For the Quarterly Period Ended June 30, 2006		Commission file number 1-5805

 

JPMORGAN CHASE & CO.

 

Delaware		13-2624428
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
270 Park Avenue, New York, New York		10017
(Address of principal executive offices)		(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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

FORM 10–Q
TABLE OF CONTENTS

				Page
Part I – Financial information
Item 1		Consolidated Financial Statements – JPMorgan Chase & Co.:
		Consolidated statements of income (unaudited) for the three and six months ended June 30, 2006, and June 30, 2005			68
		Consolidated balance sheets (unaudited) at June 30, 2006, and December 31, 2005			69
		Consolidated statements of changes in stockholders’ equity (unaudited) for the six months ended June 30, 2006, and June 30, 2005			70
		Consolidated statements of cash flows (unaudited) for the six months ended June 30, 2006, and June 30, 2005			71
		Notes to consolidated financial statements (unaudited)			72
		Consolidated average balance sheets, interest and rates (unaudited) for the three and six months ended June 30, 2006, and June 30, 2005			97
		Glossary of Terms and Line of Business Metrics			99
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations:
		Consolidated Financial Highlights			3
		Introduction			4
		Executive Overview			6
		Consolidated Results of Operations			8
		Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures			11
		Business Segment Results			14
		Balance Sheet Analysis			43
		Capital Management			45
		Off-Balance Sheet Arrangements and Contractual Cash Obligations			48
		Risk Management			49
		Supervision and Regulation			65
		Critical Accounting Estimates Used by the Firm			66
		Accounting and Reporting Developments			67
		Forward-Looking Statements			103
Item 3		Quantitative and Qualitative Disclosures About Market Risk			104
Item 4		Controls and Procedures			104
Part II – Other information
Item 1		Legal Proceedings			104
Item 1A		Risk Factors			105
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			105
Item 3		Defaults Upon Senior Securities			106
Item 4		Submission of Matters to a Vote of Security Holders			106
Item 5		Other Information			106
Item 6		Exhibits			106
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

JPMORGAN CHASE & CO.

(unaudited)
(in millions, except per share, headcount and ratio data)																						Six months ended June 30,
As of or for the period ended			2Q06				1Q06				4Q05				3Q05				2Q05				2006				2005
Selected income statement data
Noninterest revenue		$	9,762			$	10,050			$	8,804			$	9,482			$	7,616			$	19,812			$	15,907
Net interest income			5,178				4,993				4,678				4,783				4,932				10,171				10,094
Total net revenue			14,940				15,043				13,482				14,265				12,548				29,983				26,001
Provision for credit losses(a)			493				831				1,224				1,245				587				1,324				1,014
Noninterest expense			9,236				9,648				8,430				9,359				10,798				18,884				20,637
Income from continuing operations before income tax expense			5,211				4,564				3,828				3,661				1,163				9,775				4,350
Income tax expense			1,727				1,537				1,186				1,192				226				3,264				1,207
Income from continuing operations (after-tax)			3,484				3,027				2,642				2,469				937				6,511				3,143
Income from discontinued operations (after-tax)(b)			56				54				56				58				57				110				115
Net income		$	3,540			$	3,081			$	2,698			$	2,527			$	994			$	6,621			$	3,258
Per common share
Basic earnings per share
Income from continuing operations		$	1.00			$	0.87			$	0.76			$	0.71			$	0.27			$	1.87			$	0.89
Net income			1.02				0.89				0.78				0.72				0.28				1.91				0.93
Diluted earnings per share
Income from continuing operations		$	0.98			$	0.85			$	0.74			$	0.70			$	0.26			$	1.82			$	0.88
Net income			0.99				0.86				0.76				0.71				0.28				1.85				0.91
Cash dividends declared per share			0.34				0.34				0.34				0.34				0.34				0.68				0.68
Book value per share			31.89				31.19				30.71				30.26				29.95
Common shares outstanding
Average: Basic			3,474				3,473				3,472				3,485				3,493				3,473				3,505
Diluted			3,572				3,571				3,564				3,548				3,548				3,571				3,559
Common shares at period-end			3,471				3,473				3,487				3,503				3,514
Selected ratios
Return on common equity (“ROE”)(c)			13	%			12	%			10	%			9	%			4	%			12	%			6	%
Return on assets (“ROA”)(c)(d)			1.06				1.00				0.89				0.84				0.34				1.03				0.56
Tier 1 capital ratio			8.5				8.5				8.5				8.2				8.2
Total capital ratio			12.0				12.1				12.0				11.3				11.3
Tier 1 leverage ratio			5.8				6.1				6.3				6.2				6.2
Selected balance sheet data (period-end)
Total assets		$	1,328,001			$	1,273,282			$	1,198,942			$	1,203,033			$	1,171,283
Securities			78,022				67,126				47,600				68,697				58,573
Loans			455,104				432,081				419,148				420,504				416,025
Deposits(e)			593,716				584,465				554,991				535,123				534,640
Long-term debt			125,280				112,133				108,357				101,853				101,182
Common stockholders’ equity			110,684				108,337				107,072				105,996				105,246
Total stockholders’ equity			110,684				108,337				107,211				106,135				105,385
Credit quality metrics
Allowance for credit losses		$	7,500			$	7,659			$	7,490			$	7,615			$	7,233			$	7,500			$	7,233
Nonperforming assets(f)			2,384				2,348				2,590				2,839				2,832				2,384				2,832
Allowance for loan losses to total loans(g)			1.69	%			1.83	%			1.84	%			1.86	%			1.76	%			1.69	%			1.76	%
Net charge-offs		$	654			$	668			$	1,360			$	870			$	773			$	1,322			$	1,589
Net charge-off rate(c)(g)			0.64	%			0.69	%			1.39	%			0.89	%			0.82	%			0.66	%			0.85	%
Wholesale net charge-off (recovery) rate(c)(g)			(0.05	)			(0.06	)			0.07				(0.12	)			(0.16	)			(0.05	)			(0.10	)
Managed card net charge-off rate(c)			3.28				2.99				6.39				4.70				4.87				3.13				4.85
Headcount			172,423				170,787				168,847				168,955				168,708
Share price(h)
High		$	46.80			$	42.43			$	40.56			$	35.95			$	36.50			$	46.80			$	39.69
Low			39.33				37.88				32.92				33.31				33.35				37.88				33.35
Close			42.00				41.64				39.69				33.93				35.32				42.00				35.32

(a)		Second quarter 2006 includes a $90 million release of Allowance for loan losses related to Hurricane Katrina. Third-quarter 2005 includes a $400 million special provision related to Hurricane Katrina.
(b)		The Firm has announced the exchange of a portion of the corporate trust business for the consumer, small-business and middle-market banking businesses of The Bank of New York. The corporate trust businesses to be transferred includes trustee, paying agent, loan agency services and document management but excludes the American Depositary Receipts, escrow and commercial paper businesses. As a result of this pending transaction, the results of operations of these businesses are being reported as discontinued operations for each of the periods presented.
(c)		Based upon annualized amounts.
(d)		Represents Net income divided by Total average assets.
(e)		Excludes deposits of $26.5 billion at June 30, 2006, that have been reclassified to Liabilities of discontinued operations held-for-sale.
(f)		Excludes wholesale held-for-sale (“HFS”) loans purchased as part of the Investment Bank’s proprietary activities.
(g)		Excluded from the allowance coverage ratios were end-of-period loans held-for-sale; and excluded from the net charge-off rates were average loans held-for-sale.
(h)		JPMorgan Chase’s 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 Chase’s common stock are from The New York Stock Exchange Composite Transaction Tape.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10–Q provides management’s discussion and analysis (“MD&A”) of the financial condition and results of operations for JPMorgan Chase & Co. See the Glossary of terms on pages 99–100 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 Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause JPMorgan Chase’s results to differ materially from those set forth in such forward-looking statements. See Forward-looking statements on page 103 and Part II, Item 1A: Risk Factors on page 105, of this Form 10–Q.

INTRODUCTION

JPMorgan Chase & Co. (“JPMorgan Chase” or 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, with $1.3 trillion in assets, $111 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 and wealth management and private equity. Under the JPMorgan and Chase brands, the Firm serves millions of customers in the United States and many of the world’s most prominent corporate, institutional and government clients.

JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank”), a national banking association with branches in 17 states; and Chase Bank USA, National Association, a national bank that is the Firm’s credit card issuing bank. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities Inc. (“JPMSI”), the Firm’s U.S. investment banking firm.

JPMorgan Chase’s activities are organized, for management reporting purposes, into six business segments, as well as Corporate. The Firm’s wholesale businesses comprise the Investment Bank, Commercial Banking, Treasury & Securities Services and Asset & Wealth Management segments. The Firm’s consumer businesses comprise the Retail Financial Services and Card Services segments. A description of the Firm’s business segments, and the products and services they provide to their respective client bases, follows.

Investment Bank
JPMorgan Chase is one of the world’s leading investment banks, as evidenced by the breadth of the Investment Bank client relationships and product capabilities. The Investment Bank (“IB”) has extensive relationships with corporations, financial institutions, governments and institutional investors worldwide. The Firm provides 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, and market-making in cash securities and derivative instruments. The IB also commits the Firm’s own capital to proprietary investing and trading activities.

Retail Financial Services
Retail Financial Services (“RFS”) realigned its business reporting segments on January 1, 2006, into Regional Banking, Mortgage Banking and Auto Finance. Regional Banking offers one of the largest branch networks in the United States, covering 17 states with 2,660 branches and 7,753 automated teller machines (“ATMs”). Regional Banking distributes, through its network, a variety of products including checking, savings and time deposit accounts; home equity, residential mortgage, small business banking and education loans; mutual fund and annuity investments; and on-line banking services. Mortgage Banking is a leading provider of mortgage loan products and is one of the largest originators and servicers of home mortgages. Auto Finance is one of the largest noncaptive originators of automobile loans, primarily through a network of automotive dealers across the United States.

Card Services
Card Services (“CS”) is one of the largest issuers of credit cards in the United States, with more than 136 million cards in circulation. CS offers a wide variety of general purpose and private label cards to satisfy the needs of individual consumers, small businesses and partner organizations. The Chase Paymentech Solutions, LLC joint venture is the largest processor of MasterCard^® and Visa^® payments in the world.

Commercial Banking
Commercial Banking (“CB”) has more than 25,000 clients, including corporations, municipalities, financial institutions and not-for-profit entities, with annual revenues generally ranging from $10 million to $2 billion. While most Middle Market clients are located within the RFS footprint, CB also serves larger corporations, as well as local governments and financial institutions, on a national basis. CB serves clients through local market presence, offering industry expertise, a dedicated client service team and risk management capabilities. Partnership with other JPMorgan Chase businesses positions CB to deliver broad product capabilities – including lending, treasury services, investment banking, and asset and wealth management – in order to meet its clients’ 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 corporations, issuers and institutional investors worldwide. TSS is one of the largest cash management providers in the world and a leading global custodian. The Treasury Services (“TS”) business provides a variety of cash management products, trade finance and logistics solutions, wholesale card products, and short-term liquidity management tools. TS partners with the CB, Regional Banking and Asset & Wealth Management businesses to serve clients firmwide. As a result, certain TS revenues are included in other segments’ results. The Worldwide Securities Services (“WSS”) business provides safekeeping, valuing, clearing and servicing of securities and portfolios for investors and broker-dealers and management of American Depositary Receipts (“ADRs”) programs. The Firm has announced an agreement to acquire the consumer, small-business and middle-market banking business of The Bank of New York in exchange for certain portions of the Firm’s corporate trust business. As a result of this pending transaction with The Bank of New York, certain portions of the corporate trust business have been reflected in discontinued operations (for all periods presented) within the Corporate line of business. For a description of the transaction, see Other Business Events below.

Asset & Wealth Management
Asset & Wealth Management (“AWM”) provides investment advice and management for institutions and individuals. With $1.2 trillion of Assets under supervision, AWM is one of the largest asset and wealth managers in the world. AWM serves four distinct client groups through three businesses: institutions through JPMorgan Asset Management; ultra-high-net-worth clients through the Private Bank; high-net-worth clients through Private Client Services; and retail clients through JPMorgan Asset Management. The majority of AWM’s client assets are in actively managed portfolios. AWM has global investment expertise in equities, fixed income, real estate, hedge funds, private equity and liquidity, including both money market instruments and bank deposits. AWM also provides trust and estate services to ultra-high-net-worth and high-net-worth clients and retirement services for corporations and individuals.

OTHER BUSINESS EVENTS

Acquisition of the consumer, small-business and middle-market banking businesses of The Bank of New York in exchange for certain portions of the corporate trust business, including trustee, paying agent, loan agency services and document management businesses
On April 8, 2006, JPMorgan Chase announced an agreement to acquire The Bank of New York’s consumer, small-business and middle-market banking businesses in exchange for certain portions of the Firm’s corporate trust business plus a cash payment of $150 million. The Bank of New York businesses being acquired are valued at a premium of $2.30 billion; the Firm’s corporate trust businesses being transferred (i.e., trustee, paying agent, loan agency services and document management businesses) are valued at a premium of $2.15 billion. The Firm may also make a future payment to The Bank of New York of up to $50 million depending on certain new account openings. JPMorgan Chase expects to recognize an after-tax gain of approximately $600-$700 million. The transaction has been approved by both companies’ boards of directors and is subject to regulatory approvals. It is expected to close in the fourth quarter of 2006.

Sale of insurance underwriting business
On July 3, 2006, JPMorgan Chase completed the sale of its life insurance and annuity underwriting businesses to Protective Life Corporation for cash proceeds of approximately $1.2 billion. The sale included both the heritage Chase insurance business and the insurance business that Bank One had bought from Zurich Insurance in 2003. The sale is not expected to have a material impact on earnings.

EXECUTIVE OVERVIEW

Business overview
The Firm reported 2006 second quarter net income of $3.5 billion, or $0.99 per share, compared with net income of $1.0 billion, or $0.28 per share, for the second quarter of 2005. Return on common equity for the quarter was 13%, compared with 4% in the prior year. The comparison with the prior year benefited from the absence of a litigation reserve charge of $1.2 billion, or $0.33 per share, in the second quarter of 2005. Results for the current quarter included $53 million of merger charges, or $0.01 per share, compared with $173 million, or $0.05 per share, in the second quarter of 2005.

Net income for the first six months of 2006 was $6.6 billion, or $1.85 per share, compared with $3.3 billion, or $0.91 per share, in the comparable period last year. Return on common equity was 12% for the first six months of 2006, compared with 6% for the prior-year period. Current year-to-date results included incremental expense of $350 million, or $0.10 per share, related to the adoption of SFAS 123R; and Merger costs of $97 million, or $0.03 per share. Prior-year results included a litigation reserve charge of $1.7 billion, or $0.48 per share, and Merger costs of $263 million, or $0.07 per share.

Global economic and market conditions affected the performance of each of the Firm’s businesses. In the second quarter of 2006, the global economy continued a steady expansion, while the pace of growth in the U.S. economy slowed moderately and the capital markets environment remained favorable. The U.S. economy experienced a continued rise in interest rates driven by improving global economic prospects and concerns about inflation, resulting in two quarter-point increases in the federal funds rate, from 4.75% to 5.25%; at the same time, the yield curve remained relatively flat. Equity markets, both domestic and international, while higher versus the prior year, were flat on average compared with the prior quarter. International markets experienced more weakness and volatility than domestic markets during the latter portion of the quarter.

The discussion that follows highlights the performance of each business segment during the second quarter of 2006 with the comparable period in the prior year, unless otherwise noted.

Investment Bank net income increased due to strong Fixed Income Markets and record investment banking fees, reflecting strong performance, investments in strategic initiatives and global capital markets activity. This was partially offset by higher expenses and a reduced benefit from the provision for credit losses. Investment banking fees were driven by record fees in both debt and equity underwriting. Debt underwriting benefited from record bond underwriting fees and equity underwriting reflected strong performance across all regions. Fixed Income Markets revenue grew due to stronger performance across essentially all products, while Equity Markets revenue benefited from continued strength in equity commissions. The reduced benefit from the provision for credit losses reflected portfolio activity. Credit quality remained stable. The increase in expense was due primarily to higher performance-based compensation.

Retail Financial Services net income declined due to lower Mortgage Banking performance. Revenue was down slightly reflecting lower MSR risk management results in Mortgage Banking, and narrower spreads on loans and deposits. Partially offsetting these lower results were higher deposit and loan balances and increased fee income in Regional Banking. Credit quality remained stable in all loan portfolios. Expense increased due to the ongoing investment in retail distribution and the acquisition of Collegiate Funding Services in March, partially offset by merger-related expense savings and other operating efficiencies. Continuing investment in the retail distribution network and the overall strength of the U.S. economy contributed to increases in the number of checking accounts, average deposit and loan balances, and to improved cross-selling of credit cards, mortgages and investment products.

Card Services net income increased due to lower credit losses benefiting from the significantly lower level of bankruptcy filings. Total net revenue (excluding the impact of the deconsolidation of Paymentech) was relatively flat as lower loan spreads and higher volume-driven payments to partners was partially offset by an increase in average managed loan balances and higher interchange income due to higher charge volume. The increase in average managed loans reflected the recent acquisitions of the Sears Canada and Kohl’s loan portfolios in the fourth quarter of 2005 and the second quarter of 2006, respectively. The increase in loan balances was partially offset by higher customer payment rates, which management believes was related to the new minimum payment rules and a higher proportion of customers in rewards-based programs. The Provision for credit losses benefited from lower bankruptcy-related losses, strong underlying credit quality and the release of allowance for loan losses related to Hurricane Katrina. Total noninterest expense (excluding the impact of the deconsolidation of Paymentech) was flat compared with the prior year, with benefits from merger savings, other efficiencies and the absence of a litigation charge offset by the higher expense due to the previously discussed acquisitions, higher marketing spend and by increased fraud-related losses.

Commercial Banking net income benefited from a lower provision for credit losses and higher revenues. Revenues increased due to wider spreads and higher liability balances and increased loan balances, partially offset by narrower loan spreads reflecting continued competitive pressure. The provision for credit losses in the prior year was related primarily to refinements to the data used to estimate the allowance for credit losses. Expense increased due primarily to higher compensation expense.

Treasury & Securities Services net income increased significantly, benefiting from higher revenue and lower expense. Revenue growth reflected growth in assets under custody, business growth and wider spreads on higher average liability balances, all of which benefited from global economic strength and stronger capital markets activity. The decrease in expense was due to the absence of prior-year charges to terminate a client contract, partially offset by higher compensation expense related to business growth.

Asset & Wealth Management net income benefited from increased revenue, partially offset by higher expense. Revenue growth was driven by increased assets under management, which in turn reflected improved investment performance, net asset inflows, mainly in equity-related and liquidity products, as well as strength in global equity markets. The increase in expense was due primarily to higher performance-based compensation.

The Corporate segment reported a significantly lower net loss (excluding the impact of discontinued operations, as discussed further below). Revenue benefited due to an improved Treasury net interest spread, a higher level of available-for-sale securities and increased Private Equity gains. These benefits were offset partially by higher securities losses in Treasury. Expense benefited from the absence of the litigation reserve charge in the second quarter of 2005, insurance recoveries related to certain material litigation, lower merger-related costs and increased merger-related savings and other efficiencies.

During the quarter ended June 30, 2006, approximately $610 million (pre-tax) of merger savings were realized, which is an annualized rate of approximately $2.4 billion. Management estimates that annualized merger savings will be approximately $2.8 billion by the end of 2006. Merger costs of $86 million were expensed during the second quarter of 2006, bringing the total amount expensed since the merger announcement to $3.3 billion (including capitalized costs). Management previously estimated that total merger costs would be approximately $4.0 billion to $4.5 billion; management currently expects total merger costs will be approximately $4.0 billion. The remaining merger costs are expected to be incurred by the end of 2007.

On April 8, 2006, the Firm announced the exchange of select Corporate Trust businesses, including trustee, paying agent, loan agency services and document management, for the consumer, small-business and middle-market banking businesses of The Bank of New York. These Corporate Trust businesses, which were previously reported in Treasury & Securities Services, have been deemed discontinued operations and the related balance sheet and income statement activity have been transferred to the Corporate segment.

The Firm had, at June 30, 2006, total stockholders’ equity of $110.7 billion and a Tier 1 capital ratio of 8.5%. The Firm purchased $745.5 million, or 17.7 million shares, of common stock during the quarter and $2.0 billion, or 49.5 million shares, of common stock during the first half of 2006.

Business outlook
The following forward-looking statements are based upon the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause JPMorgan Chase’s results to differ materially from those set forth in such forward-looking statements.

The performance of the Firm’s capital markets and wholesale businesses are affected by overall global economic growth and by financial market movements and activity levels. The Investment Bank enters the third quarter of 2006 with a strong fee pipeline, but the level of investment banking fees actually realized will be dependent upon overall capital markets conditions. Market conditions can also impact trading results, which are difficult to predict. Both investment banking fees and trading results can be affected by the seasonal level of business activity, which is typically lower during the third quarter. The Investment Bank remains focused on new product expansion initiatives, which are intended to promote growth and reduce volatility in trading results over time.

In the consumer businesses, the relatively flat yield curve and continuing increase in interest rates are expected to keep margins stable to modestly down. Beginning with the third quarter, Retail Financial Services’ revenue and expense will reflect the sale of the insurance business in July 2006 although the impact is expected to be immaterial. Loan balances in Card Services are expected to continue to experience the negative effect of higher customer payment rates.

The Corporate segment includes Private Equity, Treasury, Corporate Other support units and discontinued operations. The revenue outlook for the Private Equity business is directly related to the strength of the equity markets and the performance of the underlying portfolio investments. If current market conditions persist, the Firm anticipates continued realization of private equity gains in 2006, but results can be volatile from quarter to quarter. This quarter, the Firm achieved improved Treasury net interest income and a reduction of the net loss reported in Corporate Other. Management believes this progress is sustainable in the third and fourth quarters of 2006, though results may have some volatility.

Credit quality overall remains stable across the wholesale and consumer portfolios. However, management does not expect the favorable credit environment to continue indefinitely and, therefore, anticipates higher credit losses over time. The Provision for credit losses for Card Services is anticipated to increase in the third quarter of 2006 relative to the second quarter of 2006 due to higher expected bankruptcy-related losses and the impact of the new minimum payment rules.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides a comparative discussion of JPMorgan Chase’s 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 81–83 of the JPMorgan Chase Annual Report on Form 10–K for the year ended December 31, 2005 (“2005 Annual Report”).

The following table presents the components of Total net revenue:

Total net revenue		Three months ended June 30,												Six months ended June 30,
(in millions)		2006				2005				Change				2006				2005				Change
Investment banking fees		$	1,370			$	961				43	%		$	2,539			$	1,954				30	%
Principal transactions			2,628				724				263				5,230				3,360				56
Lending & deposit related fees			865				851				2				1,706				1,671				2
Asset management, administration and commissions			2,933				2,416				21				5,782				4,786				21
Securities gains (losses)			(502	)			70			NM					(618	)			(752	)			18
Mortgage fees and related income			213				336				(37	)			454				698				(35	)
Credit card income			1,791				1,763				2				3,701				3,497				6
Other income			464				495				(6	)			1,018				693				47
Noninterest revenue			9,762				7,616				28				19,812				15,907				25
Net interest income			5,178				4,932				5				10,171				10,094				1
Total net revenue		$	14,940			$	12,548				19	%		$	29,983			$	26,001				15	%

Total net revenue for the second quarter of 2006 was up by $2.4 billion, or 19%, from the prior year. The increase was due to higher Principal transactions revenue, reflecting stronger performance in both Fixed Income and Equities trading, and a large realized gain from a single private equity investment. Also contributing to the increase were record Investment banking fees, growth in assets under management and custody, as well as an increase in brokerage transaction volume. These items were partly offset by higher securities losses related to the repositioning of the Treasury investment portfolio. For the first six months of 2006, Total net revenue was up by $4.0 billion, or 15%, from the prior year. The increase was primarily driven by the same aforementioned items with the exception of securities losses, which were lower than the losses in the first half of last year.

Record Investment banking fees of $1.4 billion in the current year’s second quarter and $2.5 billion in the first half of 2006 were up 43% from last year’s second quarter, and up 30% from the first six months of 2005. The results for the 2006 second quarter reflected record fees in equity and debt underwriting. For a further discussion of Investment banking fees, which are primarily recorded in the IB, see the IB segment results on pages 16–19 of this Form 10–Q.

Principal transactions revenue consists of realized and unrealized gains and losses from trading activities, including physical commodities inventories that are accounted for at the lower of cost or market, primarily in the Investment Bank, and Private equity gains (losses), primarily in the private equity business of Corporate. The significant increases from the second quarter and first half of last year were driven by higher Trading revenue, reflecting strong performance across essentially all Fixed Income products, and a recovery in Equities from both a weak 2005 second quarter and first half. Private equity gains increased from the second quarter of last year primarily as a result of a large realized gain from a single investment. In the first half of the year, Private equity gains were lower than the prior year reflecting two large gains realized in the first quarter of 2005. For a further discussion of Principal transactions, see the IB and Corporate segment results on pages 16–19 and 40–42, respectively, of this Form 10–Q.

Lending & deposit related fees rose slightly in comparison with the 2005 second quarter and year-to-date periods as a result of higher fee income on deposit-related products from growth in business volume. For a further discussion of deposit fees, which are partly recorded at RFS, see the RFS segment results on pages 19–26 of this Form 10–Q.

The increases in Asset management, administration and commissions for the second quarter and first half of 2006 were due to growth in assets under management and custody, driven by market value appreciation and net new business, higher performance and placement fees, as well as growth in securities lending and ADR revenues attributable to a combination of increased product usage by existing and new business. Commissions were higher than last year’s periods due to an increase in brokerage transaction volume across regions, partly offset by the sale of BrownCo. For additional information on these fees and commissions, see the segment discussions for the IB on pages 16–19, TSS on pages 33–36, and AWM on pages 36–39, of this Form 10–Q.

The variances in Securities gains (losses) for all periods were primarily a result of the impact of portfolio repositioning in connection with the Firm’s asset/liability management activities. For a further discussion of Securities gains (losses), which are primarily recorded in the Firm’s Treasury business, see the Corporate segment discussion on pages 40–42 of this Form 10–Q.

Mortgage fees and related income declined in comparison with the second quarter and first six months of 2005, primarily due to lower MSR risk management results, partially offset by an increase in production income reflecting higher gain-on-sale margins. For a discussion of Mortgage fees and related income, which is recorded primarily in RFS’s Mortgage Banking business, see the Mortgage Banking discussion on pages 24–25 of this Form 10–Q.

Credit card income increased from both the second quarter and the first half of 2005 primarily from higher customer charge volume that favorably impacted interchange income, and servicing fees, which benefited from growth in average securitized credit card loans and lower credit losses incurred on securitized credit card loans. These were partially offset by increases in volume-driven payments to partners, expenses related to reward programs, and interest paid to investors in the securitized loans. Credit card income was also negatively impacted by the deconsolidation of Paymentech.

The decrease in Other income from the second quarter of 2005 was partly from higher writedowns for loans held-for-sale and lower gains from loan workouts and loan sales. These items were partially offset by a gain of $103 million on the sale of MasterCard shares in its initial public offering. Other income for the first six months of 2006 increased due to the aforementioned gain from the sale of MasterCard shares in its initial public offering, higher equity investment income, in particular, from a merchant processing joint venture, and increased income from automobile operating leases.

Net interest income rose from the 2005 second quarter and first six months largely due to the improvement in the Corporate segment’s net interest spread, wider spreads on higher wholesale liability balances, and growth in volume of loans and consumer deposits. These increases were offset partially by narrower spreads on trading assets and consumer loans, as well as consumer deposits. The Firm’s total average interest-earning assets for the second quarter of 2006 were $1.0 trillion, up 13% from the second quarter of 2005, as a result of an increase in loans and other liquid earning assets. The net interest yield on these assets, on a fully taxable-equivalent basis, was 2.07%, a decrease of 18 basis points from the prior year. The Firm’s total average interest-earning assets for the six months ended June 30, 2006, were $975 billion, up 10% from 2005, as a result of an increase in loans and other liquid earning assets, partially offset by a decline resulting from the repositioning of Treasury’s investment portfolio during 2005. The net interest yield on these assets, on a fully taxable-equivalent basis, was 2.13%, a decrease of 19 basis points from the prior year.

Provision for credit losses
The Provision for credit losses was $493 million for the second quarter of 2006, $94 million lower compared with the prior year, primarily due to Card Services as a result of lower bankruptcy-related net charge-offs and the release of Allowance for loan losses relating to Hurricane Katrina. For the first half of 2006, the Provision for credit losses was $310 million higher than the first half of 2005; the wholesale provision increased by $706 million, offset by a decrease of $396 million in consumer. The wholesale increase, primarily in the IB, was due to the release of allowance for credit losses as a result of improvement in credit quality in the prior year. The decrease in consumer, mainly in Card Services, was due to lower bankruptcy-related net charge-offs and the release of Allowance for loan losses relating to Hurricane Katrina. The total net charge-off rate was 0.64% for the second quarter of 2006, compared with 0.82% in the prior year. The net charge-off rate for the first half of 2006 was 0.66%, compared with 0.85% for the same period in 2005. The improvements were primarily due to lower bankruptcies in Card Services. 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)		2006				2005				Change				2006				2005				Change
Compensation expense		$	5,268			$	4,220				25	%		$	10,816			$	8,874				22	%
Occupancy expense			553				572				(3	)			1,147				1,090				5
Technology, communications and equipment expense			876				891				(2	)			1,745				1,806				(3	)
Professional & outside services			939				1,115				(16	)			1,815				2,176				(17	)
Marketing			526				537				(2	)			1,045				1,020				2
Other expense(a)			631				2,808				(78	)			1,447				4,496				(68	)
Amortization of intangibles			357				376				(5	)			712				751				(5	)
Merger costs			86				279				(69	)			157				424				(63	)
Total Noninterest expense		$	9,236			$	10,798				(14	)%		$	18,884			$	20,637				(8	)%

(a)		Includes litigation reserve charges of $1,872 million in the second quarter of 2005 and $2,772 million in the first six months of 2005 related to the settlement of the Enron and WorldCom class action litigations and for certain other material legal proceedings. In the first six months of 2006, insurance recoveries relating to certain material litigation of $358 million were recorded, $98 million in the first quarter and $260 million in the second quarter.

Total Noninterest expense for the second quarter of 2006 was $9.2 billion, down by $1.6 billion, or 14%, from the prior year. The following items were included in the second quarter of 2006: insurance recoveries related to certain material litigation of $260 million, incremental expense of $106 million from SFAS 123R and $86 million of Merger costs; compared with the following in 2005: a material litigation charge of $1.9 billion and $279 million of Merger costs. Excluding these items from both quarters, Noninterest expense would have been up by $657 million. The increase was driven by higher performance-based compensation and acquisitions, partially offset by the deconsolidation of Paymentech, as well as merger-related savings and other operating efficiencies. For the first six months of the year, Noninterest expense declined by $1.8 billion, or 8%. The following items were included in 2006: $358 million of insurance recoveries related to certain material litigation, $565 million of incremental expense from SFAS 123R and $157 million of Merger costs; and in 2005: a material litigation charge of $2.8 billion and $424 million of merger costs. Excluding these items from both years, Noninterest expense would have been up by $1.1 billion. The increase was driven by higher performance-based compensation and acquisitions, offset partly by merger-related savings and other operating efficiencies.

The increases in Compensation expense from the second quarter and first half of 2005 were primarily the result of higher performance-based incentives, incremental expense of $106 million and $565 million for the three and six months ended June 30, 2006, respectively, related to SFAS 123R, and additional headcount in connection with investments in businesses. These increases were partially offset by merger-related savings and other operating efficiencies throughout the Firm. For a detailed discussion of the adoption of SFAS 123R and employee stock-based incentives, see Note 7 on pages 76–79 of this Form 10–Q.

Occupancy expense in the second quarter of the current year was down from the same quarter of last year due to merger-related savings and other operating efficiencies compared with a charge of $35 million in 2005 for excess real estate. This was offset partly by ongoing investments in the retail distribution network. On a year-to-date basis, occupancy expense increased from the investments in the retail distribution network, partly offset by merger-related savings and other operating efficiencies.

Technology, communications and equipment expense was lower in comparison with the second quarter and first six months of 2005, primarily the result of merger-related savings and other operating efficiencies, partially offset by higher depreciation expense related to owned automobiles subject to operating leases.

Professional & outside services decreased from the second quarter and first half of 2005 due to merger-related savings and other operating efficiencies, the settlement of several legal matters in 2005 and the Paymentech deconsolidation.

Other expense decreased from the second quarter and first six months of 2005 due to significant litigation-related charges in 2005, which were $1.9 billion in the second quarter and $900 million in the first quarter of 2005 associated with the settlement of the Enron and WorldCom class action litigations and certain other material legal proceedings. In addition, in the 2006 second and first quarters, the Firm recognized insurance recoveries of $260 million and $98 million, respectively, pertaining to certain material litigation matters. In the second quarter of 2005, Treasury & Securities Services incurred $93 million of charges in connection with the termination of a client contract, and in the first quarter of 2005, Retail Financial Services recorded a $40 million charge as a result of the dissolution of a student loan joint venture. These items were offset partially by the impact of growth in business volume and other investments.

For discussion of Amortization of intangibles and Merger costs, refer to Note 15 and Note 8 on pages 87–89 and 79, respectively, of this Form 10–Q.

Income tax expense
The Firm’s 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)		2006				2005				2006				2005
Income from continuing operations before income tax expense		$	5,211			$	1,163			$	9,775			$	4,350
Income tax expense			1,727				226				3,264				1,207
Effective tax rate			33.1	%			19.4	%			33.4	%			27.7	%

The increases in the effective tax rate for the second quarter and first six months of 2006, as compared with prior-year periods, were primarily the result of higher reported pre-tax income combined with changes in the proportion of income subject to federal, state, and local taxes. Also contributing to the increase in the effective tax rate were the litigation charges in 2005 and lower Merger costs, reflecting a tax benefit at a 38% marginal tax rate.

EXPLANATION AND RECONCILIATION OF THE FIRM’S 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 Firm’s results that can be tracked consistently from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.

In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s and the lines’ of business results on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the reported U.S. GAAP results and includes certain reclassifications that are adjusted to exclude credit card securitizations and present 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. Effective January 1, 2006, JPMorgan Chase’s presentation of “operating earnings” that excluded merger costs and material litigation reserve charges and recoveries from reported results has been eliminated. These items had been previously excluded from operating results because they were deemed non-recurring; they are now included in the Corporate business segment’s results. In addition, Trading-related net interest income is no longer reclassified from net interest income to trading revenue.

Card Services’ managed results excludes the impact of credit card securitizations on Total net revenue, the provision for credit losses, net charge-offs and loan receivables. This presentation is provided to facilitate the comparability to competitors. Through securitization, the Firm transforms a portion of its credit card receivables into securities, which are sold to investors. The credit card receivables are removed from the consolidated balance sheets through the transfer of the receivables to a trust, and the sale of undivided interests to investors that entitle the investors to specific cash flows generated from the credit card receivables. The Firm retains the remaining undivided interests as seller’s interests, which are recorded in Loans on the Consolidated balance sheets. A gain or loss on the sale of credit card receivables to investors is recorded in Other income. Securitization also affects the Firm’s Consolidated statements of income as the aggregate amount of interest income, certain fee revenue and recoveries that is in excess of the aggregate amount of interest paid to investors, gross credit losses and other trust expenses related to the securitized receivables are reclassified into credit card income. For a reconciliation of reported to managed basis of Card Services results, see page 30 of this Form 10–Q. For information regarding loans and residual interests sold and securitized, see Note 13 on pages 82–85 of this Form 10–Q. JPMorgan Chase uses the concept of “managed receivables” to evaluate the credit performance and overall financial 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 borrower’s credit performance will affect both the loan receivables sold under SFAS 140 and those not sold. Thus, in its disclosures regarding managed loan receivables, JPMorgan Chase treats 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. In addition, Card Services operations are funded, managed results are evaluated, and decisions are made about allocating resources such as employees and capital based upon managed financial information.

Total net revenue for each of the business segments and the Firm is presented on a tax-equivalent 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 uses certain non-GAAP financial measures at the segment level because it believes these non-GAAP financial measures provide information to investors in understanding the underlying operational performance and trends of the particular business segment and facilitate a comparison of the business segment with the performance of competitors.

The following summary table provides a reconciliation from the Firm’s reported U.S. GAAP results to managed basis:

Three months ended June 30,		2006
		Reported				Credit				Tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(a)				adjustments				basis
Revenue
Investment banking fees		$	1,370			$	—			$	—			$	1,370
Principal transactions			2,628				—				—				2,628
Lending & deposit related fees			865				—				—				865
Asset management, administration and commissions			2,933				—				—				2,933
Securities gains (losses)			(502	)			—				—				(502	)
Mortgage fees and related income			213				—				—				213
Credit card income			1,791				(937	)			—				854
Other income			464				—				170				634
Noninterest revenue			9,762				(937	)			170				8,995
Net interest income			5,178				1,498				47				6,723
Total net revenue			14,940				561				217				15,718
Provision for credit losses			493				561				—				1,054
Noninterest expense			9,236				—				—				9,236
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 (after-tax)			3,484				—				—				3,484
Income from discontinued operations (after-tax)			56				—				—				56
Net income		$	3,540			$	—			$	—			$	3,540
Earnings per share – diluted		$	0.99			$	—			$	—			$	0.99
Return on common equity			13	%			—	%			—	%			13	%
Return on equity less goodwill(b)			22				—				—				22
Return on assets			1.06			NM				NM					1.01
Overhead ratio			62			NM				NM					59

Three months ended June 30,		2005
		Reported				Credit				Tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(a)				adjustments				basis
Revenue
Investment banking fees		$	961			$	—			$	—			$	961
Principal transactions			724				—				—				724
Lending & deposit related fees			851				—				—				851
Asset management, administration and commissions			2,416				—				—				2,416
Securities gains (losses)			70				—				—				70
Mortgage fees and related income			336				—				—				336
Credit card income			1,763				(728	)			—				1,035
Other income			495				—				143				638
Noninterest revenue			7,616				(728	)			143				7,031
Net interest income			4,932				1,658				84				6,674
Total net revenue			12,548				930				227				13,705
Provision for credit losses			587				930				—				1,517
Noninterest expense			10,798				—				—				10,798
Income from continuing operations before income tax expense			1,163				—				227				1,390
Income tax expense			226				—				227				453
Income from continuing operations (after-tax)			937				—				—				937
Income from discontinued operations (after-tax)			57				—				—				57
Net income		$	994			$	—			$	—			$	994
Earnings per share – diluted		$	0.28			$	—			$	—			$	0.28
Return on common equity			4	%			—	%			—	%			4	%
Return on equity less goodwill(b)			6				—				—				6
Return on assets			0.34			NM				NM					0.32
Overhead ratio			86			NM				NM					79

Six months ended June 30,		2006
		Reported				Credit				Tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(a)				adjustments				basis
Revenue
Investment banking fees		$	2,539			$	—			$	—			$	2,539
Principal transactions			5,230				—				—				5,230
Lending & deposit related fees			1,706				—				—				1,706
Asset management, administration and commissions			5,782				—				—				5,782
Securities gains (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			19,812				(2,062	)			316				18,066
Net interest income			10,171				3,072				118				13,361
Total net revenue			29,983				1,010				434				31,427
Provision for credit losses			1,324				1,010				—				2,334
Noninterest expense			18,884				—				—				18,884
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 (after-tax)			6,511				—				—				6,511
Income from discontinued operations (after-tax)			110				—				—				110
Net income		$	6,621			$	—			$	—			$	6,621
Earnings per share – diluted		$	1.85			$	—			$	—			$	1.85
Return on common equity			12	%			—	%			—	%			12	%
Return on equity less goodwill(b)			21				—				—				21
Return on assets			1.03			NM				NM					0.98
Overhead ratio			63			NM				NM					60

Six months ended June 30,		2005
		Reported				Credit				Tax-equivalent				Managed
(in millions, except per share and ratio data)		results				card(a)				adjustments				basis
Revenue
Investment banking fees		$	1,954			$	—			$	—			$	1,954
Principal transactions			3,360				—				—				3,360
Lending & deposit related fees			1,671				—				—				1,671
Asset management, administration and commissions			4,786				—				—				4,786
Securities gains (losses)			(752	)			—				—				(752	)
Mortgage fees and related income			698				—				—				698
Credit card income			3,497				(1,543	)			—				1,954
Other income			693				—				258				951
Noninterest revenue			15,907				(1,543	)			258				14,622
Net interest income			10,094				3,390				145				13,629
Total net revenue			26,001				1,847				403				28,251
Provision for credit losses			1,014				1,847				—				2,861
Noninterest expense			20,637				—				—				20,637
Income from continuing operations before income tax expense			4,350				—				403				4,753
Income tax expense			1,207				—				403				1,610
Income from continuing operations (after-tax)			3,143				—				—				3,143
Income from discontinued operations (after-tax)			115				—				—				115
Net income		$	3,258			$	—			$	—			$	3,258
Earnings per share – diluted		$	0.91			$	—			$	—			$	0.91
Return on common equity			6	%			—	%			—	%			6	%
Return on equity less goodwill(b)			11				—				—				11
Return on assets			0.56			NM				NM					0.53
Overhead ratio			79			NM				NM					73

(a)		The impact of credit card securitizations affects Card Services. See pages 27–30 of this Form 10–Q for further information.
(b)		Represents net income applicable to common stock divided by total average common equity (net of goodwill). The Firm uses return on equity less goodwill, a non-GAAP financial measure, to evaluate the operating performance of the Firm. The Firm also utilizes this measure to facilitate comparisons to other competitors.

Three months ended June 30,		2006												2005
(in millions)		Reported				Securitized				Managed				Reported				Securitized				Managed
Loans – Period-end		$	455,104			$	66,349			$	521,453			$	416,025			$	68,808			$	484,833
Total assets – average			1,333,869				66,913				1,400,782				1,176,033				66,226				1,242,259

Six months ended June 30,		2006												2005
(in millions)		Reported				Securitized				Managed				Reported				Securitized				Managed
Loans – Period-end		$	455,104			$	66,349			$	521,453			$	416,025			$	68,808			$	484,833
Total assets – average			1,291,349				67,233				1,358,582				1,169,462				66,864				1,236,326

BUSINESS SEGMENT RESULTS

The Firm is managed on a line-of-business basis. The business segment financial results presented reflect the organization of JPMorgan Chase. Currently, there are six major reportable business segments: the Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services and Asset & Wealth 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 a further discussion of Business segment results, see pages 34–35 of JPMorgan Chase’s 2005 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 these results generally allocates income and expense using market-based methodologies. For a further discussion of those methodologies, see page 35 of JPMorgan Chase’s 2005 Annual Report. The Firm continues to assess the assumptions, methodologies and reporting reclassifications used for segment reporting, and further refinements may be implemented in future periods.

Business segment financial disclosures
Effective January 1, 2006, JPMorgan Chase modified certain of its financial disclosures to reflect more closely the manner in which the Firm’s business segments are managed and to provide improved comparability with competitors. These financial disclosure revisions are reflected in this Form 10–Q, and the financial information for prior periods has been revised to reflect the disclosure changes as if they had been in effect throughout 2005. A summary of the changes are described below.

Reported versus Operating Basis Changes
The presentation of operating earnings that excluded merger costs and material litigation reserve charges and recoveries from reported results has been eliminated. These items had been excluded previously from operating results because they were deemed nonrecurring; they are now included in the Corporate business segment’s results. In addition, trading-related net interest income is no longer reclassified from Net interest income to trading revenue. As a result of these changes, effective January 1, 2006, management has discontinued reporting on an “operating” basis.

Business Segment Disclosures
RFS has been reorganized into the following business segments: Regional Banking, Mortgage Banking and Auto Finance. For more detailed information on the RFS reorganization, see the RFS business segment discussion on page 19 of this Form 10–Q.

TSS firmwide disclosures have been adjusted to reflect a refined set of TSS products and a revised allocation of liability balances and lending-related revenue related to certain client transfers.

Various wholesale banking clients, together with the related revenue and expense, have been transferred among CB, the IB and TSS. In the first quarter of 2006, the primary client transfer was corporate mortgage finance from CB to the IB.

CB’s business metrics now include gross investment banking revenue, which reflects revenue recorded in both CB and the IB.

Corporate’s disclosure has been expanded to include Total net revenue and Net income for Treasury and Other Corporate segments.

Certain expenses that are managed by the business segments, but that had been previously recorded in Corporate and allocated to the businesses, are now recorded as direct expenses within the businesses.

Capital allocation changes
Effective January 1, 2006, the Firm refined its methodology for allocating capital to the business segments. As prior periods have not been revised to reflect the new capital allocations, certain business metrics, such as ROE, are not comparable to the current presentation. For a further discussion of the changes, see Capital Management – Line of business equity on pages 45 –46 of this Form 10–Q.

Discontinued operations
As a result of the pending transaction with The Bank of New York, certain of the corporate trust businesses have been transferred from TSS to the Corporate segment and reported in discontinued operations for all periods reported.

Segment results – Managed basis^(a)
The following table summarizes the business segment results for the periods indicated:

Three months ended June 30,		Total net revenue												Noninterest expense												Net income (loss)												Return on equity
(in millions, except ratios)		2006				2005				Change				2006				2005				Change				2006				2005				Change				2006				2005
Investment Bank		$	4,184			$	2,760				52	%		$	2,946			$	2,181				35	%		$	839			$	611				37	%			16	%			12	%
Retail Financial Services			3,779				3,799				(1	)			2,259				2,126				6				868				980				(11	)			24				30
Card Services			3,664				3,886				(6	)			1,249				1,383				(10	)			875				542				61				25				18
Commercial Banking			949				868				9				496				469				6				283				157				80				21				19
Treasury & Securities Services			1,588				1,417				12				1,050				1,090				(4	)			316				188				68				58				49
Asset & Wealth Management			1,620				1,343				21				1,081				917				18				343				283				21				39				47
Corporate(b)			(66	)			(368	)			82				155				2,632				(94	)			16				(1,767	)		NM				NM				NM
Total(b)		$	15,718			$	13,705				15	%		$	9,236			$	10,798				(14	)%		$	3,540			$	994				256	%			13	%			4	%

Six months ended June 30,		Total net revenue												Noninterest expense												Net income (loss)												Return on equity
(in millions, except ratios)		2006				2005				Change				2006				2005				Change				2006				2005				Change				2006				2005
Investment Bank		$	8,883			$	6,947				28	%		$	6,137			$	4,708				30	%		$	1,689			$	1,939				(13	)%			17	%			20	%
Retail Financial Services			7,542				7,646				(1	)			4,497				4,288				5				1,749				1,968				(11	)			25				30
Card Services			7,349				7,665				(4	)			2,492				2,696				(8	)			1,776				1,064				67				25				18
Commercial Banking			1,849				1,695				9				994				923				8				523				388				35				19				23
Treasury & Securities Services			3,073				2,723				13				2,098				2,054				2				578				387				49				49				51
Asset & Wealth Management			3,204				2,704				18				2,179				1,851				18				656				559				17				38				47
Corporate(b)			(473	)			(1,129	)			58				487				4,117				(88	)			(350	)			(3,047	)			89			NM				NM
Total(b)		$	31,427			$	28,251				11	%		$	18,884			$	20,637				(8	)%		$	6,621			$	3,258				103	%			12	%			6	%

(a)		Represents reported results on a tax-equivalent basis and excludes the impact of credit card securitizations.
(b)		Net income includes Income from discontinued operations (after-tax) of $56 million and $57 million for the three months ended June 30, 2006 and 2005, respectively, and $110 million and $115 million for the six months ended June 30, 2006 and 2005, respectively.

INVESTMENT BANK

For a discussion of the business profile of the IB, see pages 36–38 of JPMorgan Chase’s 2005 Annual Report.

Selected income statement data		Three months ended June 30,												Six months ended June 30,
(in millions, except ratios)		2006				2005				Change				2006				2005				Change
Revenue
Investment banking fees		$	1,368			$	965				42	%		$	2,538			$	1,950				30	%
Principal transactions			2,045				427				379				4,420				2,302				92
Lending & deposit related fees			134				146				(8	)			271				303				(11	)
Asset management, administration and commissions			550				413				33				1,102				822				34
All other income			3				252				(99	)			278				379				(27	)
Noninterest revenue			4,100				2,203				86				8,609				5,756				50
Net interest income			84				557				(85	)			274				1,191				(77	)
Total net revenue(a)			4,184				2,760				52				8,883				6,947				28
Provision for credit losses			(62	)			(343	)			82				121				(709	)		NM
Credit reimbursement from TSS(b)			30				38				(21	)			60				76				(21	)
Noninterest expense
Compensation expense			1,961				1,193				64				4,217				2,811				50
Noncompensation expense			985				988				—				1,920				1,897				1
Total noninterest expense			2,946				2,181				35				6,137				4,708				30
Income before income tax expense			1,330				960				39				2,685				3,024				(11	)
Income tax expense			491				349				41				996				1,085				(8	)
Net income		$	839			$	611				37			$	1,689			$	1,939				(13	)
Financial ratios
ROE			16	%			12	%							17	%			20	%
ROA			0.50				0.41								0.52				0.67
Overhead ratio			70				79								69				68
Compensation expense as % of total net revenue(c)			45				43								44				40
Revenue by business
Investment banking fees:
Advisory		$	352			$	359				(2	)		$	741			$	622				19
Equity underwriting			364				104				250				576				343				68
Debt underwriting			652				502				30				1,221				985				24
Total investment banking fees			1,368				965				42				2,538				1,950				30
Fixed income markets			2,037				1,428				43				4,030				3,724				8
Equity markets			528				72			NM					1,743				628				178
Credit portfolio			251				295				(15	)			572				645				(11	)
Total net revenue		$	4,184			$	2,760				52			$	8,883			$	6,947				28
Revenue by region
Americas		$	2,010			$	1,843				9			$	4,077			$	4,074				—
Europe/Middle East/Africa			1,747				554				215				3,794				2,089				82
Asia/Pacific			427				363				18				1,012				784				29
Total net revenue		$	4,184			$	2,760				52			$	8,883			$	6,947				28