FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended June 30, 2007
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Commission file number 1-5805 |
JPMORGAN CHASE & CO.
(Exact name of registrant as specified in its charter)
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Delaware
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13-2624428 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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270 Park Avenue, New York, New York
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10017 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code (212) 270-6000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes x No
Number of shares of common stock outstanding as of July 31, 2007: 3,383,895,701
FORM 10-Q
TABLE OF CONTENTS
2
JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS
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(unaudited) |
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(in millions, except per share, headcount and ratio data) |
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Six months ended June 30, |
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As of or for the period ended, |
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2Q07 |
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1Q07 |
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4Q06 |
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3Q06 |
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2Q06 |
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2007 |
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2006 |
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Selected income statement data |
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Noninterest revenue(a) |
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$ |
12,593 |
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$ |
12,850 |
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$ |
10,501 |
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$ |
10,166 |
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$ |
9,908 |
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$ |
25,443 |
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$ |
20,090 |
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Net interest income |
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6,315 |
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6,118 |
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5,692 |
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5,379 |
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5,178 |
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12,433 |
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10,171 |
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Total net revenue |
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18,908 |
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18,968 |
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16,193 |
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15,545 |
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15,086 |
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37,876 |
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30,261 |
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Provision for credit losses |
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1,529 |
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1,008 |
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1,134 |
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812 |
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493 |
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2,537 |
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1,324 |
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Noninterest expense |
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11,028 |
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10,628 |
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9,885 |
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9,796 |
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9,382 |
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21,656 |
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19,162 |
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Income tax expense |
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2,117 |
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2,545 |
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1,268 |
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1,705 |
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1,727 |
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4,662 |
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3,264 |
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Income from continuing operations |
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4,234 |
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4,787 |
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3,906 |
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3,232 |
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3,484 |
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9,021 |
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6,511 |
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Income from discontinued operations(b) |
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620 |
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65 |
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56 |
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110 |
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Net income |
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$ |
4,234 |
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$ |
4,787 |
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$ |
4,526 |
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$ |
3,297 |
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$ |
3,540 |
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$ |
9,021 |
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$ |
6,621 |
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Per common share |
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Basic earnings per share: |
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Income from continuing operations |
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$ |
1.24 |
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$ |
1.38 |
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$ |
1.13 |
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$ |
0.93 |
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$ |
1.00 |
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$ |
2.63 |
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$ |
1.87 |
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Net income |
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1.24 |
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1.38 |
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1.31 |
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0.95 |
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1.02 |
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2.63 |
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1.91 |
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Diluted earnings per share: |
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Income from continuing operations |
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$ |
1.20 |
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$ |
1.34 |
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$ |
1.09 |
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$ |
0.90 |
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$ |
0.98 |
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$ |
2.55 |
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$ |
1.82 |
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Net income |
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1.20 |
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1.34 |
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1.26 |
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0.92 |
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0.99 |
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2.55 |
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1.85 |
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Cash dividends declared per share |
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0.38 |
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0.34 |
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0.34 |
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0.34 |
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0.34 |
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0.72 |
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0.68 |
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Book value per share |
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35.08 |
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34.45 |
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33.45 |
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32.75 |
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31.89 |
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35.08 |
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31.89 |
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Common shares outstanding |
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Average: Basic |
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3,415 |
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3,456 |
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3,465 |
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3,469 |
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3,474 |
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3,436 |
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3,473 |
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Diluted |
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3,522 |
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3,560 |
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3,579 |
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3,574 |
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3,572 |
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3,541 |
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3,571 |
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Common shares at period end |
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3,399 |
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3,416 |
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3,462 |
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3,468 |
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3,471 |
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Share price(c) |
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High |
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$ |
53.25 |
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$ |
51.95 |
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$ |
49.00 |
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$ |
47.49 |
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$ |
46.80 |
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$ |
53.25 |
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$ |
46.80 |
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Low |
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47.70 |
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45.91 |
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45.51 |
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40.40 |
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39.33 |
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45.91 |
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37.88 |
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Close |
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48.45 |
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48.38 |
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48.30 |
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46.96 |
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42.00 |
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Market capitalization |
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164,659 |
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165,280 |
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167,199 |
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162,835 |
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145,764 |
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Financial ratios |
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Return on common equity (ROE):(d) |
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Income from continuing operations |
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14 |
% |
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17 |
% |
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14 |
% |
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11 |
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13 |
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16 |
% |
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12 |
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Net income |
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14 |
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17 |
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16 |
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12 |
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13 |
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16 |
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12 |
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Return on assets (ROA):(d) |
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Income from continuing operations |
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1.19 |
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1.41 |
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1.14 |
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0.98 |
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1.05 |
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1.29 |
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1.03 |
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Net income |
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1.19 |
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1.41 |
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1.32 |
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1.00 |
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1.06 |
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1.29 |
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1.03 |
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Overhead ratio |
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58 |
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56 |
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61 |
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63 |
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62 |
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57 |
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63 |
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Tier 1 capital ratio |
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8.4 |
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8.5 |
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8.7 |
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8.6 |
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8.5 |
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Total capital ratio |
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12.0 |
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11.8 |
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12.3 |
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12.1 |
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12.0 |
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Selected balance sheet data (period-end) |
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Total assets |
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$ |
1,458,042 |
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$ |
1,408,918 |
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$ |
1,351,520 |
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$ |
1,338,029 |
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$ |
1,328,001 |
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Loans |
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465,037 |
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449,765 |
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483,127 |
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463,544 |
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455,104 |
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Deposits |
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651,370 |
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626,428 |
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638,788 |
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582,115 |
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593,716 |
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Long-term debt |
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159,493 |
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143,274 |
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133,421 |
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126,619 |
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125,280 |
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Total stockholders equity |
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119,211 |
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117,704 |
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115,790 |
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113,561 |
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110,684 |
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Headcount |
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179,664 |
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176,314 |
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174,360 |
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171,589 |
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172,423 |
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Credit quality metrics |
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Allowance for credit losses |
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$ |
8,399 |
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$ |
7,853 |
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$ |
7,803 |
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$ |
7,524 |
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$ |
7,500 |
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Nonperforming assets(e) |
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2,586 |
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2,421 |
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2,341 |
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2,300 |
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2,384 |
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Allowance for loan losses to total loans(f) |
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1.71 |
% |
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1.74 |
% |
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1.70 |
% |
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1.65 |
% |
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1.69 |
% |
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Net charge-offs |
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$ |
985 |
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$ |
903 |
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$ |
930 |
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$ |
790 |
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$ |
654 |
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$ |
1,888 |
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$ |
1,322 |
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Net charge-off rate(d)(f) |
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0.90 |
% |
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0.85 |
% |
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0.84 |
% |
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0.74 |
% |
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0.64 |
% |
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0.88 |
% |
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0.66 |
% |
Wholesale net charge-off (recovery)
rate(d)(f) |
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(0.07 |
) |
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(0.02 |
) |
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0.07 |
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(0.03 |
) |
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(0.05 |
) |
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(0.04 |
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(0.05 |
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Managed card net charge-off rate(d) |
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3.62 |
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3.57 |
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3.45 |
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3.58 |
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3.28 |
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3.59 |
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3.13 |
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(a) |
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The Firm adopted SFAS 157 in the first quarter of 2007. See Note 3 on page 73 of this Form
10-Q for additional information. |
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(b) |
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On October 1, 2006, JPMorgan Chase & Co. completed the exchange of selected corporate trust
businesses for the consumer, business banking and middle-market banking businesses of The Bank
of New York Company Inc. The results of operations of these corporate trust businesses are
reported as discontinued operations for each 2006 period. |
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(c) |
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JPMorgan Chases common stock is listed and traded on the New York Stock Exchange, the London
Stock Exchange Limited and the Tokyo Stock Exchange. The high, low and closing prices of
JPMorgan Chases common stock are from The New York Stock Exchange Composite Transaction Tape. |
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(d) |
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Ratios are based upon annualized amounts. |
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(e) |
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Excludes nonperforming wholesale held-for-sale (HFS) loans purchased as part of the
Investment Banks proprietary activities. |
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(f) |
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Excluded from the allowance coverage ratios were end-of-period Loans held-for-sale and loans
accounted for at fair value; and excluded from the net charge-off rates were average Loans
held-for-sale and loans accounted for at fair value. |
3
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of the Form 10-Q provides managements discussion and analysis (MD&A) of the
financial condition and results of operations for JPMorgan Chase. See the Glossary of terms on
pages 113-115 for definitions of terms used throughout this Form 10-Q. The MD&A included in this
Form 10-Q 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 Chases management and are subject to significant risks and uncertainties. These risks
and uncertainties could cause JPMorgan Chases results to differ materially from those set forth in
such forward-looking statements. Certain of such risks and uncertainties are described herein (see
Forward-looking Statements on page 118 of this Form 10-Q) and in the JPMorgan Chase Annual Report
on Form 10-K for the year ended December 31, 2006, as amended (2006 Annual Report or 2006 Form
10-K), (see Part I, Item 1A: Risk factors and see Forward-looking Statements in the MD&A) to which
reference is hereby made.
INTRODUCTION
JPMorgan Chase & Co. (the Firm), a financial holding company incorporated under Delaware law in
1968, is a leading global financial services firm and one of the largest banking institutions in
the United States of America (U.S.), with $1.5 trillion in assets, $119.2 billion in
stockholders equity and operations worldwide. The Firm is a leader in investment banking,
financial services for consumers and businesses, financial transaction processing, asset management
and private equity. Under the JPMorgan and Chase brands, the Firm serves millions of customers in
the U.S. and many of the worlds most prominent corporate, institutional and government clients.
JPMorgan Chases principal bank subsidiaries are JPMorgan Chase Bank, National Association
(JPMorgan Chase Bank, N.A.), a national banking association with branches in 17 states; and Chase
Bank USA, National Association (Chase Bank USA, N.A.), a national bank that is the Firms credit
card issuing bank. JPMorgan Chases principal nonbank subsidiary is J.P. Morgan Securities Inc.,
the Firms U.S. investment banking firm.
JPMorgan Chases activities are organized, for management reporting purposes, into six business
segments, as well as Corporate. The Firms wholesale businesses comprise the Investment Bank,
Commercial Banking, Treasury & Securities Services and Asset Management segments. The Firms
consumer businesses comprise the Retail Financial Services and Card Services segments. A
description of the Firms business segments, and the products and services they provide to their
respective client bases, follows.
Investment Bank
JPMorgan is one of the worlds leading investment banks, with deep client relationships and broad
product capabilities. The Investment Banks clients are corporations, financial institutions,
governments and institutional investors. The Firm offers a full range of investment banking
products and services in all major capital markets, including advising on corporate strategy and
structure, capital raising in equity and debt markets, sophisticated risk management, market-making
in cash securities and derivative instruments, and research. The Investment Bank (IB) also
commits the Firms own capital to proprietary investing and trading activities.
Retail Financial Services
Retail Financial Services (RFS), which includes the Regional Banking, Mortgage Banking and Auto
Finance reporting segments, helps meet the financial needs of consumers and businesses. RFS
provides convenient consumer banking through the nations fourth-largest branch network and
third-largest ATM network. RFS is a top-five mortgage originator and servicer, the second-largest
home equity originator, the largest noncaptive originator of automobile loans and one of the
largest student loan originators.
RFS serves customers through more than 3,000 bank branches, 8,600 ATMs and 270 mortgage offices,
and through relationships with more than 15,000 auto dealerships and 4,300 schools and
universities. Nearly 13,000 branch salespeople assist customers, across a 17-state footprint from
New York to Arizona, with checking and savings accounts, mortgage, home equity and business loans,
investments and insurance. More than 1,200 additional mortgage officers provide home loans
throughout the country.
Card Services
With more than 150 million cards in circulation and $148.0 billion in managed loans, Chase Card
Services (CS) is one of the nations largest credit card issuers. Customers used Chase cards for
more than $169.3 billion worth of transactions in the six months ended June 30, 2007.
4
Chase offers a wide variety of general-purpose cards to satisfy the needs of individual consumers,
small businesses and partner organizations, including cards issued with AARP, Amazon, Continental
Airlines, Marriott, Southwest Airlines, Sony, United Airlines, Walt Disney Company and many other
well-known brands and organizations. Chase also issues private-label cards with Circuit City,
Kohls, Sears Canada and BP.
Chase Paymentech Solutions, LLC, a joint venture with JPMorgan Chase and First Data Corporation, is
the largest processor of MasterCard and Visa payments in the world, having handled 9.3 billion
transactions in the six months ended June 30, 2007.
Commercial Banking
Commercial Banking (CB) serves more than 30,000 clients, including corporations, municipalities,
financial institutions and not-for-profit entities. These clients generally have annual revenues
ranging from $10 million to $2 billion. Commercial bankers serve clients nationally throughout the
RFS footprint and in offices located in other major markets.
Commercial Banking offers its clients industry knowledge, experience, a dedicated service model,
comprehensive solutions and local expertise. The Firms broad platform positions CB to deliver
extensive product capabilities including lending, treasury services, investment banking and
asset management to meet its clients U.S. and international financial needs.
Treasury & Securities Services
Treasury & Securities Services (TSS) is a global leader in providing transaction, investment and
information services to support the needs of institutional clients worldwide. TSS is one of the
largest cash management providers in the world and a leading global custodian. Treasury Services
(TS) provides a variety of cash management products, trade finance and logistics solutions,
wholesale card products, and liquidity management capabilities to small and midsized companies,
multinational corporations, financial institutions and government entities. TS partners with the
Commercial Banking, Retail Financial Services and Asset Management business segments to serve
clients firmwide. As a result, certain TS revenues are included in other segments results.
Worldwide Securities Services (WSS) stores, values, clears and services securities and
alternative investments for investors and broker-dealers; and manages Depositary Receipt programs
globally.
Asset Management
With assets under supervision of $1.5 trillion, Asset Management (AM) is a global leader in
investment and wealth management. AM clients include institutions, retail investors and
high-net-worth individuals in every major market throughout the world. AM offers global investment
management in equities, fixed income, real estate, hedge funds, private equity and liquidity,
including both money market instruments and bank deposits. AM also provides trust and estate and
banking services to high-net-worth clients, and retirement services for corporations and
individuals. The majority of AMs client assets are in actively managed portfolios.
OTHER BUSINESS EVENTS
Investment in SLM Corporation
On April 16, 2007, an investor group, which comprised of JPMorgan Chase and three other firms,
announced it had signed a definitive agreement to purchase SLM Corporation (Sallie Mae) for
approximately $25 billion. JPMorgan Chase will invest $2.2 billion and will own 24.9% of the
company. The transaction requires the approval of Sallie Maes stockholders and is subject to
regulatory approvals and other closing conditions. If all such approvals are obtained and closing
conditions are met, the transaction is expected to close in late 2007.
Headquarters for the Investment Bank in London and New York
On May 3, 2007, JPMorgan Chase announced plans to build a new investment banking headquarters in
London. The building will have more than one million square feet, with up to five trading floors
comprising 72,800 square feet each. The Firm expects the building to open by late 2012. On June 14,
2007, JPMorgan Chase announced it will build a new 1.3 million square-foot global investment
banking headquarters in the World Trade Center complex in New York City. The Firm expects the
building to open by early 2012.
5
EXECUTIVE OVERVIEW
This overview of managements discussion and analysis highlights selected information and may not
contain all of the information that is important to readers of this Form 10-Q. For a more complete
understanding of events, trends and uncertainties, as well as the liquidity, capital, credit and
market risks, and the critical accounting estimates, affecting the Firm and its various lines of
business, this Form 10-Q should be read in its entirety.
Financial performance of JPMorgan Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except per share and ratio data) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Selected income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
18,908 |
|
|
$ |
15,086 |
|
|
|
25 |
% |
|
$ |
37,876 |
|
|
$ |
30,261 |
|
|
|
25 |
% |
Provision for credit losses |
|
|
1,529 |
|
|
|
493 |
|
|
|
210 |
|
|
|
2,537 |
|
|
|
1,324 |
|
|
|
92 |
|
Total noninterest expense |
|
|
11,028 |
|
|
|
9,382 |
|
|
|
18 |
|
|
|
21,656 |
|
|
|
19,162 |
|
|
|
13 |
|
Income from continuing operations |
|
|
4,234 |
|
|
|
3,484 |
|
|
|
22 |
|
|
|
9,021 |
|
|
|
6,511 |
|
|
|
39 |
|
Income from discontinued operations |
|
|
|
|
|
|
56 |
|
|
NM |
|
|
|
|
|
|
|
110 |
|
|
NM |
|
Net income |
|
|
4,234 |
|
|
|
3,540 |
|
|
|
20 |
|
|
|
9,021 |
|
|
|
6,621 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.20 |
|
|
$ |
0.98 |
|
|
|
22 |
% |
|
$ |
2.55 |
|
|
$ |
1.82 |
|
|
|
40 |
% |
Net income |
|
|
1.20 |
|
|
|
0.99 |
|
|
|
21 |
|
|
|
2.55 |
|
|
|
1.85 |
|
|
|
38 |
|
Return on common equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
14 |
% |
|
|
13 |
% |
|
|
|
|
|
|
16 |
% |
|
|
12 |
% |
|
|
|
|
Net income |
|
|
14 |
|
|
|
13 |
|
|
|
|
|
|
|
16 |
|
|
|
12 |
|
|
|
|
|
|
Business overview
The Firm reported 2007 second-quarter Net income of $4.2 billion, or $1.20 per share, compared with
Net income of $3.5 billion, or $0.99 per share, for the second quarter of 2006. Return on common
equity for the quarter was 14% compared with 13% in the prior year.
Net income for the first six months of 2007 was $9.0 billion, or $2.55 per share, compared with
$6.6 billion, or $1.85 per share, in the comparable period last year. Return on common equity was
16% for the first six months of 2007 compared with 12% for the prior-year period.
In the first quarter of 2007 the Firm adopted SFAS 157 (Fair Value Measurements) and SFAS 159
(Fair Value Option). For a discussion of SFAS 157 and SFAS 159, see Note 3 on pages 73-80 and
Note 4 on pages 80-83 of this Form 10-Q.
In the second quarter of 2007, the global economy continued to grow, as solid growth in the
industrial economies supported continued progress in the emerging markets economies. Global capital
markets activity was strong during the second quarter of 2007, with debt and equity underwriting
and merger and acquisition activity surpassing levels from the second quarter of 2006. Both
domestic and international equity markets rose, benefiting from favorable economic trends and
benign inflation, with the S&P 500 and international indices increasing approximately 5.00% on
average during the second quarter of 2007. The Federal Reserve Board held the federal funds rate
steady at 5.25%. While long-term interest rates rose in response to indications of improving
economic activity, the Treasury yield curve remained moderately inverted. During the second
quarter, the U.S. economy rebounded to an approximate 3.40% annualized growth rate, even though
high energy prices dampened consumer spending and the ongoing housing contraction continued to
weigh on the overall economy. While demand for wholesale loans in the U.S. continued to grow in the
second quarter at close to a double-digit pace, U.S. consumer loan growth slowed, and mortgage
lending contracted.
The second quarter of 2007 economic environment was a contributing factor to the performance of the
Firm and each of its businesses. The overall economic expansion, strong level of capital markets
activity and positive performance in equity markets helped to drive new business volume and organic
growth within each of the Firms wholesale businesses. Weakness in the housing markets, however,
led to increased losses in Retail Financial Services resulting in an increase in provision related
to the home equity portfolio.
The discussion that follows highlights the current-quarter performance of each business segment
compared with the prior-year quarter, and discusses results on a managed basis unless otherwise
noted. For more information about managed basis, see Explanation and reconciliation of the Firms
use of non-GAAP financial measures on pages 13-16 of this Form 10-Q .
6
Investment Bank net income increased from the prior year driven by strong Total net revenue growth,
primarily offset by an increase in Total noninterest expense, as well as an increase in the
Provision for credit losses. Investment banking fees were at a record level, driven by record
advisory fees, strong debt underwriting fees and record equity underwriting fees. Fixed Income
Markets revenue benefited from strong results across most products, partially offset by weaker
commodities performance versus a strong prior-year quarter. Equity Markets revenue more than
doubled from the prior year, benefiting from strong global derivatives and cash equities trading
performance. The increase in the Provision for credit losses was largely related to lending-related
commitments, reflecting portfolio activity. The increase in Total noninterest expense was due
primarily to higher performance-based compensation expense.
Retail Financial Services net income decreased as declines in Regional Banking and Auto Finance
were offset partially by improved results in Mortgage Banking. Total net revenue increased from the
prior year due to The Bank of New York transaction, higher mortgage loan originations and increased
deposit-related fees. Total net revenue also benefited from the classification of certain mortgage
loan origination costs as expense due to the adoption of SFAS 159. These benefits were offset
partially by the sale of the insurance business in 2006. The Provision for credit losses increased
reflecting weak housing prices in select geographic areas and the resulting increase in estimated
losses for high loan-to-value home equity loans, especially those originated through the wholesale
channel. Total noninterest expense was up from the prior year due to The Bank of New York
transaction, the classification of certain loan origination costs as expense due to the adoption of
SFAS 159, an increase in loan originations in Mortgage Banking, and investments in retail
distribution. These increases were offset partially by the sale of the insurance business.
Card Services net income decreased when compared with the prior year, primarily due to prior-year
results benefiting from significantly lower net charge-offs following the change in bankruptcy
legislation in the fourth quarter of 2005. Total net revenue was up compared with the prior year.
The increase was driven by increased average loans, higher fees and increased interchange income
from higher charge volume. These benefits were largely offset by higher volume-driven payments to
partners and increased rewards expense; increased cost of funds on higher introductory, transactor
and promotional balances; higher charge-offs, which resulted in increased revenue reversals; and
the discontinuation of certain billing practices in the quarter (including the elimination of
certain over-limit fees and the two-cycle billing method for calculating finance charges). The
managed provision for credit losses increased, primarily due to the prior year benefiting from a
lower level of net charge-offs, following the change in bankruptcy legislation in the fourth
quarter of 2005. Total noninterest expense was down due mainly to lower Marketing expense and lower
fraud-related expense, partially offset by higher volume-related expense.
Commercial Banking net income was flat compared with the prior year, as an increase in Total net
revenue was offset by a higher Provision for credit losses. Total net revenue increased due to
double-digit growth in liability balances and loans, which reflected organic growth and The Bank of
New York transaction. In addition, Total net revenue benefited from higher investment banking
revenue and deposit-related fees. These increases in Total net revenue were largely offset by the
continued shift to narrower-spread liability products and spread compression in the liability and
loan portfolios. The Provision for credit losses increased reflecting portfolio activity. Total
noninterest expense was flat to the prior year.
Treasury & Securities Services achieved record net income driven by record Total net revenue
partially offset by higher Compensation expense. Total net revenue growth was driven by increased
product usage by new and existing clients, market appreciation, and seasonally strong activity in
securities lending and depositary receipts. These benefits were offset partially by lower foreign
exchange revenue, as a result of narrower-market spreads, and by a continued shift to
narrower-spread liability products. Total noninterest expense increased due largely to higher
Compensation expense related to business and volume growth, as well as investment in new product
platforms.
Asset Management net income was a record benefiting from increased Total net revenue, partially
offset by higher Compensation expense. Record Total net revenue, principally fees and commissions,
benefited largely from increased assets under management and higher performance and placement fees.
The Provision for credit losses was a slight benefit in both time periods. Total noninterest
expense increased due largely to higher compensation, primarily performance-based, and investments
in all business segments.
Corporate segment net income increased primarily from higher private equity gains, lower securities
losses and improved Net interest income, partially offset by higher Total noninterest expense.
Prior-year results also included Income from discontinued operations. Total net revenue benefited
from a higher level of private equity gains, the classification of certain private equity carried
interest as Compensation expense, a lower amount of securities losses and improved net interest
spread. Total noninterest expense increased due to higher net legal costs, reflecting a lower level
of recoveries and higher expense, including settlement costs relating to certain copper antitrust
litigation. In addition, Total noninterest expense increased due to the classification of certain
private equity carried interest as Compensation expense. These increases were offset partially by
lower Compensation expense and business efficiencies.
7
Income from discontinued operations was $56 million in the prior year. Discontinued operations
(included in the Corporate segment results) includes the income statement activity of selected
corporate trust businesses that were sold to The Bank of New York.
During the quarter ended June 30, 2007, approximately $730 million (pretax) of merger savings were
realized, which is an annualized rate of approximately $2.9 billion. Merger costs of $64 million
were expensed during the second quarter of 2007, bringing the total amount expensed since the
merger announcement to $3.6 billion (including capitalized costs).
The managed provision for credit losses was $2.1 billion, up by $1.1 billion, or 101%, from the
prior year. The wholesale provision for credit losses was $198 million for the quarter compared
with a benefit of $77 million in the prior year. The change was largely related to lending-related
commitments, reflecting portfolio activity. Wholesale net recoveries were $29 million in the
current quarter, compared with net recoveries of $19 million in the prior year, resulting in net
recovery rates of 0.07% and 0.05%, respectively. The total consumer managed provision for credit
losses was $1.9 billion, compared with $1.1 billion in the prior year. The prior year benefited
from significantly lower credit card net charge-offs, following the change in bankruptcy
legislation in the fourth quarter of 2005. The increase from the prior year also reflected
additions to the allowance for credit losses and higher charge-offs related to the home equity loan
portfolio. The Firm had total nonperforming assets of $2.6 billion at June 30, 2007, up by $202
million, or 8%, from the prior-year level of $2.4 billion.
The Firm had, at June 30, 2007, Total stockholders equity of $119.2 billion and a Tier 1 capital
ratio of 8.4%. The Firm purchased $1.9 billion, or 36.7 million shares, of common stock during the
quarter.
Business outlook
The following forward-looking statements are based upon the current beliefs and expectations of
JPMorgan Chases management and are subject to significant risks and uncertainties. These risks and
uncertainties could cause JPMorgan Chases results to differ materially from those set forth in
such forward-looking statements.
JPMorgan Chases outlook for the third quarter of 2007 should be viewed against the backdrop of the
global economy, financial markets activity and the geopolitical environment, all of which are
integrally linked.
The
Investment Bank entered the third quarter with a strong Investment
banking fee pipeline. However, recent market conditions include
problems in the mortgage markets, the inability to successfully
complete the syndication of certain leverage buyout financings,
general widening of credit spreads, reduced liquidity and increased
volatility across all markets. The effect of these market conditions
has led and could continue to lead to lower trading revenues, reduced
levels of client activity, lower realization of the Investment
banking fee pipeline and an increase in retained loans resulting from
leveraged finance activities. The increase in retained loans is
likely to result in an increase in the allowance for loan losses
and/or markdowns of loans related to leveraged buyout financing activities.
Management continues to believe that the net loss in Treasury and
Other Corporate on a combined basis will be approximately
$50 million to $100 million per quarter; and that private
equity results, which are dependent upon the capital markets, could
continue to be volatile over time. The performance of each of the
Firms lines of business will be affected by overall global
economic growth, financial market movements (including interest rate
movements), the competitive environment and client activity levels in
any given time period.
Future
economic conditions may also cause the provision for credit losses to
increase over time. The wholesale provision for credit losses may be
increased over time as a result of portfolio activity and by a trend
toward a more normal level of provisioning. The consumer provision
for credit losses could be increased as a result of a higher level of
net charge-offs in Card Services as losses return to a more normal
level following the 2005 fourth quarter change in the bankruptcy law,
and as a result of a higher level of losses in Retail Financial
Services if housing prices continue to weaken. Given the continued
downward pressure on housing prices and the elevated level of unsold
houses nationally, management remains cautious with respect to the
home equity portfolio. In addition, credit spread widening in the
prime and subprime mortgage markets is causing downward valuation
pressure on the mortgage loans in the Firms mortgage warehouse.
Firmwide, Total noninterest expense is anticipated to reflect investments in each business, recent
acquisitions and divestitures, continued merger savings and other operating efficiencies.
Management continues to believe that annual merger savings will reach approximately $3.0 billion by
the end of 2007 following completion of the last significant conversion activity, which is the
wholesale deposit conversion scheduled for the 2007 third quarter. Merger costs of approximately
$400 million are expected to be incurred during 2007 (including a modest amount related to The Bank
of New York transaction). These additions are expected to bring total cumulative merger costs to
$3.8 billion by the end of 2007.
8
CONSOLIDATED RESULTS OF OPERATIONS
The following section provides a comparative discussion of JPMorgan Chases consolidated results of
operations on a reported basis. Factors that relate primarily to a single business segment are
discussed in more detail within that business segment than they are in this consolidated section.
Total net revenue, Noninterest expense and Income tax expense for prior periods have been revised
to reflect the impact of discontinued operations. For a discussion of the Critical accounting
estimates used by the Firm that affect the Consolidated results of operations, see page 66 of this
Form 10-Q and pages 83-85 of the JPMorgan Chase 2006 Form 10-K.
Total net revenue
The following table presents the components of Total net revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Investment banking fees |
|
$ |
1,898 |
|
|
$ |
1,370 |
|
|
|
39 |
% |
|
$ |
3,637 |
|
|
$ |
2,539 |
|
|
|
43 |
% |
Principal transactions |
|
|
3,566 |
|
|
|
2,741 |
|
|
|
30 |
|
|
|
8,037 |
|
|
|
5,450 |
|
|
|
47 |
|
Lending & deposit related fees |
|
|
951 |
|
|
|
865 |
|
|
|
10 |
|
|
|
1,846 |
|
|
|
1,706 |
|
|
|
8 |
|
Asset management, administration and
commissions |
|
|
3,611 |
|
|
|
2,966 |
|
|
|
22 |
|
|
|
6,797 |
|
|
|
5,840 |
|
|
|
16 |
|
Securities gains (losses) |
|
|
(223 |
) |
|
|
(502 |
) |
|
|
56 |
|
|
|
(221 |
) |
|
|
(618 |
) |
|
|
64 |
|
Mortgage fees and related income |
|
|
523 |
|
|
|
213 |
|
|
|
146 |
|
|
|
999 |
|
|
|
454 |
|
|
|
120 |
|
Credit card income |
|
|
1,714 |
|
|
|
1,791 |
|
|
|
(4 |
) |
|
|
3,277 |
|
|
|
3,701 |
|
|
|
(11 |
) |
Other income |
|
|
553 |
|
|
|
464 |
|
|
|
19 |
|
|
|
1,071 |
|
|
|
1,018 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
12,593 |
|
|
|
9,908 |
|
|
|
27 |
|
|
|
25,443 |
|
|
|
20,090 |
|
|
|
27 |
|
Net interest income |
|
|
6,315 |
|
|
|
5,178 |
|
|
|
22 |
|
|
|
12,433 |
|
|
|
10,171 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
18,908 |
|
|
$ |
15,086 |
|
|
|
25 |
|
|
$ |
37,876 |
|
|
$ |
30,261 |
|
|
|
25 |
|
|
Total net revenue for the second quarter of 2007 was $18.9 billion, up by $3.8 billion, or
25%, from the prior year. This increase was a result of higher Net interest income, very strong
private equity gains, higher Asset management, administration and commissions revenue, record
Investment banking fees, a lower level of securities losses, and higher Mortgage fees and related
income. For the first six months of 2007, Total net revenue was $37.9 billion, up by $7.6 billion,
or 25%, from the prior year. The increase was driven primarily by the aforementioned items
including the impact of the adoption of SFAS 157 and 159, and was partially offset by lower Credit
card income.
Investment banking fees of $1.9 billion in the second quarter and $3.6 billion for the first six
months of 2007 were at record levels for the Firm. These results were driven by record advisory and
equity underwriting fees as well as strong debt underwriting fees. For a further discussion of
Investment banking fees, which are primarily recorded in the IB, see the IB segment results on
pages 17-20 of this Form 10-Q.
Principal transactions revenue consists of trading revenue, which includes changes in fair value
associated with financial instruments held by the IB for which the SFAS 159 fair value option was
elected, and private equity gains. Trading revenue of $2.1 billion in the second quarter of 2007
was flat compared with the same period last year. In the first six months of 2007, trading revenue
of $5.3 billion was higher than in the first six months of 2006, reflecting strong performance in
most fixed income and equities products. Credit Portfolio increased in the first six months of 2007
compared with the first six months of 2006 as a result of an adjustment to the valuation of the
Firms derivative liabilities measured at fair value to reflect the credit quality of the Firm, as
a part of the adoption of SFAS 157. Private equity gains in the second quarter and first six months
of 2007 benefited from a higher level of gains and the classification of certain private equity
carried interest as Compensation expense. Also favorably affecting the first six months
of 2007 was a fair value adjustment in the first quarter of 2007 on nonpublic investments resulting
from the adoption of SFAS 157. For a further discussion of Principal transactions revenue, see the
IB and Corporate segment results on pages 17-20 and 40-42, respectively, and Note 5 on pages 83-85
of this Form 10-Q.
Lending & deposit related fees rose from the second quarter and first six months of 2006 as a
result of higher deposit-related fees and The Bank of New York transaction. For a further
discussion of Lending & deposit related fees, which are partly recorded in RFS, see the RFS segment
results on pages 21-28 of this Form 10-Q.
Asset management, administration and commissions revenue was higher in the second quarter and first
six months of 2007 compared with the prior-year periods, primarily due to an increase in assets
under management and higher performance and placement fees in AM. The growth in assets under
management, which reached $1.1 trillion at the end of the second quarter of 2007, up 23% from the
prior year, was the result of net asset inflows into the Institutional, Retail and Private Bank
segments, and market appreciation. Also contributing to the increase was higher assets under
custody in TSS, driven by market value appreciation and new business, as well as growth in other
fees due to a combination of
9
increased product usage by existing clients and new business growth. In addition, commissions
revenue increased due to higher brokerage transaction volume (primarily included within the Markets
revenue of the IB), partly offset by the sale of the insurance business in the third quarter of
2006, and a charge in the first quarter of 2007 resulting from accelerated surrenders of customer
annuities. For additional information on these fees and commissions, see the segment discussions
for IB on pages 17-20, RFS on pages 21-28, TSS on pages 35-36, and AM on pages 37-39 of this Form
10-Q.
The favorable variances in Securities gains (losses) for the second quarter and first half of 2007,
when compared with the second quarter and first half of 2006, were due primarily to a lower level
of securities losses in Treasurys portfolio repositioning results. For a further discussion of
Securities gains (losses), which are mostly recorded in the Firms Treasury business, see the
Corporate segment discussion on pages 40-42 of this Form 10-Q.
Mortgage fees and related income increased in the second quarter and first six months of 2007
compared with the prior-year periods. Growth in production revenue reflected higher gain on sale
income primarily attributable to increased mortgage loan originations, and the classification of
certain loan origination costs as expense (loan origination costs previously netted against revenue
are currently recorded as expense) due to the adoption of SFAS 159. Net mortgage servicing revenue
improved due to an increase in third-party loans serviced. Mortgage fees and related income exclude
the impact of NII and AFS securities gains and losses related to mortgage activities. For a
discussion of Mortgage fees and related income, which is recorded primarily in RFSs Mortgage
Banking business, see the Mortgage Banking discussion on pages 26-27 of this Form 10-Q.
Credit card income decreased from the second quarter and first six months of 2006, primarily due to
lower servicing fees earned in connection with securitization activities, which were affected
unfavorably by lower interest income earned and higher credit losses incurred. Also contributing to
the decrease were increases in volume-driven payments to partners and expenses related to reward
programs. These were offset partially by a higher level of fee-based revenue and increased customer
charge volume that favorably impacted interchange income. For a further discussion of Credit card
income, see CSs segment results on pages 29-32 of this Form 10-Q.
The increases in Other income from the second quarter and first six months of 2006 reflected higher
gains on the sale of loans and leveraged leases, partly as a result of a loss in the first quarter
of 2006 related to auto loans transferred to held-for-sale, and increased income from automobile
operating leases. These benefits were offset partially by the absence of a $103 million gain in the
second quarter of 2006 related to the sale of MasterCard shares in its initial public offering and
lower revenues from loan workouts.
Net interest income rose from the second quarter and first six months of 2006, primarily from the
following: higher trading-related Net interest income due to a shift of Interest expense to
Principal transactions revenue related to certain IB structured notes to which fair value
accounting was elected in connection with the adoption of SFAS 159; an improvement in Treasurys
net interest spread; an increase in consumer loans; the impact of The Bank of New York transaction;
and higher consumer deposits, wholesale liability balances, and loan fees. These increases were
offset slightly by narrower spreads on consumer loans as well as deposits, which partly resulted
from the continued shift to narrower-spread deposit products; the impact of higher credit card
charge-offs which resulted in increased revenue reversals; and the sale of the insurance business.
The Firms total average interest-earning assets for the second quarter of 2007 were $1.1 trillion,
up 9% from the second quarter of 2006. The increase was primarily a result of higher Trading assets
- debt instruments, Loans, and Available-for-sale securities partially offset by a decline in
Interests in purchased receivables as a result of the restructuring and deconsolidation during the
second quarter of 2006 of certain multi-seller conduits that the Firm administered. The net
interest yield on these assets, on a fully taxable equivalent basis, was 2.35%, an increase of 28
basis points from the prior year, partly reflecting the adoption of SFAS 159. The Firms total
average interest earning assets for the first six months of 2007 were $1.1 trillion, up 10% from
the first six months of 2006, and were also driven by the aforementioned items. The net interest
yield on these assets, on a fully taxable-equivalent basis, was 2.37%, an increase of 24 basis
points from the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Provision for credit
losses |
|
$ |
1,529 |
|
|
$ |
493 |
|
|
|
210 |
% |
|
$ |
2,537 |
|
|
$ |
1,324 |
|
|
|
92 |
% |
|
10
The Provision for credit losses in the second quarter and first half of 2007 rose from the
comparable prior-year periods. The increase in the consumer provision for credit losses in the
second quarter of 2007 was due to a $329 million addition to the home equity allowance for loan
losses driven by weak housing prices in select geographic areas and the resulting increase in
estimated losses for high loan-to-value home equity loans, in particular those originated through
the wholesale channel; the absence of prior-year benefits from significantly lower credit card net
charge-offs following the change in bankruptcy legislation in the fourth quarter of 2005; and the
release in the second quarter of 2006 of $90 million of provision related to Hurricane Katrina in
CS. For the first half of 2007 the increase in the consumer Provision for credit losses also
reflected higher losses in the subprime mortgage portfolio, partially offset by a reversal in the
first quarter of 2007 of a portion of the reserves in RFS related to Hurricane Katrina. The
increase in the wholesale provision for credit losses was due primarily to lending-related
commitments, reflecting portfolio activity. For a more detailed discussion of the loan portfolio
and the Allowance for loan losses, refer to Credit risk management on pages 51-62 of this Form
10-Q.
Noninterest expense
The following table presents the components of Noninterest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Compensation expense |
|
$ |
6,309 |
|
|
$ |
5,268 |
|
|
|
20 |
% |
|
$ |
12,543 |
|
|
$ |
10,816 |
|
|
|
16 |
% |
Occupancy expense |
|
|
652 |
|
|
|
553 |
|
|
|
18 |
|
|
|
1,292 |
|
|
|
1,147 |
|
|
|
13 |
|
Technology, communications
and equipment expense |
|
|
921 |
|
|
|
876 |
|
|
|
5 |
|
|
|
1,843 |
|
|
|
1,745 |
|
|
|
6 |
|
Professional & outside
services |
|
|
1,259 |
|
|
|
1,085 |
|
|
|
16 |
|
|
|
2,459 |
|
|
|
2,093 |
|
|
|
17 |
|
Marketing |
|
|
457 |
|
|
|
526 |
|
|
|
(13 |
) |
|
|
939 |
|
|
|
1,045 |
|
|
|
(10 |
) |
Other expense |
|
|
1,013 |
|
|
|
631 |
|
|
|
61 |
|
|
|
1,748 |
|
|
|
1,447 |
|
|
|
21 |
|
Amortization of intangibles |
|
|
353 |
|
|
|
357 |
|
|
|
(1 |
) |
|
|
706 |
|
|
|
712 |
|
|
|
(1 |
) |
Merger costs |
|
|
64 |
|
|
|
86 |
|
|
|
(26 |
) |
|
|
126 |
|
|
|
157 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
11,028 |
|
|
$ |
9,382 |
|
|
|
18 |
|
|
$ |
21,656 |
|
|
$ |
19,162 |
|
|
|
13 |
|
|
Total noninterest expense for the second quarter of 2007 was $11.0 billion, up by $1.6
billion, or 18%, from the prior year. Expense increased due to higher Compensation expense,
primarily incentive-based, and increased net legal costs reflecting a lower level of recoveries and
higher expense. Expense growth also was driven by The Bank of New York transaction, acquisitions
and investments in all of the businesses. The increase in expense was offset partially by business
divestitures and expense efficiencies. For the first six months of 2007, Total noninterest expense
was $21.7 billion, up by $2.5 billion, or 13%, from the prior year, driven primarily by the
aforementioned items.
The increase in Compensation expense from the second quarter and first half of 2006 was primarily
the result of higher performance-based incentives; additional headcount in connection with The Bank
of New York transaction, acquisitions and investments in businesses; the classification of certain
private equity carried interest from Principal transactions revenue, and the classification of
certain loan origination costs (previously netted against revenue) due to the adoption of SFAS 159.
These increases were offset partially by merger-related savings. Also affecting the six month
variance is the absence of a prior-year expense of $459 million from the adoption of SFAS 123R. For
a detailed discussion of the adoption of SFAS 123R see Note 9 on page 88 of this Form 10-Q.
The increases in Occupancy expense from the second quarter and first half of 2006 were driven by
ongoing investments in the retail distribution network, which included incremental expense from The
Bank of New York branches, partially offset by operating expense efficiencies.
The increases in Technology, communications and equipment expense when compared with the second
quarter and first six months of 2006 were due primarily to higher depreciation expense on owned
automobiles subject to operating leases and technology investments to support business growth.
These increases were offset partially by operating expense efficiencies.
Professional & outside services rose from the second quarter and first six months of 2006
reflecting higher brokerage expense and credit card processing costs as a result of growth in
transaction volume. Also contributing to the increases were acquisitions and investments in
businesses.
Marketing expense was lower when compared with the second quarter and first half of 2006 due to a
reduction in credit card marketing.
11
Other expense was higher from the second quarter and first six months of 2006 due to increased net
legal costs reflecting a lower level of recoveries and higher expense. Also contributing to the
increase were the growth in business volume, acquisitions and investments in businesses. These
increases were offset partially by the sale of the insurance business in the third quarter of 2006
and lower credit card fraud-related losses.
For a discussion of Amortization of intangibles and Merger costs, refer to Note 17 and Note 10 on
pages 100-102 and 89, respectively, of this Form 10-Q.
Income tax expense
The Firms Income from continuing operations before income tax expense, Income tax expense and
effective tax rate were as follows for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except rate) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Income from continuing
operations before
income tax expense |
|
$ |
6,351 |
|
|
$ |
5,211 |
|
|
$ |
13,683 |
|
|
$ |
9,775 |
|
Income tax expense |
|
|
2,117 |
|
|
|
1,727 |
|
|
|
4,662 |
|
|
|
3,264 |
|
Effective tax rate |
|
|
33.3 |
% |
|
|
33.1 |
% |
|
|
34.1 |
% |
|
|
33.4 |
% |
|
The effective tax rate increased for the second quarter and first half of 2007 compared with
the second quarter and first half of 2006 primarily due to higher reported pretax income, combined
with changes in the proportion of income subject to federal, state and local taxes.
Income from discontinued operations
Income from discontinued operations was zero in all periods of 2007 compared with $56 million and
$110 million in the second quarter and first six months of 2006, respectively. Discontinued
operations (included in the Corporate segment results) includes the income statement activity of
selected corporate trust businesses that were sold to the Bank of New York on October 1, 2006.
12
EXPLANATION AND RECONCILIATION OF THE FIRMS USE OF NON-GAAP FINANCIAL MEASURES
The Firm prepares its Consolidated financial statements using accounting principles generally
accepted in the United States of America (U.S. GAAP); these financial statements appear on pages
68-71 of this Form 10-Q. That presentation, which is referred to as reported basis, provides the
reader with an understanding of the Firms results that can be tracked consistently from year to
year and enables a comparison of the Firms performance with other companies U.S. GAAP financial
statements.
In addition to analyzing the Firms results on a reported basis, management reviews the Firms and
the lines of business results on a managed basis, which is a non-GAAP financial measure. The
Firms definition of managed basis starts with the reported U.S. GAAP results and includes certain
reclassifications that assumes credit card loans securitized by CS remain on the balance sheet and
presents revenue on a fully taxable-equivalent (FTE) basis. These adjustments do not have any
impact on Net income as reported by the lines of business or by the Firm as a whole.
The presentation of CS results on a managed basis assumes that credit card loans that have been
securitized and sold in accordance with SFAS 140 still remain on the balance sheet and that the
earnings on the securitized loans are classified in the same manner as the earnings on retained
loans recorded on the balance sheet. JPMorgan Chase uses the concept of managed basis to evaluate
the credit performance and overall financial performance of the entire managed credit card
portfolio. Operations are funded and decisions are made about allocating resources, such as
employees and capital, based upon managed financial information. In addition, the same underwriting
standards and ongoing risk monitoring are used for both loans on the balance sheet and securitized
loans. Although securitizations result in the sale of credit card receivables to a trust, JPMorgan
Chase retains the ongoing customer relationships, as the customers may continue to use their credit
cards; accordingly, the customers credit performance will affect both the securitized loans and
the loans retained on the balance sheet. JPMorgan Chase believes managed basis information is
useful to investors, enabling them to understand both the credit risks associated with the loans
reported on the balance sheet and the Firms retained interests in securitized loans. For a
reconciliation of reported to managed basis of CS results, see Card Services segment results on
pages 29-32 of this Form 10-Q. For information regarding the securitization process, and loans and
residual interests sold and securitized, see Note 15 on pages 94-98 of this Form 10-Q.
Total net revenue for each of the business segments and the Firm is presented on an FTE basis.
Accordingly, revenue from tax-exempt securities and investments that receive tax credits is
presented in the managed results on a basis comparable to taxable securities and investments. This
non-GAAP financial measure allows management to assess the comparability of revenues arising from
both taxable and tax-exempt sources. The corresponding income tax impact related to these items is
recorded within Income tax expense.
Management also uses certain non-GAAP financial measures at the segment level because it believes
these non-GAAP financial measures provide information to investors about the underlying operational
performance and trends of the particular business segment and therefore facilitate a comparison of
the business segment with the performance of its competitors.
13
The following summary table provides reconciliation from the Firms reported U.S. GAAP results to
managed basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
2007 |
|
|
|
Reported |
|
|
Credit |
|
|
Tax-equivalent |
|
|
Managed |
|
(in millions, except per share and ratio data) |
|
results |
|
|
card(b) |
|
|
adjustments |
|
|
basis |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,898 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,898 |
|
Principal transactions |
|
|
3,566 |
|
|
|
|
|
|
|
|
|
|
|
3,566 |
|
Lending & deposit related fees |
|
|
951 |
|
|
|
|
|
|
|
|
|
|
|
951 |
|
Asset management, administration and commissions |
|
|
3,611 |
|
|
|
|
|
|
|
|
|
|
|
3,611 |
|
Securities (losses) |
|
|
(223 |
) |
|
|
|
|
|
|
|
|
|
|
(223 |
) |
Mortgage fees and related income |
|
|
523 |
|
|
|
|
|
|
|
|
|
|
|
523 |
|
Credit card income |
|
|
1,714 |
|
|
|
(788 |
) |
|
|
|
|
|
|
926 |
|
Other income |
|
|
553 |
|
|
|
|
|
|
|
199 |
|
|
|
752 |
|
|
Noninterest revenue |
|
|
12,593 |
|
|
|
(788 |
) |
|
|
199 |
|
|
|
12,004 |
|
Net interest income |
|
|
6,315 |
|
|
|
1,378 |
|
|
|
122 |
|
|
|
7,815 |
|
|
Total net revenue |
|
|
18,908 |
|
|
|
590 |
|
|
|
321 |
|
|
|
19,819 |
|
Provision for credit losses |
|
|
1,529 |
|
|
|
590 |
|
|
|
|
|
|
|
2,119 |
|
Noninterest expense |
|
|
11,028 |
|
|
|
|
|
|
|
|
|
|
|
11,028 |
|
|
Income from continuing operations before income tax
expense |
|
|
6,351 |
|
|
|
|
|
|
|
321 |
|
|
|
6,672 |
|
Income tax expense |
|
|
2,117 |
|
|
|
|
|
|
|
321 |
|
|
|
2,438 |
|
|
Income from continuing operations |
|
|
4,234 |
|
|
|
|
|
|
|
|
|
|
|
4,234 |
|
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,234 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,234 |
|
|
Net income diluted earnings per share |
|
$ |
1.20 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.20 |
|
|
Return on common equity(a) |
|
|
14 |
% |
|
|
|
% |
|
|
|
% |
|
|
14 |
% |
Return on equity less goodwill(a) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Return on assets(a) |
|
|
1.19 |
|
|
NM |
|
|
NM |
|
|
|
1.13 |
|
Overhead ratio |
|
|
58 |
|
|
NM |
|
|
NM |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
2006 |
|
|
|
Reported |
|
|
Credit |
|
|
Tax-equivalent |
|
|
Managed |
|
(in millions, except per share and ratio data) |
|
results |
|
|
card(b) |
|
|
adjustments |
|
|
basis |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,370 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,370 |
|
Principal transactions |
|
|
2,741 |
|
|
|
|
|
|
|
|
|
|
|
2,741 |
|
Lending & deposit related fees |
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
865 |
|
Asset management, administration and commissions |
|
|
2,966 |
|
|
|
|
|
|
|
|
|
|
|
2,966 |
|
Securities (losses) |
|
|
(502 |
) |
|
|
|
|
|
|
|
|
|
|
(502 |
) |
Mortgage fees and related income |
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
213 |
|
Credit card income |
|
|
1,791 |
|
|
|
(937 |
) |
|
|
|
|
|
|
854 |
|
Other income |
|
|
464 |
|
|
|
|
|
|
|
170 |
|
|
|
634 |
|
|
Noninterest revenue |
|
|
9,908 |
|
|
|
(937 |
) |
|
|
170 |
|
|
|
9,141 |
|
Net interest income |
|
|
5,178 |
|
|
|
1,498 |
|
|
|
47 |
|
|
|
6,723 |
|
|
Total net revenue |
|
|
15,086 |
|
|
|
561 |
|
|
|
217 |
|
|
|
15,864 |
|
Provision for credit losses |
|
|
493 |
|
|
|
561 |
|
|
|
|
|
|
|
1,054 |
|
Noninterest expense |
|
|
9,382 |
|
|
|
|
|
|
|
|
|
|
|
9,382 |
|
|
Income from continuing operations before income tax
expense |
|
|
5,211 |
|
|
|
|
|
|
|
217 |
|
|
|
5,428 |
|
Income tax expense |
|
|
1,727 |
|
|
|
|
|
|
|
217 |
|
|
|
1,944 |
|
|
Income from continuing operations |
|
|
3,484 |
|
|
|
|
|
|
|
|
|
|
|
3,484 |
|
Income from discontinued operations |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
56 |
|
|
Net income |
|
$ |
3,540 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,540 |
|
|
Net income diluted earnings per share |
|
$ |
0.99 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.99 |
|
|
Return on common equity(a) |
|
|
13 |
% |
|
|
|
% |
|
|
|
% |
|
|
13 |
% |
Return on equity less goodwill(a) |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
Return on assets(a) |
|
|
1.05 |
|
|
NM |
|
|
NM |
|
|
|
1.01 |
|
Overhead ratio |
|
|
62 |
|
|
NM |
|
|
NM |
|
|
|
59 |
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
2007 |
|
|
|
Reported |
|
|
Credit |
|
|
Tax-equivalent |
|
|
Managed |
|
(in millions, except per share and ratio data) |
|
results |
|
|
card(b) |
|
|
adjustments |
|
|
basis |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
3,637 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,637 |
|
Principal transactions |
|
|
8,037 |
|
|
|
|
|
|
|
|
|
|
|
8,037 |
|
Lending & deposit related fees |
|
|
1,846 |
|
|
|
|
|
|
|
|
|
|
|
1,846 |
|
Asset management, administration and commissions |
|
|
6,797 |
|
|
|
|
|
|
|
|
|
|
|
6,797 |
|
Securities (losses) |
|
|
(221 |
) |
|
|
|
|
|
|
|
|
|
|
(221 |
) |
Mortgage fees and related income |
|
|
999 |
|
|
|
|
|
|
|
|
|
|
|
999 |
|
Credit card income |
|
|
3,277 |
|
|
|
(1,534 |
) |
|
|
|
|
|
|
1,743 |
|
Other income |
|
|
1,071 |
|
|
|
|
|
|
|
309 |
|
|
|
1,380 |
|
|
Noninterest revenue |
|
|
25,443 |
|
|
|
(1,534 |
) |
|
|
309 |
|
|
|
24,218 |
|
Net interest income |
|
|
12,433 |
|
|
|
2,717 |
|
|
|
192 |
|
|
|
15,342 |
|
|
Total net revenue |
|
|
37,876 |
|
|
|
1,183 |
|
|
|
501 |
|
|
|
39,560 |
|
Provision for credit losses |
|
|
2,537 |
|
|
|
1,183 |
|
|
|
|
|
|
|
3,720 |
|
Noninterest expense |
|
|
21,656 |
|
|
|
|
|
|
|
|
|
|
|
21,656 |
|
|
Income from continuing operations before income tax
expense |
|
|
13,683 |
|
|
|
|
|
|
|
501 |
|
|
|
14,184 |
|
Income tax expense |
|
|
4,662 |
|
|
|
|
|
|
|
501 |
|
|
|
5,163 |
|
|
Income from continuing operations |
|
|
9,021 |
|
|
|
|
|
|
|
|
|
|
|
9,021 |
|
Income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,021 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,021 |
|
|
Net income diluted earnings per share |
|
$ |
2.55 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2.55 |
|
|
Return on common equity(a) |
|
|
16 |
% |
|
|
|
% |
|
|
|
% |
|
|
16 |
% |
Return on equity less goodwill(a) |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
25 |
|
Return on assets(a) |
|
|
1.29 |
|
|
NM |
|
|
NM |
|
|
|
1.24 |
|
Overhead ratio |
|
|
57 |
|
|
NM |
|
|
NM |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
2006 |
|
|
|
Reported |
|
|
Credit |
|
|
Tax-equivalent |
|
|
Managed |
|
(in millions, except per share and ratio data) |
|
results |
|
|
card(b) |
|
|
adjustments |
|
|
basis |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
2,539 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,539 |
|
Principal transactions |
|
|
5,450 |
|
|
|
|
|
|
|
|
|
|
|
5,450 |
|
Lending & deposit related fees |
|
|
1,706 |
|
|
|
|
|
|
|
|
|
|
|
1,706 |
|
Asset management, administration and commissions |
|
|
5,840 |
|
|
|
|
|
|
|
|
|
|
|
5,840 |
|
Securities (losses) |
|
|
(618 |
) |
|
|
|
|
|
|
|
|
|
|
(618 |
) |
Mortgage fees and related income |
|
|
454 |
|
|
|
|
|
|
|
|
|
|
|
454 |
|
Credit card income |
|
|
3,701 |
|
|
|
(2,062 |
) |
|
|
|
|
|
|
1,639 |
|
Other income |
|
|
1,018 |
|
|
|
|
|
|
|
316 |
|
|
|
1,334 |
|
|
Noninterest revenue |
|
|
20,090 |
|
|
|
(2,062 |
) |
|
|
316 |
|
|
|
18,344 |
|
Net interest income |
|
|
10,171 |
|
|
|
3,072 |
|
|
|
118 |
|
|
|
13,361 |
|
|
Total net revenue |
|
|
30,261 |
|
|
|
1,010 |
|
|
|
434 |
|
|
|
31,705 |
|
Provision for credit losses |
|
|
1,324 |
|
|
|
1,010 |
|
|
|
|
|
|
|
2,334 |
|
Noninterest expense |
|
|
19,162 |
|
|
|
|
|
|
|
|
|
|
|
19,162 |
|
|
Income from continuing operations before income tax
expense |
|
|
9,775 |
|
|
|
|
|
|
|
434 |
|
|
|
10,209 |
|
Income tax expense |
|
|
3,264 |
|
|
|
|
|
|
|
434 |
|
|
|
3,698 |
|
|
Income from continuing operations |
|
|
6,511 |
|
|
|
|
|
|
|
|
|
|
|
6,511 |
|
Income from discontinued operations |
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
110 |
|
|
Net income |
|
$ |
6,621 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6,621 |
|
|
Net income diluted earnings per share |
|
$ |
1.85 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.85 |
|
|
Return on common equity(a) |
|
|
12 |
% |
|
|
|
% |
|
|
|
% |
|
|
12 |
% |
Return on equity less goodwill(a) |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Return on assets(a) |
|
|
1.03 |
|
|
NM |
|
|
NM |
|
|
|
0.98 |
|
Overhead ratio |
|
|
63 |
|
|
NM |
|
|
NM |
|
|
|
60 |
|
|
(a) |
|
Based upon Income from continuing operations. |
|
(b) |
|
Credit card securitizations affect CS. See pages 29-32 of this Form 10-Q for further
information. |
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
2007 |
|
|
2006 |
|
(in millions) |
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
|
Loans Period-end |
|
$ |
465,037 |
|
|
$ |
67,506 |
|
|
$ |
532,543 |
|
|
$ |
455,104 |
|
|
$ |
66,349 |
|
|
$ |
521,453 |
|
Total assets average |
|
|
1,431,986 |
|
|
|
65,920 |
|
|
|
1,497,906 |
|
|
|
1,333,869 |
|
|
|
66,913 |
|
|
|
1,400,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
2007 |
|
|
2006 |
|
(in millions) |
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
Reported |
|
|
Securitized |
|
|
Managed |
|
|
|
Loans Period-end |
|
$ |
465,037 |
|
|
$ |
67,506 |
|
|
$ |
532,543 |
|
|
$ |
455,104 |
|
|
$ |
66,349 |
|
|
$ |
521,453 |
|
Total assets average |
|
|
1,405,597 |
|
|
|
65,519 |
|
|
|
1,471,116 |
|
|
|
1,291,349 |
|
|
|
67,233 |
|
|
|
1,358,582 |
|
|
|
The Firm is managed on a line-of-business basis. The business segment financial results
presented reflect the current organization of JPMorgan Chase. There are six major reportable
business segments: the Investment Bank, Retail Financial Services, Card Services, Commercial
Banking, Treasury & Securities Services and Asset Management, as well as a Corporate segment. The
segments are based upon the products and services provided, or the type of customer served, and
they reflect the manner in which financial information is currently evaluated by management.
Results of these lines of business are presented on a managed basis. For further discussion of
Business segment results, see pages 34-35 of JPMorgan Chases 2006 Annual Report.
Description of business segment reporting methodology
Results of the business segments are intended to reflect each segment as if it were essentially a
stand-alone business. The management reporting process that derives business segment results
allocates income and expense using market-based methodologies. For a further discussion of those
methodologies, see Business Segment Results Description of business segment reporting methodology
on page 34 of JPMorgan Chases 2006 Annual Report. The Firm continues to assess the assumptions,
methodologies and reporting classifications used for segment reporting, and further refinements may
be implemented in future periods.
Segment Results Managed Basis(a)
The following table summarizes the business segment results for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
Three months ended June 30, |
|
Total net revenue |
|
|
Noninterest expense |
|
|
Net income (loss) |
|
|
on equity |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Investment Bank |
|
$ |
5,798 |
|
|
$ |
4,329 |
|
|
|
34 |
% |
|
$ |
3,854 |
|
|
$ |
3,091 |
|
|
|
25 |
% |
|
$ |
1,179 |
|
|
$ |
839 |
|
|
|
41 |
% |
|
|
23 |
% |
|
|
16 |
% |
Retail Financial Services |
|
|
4,357 |
|
|
|
3,779 |
|
|
|
15 |
|
|
|
2,484 |
|
|
|
2,259 |
|
|
|
10 |
|
|
|
785 |
|
|
|
868 |
|
|
|
(10 |
) |
|
|
20 |
|
|
|
24 |
|
Card Services |
|
|
3,717 |
|
|
|
3,664 |
|
|
|
1 |
|
|
|
1,188 |
|
|
|
1,249 |
|
|
|
(5 |
) |
|
|
759 |
|
|
|
875 |
|
|
|
(13 |
) |
|
|
22 |
|
|
|
25 |
|
Commercial Banking |
|
|
1,007 |
|
|
|
949 |
|
|
|
6 |
|
|
|
496 |
|
|
|
496 |
|
|
|
|
|
|
|
284 |
|
|
|
283 |
|
|
|
|
|
|
|
18 |
|
|
|
21 |
|
Treasury & Securities
Services |
|
|
1,741 |
|
|
|
1,588 |
|
|
|
10 |
|
|
|
1,149 |
|
|
|
1,050 |
|
|
|
9 |
|
|
|
352 |
|
|
|
316 |
|
|
|
11 |
|
|
|
47 |
|
|
|
58 |
|
Asset Management |
|
|
2,137 |
|
|
|
1,620 |
|
|
|
32 |
|
|
|
1,355 |
|
|
|
1,081 |
|
|
|
25 |
|
|
|
493 |
|
|
|
343 |
|
|
|
44 |
|
|
|
53 |
|
|
|
39 |
|
Corporate(b) |
|
|
1,062 |
|
|
|
(65 |
) |
|
NM |
|
|
|
502 |
|
|
|
156 |
|
|
|
222 |
|
|
|
382 |
|
|
|
16 |
|
|
NM |
|
|
NM |
|
|
NM |
|
|
Total |
|
$ |
19,819 |
|
|
$ |
15,864 |
|
|
|
25 |
% |
|
$ |
11,028 |
|
|
$ |
9,382 |
|
|
|
18 |
% |
|
$ |
4,234 |
|
|
$ |
3,540 |
|
|
|
20 |
% |
|
|
14 |
% |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return |
Six months ended June 30, |
|
Total net revenue |
|
|
Noninterest expense |
|
|
Net income (loss) |
|
|
on equity |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Investment Bank |
|
$ |
12,052 |
|
|
$ |
9,157 |
|
|
|
32 |
% |
|
$ |
7,685 |
|
|
$ |
6,411 |
|
|
|
20 |
% |
|
$ |
2,719 |
|
|
$ |
1,689 |
|
|
|
61 |
% |
|
|
26 |
% |
|
|
17 |
% |
Retail Financial Services |
|
|
8,463 |
|
|
|
7,542 |
|
|
|
12 |
|
|
|
4,891 |
|
|
|
4,497 |
|
|
|
9 |
|
|
|
1,644 |
|
|
|
1,749 |
|
|
|
(6 |
) |
|
|
21 |
|
|
|
25 |
|
Card Services |
|
|
7,397 |
|
|
|
7,349 |
|
|
|
1 |
|
|
|
2,429 |
|
|
|
2,492 |
|
|
|
(3 |
) |
|
|
1,524 |
|
|
|
1,776 |
|
|
|
(14 |
) |
|
|
22 |
|
|
|
25 |
|
Commercial Banking |
|
|
2,010 |
|
|
|
1,849 |
|
|
|
9 |
|
|
|
981 |
|
|
|
994 |
|
|
|
(1 |
) |
|
|
588 |
|
|
|
523 |
|
|
|
12 |
|
|
|
19 |
|
|
|
19 |
|
Treasury & Securities
Services |
|
|
3,267 |
|
|
|
3,073 |
|
|
|
6 |
|
|
|
2,224 |
|
|
|
2,098 |
|
|
|
6 |
|
|
|
615 |
|
|
|
578 |
|
|
|
6 |
|
|
|
41 |
|
|
|
49 |
|
Asset Management |
|
|
4,041 |
|
|
|
3,204 |
|
|
|
26 |
|
|
|
2,590 |
|
|
|
2,179 |
|
|
|
19 |
|
|
|
918 |
|
|
|
656 |
|
|
|
40 |
|
|
|
49 |
|
|
|
38 |
|
Corporate(b) |
|
|
2,330 |
|
|
|
(469 |
) |
|
NM |
|
|
|
856 |
|
|
|
491 |
|
|
|
74 |
|
|
|
1,013 |
|
|
|
(350 |
) |
|
NM |
|
|
NM |
|
|
NM |
|
|
Total |
|
$ |
39,560 |
|
|
$ |
31,705 |
|
|
|
25 |
% |
|
$ |
21,656 |
|
|
$ |
19,162 |
|
|
|
13 |
% |
|
$ |
9,021 |
|
|
$ |
6,621 |
|
|
|
36 |
% |
|
|
16 |
% |
|
|
12 |
% |
|
(a) |
|
Represents reported results on a tax-equivalent basis and excludes the impact of credit
card securitizations. |
|
(b) |
|
Net income (loss) includes Income from discontinued operations (after-tax) of $56 million and
$110 million for the three and six months ended June 30, 2006, respectively. There was no
income from discontinued operations during the first six months of 2007. |
16
INVESTMENT BANK
For a discussion of the business profile of the IB, see pages 36-37 of JPMorgan Chases 2006
Annual Report and page 4 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
Six months ended June 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,900 |
|
|
$ |
1,368 |
|
|
|
39 |
% |
|
$ |
3,629 |
|
|
$ |
2,538 |
|
|
|
43 |
% |
Principal transactions(a) |
|
|
2,178 |
|
|
|
2,157 |
|
|
|
1 |
|
|
|
5,304 |
|
|
|
4,637 |
|
|
|
14 |
|
Lending & deposit related fees |
|
|
93 |
|
|
|
134 |
|
|
|
(31 |
) |
|
|
186 |
|
|
|
271 |
|
|
|
(31 |
) |
Asset management, administration and
commissions |
|
|
643 |
|
|
|
583 |
|
|
|
10 |
|
|
|
1,284 |
|
|
|
1,159 |
|
|
|
11 |
|
All other income |
|
|
122 |
|
|
|
3 |
|
|
NM |
|
|
|
164 |
|
|
|
278 |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
4,936 |
|
|
|
4,245 |
|
|
|
16 |
|
|
|
10,567 |
|
|
|
8,883 |
|
|
|
19 |
|
Net interest income |
|
|
862 |
(e) |
|
|
84 |
|
|
NM |
|
|
|
1,485 |
(e) |
|
|
274 |
|
|
|
442 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue(b) |
|
|
5,798 |
|
|
|
4,329 |
|
|
|
34 |
|
|
|
12,052 |
|
|
|
9,157 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
164 |
|
|
|
(62 |
) |
|
NM |
|
|
227 |
|
|
|
121 |
|
|
|
88 |
|
Credit reimbursement from
TSS(c) |
|
|
30 |
|
|
|
30 |
|
|
|
|
|
|
|
60 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
2,589 |
|
|
|
1,961 |
|
|
|
32 |
|
|
|
5,226 |
|
|
|
4,217 |
|
|
|
24 |
|
Noncompensation expense |
|
|
1,265 |
|
|
|
1,130 |
|
|
|
12 |
|
|
|
2,459 |
|
|
|
2,194 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
3,854 |
|
|
|
3,091 |
|
|
|
25 |
|
|
|
7,685 |
|
|
|
6,411 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,810 |
|
|
|
1,330 |
|
|
|
36 |
|
|
|
4,200 |
|
|
|
2,685 |
|
|
|
56 |
|
Income tax expense |
|
|
631 |
|
|
|
491 |
|
|
|
29 |
|
|
|
1,481 |
|
|
|
996 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,179 |
|
|
$ |
839 |
|
|
|
41 |
|
|
$ |
2,719 |
|
|
$ |
1,689 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
23 |
% |
|
|
16 |
% |
|
|
|
|
|
|
26 |
% |
|
|
17 |
% |
|
|
|
|
ROA |
|
|
0.68 |
|
|
|
0.50 |
|
|
|
|
|
|
|
0.81 |
|
|
|
0.52 |
|
|
|
|
|
Overhead ratio |
|
|
66 |
|
|
|
71 |
|
|
|
|
|
|
|
64 |
|
|
|
70 |
|
|
|
|
|
Compensation expense as a % of total net
revenue(d) |
|
|
45 |
|
|
|
44 |
|
|
|
|
|
|
|
43 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory |
|
$ |
560 |
|
|
$ |
352 |
|
|
|
59 |
|
|
$ |
1,032 |
|
|
$ |
741 |
|
|
|
39 |
|
Equity underwriting |
|
|
509 |
|
|
|
364 |
|
|
|
40 |
|
|
|
902 |
|
|
|
576 |
|
|
|
57 |
|
Debt underwriting |
|
|
831 |
|
|
|
652 |
|
|
|
27 |
|
|
|
1,695 |
|
|
|
1,221 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment banking fees |
|
|
1,900 |
|
|
|
1,368 |
|
|
|
39 |
|
|
|
3,629 |
|
|
|
2,538 |
|
|
|
43 |
|
Fixed income markets(a) |
|
|
2,445 |
|
|
|
2,131 |
|
|
|
15 |
|
|
|
5,037 |
|
|
|
4,207 |
|
|
|
20 |
|
Equity markets(a) |
|
|
1,249 |
|
|
|
580 |
|
|
|
115 |
|
|
|
2,788 |
|
|
|
1,842 |
|
|
|
51 |
|
Credit portfolio(a) |
|
|
204 |
|
|
|
250 |
|
|
|
(18 |
) |
|
|
598 |
|
|
|
570 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
5,798 |
|
|
$ |
4,329 |
|
|
|
34 |
|
|
$ |
12,052 |
|
|
$ |
9,157 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
2,655 |
|
|
$ |
2,110 |
|
|
|
26 |
|
|
$ |
6,021 |
|
|
$ |
4,263 |
|
|
|
41 |
|
Europe/Middle East/Africa |
|
|
2,327 |
|
|
|
1,796 |
|
|
|
30 |
|
|
|
4,578 |
|
|
|
3,821 |
|
|
|
20 |
|
Asia/Pacific |
|
|
816 |
|
|
|
423 |
|
|
|
93 |
|
|
|
1,453 |
|
|
|
1,073 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
5,798 |
|
|
$ |
4,329 |
|
|
|
34 |
|
|
$ |
12,052 |
|
|
$ |
9,157 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As a result of the adoption on January 1, 2007, of SFAS 157, the IB recognized a
benefit, in the first quarter of 2007, of $166 million in Total net revenue (primarily in
Credit Portfolio, but with smaller impacts to Equity Markets and Fixed Income Markets)
relating to the incorporation of an adjustment to the valuation of the Firms derivative
liabilities and other liabilities measured at fair value that reflects the credit quality of
the Firm. |
|
(b) |
|
Total net revenue included tax-equivalent adjustments, primarily due to tax-exempt income
from municipal bond investments and income tax credits related to affordable housing
investments, of $290 million and $193 million for the quarters ended June 30, 2007 and 2006,
respectively, and $442 million and $387 million for year-to-date 2007 and 2006,
respectively. |
|
(c) |
|
Treasury & Securities Services is charged a credit reimbursement related to certain
exposures managed within the Investment Bank credit portfolio on behalf of clients shared
with TSS. |
|
(d) |
|
For 2006, the Compensation expense to Total net revenue ratio was adjusted to present this
ratio as if SFAS 123R had always been in effect. IB management believes that adjusting the
Compensation expense to Total net revenue ratio for the incremental impact of adopting SFAS
123R provides a more meaningful measure of IBs Compensation expense to Total net revenue
ratio for 2006. |
17
(e) |
|
Net Interest Income for 2007 increased from the prior year due primarily to the adoption of
SFAS 159. For certain IB structured notes, all components of earnings are reported in
Principal transaction, causing a shift between Principal transactions revenue and Net interest
income in 2007. |
Quarterly results
Net income was $1.2 billion, up by $340 million, or 41%, compared with the prior year.
The increase reflected strong revenue growth, primarily offset by an increase in Noninterest
expense, primarily driven by performance-based compensation, as well as an increase in the
provision for credit losses.
Net revenue was $5.8 billion, up by $1.5 billion, or 34%, from the prior year, driven by record
investment banking fees and strong markets results. Investment banking fees of $1.9 billion were up
39% from the prior year, driven by record advisory fees, strong debt underwriting fees and record
equity underwriting fees. Debt underwriting fees of $831 million were up 27%, driven by record loan
syndication fees. Advisory fees of $560 million were up 59%, benefiting from strong performance
across all regions. Equity underwriting fees of $509 million were up 40%, reflecting strong
performance in Asia and Europe. Fixed Income Markets revenue increased 15% from the prior year, to
$2.4 billion, driven by strong results across most products, partially offset by weaker commodities
performance versus a strong prior-year quarter. Equity Markets revenue of $1.2 billion more than
doubled from the prior year, benefiting from strong global derivatives and cash equities trading
performance. Credit Portfolio revenue of $204 million was down 18% due largely to lower gains from
loan sales and workouts.
Provision for credit losses was $164 million compared with a benefit of $62 million in the prior
year. The increase in the provision for credit losses was primarily due to lending-related
commitments, reflecting portfolio activity. Allowance for loan losses to average loans was 1.76%
for the current quarter, which was flat compared with the prior year; nonperforming assets were
$119 million, down 77% from the prior year.
Noninterest expense was $3.9 billion, up by $763 million, or 25%, from the prior year. This
increase was due primarily to higher performance-based compensation expense.
Year-to-date results
Net income was $2.7 billion, up by $1.0 billion, or 61%, compared with the prior year. The increase
reflected strong revenue growth, partially offset by an increase in Noninterest expense, primarily
driven by performance-based compensation, as well as an increase in the provision for credit
losses.
Net revenue was $12.1 billion, up by $2.9 billion, or 32%, from the prior year, driven by record
investment banking fees and record markets results. Investment banking fees of $3.6 billion were up
43% from the prior year, driven by record advisory fees, debt underwriting fees, and equity
underwriting fees. Debt underwriting fees of $1.7 billion were up 39%, driven by record loan
syndication fees and record bond underwriting fees. Advisory fees of $1.0 billion were up 39%,
benefiting from strong performance across all regions. Equity underwriting fees of $902 million
were up 57% reflecting strong performance across all regions. Fixed Income Markets revenue
increased 20% from the prior year, to $5.0 billion, driven by strong results across most products.
Equity Markets revenue of $2.8 billion was up 51%, benefiting from strong global derivatives and
cash equities trading performance. Credit Portfolio revenue of $598 million was up 5% due largely
to the incorporation of an adjustment to the valuation of the Firms derivative liabilities
measured at fair value that reflects the credit quality of the Firm, in conjunction with SFAS 157,
and higher trading revenue from credit portfolio management activities, partially offset by lower
gains from loan sales and workouts.
Provision for credit losses was $227 million, up 88% from the prior year. The increase in the
provision for credit losses was due primarily to lending-related commitments, reflecting portfolio
activity. Allowance for loan losses to average loans was 1.76% for the first half of 2007, which
was slightly down compared with the prior year.
Noninterest expense was $7.7 billion, up by $1.3 billion, or 20%, from the prior year. This
increase was due primarily to higher performance-based compensation expense.
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except headcount and ratio data) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
696,230 |
|
|
$ |
672,056 |
|
|
|
4 |
% |
|
$ |
677,581 |
|
|
$ |
659,209 |
|
|
|
3 |
% |
Trading assets-debt and equity
instruments (a) |
|
|
359,387 |
|
|
|
268,091 |
|
|
|
34 |
|
|
|
347,320 |
|
|
|
260,296 |
|
|
|
33 |
|
Trading assets-derivatives receivables |
|
|
58,520 |
|
|
|
55,692 |
|
|
|
5 |
|
|
|
57,465 |
|
|
|
52,557 |
|
|
|
9 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(b) |
|
|
60,330 |
|
|
|
59,026 |
|
|
|
2 |
|
|
|
60,102 |
|
|
|
56,367 |
|
|
|
7 |
|
Loans held-for-sale(a) |
|
|
13,529 |
|
|
|
19,920 |
|
|
|
(32 |
) |
|
|
13,159 |
|
|
|
19,568 |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
73,859 |
|
|
|
78,946 |
|
|
|
(6 |
) |
|
|
73,261 |
|
|
|
75,935 |
|
|
|
(4 |
) |
Adjusted assets(c) |
|
|
603,839 |
|
|
|
530,057 |
|
|
|
14 |
|
|
|
588,016 |
|
|
|
511,285 |
|
|
|
15 |
|
Equity |
|
|
21,000 |
|
|
|
21,000 |
|
|
|
|
|
|
|
21,000 |
|
|
|
20,503 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
25,356 |
|
|
|
22,914 |
|
|
|
11 |
|
|
|
25,356 |
|
|
|
22,914 |
|
|
|
11 |
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
(16 |
) |
|
$ |
(12 |
) |
|
|
(33 |
) |
|
$ |
(22 |
) |
|
$ |
(33 |
) |
|
|
33 |
|
Nonperforming assets:(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans |
|
|
72 |
|
|
|
488 |
|
|
|
(85 |
) |
|
|
72 |
|
|
|
488 |
|
|
|
(85 |
) |
Other nonperforming assets |
|
|
47 |
|
|
|
37 |
|
|
|
27 |
|
|
|
47 |
|
|
|
37 |
|
|
|
27 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
1,037 |
|
|
|
1,038 |
|
|
|
|
|
|
|
1,037 |
|
|
|
1,038 |
|
|
|
|
|
Allowance for lending-related commitments |
|
|
487 |
|
|
|
249 |
|
|
|
96 |
|
|
|
487 |
|
|
|
249 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Allowance for credit losses |
|
|
1,524 |
|
|
|
1,287 |
|
|
|
18 |
|
|
|
1,524 |
|
|
|
1,287 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate(a)(b) |
|
|
(0.11 |
)% |
|
|
(0.08 |
)% |
|
|
|
|
|
|
(0.08 |
)% |
|
|
(0.12 |
)% |
|
|
|
|
Allowance for loan losses to average loans(a)(b) |
|
|
1.76 |
|
|
|
1.76 |
|
|
|
|
|
|
|
1.76 |
|
|
|
1.84 |
|
|
|
|
|
Allowance for loan losses to nonperforming
loans(d) |
|
|
2,206 |
|
|
|
248 |
|
|
|
|
|
|
|
2,206 |
|
|
|
248 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.10 |
|
|
|
0.62 |
|
|
|
|
|
|
|
0.10 |
|
|
|
0.64 |
|
|
|
|
|
Market risk-average trading
and credit portfolio VAR(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
74 |
|
|
$ |
52 |
|
|
|
42 |
|
|
$ |
60 |
|
|
$ |
56 |
|
|
|
7 |
|
Foreign exchange |
|
|
20 |
|
|
|
25 |
|
|
|
(20 |
) |
|
|
19 |
|
|
|
22 |
|
|
|
(14 |
) |
Equities |
|
|
51 |
|
|
|
24 |
|
|
|
113 |
|
|
|
46 |
|
|
|
28 |
|
|
|
64 |
|
Commodities and other |
|
|
40 |
|
|
|
52 |
|
|
|
(23 |
) |
|
|
37 |
|
|
|
50 |
|
|
|
(26 |
) |
Less: portfolio diversification(f) |
|
|
(73 |
) |
|
|
(74 |
) |
|
|
1 |
|
|
|
(65 |
) |
|
|
(71 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total trading VAR |
|
|
112 |
|
|
|
79 |
|
|
|
42 |
|
|
|
97 |
|
|
|
85 |
|
|
|
14 |
|
Credit portfolio VAR(g) |
|
|
12 |
|
|
|
14 |
|
|
|
(14 |
) |
|
|
12 |
|
|
|
14 |
|
|
|
(14 |
) |
Less: portfolio diversification(f) |
|
|
(14 |
) |
|
|
(9 |
) |
|
|
(56 |
) |
|
|
(12 |
) |
|
|
(10 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total trading and credit portfolio VAR |
|
$ |
110 |
|
|
$ |
84 |
|
|
|
31 |
|
|
$ |
97 |
|
|
$ |
89 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Loans held-for-sale were excluded from the allowance coverage ratio and Net charge-off
rate. As a result of the adoption of SFAS 159 in the first quarter of 2007 Loans held-for-sale
of $11.7 billion were reclassified to Trading assets. |
|
(b) |
|
Loans retained included credit portfolio loans, leveraged leases, bridge loans for
underwriting, other accrual loans and certain loans carried at fair value. Average loans
carried at fair value were $1.3 billion for the quarter ended June 30, 2007 and $1.1 billion
for year-to-date June 30, 2007. Loans carried at fair value were excluded when calculating the
allowance coverage ratio and Net charge-off rate. |
|
(c) |
|
Adjusted assets, a non-GAAP financial measure, equals Total assets minus (1) Securities
purchased under resale agreements and Securities borrowed less securities sold, not yet
purchased; (2) assets of variable interest entities consolidated under FIN 46R; (3) cash and
securities segregated and on deposit for regulatory and other purposes; and (4) goodwill and
intangibles. The amount of adjusted assets is presented to assist the reader in comparing the
IBs asset and capital levels to other investment banks in the securities industry.
Asset-to-equity leverage ratios are commonly used as one measure to assess a companys capital
adequacy. The IB believes an adjusted asset amount that excludes the assets discussed above,
which are considered to have a low risk profile, provides a more meaningful measure of balance
sheet leverage in the securities industry. |
|
(d) |
|
Nonperforming loans included Loans held-for-sale of $25 million and $70 million at June 30,
2007 and 2006, respectively, which were excluded from the allowance coverage ratios.
Nonperforming loans excluded distressed HFS loans purchased as part of IBs proprietary
activities and assets classified as trading assets. Loans elected under the fair value option
and classified within trading assets are also excluded from Nonperforming loans. |
|
(e) |
|
For a more complete description of VAR, see pages 62-65 of this Form 10-Q. |
|
(f) |
|
Average VARs were less than the sum of the VARs of their market risk components, which was
due to risk offsets resulting from portfolio diversification. The diversification effect
reflected the fact that the risks were not perfectly correlated. The risk of a portfolio of
positions is usually less than the sum of the risks of the positions themselves. |
|
(g) |
|
Included VAR on derivative credit and debit valuation adjustments, hedges of the credit
valuation adjustment and mark-to-market hedges of the retained loan portfolio, which were all
reported in Principal Transactions revenue. The VAR did not include the retained loan
portfolio. |
19
According to Thomson Financial, for the first six months of 2007, the Firm was ranked #1 in
Global Equity and Equity-Related; #1 in Global Syndicated Loans; #4 in Global Announced M&A; #2 in
Global Debt, Equity and Equity-Related; and #2 in Global Long-term Debt based upon volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2007 |
|
Full Year 2006 |
Market shares and rankings(a) |
|
Market Share |
|
Rankings |
|
Market Share |
|
Rankings |
|
Global debt, equity and equity-related |
|
|
8 |
% |
|
|
#2 |
|
|
|
7 |
% |
|
|
#2 |
|
Global syndicated loans |
|
|
15 |
|
|
|
#1 |
|
|
|
14 |
|
|
|
#1 |
|
Global long-term debt |
|
|
7 |
|
|
|
#2 |
|
|
|
6 |
|
|
|
#3 |
|
Global equity and equity-related |
|
|
9 |
|
|
|
#1 |
|
|
|
7 |
|
|
|
#6 |
|
Global announced M&A |
|
|
27 |
|
|
|
#4 |
|
|
|
22 |
|
|
|
#4 |
|
U.S. debt, equity and equity-related |
|
|
10 |
|
|
|
#2 |
|
|
|
9 |
|
|
|
#2 |
|
U.S. syndicated loans |
|
|
28 |
|
|
|
#1 |
|
|
|
26 |
|
|
|
#1 |
|
U.S. long-term debt |
|
|
12 |
|
|
|
#2 |
|
|
|
12 |
|
|
|
#2 |
|
U.S. equity and
equity-related (b) |
|
|
11 |
|
|
|
#3 |
|
|
|
8 |
|
|
|
#6 |
|
U.S. announced M&A |
|
|
30 |
|
|
|
#4 |
|
|
|
27 |
|
|
|
#4 |
|
|
(a) |
|
Source: Thomson Financial Securities data. Global announced M&A was based upon rank
value; all other rankings were based upon proceeds, with full credit to each book
manager/equal if joint. Because of joint assignments, market share of all participants will
add up to more than 100%. |
|
(b) |
|
References U.S. domiciled equity and equity-related transactions, per Thomson Financial. |
20
RETAIL FINANCIAL SERVICES
For a discussion of the business profile of RFS, see pages 3842 of JPMorgan Chases 2006
Annual Report and page 4 of this Form 10-Q.
During the first quarter of 2006, RFS completed the purchase of Collegiate Funding Services, which
contributed an education loan servicing capability and provided an entry into the Federal Family
Education Loan Program consolidation market. On July 1, 2006, RFS sold its life insurance and
annuity underwriting businesses to Protective Life Corporation. On October 1, 2006, JPMorgan Chase
completed The Bank of New York transaction, significantly strengthening RFSs distribution network
in the New York Tri-state area.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit related fees |
|
$ |
470 |
|
|
$ |
390 |
|
|
|
21 |
% |
|
$ |
893 |
|
|
$ |
761 |
|
|
|
17 |
% |
Asset management, administration and
commissions |
|
|
344 |
|
|
|
366 |
|
|
|
(6 |
) |
|
|
607 |
|
|
|
803 |
|
|
|
(24 |
) |
Securities (losses) |
|
|
|
|
|
|
(39 |
) |
|
|
NM |
|
|
|
|
|
|
|
(45 |
) |
|
NM |
Mortgage fees and related
income(a) |
|
|
495 |
|
|
|
204 |
|
|
|
143 |
|
|
|
977 |
|
|
|
440 |
|
|
|
122 |
|
Credit card income |
|
|
163 |
|
|
|
129 |
|
|
|
26 |
|
|
|
305 |
|
|
|
244 |
|
|
|
25 |
|
Other income |
|
|
212 |
|
|
|
163 |
|
|
|
30 |
|
|
|
391 |
|
|
|
211 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,684 |
|
|
|
1,213 |
|
|
|
39 |
|
|
|
3,173 |
|
|
|
2,414 |
|
|
|
31 |
|
Net interest income |
|
|
2,673 |
|
|
|
2,566 |
|
|
|
4 |
|
|
|
5,290 |
|
|
|
5,128 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
4,357 |
|
|
|
3,779 |
|
|
|
15 |
|
|
|
8,463 |
|
|
|
7,542 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
587 |
|
|
|
100 |
|
|
|
487 |
|
|
|
879 |
|
|
|
185 |
|
|
|
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense(a) |
|
|
1,104 |
|
|
|
901 |
|
|
|
23 |
|
|
|
2,169 |
|
|
|
1,821 |
|
|
|
19 |
|
Noncompensation expense(a) |
|
|
1,264 |
|
|
|
1,246 |
|
|
|
1 |
|
|
|
2,488 |
|
|
|
2,453 |
|
|
|
1 |
|
Amortization of intangibles |
|
|
116 |
|
|
|
112 |
|
|
|
4 |
|
|
|
234 |
|
|
|
223 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
2,484 |
|
|
|
2,259 |
|
|
|
10 |
|
|
|
4,891 |
|
|
|
4,497 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,286 |
|
|
|
1,420 |
|
|
|
(9 |
) |
|
|
2,693 |
|
|
|
2,860 |
|
|
|
(6 |
) |
Income tax expense |
|
|
501 |
|
|
|
552 |
|
|
|
(9 |
) |
|
|
1,049 |
|
|
|
1,111 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
785 |
|
|
$ |
868 |
|
|
|
(10 |
) |
|
$ |
1,644 |
|
|
$ |
1,749 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
20 |
% |
|
|
24 |
% |
|
|
|
|
|
|
21 |
% |
|
|
25 |
% |
|
|
|
|
Overhead ratio(a) |
|
|
57 |
|
|
|
60 |
|
|
|
|
|
|
|
58 |
|
|
|
60 |
|
|
|
|
|
Overhead ratio excluding core deposit
intangibles(a)(b) |
|
|
54 |
|
|
|
57 |
|
|
|
|
|
|
|
55 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
(a)
|
|
The Firm adopted SFAS 159 in the first quarter of 2007. As a result, certain loan
origination costs have been classified as expense (previously netted against revenue) for the
three and six months ended June 30, 2007. |
(b)
|
|
Retail Financial Services uses the overhead ratio excluding the amortization of core deposit
intangibles (CDI), a non-GAAP financial measure, to evaluate the underlying expense trends
of the business. Including CDI amortization expense in the overhead ratio calculation results
in a higher overhead ratio in the earlier years and a lower overhead ratio in later years;
this method would result in an improving overhead ratio over time, all things remaining equal.
This non-GAAP ratio excluded Regional Bankings core deposit intangible amortization expense
related to The Bank of New York transaction and the Bank One merger of $115 million and $110
million for the three months ended June 30, 2007 and 2006, respectively, and $231 million and
$219 million for the six months ended June 30, 2007 and 2006, respectively. |
21
Quarterly results
Net income of $785 million was down by $83 million, or 10%, from the prior year, as declines in
Regional Banking and Auto Finance were offset partially by improved results in Mortgage Banking.
Net revenue of $4.4 billion was up by $578 million, or 15%, from the prior year. Net interest
income of $2.7 billion was up by $107 million, or 4%, due to The Bank of New York transaction and
higher deposit balances. These benefits were offset partially by the sale of the insurance business
and a continued shift to narrowerspread deposit products. Noninterest revenue of $1.7 billion was
up by $471 million, or 39%, benefiting from increased mortgage loan originations; increases in
deposit-related fees; increased mortgage loan servicing revenue; and The Bank of New York
transaction. Noninterest revenue also benefited from the classification of certain mortgage loan
origination costs as expense (loan origination costs previously netted against revenue are
currently recorded as expense) due to the adoption of SFAS 159 in the first quarter of 2007. These
benefits were offset partially by the sale of the insurance business.
The provision for credit losses was $587 million compared with $100 million in the prior year. The
increase in provision reflects weak housing prices in select geographic areas and the resulting
increase in estimated losses for high loan-to-value home equity loans, especially those originated
through the wholesale channel. Home equity underwriting standards were further tightened during the
quarter, and pricing actions were implemented to reflect elevated risks in this segment. The
current-quarter provision includes an increase in the allowance for loan losses related to home
equity loans of $329 million. Home equity net charge-offs were $98 million (0.44% net charge-off
rate) in the current quarter compared with net charge-offs of $30 million (0.16% net charge-off
rate) in the prior year.
Noninterest expense of $2.5 billion was up by $225 million, or 10%, due to The Bank of New York
transaction, the classification of certain loan origination costs as expense due to the adoption of
SFAS 159, an increase in loan originations in Mortgage Banking, and investments in retail
distribution. These increases were offset partially by the sale of the insurance business.
Year-to-date results
Net income of $1.6 billion was down by $105 million, or 6%, from the prior year, as declines in
Regional Banking and Auto Finance were offset partially by improved results in Mortgage Banking.
Net revenue of $8.5 billion was up by $921 million, or 12%, from the prior year. Net interest
income of $5.3 billion was up by $162 million, or 3%, due to The Bank of New York transaction and
higher deposit balances. These benefits were offset partially by the sale of the insurance business
and a continued shift to narrowerspread deposit products. Noninterest revenue of $3.2 billion was
up by $759 million, or 31%, reflecting higher gain on sale income primarily attributable to
increased mortgage loan originations, and the classification of certain loan origination costs as
expense (loan origination costs previously netted against revenue are currently recorded as
expense) due to the adoption of SFAS 159. Noninterest revenue also benefited from increases in
deposit-related fees, increased mortgage loan servicing revenue and The Bank of New York
transaction. These benefits were offset partially by the sale of the insurance business and a
charge resulting from accelerated surrenders of customer annuity contracts.
The provision for credit losses was $879 million compared with $185 million in the prior year. The
increase in provision reflects weak housing prices in select geographic areas and the resulting
increases in estimated losses for home equity and subprime mortgage loans. The year-to-date
provision includes a net increase in the allowance for loan losses of $405 million related to home
equity loans and the subprime mortgage portfolio, offset partially by the reversal of a portion of
the reserves for Hurricane Katrina. Home equity and subprime mortgage underwriting standards were
tightened during the year-to-date period and pricing actions were implemented to reflect elevated
risks in these segments.
Noninterest expense of $4.9 billion was up by $394 million, or 9%, due to The Bank of New York
transaction, the classification of certain loan origination costs as expense due to the adoption of
SFAS 159, investments in retail distribution and an increase in loan originations in Mortgage
Banking. These increases were offset partially by the sale of the insurance business.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except headcount and ratio data) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
217,421 |
|
|
$ |
233,748 |
|
|
|
(7 |
)% |
|
$ |
217,421 |
|
|
$ |
233,748 |
|
|
|
(7 |
)% |
Loans (a)(b) |
|
|
190,493 |
|
|
|
203,928 |
|
|
|
(7 |
) |
|
|
190,493 |
|
|
|
203,928 |
|
|
|
(7 |
) |
Deposits |
|
|
217,689 |
|
|
|
198,273 |
|
|
|
10 |
|
|
|
217,689 |
|
|
|
198,273 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
216,692 |
|
|
$ |
234,097 |
|
|
|
(7 |
) |
|
$ |
216,912 |
|
|
$ |
232,849 |
|
|
|
(7 |
) |
Loans (a)(b) |
|
|
190,302 |
|
|
|
201,635 |
|
|
|
(6 |
) |
|
|
190,638 |
|
|
|
200,224 |
|
|
|
(5 |
) |
Deposits |
|
|
219,171 |
|
|
|
199,075 |
|
|
|
10 |
|
|
|
218,058 |
|
|
|
196,741 |
|
|
|
11 |
|
Equity |
|
|
16,000 |
|
|
|
14,300 |
|
|
|
12 |
|
|
|
16,000 |
|
|
|
14,099 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
68,254 |
|
|
|
62,450 |
|
|
|
9 |
|
|
|
68,254 |
|
|
|
62,450 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
270 |
|
|
$ |
113 |
|
|
|
139 |
|
|
$ |
455 |
|
|
$ |
234 |
|
|
|
94 |
|
Nonperforming loans(c) |
|
|
1,760 |
|
|
|
1,339 |
|
|
|
31 |
|
|
|
1,760 |
|
|
|
1,339 |
|
|
|
31 |
|
Nonperforming assets |
|
|
2,099 |
|
|
|
1,520 |
|
|
|
38 |
|
|
|
2,099 |
|
|
|
1,520 |
|
|
|
38 |
|
Allowance for loan losses |
|
|
1,772 |
|
|
|
1,321 |
|
|
|
34 |
|
|
|
1,772 |
|
|
|
1,321 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(d) |
|
|
0.66 |
% |
|
|
0.24 |
% |
|
|
|
|
|
|
0.56 |
% |
|
|
0.25 |
% |
|
|
|
|
Allowance for loan losses to ending
loans(d) |
|
|
1.06 |
|
|
|
0.69 |
|
|
|
|
|
|
|
1.06 |
|
|
|
0.69 |
|
|
|
|
|
Allowance for loan losses to nonperforming
loans(d) |
|
|
115 |
|
|
|
99 |
|
|
|
|
|
|
|
115 |
|
|
|
99 |
|
|
|
|
|
Nonperforming loans to total loans |
|
|
0.92 |
|
|
|
0.66 |
|
|
|
|
|
|
|
0.92 |
|
|
|
0.66 |
|
|
|
|
|
|
|
|
|
(a)
|
|
Loans included prime mortgage loans originated with the intent to sell, which, for new
originations on or after January 1, 2007, were accounted for at fair value under SFAS 159.
These loans, classified as Trading assets on the Consolidated balance sheets, totaled $15.2
billion at June 30, 2007. Average Loans included $13.5 billion and $10.0 billion for the
three and six months ended June 30, 2007. |
(b)
|
|
End-of-period Loans included Loans held-for-sale of $8.3 billion and $11.8 billion at June
30, 2007 and 2006, respectively. Average loans include Loans held-for-sale of $11.7 billion
and $12.9 billion for the three months ended June 30, 2007 and 2006, and $16.7 billion and
$14.6 billion for the six months ended June 30, 2007 and 2006, respectively. |
(c)
|
|
Nonperforming loans included Loans held-for-sale and loans accounted for at fair value
under SFAS 159 of $217 million (of which $2 million were classified as Trading assets on the
Consolidated balance sheet) and $9 million at June 30, 2007 and 2006, respectively. |
(d)
|
|
Loans held-for-sale and Loans accounted for at fair value under SFAS 159 were excluded when
calculating the allowance coverage ratio and the Net charge-off rate. |
REGIONAL BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
$ |
977 |
|
|
$ |
851 |
|
|
|
15 |
% |
|
$ |
1,770 |
|
|
$ |
1,671 |
|
|
|
6 |
% |
Net interest income |
|
|
2,296 |
|
|
|
2,212 |
|
|
|
4 |
|
|
|
4,595 |
|
|
|
4,432 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Net revenue |
|
|
3,273 |
|
|
|
3,063 |
|
|
|
7 |
|
|
|
6,365 |
|
|
|
6,103 |
|
|
|
4 |
|
Provision for credit losses |
|
|
494 |
|
|
|
70 |
|
|
NM |
|
|
727 |
|
|
|
136 |
|
|
|
435 |
|
Noninterest expense |
|
|
1,749 |
|
|
|
1,746 |
|
|
|
|
|
|
|
3,478 |
|
|
|
3,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense |
|
|
1,030 |
|
|
|
1,247 |
|
|
|
(17 |
) |
|
|
2,160 |
|
|
|
2,483 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
629 |
|
|
$ |
764 |
|
|
|
(18 |
) |
|
$ |
1,319 |
|
|
$ |
1,521 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
21 |
% |
|
|
30 |
% |
|
|
|
|
|
|
23 |
% |
|
|
31 |
% |
|
|
|
|
Overhead ratio |
|
|
53 |
|
|
|
57 |
|
|
|
|
|
|
|
55 |
|
|
|
57 |
|
|
|
|
|
Overhead ratio excluding core
deposit
intangibles (a) |
|
|
50 |
|
|
|
53 |
|
|
|
|
|
|
|
51 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
(a)
|
|
Regional Banking uses the overhead ratio excluding the amortization of CDI, a non-GAAP
financial measure, to evaluate the underlying expense trends of the business. Including CDI
amortization expense in the overhead ratio calculation results in a higher overhead ratio in
the earlier years and a lower overhead ratio in later years; this method would result in an
improving overhead ratio over time, all things remaining equal. This non-GAAP ratio excluded
Regional Bankings core deposit intangible amortization expense related to The Bank of New
York transaction and the Bank One merger of $115 million and $110 million for the three months
ended June 30, 2007 and 2006, respectively, and $231 million and $219 million for the six
months ended June 30, 2007 and 2006, respectively. |
23
Quarterly results
Regional Banking net income of $629 million was down by $135 million, or 18%, from the prior year.
Net revenue of $3.3 billion was up by $210 million, or 7%, benefiting from The Bank of New York
transaction, increases in deposit-related fees and growth in deposits. These benefits were offset
partially by the sale of the insurance business and a continued shift to narrowerspread deposit
products. The provision for credit losses was $494 million compared with $70 million in the prior
year. The increase was largely related to the home equity portfolio, as the allowance for loan
losses related to this portfolio was increased by $329 million. Home equity net charge-offs
increased to $98 million in the current quarter from $30 million in the prior year (see Retail
Financial Services discussion of provision for credit losses for further detail). Noninterest
expense of $1.7 billion was flat, as increases due to The Bank of New York transaction and
investments in retail distribution were offset by the sale of the insurance business.
Year-to-date results
Regional Banking net income of $1.3 billion was down by $202 million, or 13%, from the prior year.
Net revenue of $6.4 billion was up by $262 million, or 4%, benefiting from The Bank of New York
transaction, increases in deposit-related fees and growth in deposits. These benefits were offset
partially by the sale of the insurance business, a continued shift to narrowerspread deposit
products and a charge resulting from accelerated surrenders of customer annuity contracts. The
provision for credit losses was $727 million compared with $136 million in the prior year. The
increase in provision reflects higher losses on home equity and subprime mortgage loans, offset
partially by the reversal of a portion of the reserves for Hurricane Katrina. Noninterest expense
of $3.5 billion was flat, as increases due to The Bank of New York transaction and investments in
retail distribution were largely offset by the sale of the insurance business.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in billions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity origination volume |
|
$ |
14.6 |
|
|
$ |
14.0 |
|
|
|
4 |
% |
|
$ |
27.3 |
|
|
$ |
25.7 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End-of-period loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
91.0 |
|
|
$ |
77.8 |
|
|
|
17 |
|
|
$ |
91.0 |
|
|
$ |
77.8 |
|
|
|
17 |
|
Mortgage(a) |
|
|
8.8 |
|
|
|
48.6 |
|
|
|
(82 |
) |
|
|
8.8 |
|
|
|
48.6 |
|
|
|
(82 |
) |
Business banking |
|
|
14.6 |
|
|
|
13.0 |
|
|
|
12 |
|
|
|
14.6 |
|
|
|
13.0 |
|
|
|
12 |
|
Education |
|
|
10.2 |
|
|
|
8.3 |
|
|
|
23 |
|
|
|
10.2 |
|
|
|
8.3 |
|
|
|
23 |
|
Other loans(b) |
|
|
2.5 |
|
|
|
2.6 |
|
|
|
(4 |
) |
|
|
2.5 |
|
|
|
2.6 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans |
|
|
127.1 |
|
|
|
150.3 |
|
|
|
(15 |
) |
|
|
127.1 |
|
|
|
150.3 |
|
|
|
(15 |
) |
End-of-period deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
67.3 |
|
|
$ |
62.3 |
|
|
|
8 |
|
|
$ |
67.3 |
|
|
$ |
62.3 |
|
|
|
8 |
|
Savings |
|
|
97.7 |
|
|
|
89.1 |
|
|
|
10 |
|
|
|
97.7 |
|
|
|
89.1 |
|
|
|
10 |
|
Time and other |
|
|
41.9 |
|
|
|
36.5 |
|
|
|
15 |
|
|
|
41.9 |
|
|
|
36.5 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period deposits |
|
|
206.9 |
|
|
|
187.9 |
|
|
|
10 |
|
|
|
206.9 |
|
|
|
187.9 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
89.2 |
|
|
$ |
76.2 |
|
|
|
17 |
|
|
$ |
87.8 |
|
|
$ |
75.2 |
|
|
|
17 |
|
Mortgage(a) |
|
|
8.8 |
|
|
|
47.1 |
|
|
|
(81 |
) |
|
|
8.8 |
|
|
|
45.9 |
|
|
|
(81 |
) |
Business banking |
|
|
14.5 |
|
|
|
13.0 |
|
|
|
12 |
|
|
|
14.4 |
|
|
|
12.8 |
|
|
|
13 |
|
Education |
|
|
10.5 |
|
|
|
8.7 |
|
|
|
21 |
|
|
|
10.8 |
|
|
|
7.1 |
|
|
|
52 |
|
Other loans(b) |
|
|
2.4 |
|
|
|
2.6 |
|
|
|
(8 |
) |
|
|
2.7 |
|
|
|
2.8 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total average loans(c) |
|
|
125.4 |
|
|
|
147.6 |
|
|
|
(15 |
) |
|
|
124.5 |
|
|
|
143.8 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
$ |
67.2 |
|
|
$ |
62.6 |
|
|
|
7 |
|
|
$ |
67.3 |
|
|
$ |
62.8 |
|
|
|
7 |
|
Savings |
|
|
98.4 |
|
|
|
89.8 |
|
|
|
10 |
|
|
|
97.6 |
|
|
|
89.6 |
|
|
|
9 |
|
Time and other |
|
|
41.7 |
|
|
|
35.4 |
|
|
|
18 |
|
|
|
42.1 |
|
|
|
33.9 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits |
|
|
207.3 |
|
|
|
187.8 |
|
|
|
10 |
|
|
|
207.0 |
|
|
|
186.3 |
|
|
|
11 |
|
Average assets |
|
|
137.7 |
|
|
|
164.6 |
|
|
|
(16 |
) |
|
|
136.8 |
|
|
|
160.9 |
|
|
|
(15 |
) |
Average equity |
|
|
11.8 |
|
|
|
10.2 |
|
|
|
16 |
|
|
|
11.8 |
|
|
|
10.0 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except ratios) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate(d)(e) |
|
|
1.88 |
% |
|
|
1.48 |
% |
|
|
|
|
|
|
1.88 |
% |
|
|
1.48 |
% |
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
$ |
98 |
|
|
$ |
30 |
|
|
|
227 |
|
|
$ |
166 |
|
|
$ |
63 |
|
|
|
163 |
|
Mortgage |
|
|
26 |
|
|
|
9 |
|
|
|
189 |
|
|
|
46 |
|
|
|
21 |
|
|
|
119 |
|
Business banking |
|
|
30 |
|
|
|
16 |
|
|
|
88 |
|
|
|
55 |
|
|
|
34 |
|
|
|
62 |
|
Other loans |
|
|
52 |
|
|
|
13 |
|
|
|
300 |
|
|
|
65 |
|
|
|
20 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
|
206 |
|
|
|
68 |
|
|
|
203 |
|
|
|
332 |
|
|
|
138 |
|
|
|
141 |
|
Net charge-off rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
0.44 |
% |
|
|
0.16 |
% |
|
|
|
|
|
|
0.38 |
% |
|
|
0.17 |
% |
|
|
|
|
Mortgage |
|
|
1.19 |
|
|
|
0.08 |
|
|
|
|
|
|
|
1.05 |
|
|
|
0.09 |
|
|
|
|
|
Business banking |
|
|
0.83 |
|
|
|
0.49 |
|
|
|
|
|
|
|
0.77 |
|
|
|
0.54 |
|
|
|
|
|
Other loans |
|
|
2.32 |
|
|
|
0.55 |
|
|
|
|
|
|
|
1.39 |
|
|
|
0.55 |
|
|
|
|
|
Total net charge-off rate(c) |
|
|
0.68 |
|
|
|
0.19 |
|
|
|
|
|
|
|
0.56 |
|
|
|
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets(f)(g)(h) |
|
$ |
1,968 |
|
|
$ |
1,349 |
|
|
|
46 |
|
|
$ |
1,968 |
|
|
$ |
1,349 |
|
|
|
46 |
|
|
|
|
|
(a)
|
|
As of January 1, 2007, $19.4 billion of held-for-investment prime mortgage loans were
transferred from RFS to Treasury within the Corporate segment for risk management and
reporting purposes. Although the loans, together with the responsibility for the investment
management of the portfolio, were transferred to Treasury, the transfer has no impact on the
financial results of Regional Banking. The balance reported at and for the three and six
months ended June 30, 2007, primarily reflected subprime mortgage loans owned. |
(b)
|
|
Included commercial loans derived from community development activities and, prior to July 1,
2006, insurance policy loans. |
(c)
|
|
Average loans included Loans held-for-sale of $3.9 billion and $1.9 billion for the three
months ended June 30, 2007 and 2006, respectively and $4.1 billion and $2.6 billion for the
six months ended June 30, 2007 and 2006, respectively. These amounts were excluded when
calculating the Net charge-off rate. |
(d)
|
|
Excluded delinquencies related to loans eligible for repurchase as well as loans repurchased
from Governmental National Mortgage Association (GNMA) pools that are insured by government
agencies and government-sponsored enterprises of $879 million and $828 million at June 30,
2007 and 2006, respectively. These amounts are excluded as reimbursement is proceeding
normally. |
(e)
|
|
Excluded loans that are 30 days past due and still accruing, which are insured by government
agencies under the Federal Family Education Loan Program of $523 million and $416 million at
June 30, 2007 and 2006, respectively. These amounts are excluded as reimbursement is
proceeding normally. |
25
|
|
|
(f)
|
|
Excluded loans that are 90 days past due and still accruing, which are insured by government
agencies under the Federal Family Education Loan Program of $200 million and $163 million at
June 30, 2007 and 2006, respectively. These amounts are excluded as reimbursement is
proceeding normally. |
(g)
|
|
Excluded Nonperforming assets related to loans eligible for repurchase as well as loans
repurchased from GNMA pools that are insured by government agencies and government-sponsored
enterprises of $1.2 billion and $1.1 billion at June 30, 2007 and 2006, respectively. These
amounts are excluded as reimbursement is proceeding normally. |
(h)
|
|
Nonperforming loans included Loans held-for-sale and loans accounted for at fair value under
SFAS 159 of $217 million (of which $2 million were classified as Trading assets on the
Consolidated balance sheet) and $9 million at June 30, 2007 and 2006, respectively. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail branch business metrics |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Investment sales volume (in millions) |
|
$ |
5,117 |
|
|
$ |
3,692 |
|
|
|
39 |
% |
|
$ |
9,900 |
|
|
$ |
7,245 |
|
|
|
37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
3,089 |
|
|
|
2,660 |
|
|
|
429 |
# |
|
|
3,089 |
|
|
|
2,660 |
|
|
|
429 |
# |
ATMs |
|
|
8,649 |
|
|
|
7,753 |
|
|
|
896 |
|
|
|
8,649 |
|
|
|
7,753 |
|
|
|
896 |
|
Personal bankers(a) |
|
|
9,025 |
|
|
|
7,260 |
|
|
|
1,765 |
|
|
|
9,025 |
|
|
|
7,260 |
|
|
|
1,765 |
|
Sales specialists(a) |
|
|
3,915 |
|
|
|
3,376 |
|
|
|
539 |
|
|
|
3,915 |
|
|
|
3,376 |
|
|
|
539 |
|
Active online customers (in thousands)(b) |
|
|
5,448 |
|
|
|
4,469 |
|
|
|
979 |
|
|
|
5,448 |
|
|
|
4,469 |
|
|
|
979 |
|
Checking accounts (in thousands) |
|
|
10,356 |
|
|
|
9,072 |
|
|
|
1,284 |
|
|
|
10,356 |
|
|
|
9,072 |
|
|
|
1,284 |
|
|
|
|
|
(a)
|
|
Employees acquired as part of The Bank of New York transaction are included beginning
June 30, 2007. This transaction was completed on October 1, 2006. |
(b)
|
|
During the three months ended June 30, 2007, RFS changed the methodology for determining
active online customers to include all individual RFS customers with one or more online
accounts that have been active within 90 days of period end, including customers who also
have online accounts with Card Services. Prior periods have been restated to conform to this
new methodology. |
MORTGAGE BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except ratios and where otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue(a) |
|
$ |
463 |
|
|
$ |
202 |
|
|
|
129 |
% |
|
$ |
863 |
|
|
$ |
421 |
|
|
|
105 |
% |
Net mortgage servicing revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan servicing revenue |
|
|
615 |
|
|
|
563 |
|
|
|
9 |
|
|
|
1,216 |
|
|
|
1,123 |
|
|
|
8 |
|
Changes in MSR asset fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to inputs or assumptions in model(b) |
|
|
952 |
|
|
|
491 |
|
|
|
94 |
|
|
|
1,060 |
|
|
|
1,202 |
|
|
|
(12 |
) |
Other changes in fair value(c) |
|
|
(383 |
) |
|
|
(392 |
) |
|
|
2 |
|
|
|
(761 |
) |
|
|
(741 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total changes in MSR asset fair value |
|
|
569 |
|
|
|
99 |
|
|
|
475 |
|
|
|
299 |
|
|
|
461 |
|
|
|
(35 |
) |
Derivative valuation adjustments and other |
|
|
(1,014 |
) |
|
|
(546 |
) |
|
|
(86 |
) |
|
|
(1,141 |
) |
|
|
(1,299 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net mortgage servicing revenue |
|
|
170 |
|
|
|
116 |
|
|
|
47 |
|
|
|
374 |
|
|
|
285 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
633 |
|
|
|
318 |
|
|
|
99 |
|
|
|
1,237 |
|
|
|
706 |
|
|
|
75 |
|
Noninterest expense(a) |
|
|
516 |
|
|
|
329 |
|
|
|
57 |
|
|
|
984 |
|
|
|
653 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
117 |
|
|
|
(11 |
) |
|
NM |
|
|
253 |
|
|
|
53 |
|
|
|
377 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
71 |
|
|
$ |
(7 |
) |
|
NM |
|
$ |
155 |
|
|
$ |
32 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
14 |
% |
|
NM |
|
|
|
|
|
|
16 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party mortgage loans serviced (ending) |
|
$ |
572.4 |
|
|
$ |
497.4 |
|
|
|
15 |
|
|
$ |
572.4 |
|
|
$ |
497.4 |
|
|
|
15 |
|
MSR net carrying value (ending) |
|
|
9.5 |
|
|
|
8.2 |
|
|
|
16 |
|
|
|
9.5 |
|
|
|
8.2 |
|
|
|
16 |
|
Average mortgage loans held-for-sale(d) |
|
|
21.3 |
|
|
|
9.8 |
|
|
|
117 |
|
|
|
22.6 |
|
|
|
11.4 |
|
|
|
98 |
|
Average assets |
|
|
35.6 |
|
|
|
23.9 |
|
|
|
49 |
|
|
|
36.8 |
|
|
|
25.5 |
|
|
|
44 |
|
Average equity |
|
|
2.0 |
|
|
|
1.7 |
|
|
|
18 |
|
|
|
2.0 |
|
|
|
1.7 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination volume by channel
(in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
13.6 |
|
|
$ |
10.8 |
|
|
|
26 |
|
|
$ |
24.5 |
|
|
$ |
19.9 |
|
|
|
23 |
|
Wholesale |
|
|
12.8 |
|
|
|
8.7 |
|
|
|
47 |
|
|
|
22.7 |
|
|
|
16.1 |
|
|
|
41 |
|
Correspondent |
|
|
6.4 |
|
|
|
3.4 |
|
|
|
88 |
|
|
|
11.2 |
|
|
|
7.1 |
|
|
|
58 |
|
CNT (Negotiated transactions) |
|
|
11.3 |
|
|
|
8.3 |
|
|
|
36 |
|
|
|
21.8 |
|
|
|
17.3 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
Total(e) |
|
$ |
44.1 |
|
|
$ |
31.2 |
|
|
|
41 |
|
|
$ |
80.2 |
|
|
$ |
60.4 |
|
|
|
33 |
|
|
|
|
|
(a)
|
|
The Firm adopted SFAS 159 in the first quarter of 2007. As a result, certain loan
origination costs have been classified as expense (previously netted against revenue) in the
three and six months ended June 30, 2007. |
(b)
|
|
Represents MSR asset fair value adjustments due to changes in inputs, such as interest
rates and volatility, as well as updates to assumptions used in the valuation model. |
(c)
|
|
Includes changes in the MSR value due to modeled servicing portfolio runoff (or time
decay). |
26
|
|
|
(d)
|
|
Included $13.5 billion and $10.0 billion of prime mortgage loans accounted for at fair
value option for the three and six months ended June 30, 2007, respectively. These loans are
classified as Trading assets on the Consolidated balance sheets for 2007. |
(e)
|
|
During the second quarter of 2007, RFS changed its definition of mortgage originations to
include all newly originated mortgage loans sourced through RFS channels, and to exclude all
mortgage loan originations sourced through the IBs channels. Prior periods have been
restated to conform to this new definition. |
Quarterly results
Mortgage Banking net income was $71 million compared with a net loss of $7 million in the prior
year. Net revenue of $633 million was up by $315 million from the prior year. Revenue comprises
production revenue and net mortgage servicing revenue. Production revenue was $463 million, up by
$261 million, reflecting an increase in mortgage loan originations and the classification of
certain loan origination costs as expense (loan origination costs previously netted against revenue
are currently recorded as expense) due to the adoption of SFAS 159. Net mortgage servicing revenue,
which includes loan servicing revenue, mortgage servicing rights (MSR) risk management results
and other changes in fair value, was $170 million compared with $116 million in the prior year.
Loan servicing revenue of $615 million increased by $52 million on a 15% increase in third-party
loans serviced. MSR risk management revenue of negative $62 million declined by $7 million from the
prior year. Other changes in fair value of the MSR asset, representing run-off of the asset against
the realization of servicing cash flows, were negative $383 million. Noninterest expense was $516
million, up by $187 million, or 57%, reflecting the classification of certain loan origination
costs due to the adoption of SFAS 159, and higher compensation expense, reflecting higher loan
originations and a greater number of loan officers.
Year-to-date results
Mortgage Banking net income was $155 million compared with $32 million in the prior year. Net
revenue of $1.2 billion was up by $531 million from the prior year. Revenue comprises production
revenue and net mortgage servicing revenue. Production revenue was $863 million, up by $442
million, reflecting higher gain on sale income primarily attributable to increased mortgage loan
originations, and the classification of certain loan origination costs as expense (loan
origination costs previously netted against revenue are currently recorded as expense) due to the
adoption of SFAS 159. Net mortgage servicing revenue, which includes loan servicing revenue, MSR
risk management results and other changes in fair value, was $374 million compared with $285
million in the prior year. Loan servicing revenue of $1.2 billion increased by $93 million on a
15% increase in third-party loans serviced. MSR risk management revenue of negative $81 million
improved by $16 million from the prior year. Other changes in fair value of the MSR asset,
representing run-off of the asset against the realization of servicing cash flows, were negative
$761 million. Noninterest expense was $984 million, up by $331 million, or 51%, reflecting the
classification of certain loan origination costs due to the adoption of SFAS 159, and higher
compensation expense, reflecting higher loan originations and a greater number of loan officers.
27
AUTO FINANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except ratios and where otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Noninterest revenue |
|
$ |
138 |
|
|
$ |
90 |
|
|
|
53 |
% |
|
$ |
269 |
|
|
$ |
134 |
|
|
|
101 |
% |
Net interest income |
|
|
312 |
|
|
|
308 |
|
|
|
1 |
|
|
|
591 |
|
|
|
599 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
450 |
|
|
|
398 |
|
|
|
13 |
|
|
|
860 |
|
|
|
733 |
|
|
|
17 |
|
Provision for credit losses |
|
|
92 |
|
|
|
30 |
|
|
|
207 |
|
|
|
151 |
|
|
|
49 |
|
|
|
208 |
|
Noninterest expense |
|
|
219 |
|
|
|
184 |
|
|
|
19 |
|
|
|
429 |
|
|
|
360 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
139 |
|
|
|
184 |
|
|
|
(24 |
) |
|
|
280 |
|
|
|
324 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
85 |
|
|
$ |
111 |
|
|
|
(23 |
) |
|
$ |
170 |
|
|
$ |
196 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
15 |
% |
|
|
19 |
% |
|
|
|
|
|
|
16 |
% |
|
|
16 |
% |
|
|
|
|
ROA |
|
|
0.79 |
|
|
|
0.98 |
|
|
|
|
|
|
|
0.79 |
|
|
|
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto origination volume |
|
$ |
5.3 |
|
|
$ |
4.5 |
|
|
|
18 |
|
|
$ |
10.5 |
|
|
$ |
8.8 |
|
|
|
19 |
|
End-of-period loans and lease related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding |
|
$ |
40.4 |
|
|
$ |
39.4 |
|
|
|
3 |
|
|
$ |
40.4 |
|
|
$ |
39.4 |
|
|
|
3 |
|
Lease financing receivables |
|
|
0.8 |
|
|
|
2.8 |
|
|
|
(71 |
) |
|
|
0.8 |
|
|
|
2.8 |
|
|
|
(71 |
) |
Operating lease assets |
|
|
1.8 |
|
|
|
1.3 |
|
|
|
38 |
|
|
|
1.8 |
|
|
|
1.3 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans and lease
related assets |
|
|
43.0 |
|
|
|
43.5 |
|
|
|
(1 |
) |
|
|
43.0 |
|
|
|
43.5 |
|
|
|
(1 |
) |
Average loans and lease related assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans outstanding(a) |
|
$ |
40.1 |
|
|
$ |
40.3 |
|
|
|
|
|
|
$ |
39.8 |
|
|
$ |
40.7 |
|
|
|
(2 |
) |
Lease financing receivables |
|
|
1.0 |
|
|
|
3.2 |
|
|
|
(69 |
) |
|
|
1.2 |
|
|
|
3.6 |
|
|
|
(67 |
) |
Operating lease assets |
|
|
1.7 |
|
|
|
1.2 |
|
|
|
42 |
|
|
|
1.7 |
|
|
|
1.1 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans and lease
related assets |
|
|
42.8 |
|
|
|
44.7 |
|
|
|
(4 |
) |
|
|
42.7 |
|
|
|
45.4 |
|
|
|
(6 |
) |
Average assets |
|
|
43.4 |
|
|
|
45.6 |
|
|
|
(5 |
) |
|
|
43.3 |
|
|
|
46.4 |
|
|
|
(7 |
) |
Average equity |
|
|
2.2 |
|
|
|
2.4 |
|
|
|
(8 |
) |
|
|
2.2 |
|
|
|
2.4 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate |
|
|
1.43 |
% |
|
|
1.37 |
% |
|
|
|
|
|
|
1.43 |
% |
|
|
1.37 |
% |
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
62 |
|
|
$ |
44 |
|
|
|
41 |
|
|
$ |
120 |
|
|
$ |
92 |
|
|
|
30 |
|
Lease receivables |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
|
|
4 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
|
63 |
|
|
|
45 |
|
|
|
40 |
|
|
|
122 |
|
|
|
96 |
|
|
|
27 |
|
Net charge-off rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(a) |
|
|
0.62 |
% |
|
|
0.45 |
% |
|
|
|
|
|
|
0.61 |
% |
|
|
0.46 |
% |
|
|
|
|
Lease receivables |
|
|
0.40 |
|
|
|
0.13 |
|
|
|
|
|
|
|
0.34 |
|
|
|
0.22 |
|
|
|
|
|
Total net charge-off rate(a) |
|
|
0.61 |
|
|
|
0.43 |
|
|
|
|
|
|
|
0.60 |
|
|
|
0.44 |
|
|
|
|
|
Nonperforming assets |
|
$ |
131 |
|
|
$ |
171 |
|
|
|
(23 |
) |
|
$ |
131 |
|
|
$ |
171 |
|
|
|
(23 |
) |
|
|
|
|
(a)
|
|
For the three and six month periods ended June 30, 2006, Average loans included Loans
held-for-sale of $1.2 billion and $589 million, respectively. These amounts are excluded when
calculating the Net charge-off rate. For the three and six month periods ended June 30, 2007,
no Auto loans were classified as held-for-sale. |
Quarterly results
Auto Finance net income of $85 million was down by $26 million, or 23%, compared with the prior
year. Net revenue of $450 million was up by $52 million, or 13%, reflecting higher automobile
operating lease revenue and wider loan spreads. The provision for credit losses was $92 million, an
increase of $62 million, reflecting an increase in estimated losses from low prior-year levels.
Noninterest expense of $219 million increased by $35 million, or 19%, driven by increased
depreciation expense on owned automobiles subject to operating leases.
Year-to-date results
Auto Finance net income of $170 million was down by $26 million, or 13%, compared with the prior
year. Net revenue of $860 million was up by $127 million, or 17%, reflecting higher automobile
operating lease revenue, wider loan spreads and the absence of a prior-year $50 million pretax loss
related to auto loans transferred to held-for-sale. These increases were offset partially by a
decrease in Auto loans and lease balances. The provision for credit losses was $151 million, an
increase of $102 million, reflecting an increase in estimated losses from low prior-year levels.
Noninterest expense of $429 million increased by $69 million, or 19%, driven by increased
depreciation expense on owned automobiles subject to operating leases.
28
CARD SERVICES
For a discussion of the business profile of CS, see pages 4345 of JPMorgan Chases 2006
Annual Report and pages 45 of this Form 10-Q.
JPMorgan Chase uses the concept of managed receivables to evaluate the credit performance of its
credit card loans, both loans on the balance sheet and loans that have been securitized. Managed
results exclude the impact of credit card securitizations on Total net revenue, the Provision for
credit losses, net charge-offs and loan receivables. Securitization does not change reported Net
income; however, it does affect the classification of items on the Consolidated statements of
income and Consolidated balance sheets. For further information, see Explanation and reconciliation
of the Firms use of non-GAAP financial measures on pages 1316 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data managed basis |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
$ |
682 |
|
|
$ |
653 |
|
|
|
4 |
% |
|
$ |
1,281 |
|
|
$ |
1,254 |
|
|
|
2 |
% |
All other income |
|
|
80 |
|
|
|
49 |
|
|
|
63 |
|
|
|
172 |
|
|
|
120 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
762 |
|
|
|
702 |
|
|
|
9 |
|
|
|
1,453 |
|
|
|
1,374 |
|
|
|
6 |
|
Net interest income |
|
|
2,955 |
|
|
|
2,962 |
|
|
|
|
|
|
|
5,944 |
|
|
|
5,975 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
3,717 |
|
|
|
3,664 |
|
|
|
1 |
|
|
|
7,397 |
|
|
|
7,349 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses(a) |
|
|
1,331 |
|
|
|
1,031 |
|
|
|
29 |
|
|
|
2,560 |
|
|
|
2,047 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
251 |
|
|
|
251 |
|
|
|
|
|
|
|
505 |
|
|
|
510 |
|
|
|
(1 |
) |
Noncompensation expense |
|
|
753 |
|
|
|
810 |
|
|
|
(7 |
) |
|
|
1,556 |
|
|
|
1,606 |
|
|
|
(3 |
) |
Amortization of intangibles |
|
|
184 |
|
|
|
188 |
|
|
|
(2 |
) |
|
|
368 |
|
|
|
376 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,188 |
|
|
|
1,249 |
|
|
|
(5 |
) |
|
|
2,429 |
|
|
|
2,492 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,198 |
|
|
|
1,384 |
|
|
|
(13 |
) |
|
|
2,408 |
|
|
|
2,810 |
|
|
|
(14 |
) |
Income tax expense |
|
|
439 |
|
|
|
509 |
|
|
|
(14 |
) |
|
|
884 |
|
|
|
1,034 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
759 |
|
|
$ |
875 |
|
|
|
(13 |
) |
|
$ |
1,524 |
|
|
$ |
1,776 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Net securitization gains
(amortization) |
|
$ |
16 |
|
|
$ |
(6 |
) |
|
NM |
|
$ |
39 |
|
|
$ |
2 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
22 |
% |
|
|
25 |
% |
|
|
|
|
|
|
22 |
% |
|
|
25 |
% |
|
|
|
|
Overhead ratio |
|
|
32 |
|
|
|
34 |
|
|
|
|
|
|
|
33 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
(a)
|
|
Second quarter of 2006 included a $90 million release of a $100 million special
provision, originally recorded in the third quarter of 2005, related to Hurricane Katrina. |
Quarterly results
Net income of $759 million was down by $116 million, or 13%, from the prior year. Prior-year
results benefited from significantly lower net charge-offs following the change in bankruptcy
legislation in the fourth quarter of 2005.
End-of-period managed loans of $148.0 billion increased by $8.7 billion, or 6%, from the prior
year. Average managed loans of $147.4 billion increased by $10.2 billion, or 7%, from the prior
year.
Net managed revenue of $3.7 billion was up by $53 million, or 1%, from the prior year. Net interest
income of $3.0 billion was flat compared with the prior year. Net interest income was negatively
affected by the discontinuation of certain billing practices (including the elimination of certain
over-limit fees and the two-cycle billing method for calculating finance charges); higher
charge-offs, which resulted in increased revenue reversals; and increased cost of funds on growth
in introductory and transactor balances. These decreases in net interest income were offset by
increased average loans and higher fees. Noninterest revenue of $762 million was up by $60 million,
or 9%, from the prior year. The increase reflects a higher level of fee-based revenue and increased
interchange income, benefiting from 4% higher charge volume, primarily offset by higher
volume-driven payments to partners and increased rewards expense (both of which are netted against
interchange income). Charge volume reflects an approximate 10% growth rate in sales volume offset
partially by a lower level of balance transfers, reflecting a more targeted marketing effort.
29
The managed provision for credit losses was $1.3 billion, up by $300 million, or 29%, from the
prior year. The prior year benefited from lower net charge-offs, following the change in bankruptcy
legislation in the fourth quarter of 2005, and the release of $90 million of provision related to
Hurricane Katrina. Credit quality remained stable with a managed net charge-off rate for the
quarter of 3.62%, up from 3.28% in the prior year. The 30-day managed delinquency rate was 3.00%,
down from 3.14% in the prior year.
Noninterest expense of $1.2 billion was down by $61 million, or 5%, compared with the prior year,
primarily due to lower marketing expense and lower fraud-related expense, partially offset by
higher volume-related expense.
Year-to-date results
Net income of $1.5 billion was down by $252 million, or 14%, from the prior year. Prior-year
results benefited from significantly lower net charge-offs following the change in bankruptcy
legislation in the fourth quarter of 2005.
End-of-period managed loans of $148.0 billion increased by $8.7 billion, or 6%, from the prior
year, benefiting from organic growth. Average managed loans of $148.4 billion increased by $10.8
billion, or 8%, from the prior year, benefiting from organic growth and loan portfolio
acquisitions.
Net managed revenue of $7.4 billion was up by $48 million, or 1%, from the prior year. Net interest
income of $5.9 billion was down by $31 million, or 1%, compared with the prior year. Net interest
income was negatively impacted by increased cost of funds on growth in introductory, transactor and
promotional balances; higher charge-offs, which resulted in increased revenue reversals; and the
discontinuation of certain billing practices (including the elimination of certain over-limit fees
and the two-cycle method for calculating finance charges). These decreases in net interest income
were partially offset by increased average loans and higher fees. Noninterest revenue of $1.5
billion was up by $79 million, or 6%, from the prior year. The increase reflects a higher level of
fee-based revenue and increased interchange income, benefiting from 7% higher charge volume,
primarily offset by higher volume-driven payments to partners and increased rewards expense (both
of which are netted against interchange income). Charge volume reflects an approximate 10% growth
rate in sales volume offset partially by a lower level of balance transfers, reflecting a more
targeted marketing effort.
The managed provision for credit losses was $2.6 billion, up by $513 million, or 25%, from the
prior year. The prior year benefited from lower net charge-offs, following the change in bankruptcy
legislation in the fourth quarter of 2005. The managed net charge-off rate increased to 3.59%, up
from 3.13% in the prior year. The 30-day managed delinquency rate was 3.00%, down from 3.14% in the
prior year.
Noninterest expense of $2.4 billion was down by $63 million, or 3%, compared with the prior year,
primarily due to lower marketing expense and lower fraud-related expense, partially offset by
higher volume-related expense.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except headcount, ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
% of average managed outstandings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
8.04 |
% |
|
|
8.66 |
% |
|
|
|
|
|
|
8.08 |
% |
|
|
8.76 |
% |
|
|
|
|
Provision for credit losses |
|
|
3.62 |
|
|
|
3.01 |
|
|
|
|
|
|
|
3.48 |
|
|
|
3.00 |
|
|
|
|
|
Noninterest revenue |
|
|
2.07 |
|
|
|
2.05 |
|
|
|
|
|
|
|
1.97 |
|
|
|
2.01 |
|
|
|
|
|
Risk adjusted margin(a) |
|
|
6.49 |
|
|
|
7.70 |
|
|
|
|
|
|
|
6.57 |
|
|
|
7.77 |
|
|
|
|
|
Noninterest expense |
|
|
3.23 |
|
|
|
3.65 |
|
|
|
|
|
|
|
3.30 |
|
|
|
3.65 |
|
|
|
|
|
Pretax income (ROO) |
|
|
3.26 |
|
|
|
4.05 |
|
|
|
|
|
|
|
3.27 |
|
|
|
4.12 |
|
|
|
|
|
Net income |
|
|
2.06 |
|
|
|
2.56 |
|
|
|
|
|
|
|
2.07 |
|
|
|
2.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge volume (in billions) |
|
$ |
88.0 |
|
|
$ |
84.4 |
|
|
|
4 |
% |
|
$ |
169.3 |
|
|
$ |
158.7 |
|
|
|
7 |
% |
Net accounts opened (in
thousands)(b) |
|
|
3,706 |
|
|
|
24,573 |
|
|
|
(85 |
) |
|
|
7,145 |
|
|
|
27,291 |
|
|
|
(74 |
) |
Credit cards issued (in thousands) |
|
|
150,883 |
|
|
|
136,685 |
|
|
|
10 |
|
|
|
150,883 |
|
|
|
136,685 |
|
|
|
10 |
|
Number of registered Internet customers
(in millions) |
|
|
24.6 |
|
|
|
19.1 |
|
|
|
29 |
|
|
|
24.6 |
|
|
|
19.1 |
|
|
|
29 |
|
Merchant acquiring business(c)
Bank card volume (in billions) |
|
$ |
179.7 |
|
|
$ |
166.3 |
|
|
|
8 |
|
|
$ |
343.3 |
|
|
$ |
314.0 |
|
|
|
9 |
|
Total transactions (in millions) |
|
|
4,811 |
|
|
|
4,476 |
|
|
|
7 |
|
|
|
9,276 |
|
|
|
8,606 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
80,495 |
|
|
$ |
72,961 |
|
|
|
10 |
|
|
$ |
80,495 |
|
|
$ |
72,961 |
|
|
|
10 |
|
Securitized loans |
|
|
67,506 |
|
|
|
66,349 |
|
|
|
2 |
|
|
|
67,506 |
|
|
|
66,349 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
148,001 |
|
|
$ |
139,310 |
|
|
|
6 |
|
|
$ |
148,001 |
|
|
$ |
139,310 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed assets |
|
$ |
154,406 |
|
|
$ |
144,284 |
|
|
|
7 |
|
|
$ |
155,333 |
|
|
$ |
145,134 |
|
|
|
7 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
79,000 |
|
|
$ |
68,185 |
|
|
|
16 |
|
|
$ |
80,458 |
|
|
$ |
68,319 |
|
|
|
18 |
|
Securitized loans |
|
|
68,428 |
|
|
|
69,005 |
|
|
|
(1 |
) |
|
|
67,959 |
|
|
|
69,287 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
147,428 |
|
|
$ |
137,190 |
|
|
|
7 |
|
|
$ |
148,417 |
|
|
$ |
137,606 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
14,100 |
|
|
$ |
14,100 |
|
|
|
|
|
|
$ |
14,100 |
|
|
$ |
14,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
18,913 |
|
|
|
18,753 |
|
|
|
1 |
|
|
|
18,913 |
|
|
|
18,753 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
1,331 |
|
|
$ |
1,121 |
|
|
|
19 |
|
|
$ |
2,645 |
|
|
$ |
2,137 |
|
|
|
24 |
|
Net charge-off rate |
|
|
3.62 |
% |
|
|
3.28 |
% |
|
|
|
|
|
|
3.59 |
% |
|
|
3.13 |
% |
|
|
|
|
Managed delinquency ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ days |
|
|
3.00 |
% |
|
|
3.14 |
% |
|
|
|
|
|
|
3.00 |
% |
|
|
3.14 |
% |
|
|
|
|
90+ days |
|
|
1.42 |
|
|
|
1.52 |
|
|
|
|
|
|
|
1.42 |
|
|
|
1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
3,096 |
|
|
$ |
3,186 |
|
|
|
(3 |
) |
|
$ |
3,096 |
|
|
$ |
3,186 |
|
|
|
(3 |
) |
Allowance for loan losses to period-end loans |
|
|
3.85 |
% |
|
|
4.37 |
% |
|
|
|
|
|
|
3.85 |
% |
|
|
4.37 |
% |
|
|
|
|
|
|
|
|
(a)
|
|
Represents Total net revenue less Provision for credit losses. |
(b)
|
|
Second quarter of 2006 included approximately 21 million accounts from the acquisition of the
Kohls private label portfolio. |
(c)
|
|
Represents 100% of the merchant acquiring business. |
31
Reconciliation from reported basis to managed basis
The financial information presented below reconciles reported basis and managed basis to
disclose the effect of securitizations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Income statement data(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basis for the period |
|
$ |
1,470 |
|
|
$ |
1,590 |
|
|
|
(8 |
)% |
|
$ |
2,815 |
|
|
$ |
3,316 |
|
|
|
(15 |
)% |
Securitization adjustments |
|
|
(788 |
) |
|
|
(937 |
) |
|
|
16 |
|
|
|
(1,534 |
) |
|
|
(2,062 |
) |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed credit card income |
|
$ |
682 |
|
|
$ |
653 |
|
|
|
4 |
|
|
$ |
1,281 |
|
|
$ |
1,254 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basis for the period |
|
$ |
1,577 |
|
|
$ |
1,464 |
|
|
|
8 |
|
|
$ |
3,227 |
|
|
$ |
2,903 |
|
|
|
11 |
|
Securitization adjustments |
|
|
1,378 |
|
|
|
1,498 |
|
|
|
(8 |
) |
|
|
2,717 |
|
|
|
3,072 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed net interest income |
|
$ |
2,955 |
|
|
$ |
2,962 |
|
|
|
|
|
|
$ |
5,944 |
|
|
$ |
5,975 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basis for the period |
|
$ |
3,127 |
|
|
$ |
3,103 |
|
|
|
1 |
|
|
$ |
6,214 |
|
|
$ |
6,339 |
|
|
|
(2 |
) |
Securitization adjustments |
|
|
590 |
|
|
|
561 |
|
|
|
5 |
|
|
|
1,183 |
|
|
|
1,010 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed total net revenue |
|
$ |
3,717 |
|
|
$ |
3,664 |
|
|
|
1 |
|
|
$ |
7,397 |
|
|
$ |
7,349 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basis for the period(b) |
|
$ |
741 |
|
|
$ |
470 |
|
|
|
58 |
|
|
$ |
1,377 |
|
|
$ |
1,037 |
|
|
|
33 |
|
Securitization adjustments |
|
|
590 |
|
|
|
561 |
|
|
|
5 |
|
|
|
1,183 |
|
|
|
1,010 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed provision for credit
losses(b) |
|
$ |
1,331 |
|
|
$ |
1,031 |
|
|
|
29 |
|
|
$ |
2,560 |
|
|
$ |
2,047 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet average
balances(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported basis for the period |
|
$ |
88,486 |
|
|
$ |
77,371 |
|
|
|
14 |
|
|
$ |
89,814 |
|
|
$ |
77,901 |
|
|
|
15 |
|
Securitization adjustments |
|
|
65,920 |
|
|
|
66,913 |
|
|
|
(1 |
) |
|
|
65,519 |
|
|
|
67,233 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed average assets |
|
$ |
154,406 |
|
|
$ |
144,284 |
|
|
|
7 |
|
|
$ |
155,333 |
|
|
$ |
145,134 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net charge-offs data for the
period |
|
$ |
741 |
|
|
$ |
560 |
|
|
|
32 |
|
|
$ |
1,462 |
|
|
$ |
1,127 |
|
|
|
30 |
|
Securitization adjustments |
|
|
590 |
|
|
|
561 |
|
|
|
5 |
|
|
|
1,183 |
|
|
|
1,010 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
Managed net charge-offs |
|
$ |
1,331 |
|
|
$ |
1,121 |
|
|
|
19 |
|
|
$ |
2,645 |
|
|
$ |
2,137 |
|
|
|
24 |
|
|
|
|
|
(a)
|
|
JPMorgan Chase uses the concept of managed receivables to evaluate the credit
performance and overall performance of the underlying credit card loans, both sold and not
sold; as the same borrower is continuing to use the credit card for ongoing charges, a
borrowers credit performance will affect both the receivables sold under SFAS 140 and
those not sold. Thus, in its disclosures regarding managed receivables, JPMorgan Chase
treated the sold receivables as if they were still on the balance sheet in order to
disclose the credit performance (such as Net charge-off rates) of the entire managed
credit card portfolio. Managed results excluded the impact of credit card securitizations
on Total net revenue, the Provision for credit losses, net charge-offs and loan
receivables. Securitization did not change reported net income versus managed earnings;
however, it did affect the classification of items on the Consolidated statements of
income and Consolidated balance sheets. For further information, see Explanation and
reconciliation of the Firms use of non-GAAP measures on pages 1316 of this Form 10-Q. |
(b)
|
|
Second quarter of 2006 included a $90 million release of a $100 million special
provision, originally recorded in the third quarter of 2005, related to Hurricane Katrina. |
32
COMMERCIAL BANKING
For a discussion of the business profile of CB, see pages 4647 of JPMorgan Chases 2006
Annual Report and page 5 of this Form 10-Q.
On October 1, 2006, JPMorgan Chase completed the acquisition of The Bank of New Yorks consumer,
business banking and middle-market banking businesses adding approximately $2.3 billion in loans
and $1.2 billion in deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit related fees |
|
$ |
158 |
|
|
$ |
147 |
|
|
|
7 |
% |
|
$ |
316 |
|
|
$ |
289 |
|
|
|
9 |
% |
Asset management,
administration and commissions |
|
|
21 |
|
|
|
16 |
|
|
|
31 |
|
|
|
44 |
|
|
|
31 |
|
|
|
42 |
|
All other income(a) |
|
|
133 |
|
|
|
111 |
|
|
|
20 |
|
|
|
287 |
|
|
|
187 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
312 |
|
|
|
274 |
|
|
|
14 |
|
|
|
647 |
|
|
|
507 |
|
|
|
28 |
|
Net interest income |
|
|
695 |
|
|
|
675 |
|
|
|
3 |
|
|
|
1,363 |
|
|
|
1,342 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,007 |
|
|
|
949 |
|
|
|
6 |
|
|
|
2,010 |
|
|
|
1,849 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
45 |
|
|
|
(12 |
) |
|
NM |
|
|
62 |
|
|
|
(5 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
182 |
|
|
|
179 |
|
|
|
2 |
|
|
|
362 |
|
|
|
376 |
|
|
|
(4 |
) |
Noncompensation expense |
|
|
300 |
|
|
|
302 |
|
|
|
(1 |
) |
|
|
590 |
|
|
|
587 |
|
|
|
1 |
|
Amortization of intangibles |
|
|
14 |
|
|
|
15 |
|
|
|
(7 |
) |
|
|
29 |
|
|
|
31 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
496 |
|
|
|
496 |
|
|
|
|
|
|
|
981 |
|
|
|
994 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
466 |
|
|
|
465 |
|
|
|
|
|
|
|
967 |
|
|
|
860 |
|
|
|
12 |
|
Income tax expense |
|
|
182 |
|
|
|
182 |
|
|
|
|
|
|
|
379 |
|
|
|
337 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
284 |
|
|
$ |
283 |
|
|
|
|
|
|
$ |
588 |
|
|
$ |
523 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
18 |
% |
|
|
21 |
% |
|
|
|
|
|
|
19 |
% |
|
|
19 |
% |
|
|
|
|
Overhead ratio |
|
|
49 |
|
|
|
52 |
|
|
|
|
|
|
|
49 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
(a)
|
|
IB-related and commercial card revenues are included in All other income. |
Quarterly results
Net income of $284 million was flat compared with the prior year, as an increase in net
revenue was offset by higher provision for credit losses.
Net revenue was $1.0 billion, up by $58 million, or 6%, from the prior year. Net interest income of
$695 million was up by $20 million, or 3%, from the prior year. The increase was driven by
double-digit growth in liability balances and loans, which reflected organic growth and The Bank of
New York transaction, largely offset by the continued shift to narrowerspread liability products
and spread compression in the liability and loan portfolios. Noninterest revenue of $312 million
was up by $38 million, or 14%, from the prior year, primarily due to higher investment banking
revenue and increased deposit-related fees.
On a segment basis, Middle Market Banking revenue of $653 million increased by $19 million, or 3%,
from the prior year, due to The Bank of New York transaction and growth in investment banking
revenue. Mid-Corporate Banking revenue of $197 million increased by $36 million, or 22%, reflecting
higher lending, investment banking and treasury services revenue. Real Estate Banking revenue of
$109 million decreased by $5 million, or 4%.
Provision for credit losses was $45 million compared with a benefit of $12 million in the prior
year. The increase in the allowance for credit losses reflects portfolio activity. The allowance
for loan losses to average loans was 2.63% in the current quarter compared with 2.68% in the prior
year; nonperforming loans of $135 million decreased by $90 million, or 40%, from the prior year.
Noninterest expense of $496 million was flat compared with the prior year.
Year-to-date results
Net income of $588 million increased by $65 million, or 12%, from the prior year due to
higher revenues, partially offset by higher provision for credit losses.
Net revenue of $2.0 billion increased by $161 million, or 9%. Net interest income of $1.4 billion
increased by $21 million, or 2%, driven by double-digit growth in liability balances and loans,
which reflected organic growth and The Bank of New York transaction, largely offset by the
continued shift to narrowerspread liability products and spread compression in the liability and
33
loan portfolios. Noninterest revenue was $647 million, up by $140 million, or 28%, due to higher
IB-related revenue, increased deposit-related fees and gains related to the sale of securities
acquired in the satisfaction of debt.
On a segment basis, Middle Market Banking revenue of $1.3 billion increased by $57 million, or 5%,
primarily due to growth in investment banking revenue and the Bank of New York transaction.
Mid-Corporate Banking revenue of $409 million increased by $111 million, or 37%, reflecting higher
investment banking, lending revenue and gains on sales of securities acquired in the satisfaction
debt. Real Estate Banking revenue of $211 million decreased by $8 million, or 4%.
Provision for credit losses was $62 million compared to a net recovery of $5 million in the prior
year. The increase in the allowance for credit losses reflects portfolio activity. The allowance
for loan losses to average loans was 2.67% compared with 2.72% in the prior year.
Noninterest expenses of $981 million decreased by $13 million, or 1%, due to the absence of
prior-year expense from the adoption of SFAS 123R primarily offset by expense related to The Bank
of New York transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except ratio and headcount data) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending |
|
$ |
348 |
|
|
$ |
331 |
|
|
|
5 |
% |
|
$ |
696 |
|
|
$ |
650 |
|
|
|
7 |
% |
Treasury services |
|
|
569 |
|
|
|
566 |
|
|
|
1 |
|
|
|
1,125 |
|
|
|
1,116 |
|
|
|
1 |
|
Investment banking |
|
|
82 |
|
|
|
66 |
|
|
|
24 |
|
|
|
158 |
|
|
|
106 |
|
|
|
49 |
|
Other |
|
|
8 |
|
|
|
(14 |
) |
|
NM |
|
|
31 |
|
|
|
(23 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,007 |
|
|
$ |
949 |
|
|
|
6 |
|
|
$ |
2,010 |
|
|
$ |
1,849 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IB revenues, gross(a) |
|
$ |
236 |
|
|
$ |
186 |
|
|
|
27 |
|
|
$ |
467 |
|
|
$ |
300 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
653 |
|
|
$ |
634 |
|
|
|
3 |
|
|
$ |
1,314 |
|
|
$ |
1,257 |
|
|
|
5 |
|
Mid-Corporate Banking |
|
|
197 |
|
|
|
161 |
|
|
|
22 |
|
|
|
409 |
|
|
|
298 |
|
|
|
37 |
|
Real Estate Banking |
|
|
109 |
|
|
|
114 |
|
|
|
(4 |
) |
|
|
211 |
|
|
|
219 |
|
|
|
(4 |
) |
Other |
|
|
48 |
|
|
|
40 |
|
|
|
20 |
|
|
|
76 |
|
|
|
75 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking revenue |
|
$ |
1,007 |
|
|
$ |
949 |
|
|
|
6 |
|
|
$ |
2,010 |
|
|
$ |
1,849 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
84,687 |
|
|
$ |
56,561 |
|
|
|
50 |
|
|
$ |
83,622 |
|
|
$ |
55,671 |
|
|
|
50 |
|
Loans and leases(b) |
|
|
59,812 |
|
|
|
52,413 |
|
|
|
14 |
|
|
|
58,742 |
|
|
|
51,629 |
|
|
|
14 |
|
Liability balances(c) |
|
|
84,187 |
|
|
|
72,556 |
|
|
|
16 |
|
|
|
82,976 |
|
|
|
71,664 |
|
|
|
16 |
|
Equity |
|
|
6,300 |
|
|
|
5,500 |
|
|
|
15 |
|
|
|
6,300 |
|
|
|
5,500 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
37,099 |
|
|
$ |
32,492 |
|
|
|
14 |
|
|
$ |
36,710 |
|
|
$ |
32,178 |
|
|
|
14 |
|
Mid-Corporate Banking |
|
|
11,692 |
|
|
|
8,269 |
|
|
|
41 |
|
|
|
11,183 |
|
|
|
7,925 |
|
|
|
41 |
|
Real Estate Banking |
|
|
6,894 |
|
|
|
7,515 |
|
|
|
(8 |
) |
|
|
6,984 |
|
|
|
7,476 |
|
|
|
(7 |
) |
Other |
|
|
4,127 |
|
|
|
4,137 |
|
|
|
|
|
|
|
3,865 |
|
|
|
4,050 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking loans |
|
$ |
59,812 |
|
|
$ |
52,413 |
|
|
|
14 |
|
|
$ |
58,742 |
|
|
$ |
51,629 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
4,295 |
|
|
|
4,320 |
|
|
|
(1 |
) |
|
|
4,295 |
|
|
|
4,320 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
(8 |
) |
|
$ |
(3 |
) |
|
|
(167 |
) |
|
$ |
(9 |
) |
|
$ |
(10 |
) |
|
|
10 |
|
Nonperforming loans |
|
|
135 |
|
|
|
225 |
|
|
|
(40 |
) |
|
|
135 |
|
|
|
225 |
|
|
|
(40 |
) |
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
1,551 |
|
|
|
1,394 |
|
|
|
11 |
|
|
|
1,551 |
|
|
|
1,394 |
|
|
|
11 |
|
Allowance for lending-related commitments |
|
|
222 |
|
|
|
157 |
|
|
|
41 |
|
|
|
222 |
|
|
|
157 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
|
1,773 |
|
|
|
1,551 |
|
|
|
14 |
|
|
|
1,773 |
|
|
|
1,551 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate(b) |
|
|
(0.05 |
)% |
|
|
(0.02 |
)% |
|
|
|
|
|
|
(0.03 |
)% |
|
|
(0.04 |
)% |
|
|
|
|
Allowance for loan losses to average
loans(b) |
|
|
2.63 |
|
|
|
2.68 |
|
|
|
|
|
|
|
2.67 |
|
|
|
2.72 |
|
|
|
|
|
Allowance for loan losses to nonperforming
loans |
|
|
1,149 |
|
|
|
620 |
|
|
|
|
|
|
|
1,149 |
|
|
|
620 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.23 |
|
|
|
0.43 |
|
|
|
|
|
|
|
0.23 |
|
|
|
0.44 |
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents the total revenue related to investment banking products sold to CB clients. |
(b)
|
|
Average loans include Loans held-for-sale of $741 million and $334 million for the quarters
ended June 30, 2007 and 2006, respectively, and $609 million and $301 million for year-to-date
2007 and 2006, respectively. These amounts are excluded when calculating the Net charge-off
(recovery) rate and the allowance coverage ratio. |
(c)
|
|
Liability balances included deposits and deposits swept to on-balance sheet liabilities. |
34
TREASURY & SECURITIES SERVICES
For a discussion of the business profile of TSS, see pages 4849 of JPMorgan Chases 2006
Annual Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit related fees |
|
$ |
219 |
|
|
$ |
184 |
|
|
|
19 |
% |
|
$ |
432 |
|
|
$ |
366 |
|
|
|
18 |
% |
Asset management, administration and
commissions |
|
|
828 |
|
|
|
683 |
|
|
|
21 |
|
|
|
1,514 |
|
|
|
1,333 |
|
|
|
14 |
|
All other income |
|
|
184 |
|
|
|
178 |
|
|
|
3 |
|
|
|
309 |
|
|
|
324 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,231 |
|
|
|
1,045 |
|
|
|
18 |
|
|
|
2,255 |
|
|
|
2,023 |
|
|
|
11 |
|
Net interest income |
|
|
510 |
|
|
|
543 |
|
|
|
(6 |
) |
|
|
1,012 |
|
|
|
1,050 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,741 |
|
|
|
1,588 |
|
|
|
10 |
|
|
|
3,267 |
|
|
|
3,073 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
4 |
|
|
NM |
|
|
6 |
|
|
|
|
|
|
NM |
Credit reimbursement to
IB(a) |
|
|
(30 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
609 |
|
|
|
537 |
|
|
|
13 |
|
|
|
1,167 |
|
|
|
1,086 |
|
|
|
7 |
|
Noncompensation expense |
|
|
523 |
|
|
|
493 |
|
|
|
6 |
|
|
|
1,025 |
|
|
|
973 |
|
|
|
5 |
|
Amortization of intangibles |
|
|
17 |
|
|
|
20 |
|
|
|
(15 |
) |
|
|
32 |
|
|
|
39 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,149 |
|
|
|
1,050 |
|
|
|
9 |
|
|
|
2,224 |
|
|
|
2,098 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
562 |
|
|
|
504 |
|
|
|
12 |
|
|
|
977 |
|
|
|
915 |
|
|
|
7 |
|
Income tax expense |
|
|
210 |
|
|
|
188 |
|
|
|
12 |
|
|
|
362 |
|
|
|
337 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
352 |
|
|
$ |
316 |
|
|
|
11 |
|
|
$ |
615 |
|
|
$ |
578 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
47 |
% |
|
|
58 |
% |
|
|
|
|
|
|
41 |
% |
|
|
49 |
% |
|
|
|
|
Overhead ratio |
|
|
66 |
|
|
|
66 |
|
|
|
|
|
|
|
68 |
|
|
|
68 |
|
|
|
|
|
Pretax margin ratio(b) |
|
|
32 |
|
|
|
32 |
|
|
|
|
|
|
|
30 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
(a)
|
|
TSS was charged a credit reimbursement related to certain exposures managed within the IB
credit portfolio on behalf of clients shared with TSS. For a further discussion, see Credit
reimbursement on page 35 of JPMorgan Chases 2006 Annual Report. |
(b)
|
|
Pretax margin represents Income before income tax expense divided by Total net revenue, which
is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
Quarterly results
Net income was a record $352 million, up by $36 million, or 11%, from the prior year. The increase
was driven by record revenue partially offset by higher compensation expense.
Net revenue was a record $1.7 billion, up by $153 million, or 10%, from the prior year. Worldwide
Securities Services net revenue of $1.0 billion was up by $135 million, or 15%, driven by increased
product usage by new and existing clients, market appreciation, and seasonally strong activity in
securities lending and depositary receipts. These benefits were offset partially by lower foreign
exchange revenue, as a result of narrower-market spreads. Treasury Services net revenue of $720
million was up by $18 million, or 3%, driven by volume increases in clearing, ACH and commercial
cards, partially offset by a continued shift to narrowerspread liability products. TSS firmwide
net revenue, which includes Treasury Services net revenue recorded in other lines of business, grew
to $2.4 billion, up by $171 million, or 8%. Treasury Services firmwide net revenue grew to $1.4
billion, up by $36 million, or 3%.
Noninterest expense was $1.1 billion, up by $99 million, or 9%, from the prior year. The increase
was due largely to higher compensation expense related to business and volume growth, as well as
investment in new product platforms.
Year-to-date results
Net income was $615 million, up by $37 million, or 6% from the prior year. The increase was driven
by record revenue from seasonally strong activity in securities lending and depositary receipts,
offset by higher compensation expense driven by increased business volumes.
Net revenue was $3.3 billion, up by $194 million, or 6%, from the prior year. Worldwide Securities
Services net revenue of $1.9 billion was up by $180 million, or 11%, driven by increased product
usage by new and existing clients, market appreciation, and seasonally strong activity in
securities lending and depositary receipts. These benefits were offset partially by lower foreign
exchange revenue as a result of narrower market spreads. Treasury Services net revenue of $1.4
billion was up by $14 million, or 1%, driven by volume increases in clearing, ACH and cards,
partially offset by a continued shift to narrowerspread liability products. TSS firmwide net
revenue, which includes Treasury Services net revenue recorded in other lines of business, grew to
$4.5 billion, up by $230 million, or 5%. Treasury Services firmwide net revenue grew to $2.7
billion, up by $50 million, or 2%.
35
Noninterest expense was $2.2 billion, up by $126 million, or 6%. The increase was largely due to
higher compensation expense related to business and volume growth as well as investment in new
product platforms.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except headcount, ratio data and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
where otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services |
|
$ |
720 |
|
|
$ |
702 |
|
|
|
3 |
% |
|
$ |
1,409 |
|
|
$ |
1,395 |
|
|
|
1 |
% |
Worldwide Securities Services |
|
|
1,021 |
|
|
|
886 |
|
|
|
15 |
|
|
|
1,858 |
|
|
|
1,678 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,741 |
|
|
$ |
1,588 |
|
|
|
10 |
|
|
$ |
3,267 |
|
|
$ |
3,073 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under custody (in billions) |
|
$ |
15,203 |
|
|
$ |
11,536 |
|
|
|
32 |
|
|
$ |
15,203 |
|
|
$ |
11,536 |
|
|
|
32 |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ ACH transactions originated
(in millions) |
|
|
972 |
|
|
|
848 |
|
|
|
15 |
|
|
|
1,943 |
|
|
|
1,686 |
|
|
|
15 |
|
Total US$ clearing volume
(in thousands) |
|
|
27,779 |
|
|
|
26,506 |
|
|
|
5 |
|
|
|
54,619 |
|
|
|
51,688 |
|
|
|
6 |
|
International electronic funds transfer volume
(in thousands)(a) |
|
|
42,068 |
|
|
|
35,255 |
|
|
|
19 |
|
|
|
84,467 |
|
|
|
68,996 |
|
|
|
22 |
|
Wholesale check volume (in millions) |
|
|
767 |
|
|
|
904 |
|
|
|
(15 |
) |
|
|
1,538 |
|
|
|
1,756 |
|
|
|
(12 |
) |
Wholesale cards issued (in thousands)(b) |
|
|
17,535 |
|
|
|
16,271 |
|
|
|
8 |
|
|
|
17,535 |
|
|
|
16,271 |
|
|
|
8 |
|
Selected balance sheets (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
50,687 |
|
|
$ |
31,774 |
|
|
|
60 |
|
|
$ |
48,359 |
|
|
$ |
30,509 |
|
|
|
59 |
|
Loans |
|
|
20,195 |
|
|
|
14,993 |
|
|
|
35 |
|
|
|
19,575 |
|
|
|
13,972 |
|
|
|
40 |
|
Liability balances(c) |
|
|
217,514 |
|
|
|
194,181 |
|
|
|
12 |
|
|
|
214,095 |
|
|
|
186,201 |
|
|
|
15 |
|
Equity |
|
|
3,000 |
|
|
|
2,200 |
|
|
|
36 |
|
|
|
3,000 |
|
|
|
2,372 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
25,206 |
|
|
|
24,100 |
|
|
|
5 |
|
|
|
25,206 |
|
|
|
24,100 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSS firmwide metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide revenue(d) |
|
$ |
1,354 |
|
|
$ |
1,318 |
|
|
|
3 |
|
|
$ |
2,659 |
|
|
$ |
2,609 |
|
|
|
2 |
|
Treasury & Securities Services firmwide
revenue(d) |
|
|
2,375 |
|
|
|
2,204 |
|
|
|
8 |
|
|
|
4,517 |
|
|
|
4,287 |
|
|
|
5 |
|
Treasury Services firmwide overhead
ratio(e) |
|
|
59 |
% |
|
|
56 |
% |
|
|
|
|
|
|
59 |
% |
|
|
56 |
% |
|
|
|
|
Treasury & Securities Services firmwide
overhead ratio(e) |
|
|
60 |
|
|
|
59 |
|
|
|
|
|
|
|
61 |
|
|
|
61 |
|
|
|
|
|
Treasury Services firmwide liability balances
(average)(f) |
|
$ |
189,214 |
|
|
$ |
161,866 |
|
|
|
17 |
|
|
$ |
187,930 |
|
|
$ |
158,662 |
|
|
|
18 |
|
Treasury & Securities Services firmwide
liability balances (average)(f) |
|
|
301,701 |
|
|
|
265,398 |
|
|
|
14 |
|
|
|
297,072 |
|
|
|
256,910 |
|
|
|
16 |
|
|
|
|
|
(a)
|
|
International electronic funds transfer includes non-US$ ACH and clearing volume. |
(b)
|
|
Wholesale cards issued included domestic commercial card, stored value card, prepaid card,
and government electronic benefit card products. |
(c)
|
|
Liability balances included deposits and deposits swept to onbalance sheet liabilities. |
TSS firmwide metrics
TSS firmwide metrics include certain TSS product revenues and liability balances reported in
other lines of business for customers who are also customers of those lines of business. In order
to capture the firmwide impact of TS and TSS products and revenues, management reviews firmwide
metrics such as liability balances, revenues and overhead ratios in assessing financial
performance for TSS. Firmwide metrics are necessary in order to understand the aggregate TSS
business.
|
|
|
(d)
|
|
Firmwide revenue included TS revenue recorded in the CB, Regional Banking and AM lines of
business (see below) and excluded FX revenues recorded in the IB for TSS-related FX
activity. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Treasury Services revenue reported in CB |
|
$ |
569 |
|
|
$ |
566 |
|
|
|
1 |
% |
|
$ |
1,125 |
|
|
$ |
1,116 |
|
|
|
1 |
% |
Treasury Services revenue reported in other
lines
of business |
|
|
65 |
|
|
|
50 |
|
|
|
30 |
|
|
|
125 |
|
|
|
98 |
|
|
|
28 |
|
|
|
|
|
|
|
TSS firmwide FX revenue, which include FX revenue recorded in TSS and FX revenue
associated with TSS customers who are FX customers of the IB, was $139 million and $146
million for the quarters ended June 30, 2007 and 2006, respectively, and $251 million and $264
million year-to-date 2007 and 2006, respectively. |
|
|
|
(e)
|
|
Overhead ratios have been calculated based upon firmwide revenues and TSS and TS expenses,
respectively, including those allocated to certain other lines of business. FX revenues and
expenses recorded in the IB for TSS-related FX activity were not included in this ratio. |
(f)
|
|
Firmwide liability balances included TS liability balances recorded in certain other lines
of business. Liability balances associated with TS customers who were also customers of the
CB line of business were not included in TS liability balances. |
36
ASSET MANAGEMENT
For a discussion of the business profile of AM, see pages 5052 of JPMorgan Chases 2006
Annual Report and page 5 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management,
administration and commissions |
|
$ |
1,671 |
|
|
$ |
1,279 |
|
|
|
31 |
% |
|
$ |
3,160 |
|
|
$ |
2,501 |
|
|
|
26 |
% |
All other income |
|
|
173 |
|
|
|
93 |
|
|
|
86 |
|
|
|
343 |
|
|
|
209 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,844 |
|
|
|
1,372 |
|
|
|
34 |
|
|
|
3,503 |
|
|
|
2,710 |
|
|
|
29 |
|
Net interest income |
|
|
293 |
|
|
|
248 |
|
|
|
18 |
|
|
|
538 |
|
|
|
494 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
2,137 |
|
|
|
1,620 |
|
|
|
32 |
|
|
|
4,041 |
|
|
|
3,204 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
(11 |
) |
|
|
(7 |
) |
|
|
(57 |
) |
|
|
(20 |
) |
|
|
(14 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
879 |
|
|
|
669 |
|
|
|
31 |
|
|
|
1,643 |
|
|
|
1,351 |
|
|
|
22 |
|
Noncompensation expense |
|
|
456 |
|
|
|
390 |
|
|
|
17 |
|
|
|
907 |
|
|
|
784 |
|
|
|
16 |
|
Amortization of intangibles |
|
|
20 |
|
|
|
22 |
|
|
|
(9 |
) |
|
|
40 |
|
|
|
44 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,355 |
|
|
|
1,081 |
|
|
|
25 |
|
|
|
2,590 |
|
|
|
2,179 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
793 |
|
|
|
546 |
|
|
|
45 |
|
|
|
1,471 |
|
|
|
1,039 |
|
|
|
42 |
|
Income tax expense |
|
|
300 |
|
|
|
203 |
|
|
|
48 |
|
|
|
553 |
|
|
|
383 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
493 |
|
|
$ |
343 |
|
|
|
44 |
|
|
$ |
918 |
|
|
$ |
656 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
53 |
% |
|
|
39 |
% |
|
|
|
|
|
|
49 |
% |
|
|
38 |
% |
|
|
|
|
Overhead ratio |
|
|
63 |
|
|
|
67 |
|
|
|
|
|
|
|
64 |
|
|
|
68 |
|
|
|
|
|
Pretax margin
ratio(a) |
|
|
37 |
|
|
|
34 |
|
|
|
|
|
|
|
36 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private bank |
|
$ |
646 |
|
|
$ |
469 |
|
|
|
38 |
% |
|
$ |
1,206 |
|
|
$ |
910 |
|
|
|
33 |
% |
Institutional |
|
|
617 |
|
|
|
449 |
|
|
|
37 |
|
|
|
1,168 |
|
|
|
884 |
|
|
|
32 |
|
Retail |
|
|
602 |
|
|
|
446 |
|
|
|
35 |
|
|
|
1,129 |
|
|
|
888 |
|
|
|
27 |
|
Private client services |
|
|
272 |
|
|
|
256 |
|
|
|
6 |
|
|
|
538 |
|
|
|
522 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
2,137 |
|
|
$ |
1,620 |
|
|
|
32 |
|
|
$ |
4,041 |
|
|
$ |
3,204 |
|
|
|
26 |
|
|
|
|
|
(a)
|
|
Pretax margin represents Income before income tax expense divided by Total net revenue,
which is a measure of pretax performance and another basis by which management evaluates its
performance and that of its competitors. |
Quarterly results
Net income was a record $493 million, up by $150 million, or 44%, from the prior year. Results
benefited from increased revenue, partially offset by higher compensation expense.
Net revenue was a record $2.1 billion, up by $517 million, or 32%, from the prior year. Noninterest
revenue, principally fees and commissions, of $1.8 billion was up by $472 million, or 34%. This
increase was due largely to increased assets under management and higher performance and placement
fees. Net interest income of $293 million was up by $45 million, or 18%, from the prior year,
largely due to higher loan and deposit balances.
Private Bank revenue grew 38%, to $646 million, due to higher asset management and placement fees,
and higher loan and deposit balances. Institutional revenue grew 37%, to $617 million, due to net
asset inflows and performance fees. Retail revenue grew 35%, to $602 million, primarily due to net
asset inflows and market appreciation. Private Client Services revenue grew 6%, to $272 million,
due to increased revenue from higher assets under management and higher deposit balances.
Provision for credit losses was a benefit of $11 million compared with a benefit of $7 million in
the prior year.
Noninterest expense of $1.4 billion was up by $274 million, or 25%, from the prior year. The
increase was due largely to higher compensation, primarily performance-based, and investments in
all business segments.
37
Year-to-date results
Net income was a record $918 million, up by $262 million, or 40%, from the prior year. Results
benefited from increased revenue and absence of prior-year expense from adoption of SFAS 123R,
partially offset by higher compensation expense.
Net revenue was a record $4.0 billion, up by $837 million, or 26%, from the prior year. Noninterest
revenue, principally fees and commissions, of $3.5 billion was up by $793 million, or 29%. This
increase was due largely to increased assets under management and higher performance and placement
fees. Net interest income of $538 million was up by $44 million, or 9%, from the prior year,
primarily due to higher loan and deposit balances, partially offset by a shift to narrowerspread
deposit products.
Private Bank revenue grew 33%, to $1.2 billion, due to higher asset management and placement fees,
and higher loan and deposit balances. Institutional revenue grew 32%, to $1.2 billion, due to net
asset inflows and performance fees. Retail revenue grew 27%, to $1.1 billion, primarily due to net
asset inflows and market appreciation. Private Client Services revenue grew 3%, to $538 million,
due to increased revenue from higher assets under management and higher deposit balances, partially
offset by a shift to narrower-spread deposit products.
Provision for credit losses was a benefit of $20 million compared with a benefit of $14 million in
the prior year.
Noninterest expense of $2.6 billion was up by $411 million, or 19%, from the prior year. The
increase was due largely to higher compensation, primarily performance-based; investments in all
business segments; and increased minority interest expense related to Highbridge Capital
Management. These factors were partially offset by the absence of prior-year expense from the
adoption of SFAS 123R.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except headcount, ratios and |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
ranking data, and where otherwise noted) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client advisors |
|
|
1,582 |
|
|
|
1,486 |
|
|
|
6 |
% |
|
|
1,582 |
|
|
|
1,486 |
|
|
|
6 |
% |
Retirement planning services participants |
|
|
1,477,000 |
|
|
|
1,361,000 |
|
|
|
9 |
|
|
|
1,477,000 |
|
|
|
1,361,000 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of customer assets in 4 & 5 Star
Funds(a) |
|
|
65 |
% |
|
|
56 |
% |
|
|
16 |
|
|
|
65 |
% |
|
|
56 |
% |
|
|
16 |
|
% of AUM in 1st and 2nd quartiles:(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
65 |
% |
|
|
71 |
% |
|
|
(8 |
) |
|
|
65 |
% |
|
|
71 |
% |
|
|
(8 |
) |
3 years |
|
|
77 |
% |
|
|
75 |
% |
|
|
3 |
|
|
|
77 |
% |
|
|
75 |
% |
|
|
3 |
|
5 years |
|
|
76 |
% |
|
|
81 |
% |
|
|
(6 |
) |
|
|
76 |
% |
|
|
81 |
% |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheets data (average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
51,710 |
|
|
$ |
43,228 |
|
|
|
20 |
|
|
$ |
48,779 |
|
|
$ |
42,126 |
|
|
|
16 |
|
Loans(c) |
|
|
28,695 |
|
|
|
25,807 |
|
|
|
11 |
|
|
|
27,176 |
|
|
|
25,148 |
|
|
|
8 |
|
Deposits |
|
|
55,981 |
|
|
|
51,583 |
|
|
|
9 |
|
|
|
55,402 |
|
|
|
49,834 |
|
|
|
11 |
|
Equity |
|
|
3,750 |
|
|
|
3,500 |
|
|
|
7 |
|
|
|
3,750 |
|
|
|
3,500 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
14,108 |
|
|
|
12,786 |
|
|
|
10 |
|
|
|
14,108 |
|
|
|
12,786 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
(5 |
) |
|
$ |
(4 |
) |
|
|
(25 |
) |
|
$ |
(5 |
) |
|
$ |
3 |
|
|
NM |
Nonperforming loans |
|
|
21 |
|
|
|
76 |
|
|
|
(72 |
) |
|
|
21 |
|
|
|
76 |
|
|
|
(72 |
) |
Allowance for loan losses |
|
|
105 |
|
|
|
117 |
|
|
|
(10 |
) |
|
|
105 |
|
|
|
117 |
|
|
|
(10 |
) |
Allowance for lending-related commitments |
|
|
7 |
|
|
|
3 |
|
|
|
133 |
|
|
|
7 |
|
|
|
3 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate |
|
|
(0.07 |
)% |
|
|
(0.06 |
)% |
|
|
|
|
|
|
(0.04 |
)% |
|
|
0.02 |
% |
|
|
|
|
Allowance for loan losses to average loans |
|
|
0.37 |
|
|
|
0.45 |
|
|
|
|
|
|
|
0.39 |
|
|
|
0.47 |
|
|
|
|
|
Allowance for loan losses to nonperforming loans |
|
|
500 |
|
|
|
154 |
|
|
|
|
|
|
|
500 |
|
|
|
154 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.07 |
|
|
|
0.29 |
|
|
|
|
|
|
|
0.08 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
(a)
|
|
Derived from Morningstar for the United States; Micropal for the United Kingdom,
Luxembourg, Hong Kong and Taiwan; and Nomura for Japan. |
(b)
|
|
Quartile rankings sourced from Lipper for the United States and Taiwan; Micropal for the
United Kingdom, Luxembourg and Hong Kong; and Nomura for Japan. |
(c)
|
|
As of January 1, 2007, $5.3 billion of held-for-investment prime mortgage loans were
transferred from AM to Treasury within the Corporate segment. Although the loans, together
with the responsibility for the investment management of the portfolio, were transferred to
Treasury, the transfer has no impact on the financial results of AM. |
38
Assets under supervision
Assets under supervision were $1.5 trillion, up 21%, or $259 billion, from the prior year. Assets
under management were $1.1 trillion, up 23%, or $211 billion, from the prior year. The increase was
the result of net asset inflows into the Institutional segment (primarily in liquidity and
alternative products), the Retail segment (primarily fixed income and alternative products) and the
Private Bank segment (primarily in liquidity and alternative products); and from market
appreciation. Custody, brokerage, administration and deposit balances were $363 billion, up by $48
billion.
|
|
|
|
|
|
|
|
|
ASSETS UNDER SUPERVISION(a) (in billions) |
|
|
|
|
|
|
As of June 30, |
|
2007 |
|
|
2006 |
|
|
Assets by asset class |
|
|
|
|
|
|
|
|
Liquidity(b) |
|
$ |
333 |
|
|
$ |
247 |
|
Fixed income |
|
|
190 |
|
|
|
172 |
|
Equities & balanced |
|
|
467 |
|
|
|
393 |
|
Alternatives |
|
|
119 |
|
|
|
86 |
|
|
Total Assets under management |
|
|
1,109 |
|
|
|
898 |
|
Custody/brokerage/administration/deposits |
|
|
363 |
|
|
|
315 |
|
|
Total Assets under supervision |
|
$ |
1,472 |
|
|
$ |
1,213 |
|
|
|
|
|
|
|
|
|
|
|
Assets by client segment |
|
|
|
|
|
|
|
|
Institutional |
|
$ |
565 |
|
|
$ |
484 |
|
Private Bank |
|
|
185 |
|
|
|
143 |
|
Retail |
|
|
300 |
|
|
|
219 |
|
Private Client Services |
|
|
59 |
|
|
|
52 |
|
|
Total Assets under management |
|
$ |
1,109 |
|
|
$ |
898 |
|
|
Institutional |
|
$ |
566 |
|
|
$ |
486 |
|
Private Bank |
|
|
402 |
|
|
|
331 |
|
Retail |
|
|
393 |
|
|
|
295 |
|
Private Client Services |
|
|
111 |
|
|
|
101 |
|
|
Total Assets under supervision |
|
$ |
1,472 |
|
|
$ |
1,213 |
|
|
|
|
|
|
|
|
|
|
|
Assets by geographic region |
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
700 |
|
|
$ |
577 |
|
International |
|
|
409 |
|
|
|
321 |
|
|
Total Assets under management |
|
$ |
1,109 |
|
|
$ |
898 |
|
|
U.S./Canada |
|
$ |
971 |
|
|
$ |
828 |
|
International |
|
|
501 |
|
|
|
385 |
|
|
Total Assets under supervision |
|
$ |
1,472 |
|
|
$ |
1,213 |
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
268 |
|
|
$ |
178 |
|
Fixed income |
|
|
49 |
|
|
|
47 |
|
Equity |
|
|
235 |
|
|
|
194 |
|
|
Total mutual fund assets |
|
$ |
552 |
|
|
$ |
419 |
|
|
|
|
|
(a)
|
|
Excludes Assets under management of American Century Companies, Inc, in which the Firm
has 44% ownership. |
(b)
|
|
In the third quarter of 2006, $19 billion of assets under management were reclassified into
liquidity from other asset classes. Prior-period data was not reclassified. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management rollforward |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in billions) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Beginning balance |
|
$ |
1,053 |
|
|
$ |
873 |
|
|
$ |
1,013 |
|
|
$ |
847 |
|
Flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
12 |
|
|
|
10 |
|
|
|
19 |
|
|
|
5 |
|
Fixed income |
|
|
6 |
|
|
|
6 |
|
|
|
8 |
|
|
|
6 |
|
Equities, balanced and alternatives |
|
|
12 |
|
|
|
13 |
|
|
|
22 |
|
|
|
26 |
|
Market/performance/other impacts |
|
|
26 |
|
|
|
(4 |
) |
|
|
47 |
|
|
|
14 |
|
|
Ending balance |
|
$ |
1,109 |
|
|
$ |
898 |
|
|
$ |
1,109 |
|
|
$ |
898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under supervision rollforward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,395 |
|
|
$ |
1,197 |
|
|
$ |
1,347 |
|
|
$ |
1,149 |
|
Net asset flows |
|
|
38 |
|
|
|
33 |
|
|
|
65 |
|
|
|
45 |
|
Market/performance/other impacts |
|
|
39 |
|
|
|
(17 |
) |
|
|
60 |
|
|
|
19 |
|
|
Ending balance |
|
$ |
1,472 |
|
|
$ |
1,213 |
|
|
$ |
1,472 |
|
|
$ |
1,213 |
|
|
39
CORPORATE
For a discussion of the business profile of Corporate, see pages 5354 of JPMorgan Chases
2006 Annual Report.
The transaction with The Bank of New York closed on October 1, 2006. As a result of this
transaction, select corporate trust businesses were transferred from TSS to the Corporate segment
and are reported in discontinued operations for 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
(in millions, except headcount) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal transactions(a)(b) |
|
$ |
1,372 |
|
|
$ |
551 |
|
|
|
149 |
% |
|
$ |
2,697 |
|
|
$ |
750 |
|
|
|
260 |
% |
Securities gains (losses) |
|
|
(227 |
) |
|
|
(492 |
) |
|
|
54 |
|
|
|
(235 |
) |
|
|
(650 |
) |
|
|
64 |
|
All other income(c) |
|
|
90 |
|
|
|
231 |
|
|
|
(61 |
) |
|
|
158 |
|
|
|
333 |
|
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,235 |
|
|
|
290 |
|
|
|
326 |
|
|
|
2,620 |
|
|
|
433 |
|
|
NM |
Net interest income |
|
|
(173 |
) |
|
|
(355 |
) |
|
|
51 |
|
|
|
(290 |
) |
|
|
(902 |
) |
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,062 |
|
|
|
(65 |
) |
|
NM |
|
|
2,330 |
|
|
|
(469 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
3 |
|
|
|
|
|
|
NM |
|
|
6 |
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense(b) |
|
|
695 |
|
|
|
770 |
|
|
|
(10 |
) |
|
|
1,471 |
|
|
|
1,455 |
|
|
|
1 |
|
Noncompensation expense(d) |
|
|
818 |
|
|
|
336 |
|
|
|
143 |
|
|
|
1,374 |
|
|
|
948 |
|
|
|
45 |
|
Merger costs |
|
|
64 |
|
|
|
86 |
|
|
|
(26 |
) |
|
|
126 |
|
|
|
157 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
1,577 |
|
|
|
1,192 |
|
|
|
32 |
|
|
|
2,971 |
|
|
|
2,560 |
|
|
|
16 |
|
Net expenses allocated to other businesses |
|
|
(1,075 |
) |
|
|
(1,036 |
) |
|
|
(4 |
) |
|
|
(2,115 |
) |
|
|
(2,069 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
502 |
|
|
|
156 |
|
|
|
222 |
|
|
|
856 |
|
|
|
491 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income tax expense |
|
|
557 |
|
|
|
(221 |
) |
|
NM |
|
|
1,468 |
|
|
|
(960 |
) |
|
NM |
Income tax expense (benefit) |
|
|
175 |
|
|
|
(181 |
) |
|
NM |
|
|
455 |
|
|
|
(500 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
382 |
|
|
|
(40 |
) |
|
NM |
|
|
1,013 |
|
|
|
(460 |
) |
|
NM |
Income from discontinued
operations(e) |
|
|
|
|
|
|
56 |
|
|
NM |
|
|
|
|
|
|
110 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
382 |
|
|
$ |
16 |
|
|
NM |
|
$ |
1,013 |
|
|
$ |
(350 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity (a) (b) |
|
$ |
1,293 |
|
|
$ |
500 |
|
|
|
159 |
|
|
$ |
2,546 |
|
|
$ |
704 |
|
|
|
262 |
|
Treasury and Corporate other |
|
|
(231 |
) |
|
|
(565 |
) |
|
|
59 |
|
|
|
(216 |
) |
|
|
(1,173 |
) |
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,062 |
|
|
$ |
(65 |
) |
|
NM |
|
$ |
2,330 |
|
|
$ |
(469 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity (a) |
|
$ |
702 |
|
|
$ |
293 |
|
|
|
140 |
|
|
$ |
1,400 |
|
|
$ |
396 |
|
|
|
254 |
|
Treasury and Corporate other |
|
|
(280 |
) |
|
|
(280 |
) |
|
|
|
|
|
|
(309 |
) |
|
|
(759 |
) |
|
|
59 |
|
Merger costs |
|
|
(40 |
) |
|
|
(53 |
) |
|
|
25 |
|
|
|
(78 |
) |
|
|
(97 |
) |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
382 |
|
|
|
(40 |
) |
|
NM |
|
|
1,013 |
|
|
|
(460 |
) |
|
NM |
Income from discontinued
operations(e) |
|
|
|
|
|
|
56 |
|
|
NM |
|
|
|
|
|
|
110 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total net income (loss) |
|
$ |
382 |
|
|
$ |
16 |
|
|
NM |
|
$ |
1,013 |
|
|
$ |
(350 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
23,532 |
|
|
|
27,100 |
|
|
|
(13 |
) |
|
|
23,532 |
|
|
|
27,100 |
|
|
|
(13 |
) |
|
|
|
|
(a)
|
|
The Firm adopted SFAS 157 in the first quarter of 2007. See Note 3 on pages 7380 of this
Form 10-Q for additional information. |
(b)
|
|
2007 included the classification of certain private equity carried interest from Net revenue
to Compensation expense. |
(c)
|
|
Included a gain of $103 million in the second quarter of 2006 related to the sale of
Mastercard shares in its initial public offering. |
(d)
|
|
Included insurance recoveries related to settlement of the Enron and WorldCom class action
litigations and for certain other material proceedings of $260 million and $358 million for
the quarter and six months ended June 30, 2006, respectively. |
(e)
|
|
On October 1, 2006, the Firm completed the exchange of selected corporate trust businesses,
including trustee, paying agent, loan agency and document management services, for the
consumer, business banking and middle-market banking businesses of The Bank of New York. The
results of operations of these corporate trust businesses were reported as discontinued
operations for 2006. |
Quarterly results
Net income was $382 million compared with $16 million in the prior year. Results benefited
from higher private equity gains, lower securities losses and improved net interest income,
partially offset by higher expense. Prior-year results also included Income from discontinued
operations of $56 million.
Net revenue was $1.1 billion compared with negative $65 million in the prior year. Private Equity
gains were $1.3 billion compared with $549 million in the prior year, benefiting from a higher
level of gains and the classification of certain private equity carried interest as compensation
expense. Revenue also benefited from a lower amount of securities losses and improved net interest
income. Prior-year results also included a gain of $103 million related to the sale of MasterCard
shares in its initial public offering.
40
Noninterest expense was $502 million, up by $346 million from the prior year. The increase
was driven by higher net legal costs, reflecting a lower level of recoveries and higher expense,
including settlement costs relating to certain copper antitrust litigation. In addition,
expense increased due to the classification of certain private equity carried interest as
compensation expense. The increase in Noninterest expense was offset partially by lower
compensation expense and business efficiencies.
Year-to-date results
Net income was $1.0 billion compared with a net loss of $350 million. Results benefited from
higher private equity gains, improved net interest income and lower securities losses, partially
offset by higher expense. Prior-year results also included Income from discontinued operations of
$110 million.
Net revenue was $2.3 billion compared with a negative $469 million in the prior year. Private
Equity gains were $2.6 billion compared with $786 million in the prior year, benefiting from a
higher level of gains, the classification of certain private equity carried interest as
compensation expense and a fair value adjustment on nonpublic investments resulting from the
adoption of SFAS 157. Revenue also benefited from improved net interest income and a lower amount
of securities losses. Prior-year results also included a gain of $103 million related to the sale
of Mastercard shares in its initial public offering.
Noninterest expense was $856 million compared with $491 million in the prior year. The increase was
driven by higher net legal costs, reflecting a lower level of recoveries and higher expense. In
addition, expense increased due to the classification of certain private equity carried interest as
compensation expense. The increase in Noninterest expense was offset partially by business
efficiencies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement and balance sheet data |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in millions) |
|
2007 |
|
|
2006 |
|
|
Change |
|
2007 |
|
|
2006 |
|
|
Change |
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains (losses)(a) |
|
$ |
(227 |
) |
|
$ |
(492 |
) |
|
|
54 |
% |
|
$ |
(235 |
) |
|
$ |
(650 |
) |
|
|
64 |
% |
Investment securities portfolio (average) |
|
|
87,760 |
|
|
|
63,714 |
|
|
|
38 |
|
|
|
87,102 |
|
|
|
51,917 |
|
|
|
68 |
|
Investment securities portfolio (ending) |
|
|
86,821 |
|
|
|
61,990 |
|
|
|
40 |
|
|
|
86,821 |
|
|
|
61,990 |
|
|
|
40 |
|
Mortgage loans (average)(b) |
|
|
26,830 |
|
|
|
|
|
|
NM |
|
|
26,041 |
|
|
|
|
|
|
NM |
Mortgage loans (ending)(b) |
|
|
27,299 |
|
|
|
|
|
|
NM |
|
|
27,299 |
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
985 |
|
|
$ |
568 |
|
|
|
73 |
|
|
$ |
1,708 |
|
|
$ |
775 |
|
|
|
120 |
|
Unrealized gains (losses) |
|
|
290 |
|
|
|
(25 |
) |
|
NM |
|
|
811 |
|
|
|
(11 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Total direct investments(c) |
|
|
1,275 |
|
|
|
543 |
|
|
|
135 |
|
|
|
2,519 |
|
|
|
764 |
|
|
|
230 |
|
Third-party fund investments |
|
|
53 |
|
|
|
6 |
|
|
NM |
|
|
87 |
|
|
|
22 |
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
Total private equity gains(d) |
|
$ |
1,328 |
|
|
$ |
549 |
|
|
|
142 |
|
|
$ |
2,606 |
|
|
$ |
786 |
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity portfolio information(e) |
|
|
|
|
|
|
|
|
|
Direct investments |
|
June 30, 2007 |
|
December 31, 2006 |
|
Change |
|
Publicly-held securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
$ |
465 |
|
|
$ |
587 |
|
|
|
(21 |
)% |
Cost |
|
|
367 |
|
|
|
451 |
|
|
|
(19 |
) |
Quoted public value |
|
|
600 |
|
|
|
831 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately-held direct securities |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
5,247 |
|
|
|
4,692 |
|
|
|
12 |
|
Cost |
|
|
5,228 |
|
|
|
5,795 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party fund investments(f) |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
812 |
|
|
|
802 |
|
|
|
1 |
|
Cost |
|
|
1,067 |
|
|
|
1,080 |
|
|
|
(1 |
) |
|
|
|
|
|
Total private equity portfolio Carrying value |
|
$ |
6,524 |
|
|
$ |
6,081 |
|
|
|
7 |
|
Total private equity portfolio Cost |
|
$ |
6,662 |
|
|
$ |
7,326 |
|
|
|
(9 |
) |
|
|
|
|
(a) |
|
Losses reflected repositioning of the Treasury investment securities portfolio. |
(b) |
|
As of January 1, 2007, $19.4 billion and $5.3 billion of held-for-investment residential
mortgage loans were transferred from RFS and AM, respectively, to the Corporate segment for
risk management and reporting purposes. Although the loans, together with the responsibility
for the investment management of the portfolio, were transferred to Treasury, the transfer
has no impact on the financial results of Corporate. |
(c) |
|
Private equity gains include a fair value adjustment related to the adoption of SFAS 157 in
the first quarter of 2007. In addition, 2007 includes the classification of certain private
equity carried interest from Net revenue to Compensation expense. |
(d) |
|
Included in Principal transactions revenue. |
(e) |
|
For more information on the Firms policies regarding the valuation of the private equity
portfolio, see Note 5 on pages 8385 of this Form 10-Q. |
(f) |
|
Unfunded commitments to third-party equity funds were $742 million and $589 million at June
30, 2007 and December 31, 2006, respectively. |
41
The carrying value of the private equity portfolio at June 30, 2007, was $6.5 billion, up $443
million from December 31, 2006. The portfolio increase was due primarily to favorable valuation
adjustments on nonpublic investments and new investments, partially offset by sales activity. The
portfolio represented 8.8% of the Firms stockholders equity less goodwill at June 30, 2007, up
from 8.6% at December 31, 2006.
|
|
|
|
|
|
|
|
|
Selected balance sheet data (in millions) |
|
June 30, 2007 |
|
|
December 31, 2006 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
35,449 |
|
|
$ |
40,412 |
|
Deposits with banks |
|
|
41,736 |
|
|
|
13,547 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
125,930 |
|
|
|
140,524 |
|
Securities borrowed |
|
|
88,360 |
|
|
|
73,688 |
|
Trading assets: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
391,508 |
|
|
|
310,137 |
|
Derivative receivables |
|
|
59,038 |
|
|
|
55,601 |
|
Securities: |
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
95,934 |
|
|
|
91,917 |
|
Held-to-maturity |
|
|
50 |
|
|
|
58 |
|
Loans, net of Allowance for loan losses |
|
|
457,404 |
|
|
|
475,848 |
|
Other receivables |
|
|
31,947 |
|
|
|
27,585 |
|
Goodwill |
|
|
45,254 |
|
|
|
45,186 |
|
Other intangible assets |
|
|
16,193 |
|
|
|
14,852 |
|
All other assets |
|
|
69,239 |
|
|
|
62,165 |
|
|
Total assets |
|
$ |
1,458,042 |
|
|
$ |
1,351,520 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
651,370 |
|
|
$ |
638,788 |
|
Federal funds purchased and securities sold under repurchase agreements |
|
|
205,961 |
|
|
|
162,173 |
|
Commercial paper and other borrowed funds |
|
|
54,379 |
|
|
|
36,902 |
|
Trading liabilities: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
93,969 |
|
|
|
90,488 |
|
Derivative payables |
|
|
61,396 |
|
|
|
57,469 |
|
Long-term debt and trust preferred capital debt securities |
|
|
172,163 |
|
|
|
145,630 |
|
Beneficial interests issued by consolidated variable interest
entities |
|
|
14,808 |
|
|
|
16,184 |
|
All other liabilities |
|
|
84,785 |
|
|
|
88,096 |
|
|
Total liabilities |
|
|
1,338,831 |
|
|
|
1,235,730 |
|
Stockholders equity |
|
|
119,211 |
|
|
|
115,790 |
|
|
Total liabilities and stockholders equity |
|
$ |
1,458,042 |
|
|
$ |
1,351,520 |
|
|
Consolidated Balance sheets overview
At June 30, 2007, the Firms total assets were $1.5 trillion, an increase of $106.5 billion, or 8%,
from December 31, 2006. Total liabilities were $1.3 trillion, an increase of $103.1 billion, or 8%,
from December 31, 2006. Stockholders equity was $119.2 billion, an increase of $3.4 billion, or 3%
from December 31, 2006. The following is a discussion of the significant changes in balance sheet
items from December 31, 2006.
Deposits with banks; Federal funds sold and securities purchased under resale agreements;
Securities borrowed; Federal funds purchased and securities sold under repurchase agreements; and
Commercial paper and other borrowed funds
The Firm utilizes Deposits with banks, Federal funds sold and securities purchased under resale
agreements, Securities borrowed, Federal funds purchased and securities sold under repurchase
agreements and Commercial paper and other borrowed funds as part of its liquidity management
activities to manage the Firms cash positions and risk-based capital requirements, to maximize
liquidity access and minimize funding costs. The net increase from December 31, 2006, in Deposits
with banks, Federal funds sold, and Securities borrowed reflected higher levels of funds that were
available for short-term investment opportunities. Securities sold under repurchase agreements and
Commercial paper and other borrowed funds increased primarily due to higher short-term requirements
to fund trading positions and AFS securities inventory levels, as well as growth in demand for
Commercial paper. For additional information on the Firms Liquidity risk management, see pages
4951 of this Form 10-Q.
42
Trading assets and liabilities debt and equity instruments
The Firm uses debt and equity trading instruments for both market-making and proprietary
risk-taking activities. These instruments consist primarily of fixed income securities (including
government and corporate debt), equity securities and convertible cash instruments, loans and
physical commodities. The increase in trading assets from December 31, 2006, was due primarily to
the generally more favorable capital markets environment, with growth in client-driven
market-making activities, particularly for debt securities. In addition, a total of $35.2 billion
of loans are now accounted for at fair value under SFAS 159 and classified as trading assets in the
Consolidated balance sheets. These are primarily loans warehoused by the IB and certain prime
mortgage loans warehoused by RFS for sale or securitization purposes. For additional information,
refer to Note 4 and Note 5 on pages 8083 and 8385, respectively, of this Form 10-Q.
Trading assets and liabilities derivative receivables and payables
The Firm utilizes various interest rate, foreign exchange, equity, credit and commodity derivatives
for market-making, proprietary risk-taking and risk-management purposes. The increase in derivative
receivables from December 31, 2006, was related primarily to higher receivables on equity-related
and interest rate derivatives due to the strength of the equities markets, as well as rising
interest rates and the decline in the value of the U.S. Dollar, respectively. The increase in
derivative receivables was offset partially by lower commodity receivables as a result of
termination of contracts and risk management activities. The increase in derivative payables from
December 31, 2006, was due primarily to higher payables on equity-related and foreign exchange
derivatives due to the strength of the equities markets and the decline in the value of the U.S.
Dollar, respectively. The increase in derivative payables was offset partially by lower commodity
payables as a result of the termination of contracts and risk management activities. For additional
information, refer to Derivative contracts and Note 5 on pages 5658 and 8385, respectively, of
this Form 10-Q.
Securities
Almost all of the Firms securities portfolios are classified as AFS and are used primarily to
manage the Firms exposure to interest rate movements. The AFS portfolio increased by $4.0 billion
from December 31, 2006, primarily due to net purchases of securities by Treasury associated with
managing the Firms exposure to interest rates. For additional information related to securities,
refer to the Corporate segment discussion and to Note 11 on pages 4042 and 8990, respectively, of
this Form 10-Q.
Loans
The Firm provides loans to customers of all sizes, from large corporate and institutional clients
to individual consumers. The Firm manages the risk/reward relationship of each portfolio and
discourages the retention of loan assets that do not generate a positive return above the cost of
risk-adjusted capital. Loans, net of the Allowance for loan losses, declined by $18.4 billion, or
4%, from December 31, 2006, primarily due to the decline of RFS loans as certain prime mortgage
loans originated after January 1, 2007, are classified as Trading assets and accounted for at fair
value under SFAS 159. In addition, certain loans warehoused in the IB were transferred to Trading
assets on January 1, 2007, as part of the adoption of SFAS 159. Also contributing to the decrease
were typical seasonal declines in credit card receivables and the restructuring during the first
quarter of 2007 of a Firm-administered multi-seller conduit, which resulted in the deconsolidation
of $3.2 billion of Loans. These decreases were offset partly by an increase in wholesale lending
activity, primarily in the IB. For a more detailed discussion of the loan portfolio and the
Allowance for loan losses, refer to Credit risk management on pages 5162 of this Form 10-Q.
Goodwill
Goodwill arises from business combinations and represents the excess of the cost of an acquired
entity over the net fair value amounts assigned to assets acquired and liabilities assumed. The $68
million increase in Goodwill primarily resulted from certain acquisitions by TSS and tax-related
purchase accounting adjustments associated with the Bank One merger, partially offset by a
reduction from the adoption of FIN 48. For additional information related to Goodwill, including
the impact of adopting FIN 48, see Note 17 on pages 100102 and Note 20 on page 104 of this Form
10-Q.
Other intangible assets
The Firms Other intangible assets consists of MSRs, purchased credit card relationships, other
credit cardrelated intangibles, core deposit intangibles, and all other intangibles. The $1.3
billion increase in Other intangible assets partly reflects higher MSRs of $2.0 billion, primarily
due to MSR additions from loan sales, MSR purchases and an increase in the MSR valuation largely
attributable to increased long-term interest rates. Partially offsetting these increases were other
changes in the fair value of MSRs related primarily to modeled mortgage servicing portfolio runoff
(or time decay) and the amortization of intangibles, in particular, credit cardrelated and core
deposit intangibles. For additional information on MSRs and other intangible assets, see Note 17 on
pages 100102 of this Form 10-Q.
43
Deposits
The Firms deposits represent a liability to customers, both retail and wholesale, for funds held
on their behalf. Deposits are generally classified by location (U.S. and non-U.S.), whether they
are interest or noninterest-bearing, and by type (i.e., demand, money market deposit accounts
(MMDAs), savings, time or negotiable order of withdrawal (NOW) accounts). Deposits provide a
stable and consistent source of funding to the Firm. Deposits increased by $12.6 billion, or 2%,
from December 31, 2006. These were primarily wholesale deposits driven by net growth in business
volumes, in particular, interest-bearing deposits within TSS. For more information on deposits,
refer to the RFS, TSS and AM segment discussions and the Liquidity risk management discussion on
pages 2128, 3536, 3739 and 4951, respectively, of this Form 10-Q. For more information on
wholesale liability balances, including deposits, refer to the CB and TSS segment discussions on
pages 3334 and 3536, respectively, of this Form 10-Q.
Beneficial interests issued by consolidated variable interest entities (VIEs)
Beneficial interests issued by consolidated VIEs declined by $1.4 billion, or 9%, from December 31,
2006, as a result of the restructuring during the first quarter of 2007 of a Firm-administered
multi-seller conduit, partially offset by new issuances by an existing consolidated VIE in the
second quarter of 2007. For additional information related to multi-seller conduits refer to
Offbalance sheet arrangements and contractual cash obligations on pages 4748 and Note 16 on pages
99100 of this Form 10-Q.
Long-term debt and trust preferred capital debt securities
The Firm utilizes Long-term debt and trust preferred capital debt securities as part of its
liquidity and capital management activities. Long-term debt and trust preferred capital debt
securities increased by $26.5 billion, or 18%, from December 31, 2006, reflecting net new
issuances, including client-driven structured notes in the IB. For additional information on the
Firms long-term debt activities, see the Liquidity risk management discussion on pages 4951 of
this Form 10-Q.
Stockholders equity
Total stockholders equity increased by $3.4 billion, or 3%, from year-end 2006 to $119.2 billion
at June 30, 2007. The increase was primarily the result of Net income for the first six months of
2007, net shares issued under the Firms employee stock-based compensation plans, and the
cumulative effect on Retained earnings of changes in accounting principles of $915 million, offset
partially by stock repurchases and the declaration of cash dividends. The $915 million increase in
Retained earnings resulting from the adoption of new accounting principles primarily reflected $287
million related to SFAS 157, $199 million related to SFAS 159 and $436 million related to FIN 48 in
the first quarter of 2007. For a further discussion of capital, see the Capital management section
that follows; for a further discussion of the accounting changes see Accounting and Reporting
Developments on pages 6667, Note 3 on pages 7380, Note 4 on pages 8083 and Note 20 on page 104
of this Form 10-Q.
44
The following discussion of JPMorgan Chases capital management highlights developments since
December 31, 2006, and should be read in conjunction with Capital Management, on pages 5759 of
JPMorgan Chases 2006 Annual Report.
The Firms capital management framework is intended to ensure that there is capital sufficient to
support the underlying risks of the Firms business activities, as measured by economic risk
capital, and to maintain well-capitalized status under regulatory requirements. In addition, the
Firm holds capital above these requirements in amounts deemed appropriate to achieve managements
regulatory and debt rating objectives. The process of assigning equity to the lines of business is
integrated into the Firms capital framework and is overseen by the Asset-Liability Committee
(ALCO).
Line of business equity
Equity for a line of business represents the amount of capital the Firm believes the business would
require if it were operating independently, incorporating sufficient capital to address economic
risk measures, regulatory capital requirements and capital levels for similarly rated peers. Return
on equity is measured and internal targets for expected returns are established as a key measure of
a business segments performance. The Firm may revise its equity capital-allocation methodology in
the future.
In accordance with SFAS 142, the lines of business perform the required goodwill impairment
testing. For a further discussion of Goodwill and impairment testing, see Critical accounting
estimates and Note 16 on pages 85 and 121, respectively, of JPMorgan Chases 2006 Annual Report,
and Note 17 on page 100 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
Line of business equity |
|
Quarterly Averages |
(in billions) |
|
2Q07 |
|
|
2Q06 |
|
|
Investment Bank |
|
$ |
21.0 |
|
|
$ |
21.0 |
|
Retail Financial Services |
|
|
16.0 |
|
|
|
14.3 |
|
Card Services |
|
|
14.1 |
|
|
|
14.1 |
|
Commercial Banking |
|
|
6.3 |
|
|
|
5.5 |
|
Treasury & Securities Services |
|
|
3.0 |
|
|
|
2.2 |
|
Asset Management |
|
|
3.8 |
|
|
|
3.5 |
|
Corporate |
|
|
53.9 |
|
|
|
48.4 |
|
|
Total common stockholders
equity |
|
$ |
118.1 |
|
|
$ |
109.0 |
|
|
Economic risk capital
JPMorgan Chase assesses its capital adequacy relative to the risks underlying the Firms business
activities, utilizing internal risk-assessment methodologies. The Firm assigns economic capital
primarily based upon four risk factors: credit risk, market risk, operational risk and private
equity risk, principally for the Firms private equity business.
|
|
|
|
|
|
|
|
|
Economic risk capital |
|
Quarterly Averages |
(in billions) |
|
2Q07 |
|
|
2Q06 |
|
|
Credit risk |
|
$ |
23.5 |
|
|
$ |
21.2 |
|
Market risk |
|
|
9.9 |
|
|
|
10.2 |
|
Operational risk |
|
|
5.6 |
|
|
|
5.8 |
|
Private equity risk |
|
|
3.8 |
|
|
|
3.2 |
|
|
Economic risk capital |
|
|
42.8 |
|
|
|
40.4 |
|
Goodwill |
|
|
45.2 |
|
|
|
43.5 |
|
Other(a) |
|
|
30.1 |
|
|
|
25.1 |
|
|
Total common stockholders equity |
|
$ |
118.1 |
|
|
$ |
109.0 |
|
|
|
|
|
(a) |
|
Reflects additional capital required, in managements view, to meet its regulatory and
debt rating objectives. |
Regulatory capital
The Firms banking regulator, the Federal Reserve Board (FRB), establishes capital requirements,
including well-capitalized standards for the consolidated financial holding company. The Office of
the Comptroller of the Currency (OCC) establishes similar capital requirements and standards for
the Firms national banks, including JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.
In 2005, the FRB issued a final rule, which became effective April 11, 2005, that continues the
inclusion of trust preferred capital debt securities in Tier 1 capital, subject to stricter
quantitative limits and revised qualitative standards, and broadens the definition of restricted
core capital elements. The rule provides for a transition period that ends March
45
31, 2009. As an internationally active bank holding company, JPMorgan Chase is subject to the
rules limitation on restricted core capital elements, including trust preferred capital debt
securities, to 15% of total core capital elements, net of goodwill less any associated deferred
tax liability. At June 30, 2007, JPMorgan Chases restricted core capital elements were 15% of
total core capital elements.
Tier 1 capital was $85.1 billion at June 30, 2007, compared with $81.1 billion at December 31,
2006, an increase of $4.0 billion. The increase was due primarily to net income of $9.0 billion;
net issuances of common stock under the Firms employee stock-based compensation plans of $2.4
billion; net issuances of $634 million qualifying trust preferred capital debt securities; and the
effects of the adoption of new accounting principles reflecting increases of $287 million for SFAS
157, $199 million for SFAS 159 and $436 million for FIN 48. Partially offsetting these increases
were decreases in Stockholders equity net of Accumulated other comprehensive income (loss) due to
common stock repurchases of $5.9 billion and dividends declared of $2.5 billion. In addition, the
change in capital reflects the exclusion of a $289 million valuation adjustment to certain
liabilities pursuant to SFAS 157 to reflect the credit quality of the Firm. Additional information
regarding the Firms capital ratios and the federal regulatory capital standards to which it is
subject is presented in Note 26 on pages 129130 of JPMorgan Chases 2006 Annual Report.
The following table presents the risk-based capital ratios for JPMorgan Chase and its significant
banking subsidiaries at June 30, 2007, and December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk- |
|
|
Adjusted |
|
|
Tier 1 |
|
Total |
|
Tier 1 |
|
|
Tier 1 |
|
|
Total |
|
|
weighted |
|
|
average |
|
|
capital |
|
capital |
|
leverage |
(in millions, except ratios) |
|
capital |
|
|
capital |
|
|
assets(c) |
|
|
assets(d) |
|
|
ratio |
|
ratio |
|
ratio |
|
June 30, 2007(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
85,096 |
|
|
$ |
122,276 |
|
|
$ |
1,016,031 |
|
|
$ |
1,376,727 |
|
|
|
8.4 |
% |
|
|
12.0 |
% |
|
|
6.2 |
% |
JPMorgan Chase Bank, N.A. |
|
|
71,500 |
|
|
|
100,798 |
|
|
|
917,322 |
|
|
|
1,210,657 |
|
|
|
7.8 |
|
|
|
11.0 |
|
|
|
5.9 |
|
Chase Bank USA, N.A. |
|
|
9,444 |
|
|
|
11,369 |
|
|
|
68,520 |
|
|
|
60,961 |
|
|
|
13.8 |
|
|
|
16.6 |
|
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co. |
|
$ |
81,055 |
|
|
$ |
115,265 |
|
|
$ |
935,909 |
|
|
$ |
1,308,699 |
|
|
|
8.7 |
% |
|
|
12.3 |
% |
|
|
6.2 |
% |
JPMorgan Chase Bank, N.A. |
|
|
68,726 |
|
|
|
96,103 |
|
|
|
840,057 |
|
|
|
1,157,449 |
|
|
|
8.2 |
|
|
|
11.4 |
|
|
|
5.9 |
|
Chase Bank USA, N.A. |
|
|
9,242 |
|
|
|
11,506 |
|
|
|
77,638 |
|
|
|
66,202 |
|
|
|
11.9 |
|
|
|
14.8 |
|
|
|
14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-capitalized
ratios(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
% |
|
|
10.0 |
% |
|
|
5.0 |
%(e) |
Minimum capital ratios(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0 |
|
|
|
8.0 |
|
|
|
3.0 |
(f) |
|
|
|
|
(a) |
|
Asset and capital amounts for JPMorgan Chases banking subsidiaries reflect intercompany
transactions, whereas the respective amounts for JPMorgan Chase reflect the elimination of
intercompany transactions. |
(b) |
|
As defined by the regulations issued by the FRB, OCC and FDIC. |
(c) |
|
Includes offbalance sheet risk-weighted assets in the amounts of $330.4 billion, $313.3
billion and $12.0 billion, respectively, at June 30, 2007, and $305.3 billion, $290.1 billion
and $12.7 billion, respectively, at December 31, 2006, for JPMorgan Chase and its significant
banking subsidiaries. |
(d) |
|
Average adjusted assets for purposes of calculating the leverage ratio include total average
assets adjusted for unrealized gains/losses on securities, less deductions for disallowed
goodwill and other intangible assets, investments in certain subsidiaries and the total
adjusted carrying value of nonfinancial equity investments that are subject to deductions from
Tier 1 capital. |
(e) |
|
Represents requirements for banking subsidiaries pursuant to regulations issued under the
Federal Deposit Insurance Corporation Improvement Act. There is no Tier 1 leverage component
in the definition of a well-capitalized bank holding company. |
(f) |
|
The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4% depending
on factors specified in regulations issued by the FRB and OCC. |
Dividends
The Firms common stock dividend policy reflects JPMorgan Chases earnings outlook, desired
dividend payout ratios, need to maintain an adequate capital level and alternative investment
opportunities. The Firm continues to target a dividend payout ratio of approximately 3040% of Net
income over time. On April 17, 2007, the Board of Directors declared a quarterly dividend of $0.38
per share on the outstanding shares of the corporations common stock, an increase of $0.04 per
share, or 12% from the prior quarter; that dividend is payable on July 31, 2007, to stockholders of
record at the close of business on July 6, 2007.
Stock repurchases
During the quarter and six months ended June 30, 2007, under the respective stock repurchase
programs then in effect, the Firm repurchased a total of 36.7 million and 117.6 million shares for
$1.9 billion and $5.9 billion at an average price per share of $51.13 and $49.97, respectively.
During the quarter and six months ended June 30, 2006, under the respective stock repurchase
programs then in effect, the Firm repurchased a total of 17.7 million and 49.5 million shares for
$745 million and $2.0 billion at an average price per share of $42.24 and $41.14, respectively.
46
On April 17, 2007, the Board of Directors authorized the repurchase of up to $10.0 billion of the
Firms common shares. The new authorization commenced April 19, 2007, and replaced the Firms
previous $8.0 billion repurchase program. The new $10.0 billion authorization will be utilized at
managements discretion, and the timing of purchases and the exact number of shares purchased will
depend on market conditions and alternative investment opportunities. The new repurchase program
does not include specific price targets or timetables; may be executed through open market
purchases, privately negotiated transactions or utilizing Rule 10b5-1 programs; and may be
suspended at any time. For additional information regarding repurchases of the Firms equity
securities, see Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, on
pages 120121 of this Form 10-Q.
OFFBALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
Special-purpose entities
JPMorgan Chase is involved with several types of offbalance sheet arrangements, including special
purpose entities (SPEs), lines of credit and loan commitments. The principal uses of SPEs are to
obtain sources of liquidity for JPMorgan Chase and its clients by securitizing financial assets,
and to create other investment products for clients. These arrangements are an important part of
the financial markets, providing market liquidity by facilitating investors access to specific
portfolios of assets and risks. For example, SPEs are integral to the markets for mortgage-backed
securities, commercial paper and other asset-backed securities.
JPMorgan Chase is involved with SPEs in three broad categories: loan securitizations, multi-seller
conduits and client intermediation. Capital is held, as deemed appropriate, against all SPE-related
transactions and related exposures, such as derivative transactions and lending-related
commitments. For further discussion of SPEs and the Firms accounting for these types of exposures,
see Note 1 on pages 7273 of this Form 10-Q and Note 14 on pages 114118 and Note 15 on pages
118120 of JPMorgan Chases 2006 Annual Report.
For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the
short-term credit rating of JPMorgan Chase Bank, N.A. were downgraded below specific levels,
primarily P-1, A-1 and F1 for Moodys, Standard & Poors and Fitch, respectively. The amounts of
these liquidity commitments were $92.4 billion and $74.4 billion at June 30, 2007 and December 31,
2006, respectively. These liquidity commitments are generally included in the Firms other unfunded
commitments to extend credit and asset purchase agreements, as shown in the table on the following
page. Alternatively, if JPMorgan Chase Bank, N.A. were downgraded, the Firm could be replaced by
another liquidity provider in lieu of providing funding under the liquidity commitment, or, in
certain circumstances, could facilitate the sale or refinancing of the assets in the SPE in order
to provide liquidity. For further information, refer to Note 15 on pages 118120 of JPMorgan
Chases 2006 Annual Report.
The Firm also has exposure to certain SPEs arising from derivative transactions; these transactions
are recorded at fair value on the Firms Consolidated balance sheets with changes in fair value
(i.e., mark-to-market (MTM) gains and losses) recorded in Principal transactions revenue. Such
MTM gains and losses are not included in the revenue amounts reported in the following table.
The following table summarizes certain revenue information related to consolidated and
nonconsolidated VIEs with which the Firm has significant involvement, and qualifying SPEs
(QSPEs). The revenue reported in the table below primarily represents servicing and credit fee
income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from VIEs and QSPEs
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
(in millions) |
|
VIEs |
|
|
QSPEs |
|
|
Total |
|
|
VIEs |
|
|
QSPEs |
|
|
Total |
|
|
2007 |
|
$ |
55 |
|
|
$ |
841 |
|
|
$ |
896 |
|
|
$ |
102 |
|
|
$ |
1,687 |
|
|
$ |
1,789 |
|
2006 |
|
|
53 |
|
|
|
785 |
|
|
|
838 |
|
|
|
107 |
|
|
|
1,578 |
|
|
|
1,685 |
|
|
Offbalance sheet lending-related financial instruments and guarantees
JPMorgan Chase utilizes lending-related financial instruments (e.g., commitments and guarantees) to
meet the financing needs of its customers. The contractual amount of these financial instruments
represents the maximum possible credit risk should the counterparty draw down the commitment or the
Firm be required to fulfill its obligation under the guarantee, and the counterparty subsequently
fail to perform according to the terms of the contract. Most of these commitments and guarantees
expire without a default occurring or without being drawn. As a result, the total contractual
amount of these instruments is not, in the Firms view, representative of its actual future credit
exposure or funding requirements. Further, certain commitments, primarily related to consumer
financings, are cancelable, upon notice, at the option of the Firm. For further discussion of
lending-related commitments and guarantees and the Firms accounting for them, see Credit risk
management on pages 6476 and Note 29 on pages 132134 of JPMorgan Chases 2006 Annual Report.
47
The following table presents offbalance sheet lending-related financial instruments and guarantees
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
|
June 30, 2007 |
|
|
2006 |
By remaining maturity |
|
|
|
|
|
1-<3 |
|
|
3-5 |
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
< 1 year |
|
|
years |
|
|
years |
|
|
> 5 years |
|
|
Total |
|
|
Total |
|
|
Lending-related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(a) |
|
$ |
707,640 |
|
|
$ |
3,384 |
|
|
$ |
3,421 |
|
|
$ |
67,218 |
|
|
$ |
781,663 |
|
|
$ |
747,535 |
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded commitments to extend credit(b)(c)(d) |
|
|
99,407 |
|
|
|
54,516 |
|
|
|
71,719 |
|
|
|
17,018 |
|
|
|
242,660 |
|
|
|
229,204 |
|
Asset purchase agreements(e) |
|
|
34,823 |
|
|
|
42,147 |
|
|
|
10,432 |
|
|
|
4,091 |
|
|
|
91,493 |
|
|
|
67,529 |
|
Standby letters of credit and guarantees(c)(f)(g) |
|
|
24,066 |
|
|
|
23,558 |
|
|
|
41,043 |
|
|
|
6,945 |
|
|
|
95,612 |
|
|
|
89,132 |
|
Other letters of credit(c) |
|
|
4,398 |
|
|
|
1,333 |
|
|
|
200 |
|
|
|
22 |
|
|
|
5,953 |
|
|
|
5,559 |
|
|
Total wholesale |
|
|
162,694 |
|
|
|
121,554 |
|
|
|
123,394 |
|
|
|
28,076 |
|
|
|
435,718 |
|
|
|
391,424 |
|
|
Total lending-related |
|
$ |
870,334 |
|
|
$ |
124,938 |
|
|
$ |
126,815 |
|
|
$ |
95,294 |
|
|
$ |
1,217,381 |
|
|
$ |
1,138,959 |
|
|
Other guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending guarantees(h) |
|
$ |
400,132 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
400,132 |
|
|
$ |
318,095 |
|
Derivatives qualifying as guarantees(i) |
|
|
17,636 |
|
|
|
9,066 |
|
|
|
26,817 |
|
|
|
29,344 |
|
|
|
82,863 |
|
|
|
71,531 |
|
|
|
|
|
(a) |
|
Includes Credit card lending-related commitments of $685.3 billion at June 30, 2007, and
$657.1 billion at December 31, 2006, that represent the total available credit to the Firms
cardholders. The Firm has not experienced, and does not anticipate, that all of its
cardholders will utilize their entire available lines of credit at the same time. The Firm can
reduce or cancel a credit card commitment by providing the cardholder prior notice or, in some
cases, without notice as permitted by law. |
(b) |
|
Includes unused advised lines of credit totaling $40.2 billion at June 30, 2007, and $39.0
billion at December 31, 2006, which are not legally binding. In regulatory filings with the
FRB, unused advised lines are not reportable. |
(c) |
|
Represents contractual amount net of risk participations totaling $26.5 billion at June 30,
2007, and $32.8 billion at December 31, 2006. |
(d) |
|
Excludes firmwide unfunded commitments to private third-party equity funds of $839 million
and $686 million at June 30, 2007, and December 31, 2006, respectively. |
(e) |
|
The maturity is based upon the underlying assets in the SPE, which are primarily multi-seller
asset-backed commercial paper conduits. It includes $1.4 billion of asset purchase agreements
to other third-party entities at both June 30, 2007, and December 31, 2006. |
(f) |
|
JPMorgan Chase held collateral relating to $14.4 billion and $13.5 billion of these
arrangements at June 30, 2007, and December 31, 2006, respectively. |
(g) |
|
Includes unused commitments to issue standby letters of credit of $52.8 billion and $45.7
billion at June 30, 2007, and December 31, 2006, respectively. |
(h) |
|
Collateral held by the Firm in support of securities lending indemnification agreements was
$402.6 billion at June 30, 2007, and $317.9 billion at December 31, 2006, respectively. |
(i) |
|
Represents notional amounts of derivatives qualifying as guarantees. For further discussion
of guarantees, see Note 29 on pages 132134 of JPMorgan Chases 2006 Annual Report. |
Risk is an inherent part of JPMorgan Chases business activities. The Firms risk management
framework and governance structure are intended to provide comprehensive controls and ongoing
management of the major risks inherent in its business activities. In addition, this framework
recognizes the diversity among the Firms core businesses, which helps reduce the impact of
volatility in any particular area on the Firms operating results as a whole. There are eight major
risk types identified in the business activities of the Firm: liquidity risk, credit risk, market
risk, interest rate risk, operational risk, legal and reputation risk, fiduciary risk and private
equity risk.
For further discussion of these risks see pages 6182 of JPMorgan Chases 2006 Annual Report.
48
LIQUIDITY RISK MANAGEMENT
The following discussion of JPMorgan Chases liquidity management framework highlights
developments since December 31, 2006, and should be read in conjunction with pages 6263 of
JPMorgan Chases 2006 Annual Report.
Liquidity risk arises from the general funding needs of the Firms activities and in the management
of its assets and liabilities. JPMorgan Chases liquidity management framework is intended to
maximize liquidity access and minimize funding costs. Through active liquidity management the Firm
seeks to preserve stable, reliable and cost-effective sources of funding. This access enables the
Firm to replace maturing obligations when due and fund assets at appropriate maturities and rates.
To accomplish this, management uses a variety of measures to mitigate liquidity and related risks,
taking into consideration market conditions, prevailing interest rates, liquidity needs and the
desired maturity profile of liabilities, among other factors.
Funding
Sources of funds
As of June 30, 2007, the Firms liquidity position remained strong based upon its liquidity
metrics. JPMorgan Chases long-dated funding, including core liabilities, exceeded illiquid assets,
and the Firm believes its obligations can be met even if access to funding is impaired.
Consistent with its liquidity management policy, the Firm has raised funds at the parent holding
company level sufficient to cover its obligations and those of its nonbank subsidiaries that mature
over the next 12 months.
The diversity of the Firms funding sources enhances financial flexibility and limits dependence on
any one source, thereby minimizing the cost of funds. The deposits held by the RFS, CB, TSS and AM
lines of business are generally a consistent source of funding for JPMorgan Chase Bank, N.A. As of
June 30, 2007, total deposits for the Firm were $651.4 billion. A significant portion of the Firms
deposits are retail deposits, which are less sensitive to interest rate changes and therefore are
considered more stable than market-based liability balances. The Firm also benefits from stable
wholesale liability balances originated by RFS, CB, TSS and AM through the normal course of
business. Such liability balances include deposits that are swept to onbalance sheet liabilities
(e.g., commercial paper, Federal funds purchased and securities sold under repurchase agreements).
These liability balances are also a stable and consistent source of funding due to the nature of
the businesses from which they are generated. For further discussions of deposit and liability
balance trends, see the discussion of the results for the Firms business segments and the Balance
Sheet Analysis on pages 1739 and 4244, respectively, of this Form 10-Q.
Additional sources of funds include a variety of both short- and long-term instruments, including
federal funds purchased, commercial paper, bank notes, long-term debt, and trust preferred capital
debt securities. This funding is managed centrally, using regional expertise and local market
access, to ensure active participation by the Firm in the global financial markets while
maintaining consistent global pricing. These markets serve as cost-effective and diversified
sources of funds and are critical components of the Firms liquidity management. Decisions
concerning the timing and tenor of accessing these markets are based upon relative costs, general
market conditions, prospective views of balance sheet growth and a targeted liquidity profile.
Finally, funding flexibility is provided by the Firms ability to access the repurchase and asset
securitization markets. These markets are evaluated on an ongoing basis to achieve an appropriate
balance of secured and unsecured funding. The ability to securitize loans, and the associated gains
on those securitizations, are principally dependent upon the credit quality and yields of the
assets securitized and are generally not dependent upon the credit ratings of the issuing entity.
Transactions between the Firm and its securitization structures are reflected in JPMorgan Chases
consolidated financial statements and notes to the consolidated financial statements; these
relationships include retained interests in securitization trusts, liquidity facilities and
derivative transactions. For further details, see Offbalance sheet arrangements and contractual
cash obligations, Note 15 and Note 23 on pages 4748, 9498 and 105106, respectively, of this Form
10-Q.
49
Issuance
During the second quarter and first half of 2007, JPMorgan Chase opportunistically issued $29.7
billion and $52.9 billion, respectively, of long-term debt and trust preferred capital debt
securities. These issuances included IB structured notes, the issuances of which are generally
client-driven and not issued for funding or capital management purposes. The issuances of Long-term
debt and trust preferred capital debt securities were offset partially by $15.5 billion and $30.4
billion, respectively, of debt and trust preferred securities that matured or were redeemed during
the second quarter and first half of 2007, including IB structured notes. In addition, during the
second quarter and first half of 2007, the Firm securitized $10.9 billion and $23.9 billion,
respectively, of residential mortgage loans, and $4.9 billion and $10.7 billion, respectively, of
credit card loans. The Firm did not securitize any RFS auto loans during the six months ended June
30, 2007. For further discussion of loan securitizations, see Note 15 on pages 9498 of this Form
10-Q.
In connection with the issuance of certain of its trust preferred capital debt securities, the Firm
has entered into Replacement Capital Covenants (RCCs) granting certain rights to the holders of
covered debt, as defined in the RCCs, that prohibit the repayment, redemption or purchase of the
trust preferred capital debt securities except, with limited exceptions, to the extent that
JPMorgan Chase has received specified amounts of proceeds from the sale of certain qualifying
securities. Currently the Firms covered debt is its 5.875% Junior Subordinated Deferrable Interest
Debentures, Series O, due in 2035. For more information regarding these covenants, see the Forms
8-K filed by the Firm on August 17, 2006, September 28, 2006, February 2, 2007, and May 30, 2007.
Cash Flows
Cash and due from banks decreased $5.0 billion in the first six months of 2007 compared with an
increase of $1.7 billion in the first half of 2006. A discussion of the significant changes in Cash
and due from banks during the six months ended June 30, 2007 and 2006, follows:
Cash Flows from Operating Activities
For the six months ended June 30, 2007 and 2006, net cash used
in operating activities was $66.4
billion and $53.7 billion, respectively. JPMorgan Chases operating assets and liabilities vary
significantly in the normal course of business due to the amount and timing of cash flows. In both
2007 and 2006, net cash was used in operating activities to support the Firms capital markets and
lending activities. In 2007, proceeds from sales and securitizations of loans held-for-sale
exceeded originations and purchases; in 2006, net cash used for such loans exceeded sales proceeds.
Management believes cash flows from operations, available cash balances and short- and long-term
borrowings will be sufficient to fund the Firms operating liquidity needs.
Cash Flows from Investing Activities
The Firms investing activities primarily include originating loans to be held to maturity, other
receivables, and the AFS investment securities portfolio. For the six months ended June 30, 2007,
net cash of $28.3 billion was used in investing activities, primarily for purchases of investment
securities in Treasurys AFS portfolio to manage the Firms exposure to interest rates; net
additions to the retained wholesale and consumer (primarily home equity) loans portfolios; and to
increase Deposits with banks as a result of the availability of excess cash for short-term
investment opportunities. Partially offsetting these uses of cash were cash proceeds received from:
sales and maturities of AFS securities; credit card, residential mortgage, auto and wholesale loan
sales and securitization activities; and the typical seasonal decline in consumer credit card
receivables as customer payments exceeded new loans generated from customer charges.
For the
six months ended June 30, 2006, net cash of $74.2 billion was used in investing activities.
Net cash was invested to fund: purchases of Treasurys AFS securities in connection with
repositioning the portfolio in response to changes in interest rates; net additions to the retained
wholesale loan portfolio, mainly resulting from capital markets activity in the IB (including
leveraged financings and syndications); and the acquisition in the second quarter of a
private-label credit card portfolio. These uses of cash were partially offset by cash proceeds
provided from: sales and maturities of AFS securities; credit card, residential mortgage, auto and
wholesale loan sales and securitization activities; and the net decline in auto loans and leases,
which was caused partially by the de-emphasis of vehicle leasing.
Cash Flows from Financing Activities
The Firms financing activities primarily include the issuance of debt and receipt of customer
deposits. JPMorgan Chase pays quarterly dividends on its common stock and has an ongoing common
stock repurchase program. In the first half of 2007, net cash provided by financing activities was
$89.6 billion due to a higher level of securities sold under repurchase agreements in connection
with the funding of trading and AFS securities positions; net issuances of Long-term debt and trust
preferred capital debt securities; and a net increase in wholesale deposits from growth in business
volumes, in particular, interest-bearing deposits at TSS. Cash was used to repurchase common stock
and the payment of cash dividends on common stock (including a 12% increase in the quarterly
dividend in the second quarter of 2007).
50
In the first half of 2006, net cash provided by financing activities was $129.4 billion due to: net
cash received from growth in deposits reflecting, on the retail side, new account acquisitions and
the ongoing expansion of the retail branch distribution network, and on the wholesale side, higher
business volumes; increases in securities sold under repurchase agreements to fund trading
positions and higher levels of AFS securities positions; and net issuances of Long-term debt and
trust preferred capital debt securities. The net cash provided was partially offset by cash used
for common stock repurchases and the payment of cash dividends on common and preferred stock.
Credit ratings
The credit ratings of JPMorgan Chases parent holding company and each of its significant banking
subsidiaries as of June 30, 2007, were as follows.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
Senior long-term debt |
|
|
Moodys |
|
S&P |
|
Fitch |
|
Moodys |
|
S&P |
|
Fitch |
|
JPMorgan Chase & Co. |
|
P |
-1 |
|
|
|
A-1+ |
|
|
|
F1+ |
|
|
Aa2 |
|
AA- |
|
AA- |
JPMorgan Chase Bank,
N.A. |
|
P |
-1 |
|
|
|
A-1+ |
|
|
|
F1+ |
|
|
Aaa |
|
AA |
|
AA- |
Chase Bank USA, N.A. |
|
P |
-1 |
|
|
|
A-1+ |
|
|
|
F1+ |
|
|
Aaa |
|
AA |
|
AA- |
|
On March 2, 2007, Moodys raised senior long-term debt ratings on JPMorgan Chase & Co. and the
operating bank subsidiaries to Aa2 and Aaa, respectively, from Aa3 and Aa2, respectively. The cost
and availability of unsecured financing are influenced by credit ratings. A reduction in these
ratings could have an adverse effect on the Firms access to liquidity sources, increase the cost
of funds, trigger additional collateral requirements and decrease the number of investors and
counterparties willing to lend. Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital ratios, strong credit quality and risk
management controls, diverse funding sources and disciplined liquidity monitoring procedures.
If the Firms ratings were downgraded by one notch, the Firm estimates the incremental cost of
funds and the potential loss of funding to be negligible. Additionally, the Firm estimates the
additional funding requirements for VIEs and other third-party commitments would not be material.
For additional information on the impact of a credit ratings downgrade on the funding requirements
for VIEs, and on derivatives and collateral agreements, see Special-purpose entities on page 47 and
Ratings profile of derivative receivables MTM on pages 5657, of this Form 10-Q.
The following discussion of JPMorgan Chases credit portfolio as of June 30, 2007, highlights
developments since December 31, 2006. This section should be read in conjunction with pages 6476
and page 83, and Notes 12, 13, 29, and 30 of JPMorgan Chases 2006 Annual Report.
The Firm assesses its consumer credit exposure on a managed basis, which includes credit card
receivables that have been securitized. For a reconciliation of the Provision for credit losses on
a reported basis to managed basis, see pages 1315 of this Form 10-Q.
The following table presents JPMorgan Chases credit portfolio as of June 30, 2007, and
December 31, 2006. Total credit exposure at June 30, 2007, increased by $64.3 billion from December
31, 2006, reflecting an increase of $45.9 billion and $18.4 billion in the wholesale and consumer
credit portfolios, respectively. During the first six months of 2007 lending-related commitments
increased $78.4 billion ($44.3 billion and $34.1 billion in the wholesale and consumer portfolios,
respectively). The increase in lending-related commitments was partially offset by the decrease in
loans. Loans decreased primarily due to the decline of RFS loans accounted for at lower of cost or
fair value as certain prime mortgage loans originated after January 1, 2007, are classified as
Trading assets and accounted for at fair value under SFAS 159. In addition, certain loans
warehoused in the IB were transferred to Trading assets on January 1, 2007, as part of the adoption
of SFAS 159. These decreases were offset partially by an increase in wholesale lending activity,
primarily in the IB. Also effective January 1, 2007, $24.7 billion of prime mortgages held for
investment purposes were transferred from RFS ($19.4 billion) and AM ($5.3 billion) to the
Corporate sector for risk management purposes. While this transfer had no impact on the RFS, AM or
Corporate financial results, the AM prime mortgages that were transferred are now reported in
consumer mortgage loans.
51
In the table below, reported loans include all HFS loans, which are carried at the lower of cost or
fair value with changes in value recorded in Noninterest revenue. However, these HFS loans are
excluded from the average loan balances used for the net charge-off rate calculations.
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|
|
Credit exposure |
|
|
Nonperforming assets(i) |
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
|
December 31, |
|
(in millions, except ratios) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported(a)(b) |
|
$ |
465,037 |
|
|
$ |
483,127 |
|
|
$ |
2,169 |
(j) |
|
$ |
2,077 |
(j) |
Loans securitized(c) |
|
|
67,506 |
|
|
|
66,950 |
|
|
|
|
|
|
|
|
|
|
Total managed loans(d) |
|
|
532,543 |
|
|
|
550,077 |
|
|
|
2,169 |
|
|
|
2,077 |
|
Derivative receivables |
|
|
59,038 |
|
|
|
55,601 |
|
|
|
30 |
|
|
|
36 |
|
|
Total managed credit-related assets |
|
|
591,581 |
|
|
|
605,678 |
|
|
|
2,199 |
|
|
|
2,113 |
|
Lending-related commitments(e) |
|
|
1,217,381 |
|
|
|
1,138,959 |
|
|
NA |
|
|
NA |
|
Assets acquired in loan satisfactions |
|
NA |
|
|
NA |
|
|
|
387 |
|
|
|
228 |
|
|
Total credit portfolio |
|
$ |
1,808,962 |
|
|
$ |
1,744,637 |
|
|
$ |
2,586 |
|
|
$ |
2,341 |
|
|
Net credit derivative hedges
notional(f) |
|
$ |
(60,704 |
) |
|
$ |
(50,733 |
) |
|
$ |
(4 |
) |
|
$ |
(16 |
) |
Collateral held against derivatives(g) |
|
|
(6,603 |
) |
|
|
(6,591 |
) |
|
NA |
|
|
NA |
|
Held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HFS loans |
|
|
18,334 |
|
|
|
55,251 |
|
|
|
240 |
|
|
|
120 |
|
Nonperforming purchased(h) |
|
|
|
|
|
|
251 |
|
|
NA |
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
|
Six months ended June 30 |
|
|
|
|
|
|
|
|
|
|
|
Average annual net |
|
|
|
|
|
|
|
|
|
|
Average annual net |
|
(in millions, except ratios) |
|
Net charge-offs |
|
|
charge-off rate |
|
|
Net charge-offs |
|
|
charge-off rate |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
985 |
|
|
$ |
654 |
|
|
|
0.90 |
% |
|
|
0.64 |
% |
|
$ |
1,888 |
|
|
$ |
1,322 |
|
|
|
0.88 |
% |
|
|
0.66 |
% |
Loans
securitized(c) |
|
|
590 |
|
|
|
561 |
|
|
|
3.46 |
|
|
|
3.26 |
|
|
|
1,183 |
|
|
|
1,010 |
|
|
|
3.51 |
|
|
|
2.94 |
|
|
Total managed loans |
|
$ |
1,575 |
|
|
$ |
1,215 |
|
|
|
1.25 |
% |
|
|
1.02 |
% |
|
$ |
3,071 |
|
|
$ |
2,332 |
|
|
|
1.23 |
% |
|
|
1.00 |
% |
|
|
|
|
(a) |
|
Loans are presented net of unearned income and net deferred loan fees of $1.1 billion and
$1.3 billion at June 30, 2007, and December 31, 2006, respectively. |
(b) |
|
Includes $1.5 billion of loans for which the Firm has elected the fair value option of
accounting in 2007. |
(c) |
|
Represents securitized credit card receivables. For a further discussion of credit card
securitizations, see Card Services on pages 2932 of this Form 10-Q. |
(d) |
|
Loans past-due 90 days and over and accruing includes credit card receivables of $1.2 billion
and $1.3 billion at June 30, 2007, and December 31, 2006, respectively, and related credit
card securitizations of $862 million and $962 million at June 30, 2007, and December 31, 2006,
respectively. |
(e) |
|
Includes wholesale unused advised lines of credit totaling $40.2 billion and $39.0 billion at
June 30, 2007, and December 31, 2006, respectively, which are not legally binding. In
regulatory filings with the Federal Reserve Board, unused advised lines are not reportable.
Credit card lending-related commitments of $685.3 billion and $657.1 billion at June 30, 2007,
and December 31, 2006, respectively, represent the total available credit to its cardholders.
The Firm has not experienced, and does not anticipate, that all of its cardholders will
utilize their entire available lines of credit at the same time. The Firm can reduce or cancel
a credit card commitment by providing the cardholder prior notice or, in some cases, without
notice as permitted by law. |
(f) |
|
Represents the net notional amount of protection purchased and sold of single-name and
portfolio credit derivatives used to manage the credit exposures; these derivatives do not
qualify for hedge accounting under SFAS 133. June 30, 2007 and December 31, 2006, both include
$22.7 billion notional amount for structured portfolio |