------
Operating Basis
Investment Banking Fees $ 1 NM NM
Trading-Related Revenue (a) 1 NM NM
Fees and Commissions 521 3 % 4 %
Private Equity Gains (Losses) - NM NM
Securities Gains - NM NM
Other Revenue 44 5 (31)
Net Interest Income 342 (5) 2
---------
Operating Revenue 909 - 1
Compensation Expense 284 (4) 3
Non Compensation Expense 367 9 3
----------
Cash Expense 651 3 3
Cash Operating Earnings $ 167 (6) (3)
==========
Average Common Equity $ 3,003 5 4
Average Managed Assets (b) $ 18,612 8 16
Shareholder Value Added (SVA) (c) $ 76 (17) (11)
Cash Return on Common Equity 22.2 % (290) bp (170) bp
Cash Overhead Ratio 72 200 bp 200 bp
---------------------------------------------------------
JPMORGAN PARTNERS
---------------------------------------------------------
1Q 2001 2Q 2000
SECOND QUARTER 2Q 2001 % CHANGE % CHANGE
- --------------------------------- ---------- -------- --------
Operating Basis
Investment Banking Fees $ 1 NM NM
Trading-Related Revenue (a) - NM NM
Fees and Commissions 20 54 % 11 %
Private Equity Gains (Losses) (827) NM NM
Securities Gains - NM NM
Other Revenue (7) NM 40
Net Interest Income (81) (9) 17
-----------
Operating Revenue (894) NM NM
Compensation Expense 33 (21) (3)
Non Compensation Expense 35 (31) (17)
-----------
Cash Expense 68 (27) (11)
Cash Operating Earnings $ (613) NM NM
===========
Average Common Equity $ 6,447 (5) (12)
Average Managed Assets (b) $ 11,683 (11) (13)
Shareholder Value Added (SVA) (c) $ (857) NM NM
Cash Return on Common Equity NM NM NM
Cash Overhead Ratio NM NM NM
-------------------------------------------
RETAIL & MIDDLE MARKET FINANCIAL SERVICES
-------------------------------------------
1Q 2001 2Q 2000
SECOND QUARTER 2Q 2001 % CHANGE % CHANGE
- --------------------------------- ---------- ---------- --------
Operating Basis
Investment Banking Fees $ 5 25 % (44) %
Trading-Related Revenue (a) (81) NM NM
Fees and Commissions 838 80 6
Private Equity Gains (Losses) (1) NM NM
Securities Gains - NM NM
Other Revenue 196 11 73
Net Interest Income 1,685 5 7
----------
Operating Revenue 2,642 (e) 3 (e) 5 (e)
Compensation Expense 593 6 9
Non Compensation Expense 746 3 1
----------
Cash Expense 1,339 4 4
Cash Operating Earnings $ 438 (e) (1) (e) (3) (e)
==========
Average Common Equity $ 8,380 3 1
Average Managed Assets (b) $ 165,177 5 14
Shareholder Value Added (SVA) (c) $ 183 (8) (8)
Cash Return on Common Equity 20.8 % (120) bp (90) bp
Cash Overhead Ratio 51 100 bp - bp
------------------------------------------------------------------------------
TOTAL (f)
------------------------------------------------------------------------------
PROFORMA
1Q 2001 2Q 2000 2Q 2000
SECOND QUARTER 2Q 2001 % CHANGE % CHANGE % CHANGE (d)
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
Operating Basis
Investment Banking Fees $ 929 (1) % (16) % (19) %
Trading-Related Revenue (a) 1,594 (26) (15) (17)
Fees and Commissions 2,350 17 11 (4)
Private Equity Gains (Losses) (829) NM NM NM
Securities Gains 67 (85) 179 179
Other Revenue 274 9 34 18
Net Interest Income 2,759 9 11 9
----------------
Operating Revenue 7,144 (16) (14) (18)
Compensation Expense 3,052 (9) 3 (6)
Non Compensation Expense 2,048 (1) 4 (2)
----------------
Cash Expense 5,100 (6) 3 (4)
Cash Operating Earnings $ 873 (46) (53) (55)
================
Average Common Equity $ 41,719 1 23 5
Average Managed Assets (b) $752,494 1 10 6
Shareholder Value Added (SVA) (c) $ (394) NM NM NM
Cash Return on Common Equity 8.2 % (740) bp (1,350) bp (1,090) bp
Cash Overhead Ratio 71 700 bp 1,100 bp 1,000 bp
- ----------
Notes: JPMorgan Chase has organized itself into five lines of business. All
periods are on a comparable basis, although restatements will occur in future
periods to reflect further alignment of management accounting policies.
(a) Trading-related NII component has been restated in the prior periods in
order to conform to the current presentation.
(b) Excludes the impact of credit card securitizations.
(c) SVA is JPMorgan Chase's primary performance measure of its businesses. SVA
represents operating earnings excluding the amortization of goodwill and
certain other intangibles (i.e., cash operating earnings), minus preferred
dividends and an explicit charge for capital. A new framework for capital
allocation and for business performance measurement was adopted during the
first quarter of 2001. The SVA framework now utilizes a 12% cost of equity
capital for each business, with the exception of JPMP which is charged a 15%
cost of equity capital. All prior periods have been restated.
(d) Proforma results assume that the purchase of Robert Fleming Holdings Limited
("Flemings") occurred at the beginning of 2000.
(e) Retail and Middle Market Financial Services key businesses:
Operating Revenue
-----------------------------------------------------------
% Change
--------------------------------------
2Q 2001 1Q 2001 2Q 2000
---------------- ---------------- ----------------
Cardmember Services $1,061 7 % 15 %
Regional Banking Group 759 (1) (3)
Home Finance 393 15 25
Middle Markets 263 (6) (5)
Auto Finance 133 21 23
Other 33 NM NM
Cash Operating Earnings
------------------------------------------------------------
% Change
---------------------------------------
2Q 2001 1Q 2001 2Q 2000
---------------- ---------------- ----------------
Cardmember Services $135 15 % 7 %
Regional Banking Group 131 (6) (9)
Home Finance 90 8 25
Middle Markets 58 (22) (16)
Auto Finance 34 55 36
Other (10) NM NM
(f) Total column includes LabMorgan, Support Units and the effects remaining at
the Corporate level after the implementation of management accounting
policies.
NM - Not meaningful
bp - basis points
Unaudited
8
9
J.P. MORGAN CHASE & CO.
LINES OF BUSINESS RESULTS
(IN MILLIONS, EXCEPT RATIOS)
INVESTMENT BANK INVESTMENT MANAGEMENT & PRIVATE BANKING
--------------------------------- ---------------------------------------
PROFORMA PROFORMA
2000 2000 2000 2000
SIX MONTHS 2001 % CHANGE % CHANGE (d) 2001 % CHANGE % CHANGE (d)
---------- ---- -------- ------------ ---- -------- ------------
Operating Basis
Investment Banking Fees $ 1,860 (18)% (22)% $ 3 NM NM
Trading-Related Revenue (a) 3,740 (5) (6) 41 (59)% (59)%
Fees and Commissions 867 22 (13) 1,190 22 (9)
Private Equity Gains (Losses) 19 (41) (41) -- NM NM
Securities Gains 233 NM NM 7 NM NM
Other Revenue 17 (89) (93) 96 (35) (58)
Net Interest Income 1,477 11 4 258 (19) (21)
-------- --------
Operating Revenue 8,213 (2) (9) 1,595 3 (19)
Compensation Expense 3,240 (1) (11) 717 12 (10)
Non Compensation Expense 1,754 12 4 612 26 --
-------- --------
Cash Expense 4,994 4 (7) 1,329 18 (6)
Cash Operating Earnings $ 1,849 (13) (17) $ 216 (21) (40)
======== ========
Average Common Equity $ 18,751 15 1 $ 5,998 144 (4)
Average Managed Assets (b) $511,938 10 7 $ 34,364 29 (3)
Shareholder Value Added (SVA) (c) $ 716 (36) (35) $ (147) NM NM
Cash Return on Common Equity 19.7% (620)bp (420)bp 7.1% (1,510)bp (440)bp
Cash Overhead Ratio 61 400 bp 200 bp 83 1,100 bp 1,200 bp
TREASURY & SECURITIES SERVICES
------------------------------
2000
SIX MONTHS 2001 % CHANGE
---------- ---- --------
Operating Basis
Investment Banking Fees $ 1 -- %
Trading-Related Revenue (a) -- NM
Fees and Commissions 1,026 6
Private Equity Gains (Losses) -- NM
Securities Gains -- NM
Other Revenue 87 (30)
Net Interest Income 702 4
-------
Operating Revenue 1,816 3
Compensation Expense 579 6
Non Compensation Expense 703 (1)
-------
Cash Expense 1,282 2
Cash Operating Earnings $ 346 4
=======
Average Common Equity $ 2,928 1
Average Managed Assets (b) $17,900 11
Shareholder Value Added (SVA) (c) $ 168 8
Cash Return on Common Equity 23.6% 80 bp
Cash Overhead Ratio 71 -- bp
JPMORGAN PARTNERS RETAIL & MIDDLE MARKET TOTAL (f)
--------------------- --------------------------------------
FINANCIAL SERVICES PROFORMA
------------------------
2000 2000 2000 2000
SIX MONTHS 2001 % CHANGE 2001 % CHANGE 2001 % CHANGE % CHANGE (d)
---------- ---- -------- ---- -------- ---- -------- ------------
Operating Basis
Investment Banking Fees $ -- NM $ 8 (38)% $ 1,870 (19)% (22)%
Trading-Related Revenue (a) -- NM (89) NM 3,761 (8) (10)
Fees and Commissions 33 -% 1,304 (18) 4,366 3 (12)
Private Equity Gains (Losses) (695) NM (1) NM (702) NM NM
Securities Gains -- NM 316 NM 522 NM NM
Other Revenue (5) (29) 374 82 525 -- (19)
Net Interest Income (170) 31 3,289 7 5,296 6 4
-------- --------- ---------
Operating Revenue (837) NM 5,201(e) 6(e) 15,638 (10) (15)
Compensation Expense 75 (17) 1,155 4 6,409 2 (8)
Non Compensation Expense 85 (22) 1,472 -- 4,112 6 --
-------- --------- ---------
Cash Expense 160 (20) 2,627 2 10,521 3 (5)
Cash Operating Earnings $ (633) NM $ 880(e) 10(e) $ 2,486 (37) (40)
======== ========= =========
Average Common Equity $ 6,599 (9) $ 8,241 (1) $ 41,494 24 5
Average Managed Assets (b) $ 12,415 (6) $ 161,353 13 $ 750,098 11 7
Shareholder Value Added (SVA) (c) $ (1,130) NM $ 382 33 $ (23) NM NM
Cash Return on Common Equity NM NM 21.3% 240 bp 11.9% (1,140)bp (880)bp
Cash Overhead Ratio NM NM 51 (200)bp 67 800 bp 700 bp
- ---------------------------------------------------
Notes: JPMorgan Chase has organized itself into five lines of business. All
periods are on a comparable basis, although restatements will occur in
future periods to reflect further alignment of management accounting
policies.
(a) Trading-related NII component has been restated in the prior periods in
order to conform to the current presentation.
(b) Excludes the impact of credit card securitizations.
(c) SVA is JPMorgan Chase's primary performance measure of its businesses. SVA
represents operating earnings excluding the amortization of goodwill and
certain other intangibles (i.e., cash operating earnings), minus preferred
dividends and an explicit charge for capital. A new framework for capital
allocation and for business performance measurement was adopted during the
first quarter of 2001. The SVA framework now utilizes a 12% cost of equity
capital for each business, with the exception of JPMP which is charged a
15% cost of equity capital. All prior periods have been restated.
(d) Proforma results assume that the purchase of Robert Fleming Holdings
Limited ("Flemings") occurred at the beginning of 2000.
(e) Retail and Middle Market Financial Services key businesses:
Operating Revenue Cash Operating Earnings
--------------------------------- ----------------------------------
% Change % Change
YTD 2001 YTD 2000 YTD 2001 YTD 2000
-------- -------- -------- --------
Cardmember Services $2,050 12% $252 14%
Regional Banking Group 1,527 (1) 271 (5)
Home Finance 736 16 173 24
Middle Markets 544 (1) 131 (4)
Auto Finance 242 97 56 NM
Other 102 NM (3) NM
(f) Total column includes LabMorgan, Support Units and the effects remaining at
the Corporate level after the implementation of management accounting
policies.
NM - Not meaningful
bp - basis points
Unaudited
9
10
J.P. MORGAN CHASE & CO.
CONSOLIDATED STATEMENT OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
SECOND QUARTER % SIX MONTHS %
---------------------- -----------------------
2001 2000 CHANGE 2001 2000 CHANGE
------- ------- ------ -------- ------- --------
REVENUE
Investment Banking Fees $ 929 $ 1,107 (16)% $ 1,870 $ 2,298 (19)%
Trading Revenue 1,261 1,730 (27) 3,262 3,701 (12)
Fees and Commissions 2,388 2,218 8 4,453 4,415 1
Private Equity - Realized Gains (Losses) (46) 630 NM 366 1,022 (64)
Private Equity - Unrealized Gains (Losses) (783) (171) NM (1,068) 111 NM
Securities Gains 67 24 179 522 21 NM
Other Revenue 274 67 309 520 392 33
------- ------- -------- -------
TOTAL NONINTEREST REVENUE 4,090 5,605 (27) 9,925 11,960 (17)
------- ------- -------- -------
Interest Income 8,469 8,858 (4) 17,649 17,298 2
Interest Expense 5,688 6,564 (13) 12,450 12,590 (1)
------- ------- -------- -------
NET INTEREST INCOME 2,781 2,294 21 5,199 4,708 10
------- ------- -------- -------
REVENUE BEFORE PROVISION FOR LOAN LOSSES 6,871 7,899 (13) 15,124 16,668 (9)
Provision for Loan Losses 525 328 60 972 670 45
------- ------- -------- -------
TOTAL NET REVENUE 6,346 7,571 (16) 14,152 15,998 (12)
------- ------- -------- -------
EXPENSE
Compensation Expense 3,052 2,963 3 6,409 6,303 2
Occupancy Expense 327 297 10 675 605 12
Technology and Communications 674 574 17 1,328 1,154 15
Merger and Restructuring Costs 478 50 NM 806 50 NM
Amortization of Intangibles 183 92 99 360 185 95
Other Expense 1,047 1,099 (5) 2,109 2,131 (1)
------- ------- -------- -------
TOTAL NONINTEREST EXPENSE 5,761 5,075 14 11,687 10,428 12
------- ------- -------- -------
INCOME BEFORE INCOME TAX EXPENSE
AND EFFECT OF ACCOUNTING CHANGE 585 2,496 (77) 2,465 5,570 (56)
Income Tax Expense 207 863 (76) 863 1,949 (56)
------- ------- -------- -------
INCOME BEFORE EFFECT OF ACCOUNTING CHANGE $ 378 $ 1,633 (77) $ 1,602 $ 3,621 (56)
Net Effect of Change in Accounting Principle -- -- NM (25) -- NM
------- ------- -------- -------
NET INCOME $ 378 $ 1,633 (77) $ 1,577 $ 3,621 (56)
======= ======= ======== =======
NET INCOME APPLICABLE TO COMMON STOCK $ 359 $ 1,607 (78) $ 1,537 $ 3,570 (57)
======= ======= ======== =======
NET INCOME PER SHARE (a)
Basic $ 0.18 $ 0.87 (79) $ 0.78 $ 1.92 (59)
Diluted $ 0.18 $ 0.83 (78) $ 0.76 $ 1.84 (59)
-------------------------------------------------------------------------
(a) Basic and diluted earnings per share have been reduced by $(0.01) in the
first six months of 2001 due to the impact of the adoption of SFAS 133
relating to the Accounting for Derivative Instruments and Hedging
Activities.
NM - Not meaningful
Unaudited
10
11
J.P. MORGAN CHASE & CO.
NONINTEREST REVENUE AND NONINTEREST EXPENSE DETAIL
(IN MILLIONS)
SECOND QUARTER % SIX MONTHS %
-------------------- ----------------------
NONINTEREST REVENUE 2001 2000 CHANGE 2001 2000 CHANGE
------ ------- ------ ------- ------- ------
INVESTMENT BANKING FEES:
Advisory $ 308 $ 392 (21)% $ 648 $ 754 (14)%
Underwriting and Other Fees 621 715 (13) 1,222 1,544 (21)
------ ------- ------- -------
Total $ 929 $ 1,107 (16) $ 1,870 $ 2,298 (19)
====== ======= ======= =======
TRADING-RELATED REVENUE: (a)
Equities $ 450 $ 486 (7) $ 955 $ 1,064 (10)
Debt Instruments 262 346 (24) 487 913 (47)
Foreign Exchange Revenue 178 280 (36) 427 622 (31)
Interest Rate Contracts, Commodities and Other 704 767 (8) 1,892 1,497 26
------ ------- ------- -------
Total $1,594 $ 1,879 (15) $ 3,761 $ 4,096 (8)
====== ======= ======= =======
FEES AND COMMISSIONS:
Investment Management, Custody and
Processing Services $ 943 $ 859 10 $ 1,917 $ 1,657 16
Credit Card Revenue 465 443 5 898 840 7
Brokerage and Investment Services 308 246 25 671 572 17
Mortgage Servicing Fees, Net of
Amortization and Writedowns 75 131 (43) (158) 281 NM
Other Lending-Related Service Fees 122 154 (21) 252 304 (17)
Deposit Service Charges 258 226 14 484 447 8
Other Fees 217 159 36 389 314 24
------ ------- ------- -------
Total $2,388 $ 2,218 8 $ 4,453 $ 4,415 1
====== ======= ======= =======
OTHER REVENUE:
Residential Mortgage Origination/Sales
Activities $ 146 $ 41 256 $ 245 $ 85 188
Loss on Economic Hedge of the Flemings
Purchase Price (b) -- (141) NM -- (141) NM
All Other Revenue 128 167 (23) 275 448 (39)
------ ------- ------- -------
Total $ 274 $ 67 309 $ 520 $ 392 33
====== ======= ======= =======
NONINTEREST EXPENSE
OTHER EXPENSE:
Professional Services $ 288 $ 281 2% $ 583 $ 563 4%
Outside Services 166 157 6 332 316 5
Marketing 144 144 -- 285 261 9
Travel and Entertainment 137 120 14 259 232 12
All Other 312 397 (21) 650 759 (14)
------ ------- ------- -------
Total $1,047 $ 1,099 (5) $ 2,109 $ 2,131 (1)
====== ======= ======= =======
(a) Trading-related revenue includes net interest income attributable to
trading activities. Trading-related net interest income has been restated
in the prior periods in order to conform to the current presentation.
(b) Loss is the result of the economic hedge of the purchase price of Flemings
prior to its acquisition.
NM - Not meaningful
Unaudited
11
12
J.P. MORGAN CHASE & CO.
OPERATING INCOME RECONCILIATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
SECOND QUARTER 2001 SECOND QUARTER 2000
--------------------------------------------- ----------------------------------------------
REPORTED CREDIT SPECIAL OPERATING REPORTED CREDIT SPECIAL OPERATING
RESULTS CARD ITEMS BASIS RESULTS CARD ITEMS BASIS
(a) (b) (c) (a) (b) (c)
-------- ------ ------- --------- -------- ------ ------- ---------
INCOME STATEMENT
Revenue $6,871 $273 $ -- $7,144 $7,899 $242 $ 141 $8,282
Cash Expense 5,100 -- -- 5,100 4,933 -- -- 4,933
Amortization of Intangibles 183 -- -- 183 92 -- -- 92
------ ---- ----- ------ ------ ---- ----- ------
Operating Margin 1,588 273 -- 1,861 2,874 242 141 3,257
Credit Costs 525 273 -- 798 328 242 -- 570
------ ---- ----- ------ ------ ---- ----- ------
Income before Merger and
Restructuring Costs 1,063 -- -- 1,063 2,546 -- 141 2,687
Merger and Restructuring Costs 478 -- (478) -- 50 -- (50) --
------ ---- ----- ------ ------ ---- ----- ------
Income before Income Tax Expense 585 -- 478 1,063 2,496 -- 191 2,687
Tax Expense 207 -- 166 373 863 -- 67 930
------ ---- ----- ------ ------ ---- ----- ------
Net Income $ 378 $ -- $ 312 $ 690 $1,633 $ -- $ 124 $1,757
Add Back: Amortization of Intangibles 183 -- -- 183 92 -- -- 92
------ ---- ----- ------ ------ ---- ----- ------
Cash Earnings $ 561 $ -- $ 312 $ 873 $1,725 $ -- $ 124 $1,849
------ ---- ----- ------ ------ ---- ----- ------
NET INCOME PER SHARE
Basic $ 0.18 $ 0.34 $ 0.87 $ 0.93
Diluted $ 0.18 $ 0.33 $ 0.83 $ 0.89
CASH EARNINGS PER SHARE
Basic $ 0.43 $ 0.98
Diluted $ 0.42 $ 0.94
SIX MONTHS 2001 SIX MONTHS 2000
--------------------------------------------- ----------------------------------------------
REPORTED CREDIT SPECIAL OPERATING REPORTED CREDIT SPECIAL OPERATING
RESULTS CARD ITEMS BASIS RESULTS CARD ITEMS BASIS
(a) (b) (c) (a) (b) (c)
-------- ------ ------- --------- -------- ------ ------- ---------
INCOME STATEMENT
Revenue $ 15,124 $514 $ -- $15,638 $16,668 $496 $ 141 $17,305
Cash Expense 10,521 -- -- 10,521 10,193 -- -- 10,193
Amortization of Intangibles 360 -- -- 360 185 -- -- 185
-------- ---- ----- ------- ------- ---- ----- -------
Operating Margin 4,243 514 -- 4,757 6,290 496 141 6,927
Credit Costs 972 514 -- 1,486 670 496 -- 1,166
-------- ---- ----- ------- ------- ---- ----- -------
Income before Merger and
Restructuring Costs 3,271 -- -- 3,271 5,620 -- 141 5,761
Merger and Restructuring Costs 806 -- (806) -- 50 -- (50) --
-------- ---- ----- ------- ------- ---- ----- -------
Income before Income Tax Expense
and Effect of Accounting Change 2,465 -- 806 3,271 5,570 -- 191 5,761
Tax Expense 863 -- 282 1,145 1,949 -- 67 2,016
-------- ---- ----- ------- ------- ---- ----- -------
Income before Effect of
Accounting Change 1,602 -- 524 2,126 3,621 -- 124 3,745
Net Effect of Change in
Accounting Principle (25) -- 25 -- -- -- -- --
-------- ---- ----- ------- ------- ---- ----- -------
Net Income $ 1,577 $ -- $ 549 $ 2,126 $ 3,621 $ -- $ 124 $ 3,745
Add Back: Amortization of
Intangibles 360 -- -- 360 185 -- -- 185
-------- ---- ----- ------- ------- ---- ----- -------
Cash Earnings $ 1,937 $ -- $ 549 $ 2,486 $ 3,806 $ -- $ 124 $ 3,930
-------- ---- ----- ------- ------- ---- ----- -------
NET INCOME PER SHARE
Basic $ 0.78 (d) $ 1.06 $ 1.92 $ 1.99
Diluted $ 0.76 (d) $ 1.03 $ 1.84 $ 1.90
CASH EARNINGS PER SHARE
Basic $ 1.24 $ 2.09
Diluted $ 1.20 $ 2.00
(a) Represents condensed results as reported in JPMorgan Chase's financial
statements.
(b) This column excludes the impact of credit card securitizations. For
receivables that have been securitized, amounts that would have been
reported as net interest income and as provision for loan losses are
instead reported as components of noninterest revenue.
(c) Includes merger and restructuring costs and special items. The 2001 second
quarter and six months include $478 million and $806 million, respectively,
in merger and restructuring expenses. The 2000 second quarter and six
months include a $141 million loss resulting from the economic hedge of the
purchase price of Flemings prior to its acquisition and $50 million of
restructuring costs associated with previously announced relocation
initiatives.
(d) Includes the effect of the accounting change. Excluding the accounting
change, basic and diluted net income per share were $0.79 and $0.77,
respectively.
Unaudited
12
13
J.P. MORGAN CHASE & CO.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
JUNE 30, % MARCH 31, %
--------------------------
2001 2000 CHANGE 2001 CHANGE
--------- --------- ------ --------- ------
ASSETS
Cash and Due from Banks $ 24,219 $ 20,859 16% $ 22,371 8%
Deposits with Banks 11,903 8,768 36 7,979 49
Federal Funds Sold and Securities
Purchased Under Resale Agreements 61,308 69,421 (12) 71,147 (14)
Securities Borrowed 38,296 34,681 10 37,264 3
Trading Assets:
Debt and Equity Instruments 139,135 115,730 20 138,270 1
Derivative Receivables 68,910 68,728 -- 78,907 (13)
Securities 68,488 71,050 (4) 69,731 (2)
Loans (Net of Allowance for Loan Losses of $3,673
at June 30, 2001, $3,742 at June 30, 2000 and
$3,672 at March 31, 2001) 216,245 203,611 6 213,116 1
Goodwill and Other Intangibles 16,224 10,012 62 15,351 6
Private Equity Investments 9,855 12,102 (19) 10,877 (9)
Other Assets 58,119 47,406 23 48,611 20
--------- --------- ---------
TOTAL ASSETS $ 712,702 $ 662,368 8 $ 713,624 --
========= ========= =========
LIABILITIES
Deposits:
Noninterest-Bearing $ 64,231 $ 57,904 11% $ 59,686 8%
Interest-Bearing 212,573 213,012 -- 212,886 --
--------- --------- ---------
Total Deposits 276,804 270,916 2 272,572 2
Federal Funds Purchased and Securities
Sold Under Repurchase Agreements 155,062 125,237 24 145,703 6
Commercial Paper 19,985 13,354 50 16,281 23
Other Borrowed Funds 18,418 15,124 22 28,716 (36)
Trading Liabilities:
Debt and Equity Instruments 53,571 52,506 2 52,501 2
Derivative Payables 62,373 65,531 (5) 73,312 (15)
Accounts Payable, Accrued Expenses and Other
Liabilities (including the Allowance for
Credit Losses of $285 at June 30, 2001,
$333 at June 30, 2000 and $283 at March 31, 2001) 38,157 34,298 11 33,575 14
Long-Term Debt 40,917 44,528 (8) 42,609 (4)
Guaranteed Preferred Beneficial Interests in the Firm's
Junior Subordinated Deferrable Interest Debentures 4,439 3,689 20 4,439 --
--------- --------- ---------
TOTAL LIABILITIES 669,726 625,183 7 669,708 --
--------- --------- ---------
PREFERRED STOCK OF SUBSIDIARY 550 550 -- 550 --
--------- --------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock 1,025 1,522 (33) 1,362 (25)
Common Stock 1,990 2,066 (4) 1,984 --
Capital Surplus 12,000 12,205 (2) 11,663 3
Retained Earnings 28,265 30,887 (8) 28,592 (1)
Accumulated Other Comprehensive Loss (834) (1,281) (35) (214) 290
Treasury Stock, at Cost (20) (8,764) (100) (21) (5)
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY 42,426 36,635 16 43,366 (2)
--------- --------- ---------
TOTAL LIABILITIES, PREFERRED STOCK OF SUBSIDIARY
AND STOCKHOLDERS' EQUITY $ 712,702 $ 662,368 8 $ 713,624 --
========= ========= =========
Unaudited
13
14
J.P. MORGAN CHASE & CO.
CREDIT RELATED INFORMATION AND SELECTED AVERAGE BALANCES AND YIELDS
(in millions, except ratios)
CREDIT-RELATED ASSETS % NONPERFORMING ASSETS %
----------------------- --------------------
JUNE 30, 2001 2000 CHANGE 2001 2000 CHANGE
- ------------------------------------- -------- -------- ------ ------ ------ ------
COMMERCIAL LOANS
Domestic Commercial $ 74,563 $ 75,820 (2)% $1,528 $ 593 158 %
Foreign Commercial 38,227 43,725 (13) 362 898 (60)
-------- -------- ------ ------
TOTAL COMMERCIAL LOANS 112,790 119,545 (6) 1,890 1,491 27
Derivatives and FX Contracts (a) 68,910 68,728 -- 88 53 66
-------- -------- ------ ------
TOTAL COMMERCIAL CREDIT-RELATED 181,700 188,273 (3) 1,978 1,544 28
-------- -------- ------ ------
CONSUMER LOANS
Credit Card - Reported 19,531 12,095 61 25 33 (24)
Credit Card Securitizations (b) 17,753 19,861 (11) -- -- NM
-------- -------- ------ ------
Credit Card - Managed 37,284 31,956 17 25 33 (24)
1-4 Family Residential Mortgages 57,388 47,599 21 263 269 (2)
Auto Financings 23,322 18,788 24 97 70 39
Other Consumer (c) 6,887 9,326 (26) 16 29 (45)
-------- -------- ------ ------
TOTAL CONSUMER LOANS 124,881 107,669 16 401 401 --
-------- -------- ------ ------
TOTAL MANAGED CREDIT-RELATED $306,581 $295,942 4 $2,379 $1,945 22
======== ======== ====== ======
Assets Acquired as Loan Satisfactions 119 94 27
------ ------
TOTAL NONPERFORMING ASSETS (d) $2,498 $2,039 23
====== ======
SECOND QUARTER SIX MONTHS SECOND QUARTER (e) SIX MONTHS (e)
--------------- ---------------- ---------------------- ----------------------
NET CHARGE-OFFS AND RATES 2001 2000 2001 2000 2001 2000 2001 2000
- -------------------------------- ---- ---- ------ ------ ------- ------- ------- -------
COMMERCIAL LOANS
Domestic Commercial $177 $ 80 $ 303 $ 122 0.90% 0.38% 0.76% 0.29%
Foreign Commercial 35 15 57 36 0.46 0.18 0.35 0.22
---- ---- ------ ------
TOTAL COMMERCIAL LOANS 212 95 360 158 0.77 0.32 0.64 0.27
---- ---- ------ ------
CONSUMER LOANS
Credit Card - Reported 234 166 452 354 4.69 5.52 4.59 5.40
Credit Card Securitizations (b) 273 242 514 496 6.55 4.93 6.20 5.25
---- ---- ------ ------
Credit Card - Managed 507 408 966 850 5.54 5.16 5.33 5.31
1-4 Family Residential Mortgages 7 10 17 19 0.05 0.09 0.06 0.08
Auto Financings 26 22 55 43 0.46 0.47 0.51 0.46
Other Consumer (c) 46 42 88 94 2.30 1.72 2.11 1.89
---- ---- ------ ------
TOTAL CONSUMER LOANS 586 482 1,126 1,006 1.89 1.81 1.87 1.89
---- ---- ------ ------
TOTAL MANAGED CREDIT-RELATED $798 $577 $1,486 $1,164 1.37 1.03 1.28 1.05
==== ==== ====== ======
(a) Charge-offs for derivative receivables are included in trading revenue.
(b) Represents the portion of JPMorgan Chase's credit card receivables that
have been securitized.
(c) Consists of installment loans (direct and indirect types of consumer
finance), student loans, unsecured lines of credit and foreign consumer.
(d) Nonperforming assets have not been reduced for credit protection (single
name credit default swaps and collateralized loan obligations) aggregating
$112 million related to nonperforming counterparties at June 30, 2001.
(e) Annualized.
NM - Not meaningful
Unaudited
SECOND QUARTER % SIX MONTHS %
----------------------- -----------------------
2001 2000 CHANGE 2001 2000 CHANGE
-------- -------- ------ -------- -------- ------
SELECTED AVERAGE BALANCES:
Loans $217,447 $205,419 6% $218,285 $204,556 7%
Total Interest-Earning Assets 546,280 505,911 8 546,946 497,573 10
Total Assets 735,768 667,338 10 733,376 659,467 11
Interest-Bearing Deposits 215,987 213,124 1 216,366 214,793 1
Total Interest-Bearing Liabilities 509,142 463,382 10 507,300 457,450 11
Total Liabilities 692,260 631,363 10 689,970 623,819 11
Common Stockholders' Equity 41,719 33,804 23 41,494 33,477 24
Total Stockholders' Equity 42,958 35,425 21 42,856 35,098 22
SELECTED YIELDS:
Loans 7.55% 8.06% 7.91% 7.93%
Total Interest-Earning Assets 6.23 7.06 6.52 7.01
Interest-Bearing Deposits 3.94 4.99 4.43 4.82
Total Interest-Bearing Liabilities 4.48 5.70 4.95 5.53
Net Yield on Interest-Earning Assets 2.06 1.84 1.93 1.92
Unaudited
14
15
J.P. MORGAN CHASE & CO.
JPMorgan Partners
(dollars and shares in millions)
JUNE 30, 2001 MARCH 31, 2001 JUNE 30, 2000
--------------------- ---------------------- ----------------------
CARRYING CARRYING CARRYING
VALUE COST VALUE COST VALUE COST
-------- ------- -------- ------- -------- -------
INVESTMENT PORTFOLIO
Public Securities (198 companies) (a) $1,680 $ 974 $ 1,611 $ 1,018 $ 3,585 $ 1,219
Private Direct Securities (930 companies) 6,089 6,998 7,144 7,318 6,500 6,453
Private Fund Investments (329 funds) 2,086 2,201 2,122 2,141 2,492 2,476
------ ------- ------- ------- ------- -------
Total Investment Portfolio $9,855 $10,173 $10,877 $10,477 $12,577 $10,148
====== ======= ======= ======= ======= =======
PUBLIC SECURITIES INVESTMENTS AT JUNE 30, 2001 (b)
---------------------------------------------------
QUOTED
PUBLIC
SYMBOL SHARES VALUE COST
------ ------ ------- -----
TRITON PCS HOLDING, INC. TPCS 20.2 $ 829 $ 88
TELECORP PCS TLCP 11.4 221 8
AMERICAN TOWER CORP. AMT 5.8 121 18
NORTHERN BORDER PARTNERS, L.P. NBP 3.1 117 24
GUITAR CENTER INC. GTRC 4.7 100 51
FISHER SCIENTIFIC FSH 3.0 85 27
ENCORE ACQUISITION COMPANY EAC 6.4 74 44
PACKAGING CORP OF AMERICA PKG 3.9 60 18
1-800 FLOWERS.COM FLWS 4.1 60 15
CROWN MEDIA HOLDINGS INC. CRWN 2.7 51 40
------- -----
TOP TEN PUBLIC SECURITIES $ 1,718 $ 333
Other Public Securities (188 companies) 697 641
------- -----
TOTAL PUBLIC SECURITIES (198 companies) $ 2,415 $ 974
======= =====
(a) Publicly traded positions only.
(b) Policy: Public securities held by JPMorgan Partners are marked-to-market at
the quoted public value less liquidity discounts, with the resulting
unrealized gains/losses included in the income statement. JPMorgan
Partners' valuation policy for public securities incorporates the use of
liquidity discounts and price averaging methodologies in certain
circumstances to take into account the fact that JPMorgan Partners cannot
immediately realize the quoted public values as a result of the regulatory,
corporate and contractual sales restrictions generally imposed on these
holdings. Private investments are initially carried at cost, which is
viewed as an approximation of fair value. The carrying value of private
investments is adjusted to reflect valuation changes resulting from
unaffiliated party transactions and for evidence of a decline in value.
Unaudited
15
